Three complex flood insurance questions answered

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Question: We have a condominium with the attached Howsoever Caused Endorsement, and the insurance company is denying them flood coverage. They are not allowing this because it was not named a flood by Federal Emergency Management Agency (FEMA), although it was a national disaster.

There was so much rain due to Hurricane Maria that a creek near this condo overflowed, with water moving so fast it caused the land adjacent to the condo to settle down 17 feet, which undermined the foundation of the building and pilings. The fast moving water caused erosion.

Can you tell us the definition of ‘Howsoever’? The endorsement does not state that it has to be flood declared by FEMA.

— New York Subscriber

Answer: There is no requirement in the FEMA definition of flood, and even the National Flood Insurance Program (NFIP) form does not have such language. If the water was caused by a peril described in the definition, such as overflow of rivers, which is your situation, the loss should be covered.

Flood definition clarified

Question: A commercial endorsement defines “flood” as follows:

“A general and temporary condition of partial or complete inundation of two or more acres of normally dry land or of two or more properties (at least one of which is your property) from… Unusual or rapid accumulation or runoff of surface waters from any source.”

The insured had building water intrusion from surface runoff of less than two acres of water inundation of normally dry land. But another property not adjacent or contiguous — not directly connecting or neighboring but several properties away — also sustained dwelling loss by runoff of water from the same storm.

To qualify as flood, do the two properties that sustain damage need to be connected properties or directly next to each other?

— Texas Subscriber

Answer: Unfortunately, the definition does not make it clear whether the properties must be connected. Our inclination is that they do not need to be adjacent because the definition does not say so. However, that leaves a lot up to interpretation, such as how far away two properties can be to qualify?

We contacted FEMA for clarification, and they said, “The two or more properties and/or acres referenced in the definition of a ‘flood’ must be neighboring (contiguous) properties. The properties/acres may not be separated.”

Flood policy vs. DIC policy

Question: Our client has several buildings located in different parts of the country. One group of buildings had a flood loss last summer that damaged three buildings, personal property, and grounds. There were two policies in force: one, an NFIP flood policy with a $1,000 deductible, and the other a difference in conditions (DIC) policy, which has a $25,000 deductible. The flood adjuster applied the $1000 deductible separately to building and personal property, and paid a total of $14,593.78 ($20,593.78 ACV less $6,000 deductible). There was no coverage for much of the loss, which consisted of damage to the grounds including pumping creek water out of the outdoor swimming pool, and which amounted to nearly $30,000.

The adjuster for the DIC policy now seems to be applying the $25,000 deductible after he makes a deduction for both depreciation and the amount paid by the flood policy. But last year, when there was a package policy on the buildings with a $25,000 limit for flood, and the same DIC policy, the adjuster for a similar loss took into account the expenses not covered by the flood policy, like repair of grounds and cleanup of the pool, and did not adjust on an ACV basis. Are we missing something?

— Pennsylvania Subscriber

Answer: First, in regard to the loss to the land, unless the DIC policy states that it will cover land, the adjuster is probably correct in not including the expense to restore the grounds. However, having said that, a precedent was set in the previous loss adjustment and that may give you some negotiating power.

Second, the declarations page you furnished clearly states that valuation is on a replacement cost basis, not ACV. The adjuster should do an evaluation of the amount of loss based on replacement cost, and then make the necessary deductible subtraction.

Third, the DIC “other insurance” clause states that “if the other insurance is not sufficient to cover all of your loss, we will pay that amount in excess of the amount due from that other insurance, whether you can collect on it or not.” So, if the amount of the replacement cost less the ACV, which was paid by the flood insurer, is greater than the DIC $25,000 deductible, the insurer owes that amount. For example, say the replacement cost is actually $50,000, the DIC insurer owes $50,000 minus $25,000. This scenario illustrates a common use of DIC policies, and that is to serve as excess coverage. For example, if the insured purchased $250,000 insurance under an NFIP policy, a DIC policy could be written with a $250,000 deductible.

See also:

• As floods plague the Midwest, these 15 companies face the greatest exposure
• ‘Unprecedented flooding’ predicted for spring: Here’s how to prepare