What Does Commercial Flood Insurance Cover?

August 13, 2020

There are many different things that can impact the overall fate and performance of your business, ranging from fluctuations in the economy, to disruption in the industry from an outside upstart company, to – of course – something like what the global COVID-19 pandemic that has led to, and continues to cause, massive professional upheaval across all industries.

If you live in an area such as Manasquan, NJ, however, an additional factor that might negatively influence your business and your ability to keep your commercial operations going as intended, would be flooding.

It is no exaggeration to say that flooding has the potential to ruin your business, and can be an absolute disaster that – if not prepared for adequately, in advance – can throw up various insurmountable obstacles.

Flood insurance is vital for your business, if you are operating in an area where flooding is known to occur. A business which operates without commercial flood insurance only has the following options available after being the victim of a flood:

Pay recovery costs out of pocket, and accept and absorb the loss to the best of your ability.
Incur debt by borrowing money from the government to repair and restarting operations.
Close up shop – potentially permanently.

Clearly, none of these options are particularly favorable or desirable. Which means it’s important to get commercial flood coverage, and to understand what you can expect from a commercial flood policy.

Here’s a closer look at what you need to know about commercial flood insurance.

Standard Insurance Policies Don’t Cover Flood Damage

A standard Commercial Package Policy (CPP), or Business Owners Policy (BOP), will not cover flood damage.

Instead, standard commercial property insurance will typically cover water which comes from above – for example, a leaky roof, snow-melt, and perhaps specific instances of direct storm damage.

Water rising from below – such as from storm surges, or a rising river – will not be covered.

Instead, you will have to specifically seek out commercial flood cover in order to ensure that you are indemnified against flood damage.

Commercial Flood Insurance Protects Against Damage From Rising Water

Commercial flood insurance specifically insures property owners against water which comes from below, such as in the case of overflowing storm drains, rising rivers, or storm surges.

Commercial flood insurance will protect against these events, even if the flooding in question isn’t a federally declared disaster.

The general rule is that policies will consider water that covers a large area, or at least two separate properties, as a flood, and will reimburse accordingly for damage done to the property and business.

Commercial Flood Insurance Doesn’t Cover…

Commercial flood insurance doesn’t cover vehicles, equipment outside the building, and damage from earth movement

While commercial flood insurance will protect you against damage done to your main premises by the flood itself, there are typically several caveats.

The first of these is that policies will generally not cover property or equipment outside of your building – which often includes things such as septic systems, cisterns, and trees.

Likewise, commercial flood insurance policies will not indemnify you against damage done to your business vehicles as a result of the flood – although flood damage to your business vehicles will typically be something you can optionally insure against, in a comprehensive business vehicle insurance plan.

Flood insurance will typically also not cover damage which is caused as a result of earth movement, even if that earth movement itself was caused by a flood. Damage caused by sinkholes and mudflows, for example, will not generally be insured against in your policy.

How to Obtain Commercial Flood Insurance

Commercial flood insurance can be obtained either from FEMA’s National Flood Insurance Program (NFIP), or from private insurance.

It’s important to note, however, that although the NFIP offers flood insurance, you cannot purchase coverage directly from the federal government. Instead, you must purchase NFIP through an insurance professional.

It’s also important to remember that a commercial flood insurance policy only takes effect 30 days after purchase, meaning that you need to plan in advance and buy your policy at the soonest opportunity.

Once a flood alert has been declared in your area, it will be too late to purchase insurance if you don’t already have it.

Standard Flood Insurance Policy

Standard flood insurance policy is available for businesses which are located in areas with a high or undetermined risk of flooding.

Standard policies involve insuring the business and its contents separately, via two policies.

The NFIP offers up to $500,000 of coverage for the building, and then an additional $500,000 of coverage for the building’s contents, with deductible options up to $50,000.

These deductibles apply separately to the building and its contents (there will be two deductibles.)

The NFIP uses Actual Cash Value (ACV) as its loss settlement structure, with deductions from the value for the depreciation of the building and its contents.

Preferred Risk Flood Insurance Policy

The NFIP offers a preferred risk policy to businesses in areas zoned B, C, or X, and which have a low-to-moderate risk of flooding.

This policy insures both the building and its contents in a single policy (including one deductible.)

Preferred risk policies have the lowest cost of premiums available through NFIP, and you also have the option of reducing your coverage and insuring only the contents of your home.

Increased Cost of Compliance Coverage

Increased Cost of Compliance (ICC) coverage is included in most NFIP policies.

This coverage helps you to bring a previously flood-damaged structure up to current floor plan building standards.

Up to $30,000 will be provided to help with the cost of elevating, relocating, demolishing, or flood-proofing the building.

This will be in addition to the building claim; however, the total of the two claims combined cannot exceed $500,000.

What the NFIP Doesn’t Cover

The NFIP does not cover the following:

Building claims in excess of $500,000
Building contents claims in excess of $500,000
The cost of business disturbances or disruptions due to flood damage
The Actual Replacement Value of the building and its contents is not guaranteed