Excess Flood Insurance – The Antidote to a Potential E&O Claim
Hurricane season may be a time for insurance agents to evaluate what efforts they expended to maximize their clients’ insurance protection against damage from the natural elements.
Fire and theft are a great concern during and after a hurricane, but wind and water remain the primary perils.
Tropical Storm Allison spilled out 38 inches of rain in 2001, and losses totaled more than $5 billion. During Hurricane Katrina in New Orleans, 200,000 homes were destroyed by breaches in the levees as a result of heavy rains. Mississippi River floods in April and May 2011 were among the largest and most damaging recorded along the U.S. waterway in 100 years.
National Flood Insurance Program (NFIP) note that, during the term of a 30-year mortgage, a property owner is 26 times more likely to suffer flood damage than fire damage. Also, 12 inches of water in a building can cause $40,000 to $60,000 in damage.
Agents in coastal counties and throughout Florida have clients requesting flood coverage that exceeds the available NFIP limits.
Presently the maximum building limits are $250,000 for residential insureds and $500,000 for commercial entities. Until the late 1980s, excess coverage was obtained primarily through a Difference In Conditions (DIC) policy. More recently, several private insurers have begun to offer excess coverage over the NFIP limits.
Excess flood coverage provides needed protection over the primary limits offered by NFIP. It serves to extend the current coverage and conditions of the primary NFIP policy.
Excess flood coverage presently is available for all flood zones and all counties of Florida eligible for NFIP coverage.
In recent years, coverage for additional living expense has become available. At closing, many mortgage companies are requiring excess cover because of its availability. Buildings that are primary residences and insured for 80% or more of their replacement value or the maximum limit available from NFIP will qualify for replacement cost coverage under their NFIP policies.
Excess flood policies will carry the same replacement cost coverage with out a coinsurance limit.
Another replacement cost provision in the primary flood policy is that the home owner must live at the
residence 80% of the calendar year or 80% of the time of ownership if less than one calendar year immediately preceding a loss. A non-primary residence or commercial property is written on an actual cash value (ACV) basis.
For condominium associations, NFIP will allow each building to be covered up to $250,000 per unit. For example, a 20-unit building can acquire only a total of $5 million of coverage. If the building value exceeds $5 million, then excess cover age can be obtained via an excess flood policy.
Agents should be aware that excess coverage is available in addition to primary flood coverage. This represents an opportunity for agents to discuss excess flood coverage with their clients and present a quote for the client to review. If a client declines the excess coverage, the agent can document the refusal and thus have a strong defense in the event of an E&O claim. Certain required information is essential to the quoting process.
Usually an excess flood application, along with a copy of the current primary flood declarations page, is all that is necessary. In some cases a copy of
the elevation certificate also is needed.
For properties that are not eligible for the federal flood program or that are in a community that does not participate in the NFIP, there is CBRA, Coastal Barrier Resource. This is primary flood coverage underwritten by the private sector where the property is located in CBRA zones.
Sr. Vice President
About the Author: Guy Waters began his insurance career in 1978 as a retail agent in Clearwater, Florida, with the firm Alley, Rehbaum & Capes (ARC). While with ARC, he was made partner and responsible for personal sales production and agent development. In 1991, along with Don Waters and Bill Waters, he started Clearwater Underwriters, Inc. (CUI), an excess and surplus lines agency that works with retail agents to place various property and GL lines.