No matter what comes off your production line, your profits could be affected for years after a major weather event. Your meticulously-designed worksite, heavy machinery, and even the building itself can be ruined due to standing water—and your insurance coverage may fall far short of your losses. Attorney Bill Voss explores commercial flood coverage options and extensions for industrial and manufacturing operations, as well as how to protect against large losses.
Flood Coverage for Manufacturers Under NFIP
Private property damage insurers will usually limit the amount they provide for flooding due to rain or storm runoff, so all businesses located in coastal areas or floodplains should have flood insurance through the National Flood Insurance Program (NFIP). The NFIP can provide up to $500,000 for a commercial building and up to $500,000 to replace its contents, and may provide funds for cleanup costs. However, since the NFIP typically only pays actual cash value for losses, businesses at risk of flooding may need both private insurance and NFIP policies.
Flood Insurance Options for Manufacturing and Industrial Properties
When choosing the limits of a commercial insurance policy, you should consider the scope of your property, your business’s location, nature of the business, and overall property value. You may need to choose a policy specifically to cover flood damage, or include flooding from natural causes as a named peril on your existing business owner’s policy.
Once you have selected your flood insurance provider, you should consider policy limits and specific endorsements to can provide coverage for:
- Heavy equipment. Your policy limit may not provide enough coverage to pay for the replacement of specialized or heavy machinery, such as conveyors, presses and dies, and other electrical equipment that may be ruined by water intrusion.
- Inventory extensions. Basic property damage coverage will pay to replace lost completed inventory, but may not for half-completed projects or a loss of raw materials. Some insurers may offer a policy tailored specifically to your type of industry (such as food and beverage coverage or textile manufacturers’ insurance) that can more accurately serve your needs.
- Materials in transit. Flooding can affect whole counties, and cases of materials and products that are in transit between sites may be damaged. Inland marine insurance covers the loss of any products, materials, or machinery that are traveling to or from the insured location, such as molded components on their way to an assembly plant or refrigerated products that have spoiled in abandoned delivery trucks.
- Data loss. Flooding may cause the loss of paper records and electronic systems, while power surges can make it impossible to access financial data or customer information. Data loss coverage can pay for IT services to restore or retrieve important electronic data.
- Business closures or slowdowns. Suppliers and retailers may end their business relationships with manufacturers who are unable to meet quotas due to flood damage. Business interruption insurance provides an amount to replace lost income for up to six months after an adverse event occurs, allowing owners to cover expenses while production is suspended for repairs.
- Seasonal losses. If your operation produces products that are in demand at a certain time of year, seasonal insurance can replace profits lost as a result of a flood during the busy season.
- Unforeseen costs. Flooding will often result in large losses that can force owners to contemplate closing operations for good. Umbrella coverage and extra expense coverage both offer an additional layer of protection, providing payment above and beyond the amount of the policy if the policy limit has been reached. Extra expense coverage can help owners pay employee salaries, relocation and travel expenses, rental of a secondary location, provide additional payment for repair costs.
If you are having trouble getting the insurance coverage you paid for after a flood, the Voss Law Firm can help. Simply fill out the form on this page to get your questions answered by an insurance attorney, or learn more about filing a claim in our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.