You may have purchased property damage insurance to protect your office building from fires and vandalism, but if you don’t have adequate flood coverage, prolonged rain can mean the total loss of your investment. Attorney Bill Voss examines the different types of flood coverage and how property owners can select options to protect their commercial office space.
Flood Damage to Commercial Buildings Under the NFIP
The first thing you should understand about commercial property damage policies is that they usually do not cover weather-related flooding. Flooding from a natural disaster is typically only compensable through the federal government’s National Flood Insurance Program (NFIP).
While these policies are a necessity for building owners, these kinds of claims can quickly run into problems, including:
- Cause of damage disagreements. Flooding may or may not be covered depending on the exact nature of the damage, especially if the property was struck by multiple perils in a short space of time. For example, if high winds tore the roof off of the structure and allowed rainwater to enter, NFIP adjusters may shift the claim to your windstorm insurance policy (through the Texas Windstorm Insurance Association or a private insurer).
- Actual cash value. NFIP policies may only pay actual cash value for the structure and its contents, leaving the owner out-of-pocket for any depreciation on the property. In addition, these policies still have deductibles that must be met before the claim will be paid.
- Loan repayment. NFIP provides both insurance coverage and federal disaster loans, and it is important to understand the terms of each before you borrow more than you can pay back.
How to Protect Your Office Building From Flood Damage
In addition to your NFIP policy, you should invest in commercial property damage insurance that specifically covers flood protection. The policy should cover internal flooding (from burst water pipes), water intrusion (from a leaking roof), and natural disasters (such as flooding in the aftermath of a hurricane). This additional coverage may be costly, but can be invaluable when a storm costs millions in losses—especially for businesses along the Texas coast.
In addition to covering flood risks under multiple policies, office building owners can also head off flood damage costs by:
- Inspecting walls and basements regularly. If your business is on or has a lower level, it is a good idea to schedule inspections every six months to ensure that there are no cracks or damage that could lead to water intrusion. If the structure is new, owners may invest in preventive flood-proofing measures, such as wraps, caulking, or waterproof sprays. For older buildings, owners should consider paying the extra cost of ordinance and law coverage, which will cover the costs of bringing a damaged property up to current building codes and local construction ordinances after a flood.
- Knowing what is and what is not covered under your private flood insurance. Even if you have a specific flood policy, not all losses related to the flood will automatically be covered. In addition to structural damage and inventory losses related to flooding, coverage should pay for the cost of drying and dehumidifying, mold and debris removal, boiler replacement, and cleaning HVAC equipment.
- Selecting cost replacement endorsements. There are many different policy endorsements that offer extra protection against a covered loss, and each one should be considered carefully. One of the best policy enhancements is business income loss, which covers your company's net profits, payroll, and regular expenses for a set period of time after an adverse event. This endorsement also offers extra expense coverage, which can be used to rent temporary office space, cover construction costs, and reimburse other costs stemming from a covered event. Finally, seasonal insurance can replace lost income from your busy season or a certain portion of the year when profits are highest. However, none of these endorsements will apply unless you have specifically included flooding as a covered event for each one.