Summary: The Insurance Services Office (ISO) provides the Flood Coverage Endorsement, CP 10 65 10 12, that can be attached to a property coverage form to provide a certain amount of flood coverage for the insured. This endorsement may be used as a layer of coverage above that provided by an underlying flood policy—one issued through the National Flood Insurance Plan (NFIP), or, subject to insurer agreement, it may offer first dollar flood coverage. Unlike the NFIP policy, this ISO endorsement provides for actual cash value, replacement cost, or functional replacement depending on the coverage of the underlying policy. This ISO endorsement applies to the covered property and coverages for which a flood limit of insurance is shown in the flood coverage schedule or in the declarations.

Topics covered:

Additional covered cause of loss

Exclusions, limitations, and related provisions

Additional coverage and coverage extensions

Coinsurance

Limit of insurance

Deductible

Other insurance

Additional Covered Cause of Loss

The Flood Coverage Endorsement, CP 10 65 10 12, provides an additional covered cause of loss that is added to the covered causes of loss section of the commercial property causes of loss forms—flood.

Flood is defined as a general and temporary condition of partial or complete inundation of normally dry land areas due to several factors: the overflow of inland or tidal waters, the unusual or rapid accumulation or runoff of surface waters from any source, or mudslides or mudflows that are caused by flooding. For the purposes of this covered cause of loss, a mudslide or mudflow involves a river of liquid and flowing mud on the surface of normally dry land areas as when earth is carried by a current of water and deposited along the path of the current.

The endorsement states that all flooding in a continuous or protracted event will constitute a single flood.

The term flood is defined in a fairly understandable way and it is clear that all flooding, even one that lasts several days or weeks and continues to wreak havoc is supposed to be considered one flood, that is, one loss.

Exclusions, Limitations, and Related Provisions

The exclusions, limitations, and related provisions part of CP 10 65 modifies some commercial property exclusions and limitations and adds exclusions specifically pertaining to flood claims.

This section states that the exclusions and limitations sections of the causes of loss form and the exclusions section of the Mortgageholders Errors and Omissions Coverage form and the Standard Policy apply to the coverage provided by CP 10 65 except when modified by the provisions that follow in this section of the endorsement.

If part of the water exclusion conflicts with the coverage provided by the endorsement, that part of the water exclusion does not apply. Likewise, if a tsunami causes the overflow of tidal waters, the earthquake portion of the earth movement exclusion does not apply. The ordinance or law exclusion continues to apply with respect to any loss under the coverage part, including losses under the endorsement, unless an ordinance or law coverage endorsement is added.

The endorsement adds the following exclusions:

1. The insurer will not pay for any loss or damage caused by or resulting from any flood that begins before or within seventy-two hours after the inception date of this endorsement. If a particular location was insured under another policy for at least seventy-two hours prior to the inception date of the endorsement, and that coverage was replaced by this endorsement, the limitation does not apply. If the insured requests an increase in the flood limit of insurance during the term of the policy, with exception to a request for increase at the time of renewal, the increase will not apply to damage caused by a flood beginning before or within seventy-two hours after the request is made.

In the 2012 commercial property revisions, ISO made the distinction for renewal policies, waiving the seventy-two-hour waiting period when the prior policy included flood coverage and the policy periods are consecutive, and when a policy limit increase is executed at the time of renewal.

If the flood is due to the overflow of inland or tidal waters, then the flood is considered to begin when the water first overflows its banks.

2. The insurer will not pay for loss or damage caused by or resulting from destabilization of land arising from the accumulation of water in subsurface land areas. This endorsement will not apply to sinkhole damage or collapsing hillsides if caused by water accumulating under that land.

3. Since land and the cost of excavations, grading, backfilling, or filling are not covered, the endorsement does not include coverage for the cost of restoring or remediating land due to the collapse or sinking of land caused by or resulting from flood. Coverage is included for damage to covered portions of the building and covered personal property caused by collapse or sinking of land along the shore of a body of water as a result of erosion or undermining caused by waves or currents of water exceeding cyclical levels and causing flood.

4. The insurer will not pay for loss or damage by flood to personal property in the open, except to the extent that such coverage, if any, is specified in the flood coverage schedule or in the declarations. If the insured wants flood coverage for his personal property that is outside the building, in the open, he must put that intent in writing in the declarations or in the flood coverage schedule. This way, there should be no confusion or disputes over whether some item is to be covered for flood damage.

5. The endorsement amends the property not covered section of the underlying policy to include buildings or other property that is not eligible for flood insurance under the Coastal Barrier Resources Act. Property not covered also includes boat houses and open structures and any property on or in them if the structure is located on or over a body of water. Bulkheads, pilings, piers, wharves, docks, and retaining walls are generally listed as property not covered on commercial property forms. If they are added as covered property by a separate endorsement, the Flood Coverage Endorsement does not apply to this type of property. The endorsement removes foundations below the lowest basement floor or the subsurface of the ground and underground pipes, flues, and drains from property not covered, making them covered property under the endorsement.

6. Loss and damage caused by the discharge of water or waterborne material from a sewer, drain, or sump—unless the discharge results from flood and occurs within seventy-two hours after the flood recedes—are not covered.

Additional Coverages and Coverage Extensions

With respect to flood coverage, the debris removal additional coverage (and any additional limit for debris removal under a limit of insurance clause or an endorsement) is not applicable and is replaced by the following coverage information.

The insurer will pay the named insured's expenses to remove debris of covered property and other debris that is on the described premises when such debris is caused by or results from flood. However, the insurer will not pay to remove deposits of mud or earth from the grounds of the described premises. So, if the force of the flood deposits parts of the covered building or personal property from inside the building all over the insured premises, this endorsement will pay to remove those items.

Furthermore, if the covered property has floated or been hurled off the described premises by the power of the flood, CP 10 65 will also pay the expense to remove such debris.

The coverage for debris removal does not increase the applicable limit of insurance for flood coverage. So, the most the insurer will pay for the total of debris removal and loss or damage to covered property is the limit of insurance for flood that applies to the covered property at the affected described premises covered under this endorsement; the expenses for debris removal are not in addition to the declared flood limit of insurance.

The endorsement also amends coverage extension for newly acquired or constructed property. The coverage extension does not apply to any building or structure that is not fully enclosed by walls and roof; that is, buildings under construction can be excluded from coverage if they are not fully enclosed at the time of the flood. Moreover, the most the insurer will pay for this coverage extension is 10 percent of the total of all limits of insurance for flood coverage as provided under this endorsement. Such coverage does not increase the limit of insurance for flood.

As a catch-all statement, the final clause in this part of CP 10 65 declares that, with respect to any applicable additional coverages and coverage extensions in the property coverage form, any amounts payable under such provisions do not increase the limit of insurance for flood. The declared flood limit of insurance is the limit, period.

Coinsurance

The coinsurance provision in the property coverage policy applies to the coverage provided by CP 10 65 unless the no-coinsurance option in the flood coverage schedule or in the declarations is specified as being applicable.

Also, various coverage extensions in the property coverage policy require coinsurance. If the no-coinsurance option applies, then the coinsurance requirement for such coverage extensions is eliminated.

Limit of Insurance

Flood coverage may be written at a limit of insurance that is equal to or less than the limit of insurance that applies to other covered causes of loss. The chosen limit of insurance for flood is shown in the flood coverage schedule or in the declarations. However, if the limit is not shown, the limit applicable to fire loss also applies to flood loss.

The limit of insurance for flood is the most the insurer will pay in a single occurrence of flood for loss or damage caused by the flood. If there is more than one flood in a twelve-month period, the most the insurer will pay for the total of all loss or damage sustained during that period of time is the amount identified as the annual aggregate for flood as shown in the flood schedule or the declarations. If the limit of insurance and the annual aggregate amount are the same, or if there is no amount stated as an annual aggregate, then the limit of insurance is the most the insurer will pay for the total of all loss or damage caused by the flood in a twelve-month period. This is so even if there is more than one occurrence of flood during that period of time. Thus, if the first flood does not exhaust the applicable limit of insurance, then the balance of that limit is available for a subsequent flood.

If a single occurrence of flood begins during one annual policy period and ends during the following annual policy period, any limit of insurance or annual aggregate applicable to the following annual policy period will not apply to that flood. In other words, there is no accumulation of limits over separate policy periods even if the flood overlaps two separate policy periods.

In the event of a covered ensuing loss (for example, a loss caused by fire), that results from the flood, the most the insurer will pay for the total of all loss or damage caused by the flood and the ensuing loss is the limit of insurance applicable to the fire loss limits. So, the insurer will not pay the sum of the flood limits and the fire limits.

This ensuing loss situation is explained in CP 10 65 by way of two examples. Both examples use the following facts: the causes of loss coverage is the basic form and CP 10 65; a building is damaged by flood and by fire caused by the flood; the value of the damaged building is $1,000,000. The limit of insurance applicable to the building, for the basic causes of loss, is $800,000. The limit of insurance for flood is $400,000. The flood deductible is $5,000. (These examples do not address the situation where another policy also covers the flood damage.)

In example one, the damage due to flood is $500,000 and the damage due to fire is $500,000. Payment for flood damage is $400,000 ($500,000 damage minus $5,000 flood deductible equals $495,000, but the limit of insurance is $400,000). Payment for the fire damage is $400,000 ($500,000 damage capped at the difference between the basic limit and the flood limit). So, the total loss payment is $800,000.

In example two, the damage due to flood is $800,000 and the fire damage is $100,000. Payment for flood damage is $400,000 ($800,000 damage minus $5,000 flood deductible equals $795,000 but flood limit is $400,000). Payment for fire damage is $100,000 (the amount of damage). And the total loss payment is $500,000.

Deductible

The deductible for coverage provided under CP 10 65 is the deductible shown in the flood coverage schedule or in the declarations. The insurer will not pay that part of the loss that is attributable to any deductible in the National Flood Insurance Program (NFIP) policy. And, if the flood results in another covered cause of loss and if both covered causes of loss cause loss or damage, then only the higher deductible applies; so, only one deductible is going to apply to the combination loss.

Other Insurance

The other insurance condition in the commercial property forms is replaced by the clauses in CP 10 65.

The CP 10 65 other insurance clauses begin with a reference to the National Flood Insurance Program (NFIP). If the flood loss is also covered under an NFIP policy (or if the property is eligible to be written under an NFIP policy but there is no such policy in effect), then the insurer will pay only for the amount of loss in excess of the maximum limit that can be insured under that policy. This provision applies whether or not the maximum NFIP limit was obtained or maintained and whether or not the named insured can collect on the NFIP policy. The insurer declares it will not, under any circumstances, pay more than the applicable limit of insurance for flood as stated in the schedule or declarations.

However, this provision does not apply under certain circumstances.

The provision does not apply if, at the time of loss, the property is eligible to be written under an NFIP policy but such policy is not in effect due solely to the ineligibility of the property at the time CP 10 65 was written. Also, the provision does not apply if the NFIP policy is not in effect because the insurer has agreed to write the flood coverage with CP 10 65 without underlying NFIP coverage; there is such an agreement only if the flood coverage schedule or the declarations indicate that the underlying insurance waiver applies.

If there is other insurance coverage for the loss (other than that previously described), the insurer will pay its share of the loss. This share is the proportion that the applicable limit of insurance under CP 10 65 bears to the total of the applicable limits of insurance under all other such insurance.