Flooding can cause a two-pronged hazard for owners of construction companies. Not only can water damage force you to replace expensive machinery and building materials, it can prevent you from taking on new contracts as homeowners rebuild. Attorney Bill Voss explores essential forms of insurance coverage that can help general contractors and construction businesses recover after a flood.
How Construction Companies Can Recover the Major Costs of a Flood
Many building companies are shocked to learn that flooding from a natural disaster is usually not covered under commercial insurance policies.
For this reason, you should strongly consider purchasing a policy under the National Flood Insurance Program (NFIP). These policies pay for flood damage due to hurricanes, rainstorms, and other natural causes of water buildup that can destroy or wash away your property.
If you don't have an NFIP policy, you may be able to make a claim under the specific provisions of your commercial property damage policy, including:
- Equipment breakdown coverage. This additional coverage is vital for businesses with expensive tools and machinery. If your business, outbuildings, or garages are flooded, you could lose heavy equipment ranging from bandsaws to backhoes. An equipment endorsement provides additional funds specifically to cover the expensive machinery you need to stay in business.
- Inland marine insurance. You won't be able to rebuild local homes and businesses if your materials in transit have been lost in a storm. Inland marine coverage pays to replace tools, lumber, custom orders, and other building materials traveling to or from your construction site.
- All-risk coverage. An all-risk property damage policy is a great way to ensure you are covered for unexpected events. These policies may be more expensive than standard coverage, but they provide a range of benefits such as payment for damage from utility interruptions or wind-driven rain.
- Performance bond coverage. If work on your current builds must be suspended until after flood cleanup and repair, a performance bond will protect you against losses in a breach of contract dispute.
- Commercial auto coverage. Any vehicles used for business purposes should be included on your commercial auto insurance policy. If your pickup trucks and trailers are listed only on a personal auto policy, you may be able to claim vehicle flooding damage under a comprehensive coverage option.
- Business interruption insurance. Business interruption coverage can make the difference between delayed operations and permanent closure. This insurance provides up to six months of lost income after a covered event, allowing you to keep the lights on and pay the bills during your recovery.
Remember: Make Sure The Work You Do Qualifies for FEMA Reimbursement
If you're being contracted to perform work for clients who are relying on funds from FEMA's Individuals and Households Program (IHP), you should know that FEMA has strict rules about what it will (and will not) pay for. Regardless of whether your contract is with a homeowner, small business, or a public entity, FEMA will only reimburse costs incurred to bring the property to a safe and sanitary condition.
If the client wants a full restoration of the property, you should discuss the limitations of FEMA grants with the owner before executing a contract. FEMA hires third-party inspectors to authorize reimbursements, and these inspectors will be carefully scrutinizing the materials used, the costs incurred, and the extent of repairs.
If the owner insists on specialty materials or upgrades (such as marble countertops or hardwood floors), you may want to add a clause in the contract requiring the owner to pay for any expenses FEMA doesn't approve—and that all work must be paid for within a certain period of time after the date of completion. Otherwise, you could be out-of-pocket for several months as the owner struggles to cover the difference—or be forced into litigation when the owner defaults on payment.
If your flood damage claim has been denied, a commercial insurance attorney at the Voss Law Firm can help you get the coverage you paid for. Simply fill out our contact form or start reading our free informative guide, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.