(December 2019)
This endorsement is used with Insurance Services Office (ISO) OP 00 01–Capital Assets Program Coverage Form (Output Policy). Flood is a specifically excluded cause of loss. This endorsement covers flood by specifically describing the types of water damage it covers in addition to modifying the water exclusion. It contains numerous exceptions and deviations from the basic coverage form that affects the coverage provided and this analysis examines them.
This analysis is of the
04 13 edition. Changes from the 07 02 edition are in bold print.
This schedule is used with OP 10 04–Flood Coverage. It contains the following information:
Inception Date of
Flood Coverage Endorsement
Coverage does not apply to a flood that begins before or within 72 hours after the date entered in the space provided.
Note: This limitation is explained in the flood endorsement.
Description of
Scheduled Location(s)
The location(s) covered are entered and/or described in the space provided.
Description of
Business Personal Property in the Open If Covered For Flood
Property in the open that is to be covered for flood must be described in the space provided.
Flood Deductible
The deductible amount that applies to loss or damage caused by or that result from flood is entered in the space provided.
No-Coinsurance Option
The coinsurance percentage on the declarations applies to this coverage if it is written subject to coinsurance. However, coinsurance is waived and does not apply if this option is selected.
Other Flood Insurance
(If Any)
If any underlying flood insurance is written that applies to the risk, the insurance company's name and the policy number must be listed.
Coverage the National Flood Insurance Plan (NFIP) provides is primary.
Underlying Insurance
Waiver
The Underlying Insurance Waiver box must be checked if there is no underlying flood coverage. If the waiver is to apply to only specified locations, they must be listed. The waiver applies to all locations if no locations are listed. (04 13 addition)
Note: This verifies that the insurance company has waived the requirement that NFIP be primary.
Annual Aggregate
Limit–Flood Coverage Endorsement
The annual aggregate limit for flood coverage is entered in the space provided.
Flood Limit of
Insurance–Single Occurrence
This is the limit that applies in a single occurrence.
Blanket Limit
The coverage(s) that the flood blanket limit applies to must be selected. The options available are:
This limit is the total the insurance company pays for all loss or damage to covered property/coverage at the scheduled locations, subject to the provisions of this endorsement.
Separate Limits
If there is a separate limit of insurance for a specific covered property/coverage in this section, the blanket limit does not include that covered property/coverage.
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Example: Tom Tinker has ten locations. Five are included in the flood blanket limit of $9,000,000 and the others are covered on a scheduled basis. A flood occurs, Tom discovers that the limit at one of the scheduled locations is inadequate to cover the amount of loss, and he decides to claim the blanket coverage limit. The insurance company denies his request because a specified location with its own limit cannot collect from the blanket limit. |
To fully understand the coverage provided, the water exclusion in the policy must be reviewed thoroughly and carefully. Here’s an excerpt of the analysis of that from the PF&M Capital Assets Program Coverage Form Analysis:
g. Water
Loss or damage caused by the action of water outside the building is
excluded. This exclusion breaks down into five separate sections to make it clearer.
(1) Flood is excluded. Flood is surface water,
tides, tidal water, and waves. Waves include tidal waves and tsunami. The overflow of any body of water is also
excluded. A body of water is a natural or man-made river, creek, ocean, or
lake. Spray from any of the above, wind-driven water, and storm surge are also
excluded.
(2) Mudslide and mudflow occur when a sudden large volume of water mixes with unstable soil
conditions and is excluded.
(3) There is no coverage when water discharges
in any way from a sewer, drain, sump, or sump pump. There is also no coverage
if the discharge is from related equipment. Related equipment is not defined.
Examples of discharge are back up and overflows, but the term is not limited to
just these.
(4) Water saturated ground can create
hydrostatic pressure against a building's surface or subsurface portions. Loss
or damage caused by or that results from such water that enters through
foundations, walls, floors, paved surfaces, basements, doors, windows, and
other building openings is excluded.
(5) Damage caused when waters described in (1), (3), and (4) above carry
waterborne material is excluded. Coverage also does not apply when the damage
is caused when such material is moved or carried by mudslides or mudflow
described in (2) above.
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Example: A storm surge picked up part of the
boardwalk and threw it in Sassy’s Salty Taffy’s display window. There is no
coverage for the damage to the window or for the damage to her contents. |
ISO adds a paragraph that explains that this
entire exclusion applies whether any of the events are caused by an act of
nature or otherwise. In order to clarify the term "otherwise," ISO
provides an example that uses the terms “dam,” “seawall,"
"levee," "boundary" or "containment system" and
states that any of them failing to contain the water is an
"otherwise" type situation. However, it is important to note that
using this example format does not limit the exclusion to only those specific
items failing. The goal is to define the term "otherwise" as broadly
as possible.
Much
like other exclusions, if fire or explosion occurs because of any action
of water, coverage applies to the loss or damage the fire or explosion causes.
In addition, if a sprinkler leakage loss occurs due to these actions of water,
coverage applies to the loss or damage the sprinkler leakage causes. Sprinkler
leakage coverage applies only if OP 00 01 includes sprinkler leakage as a
covered cause of loss.
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Example: Sassy’s Salty Taffy loss gets worse. This
is because sparks flew as cooking areas were disrupted when the storm surge
entered the store. Gas lines were broken at the same time and an explosion
occurred. Coverage applies to all damage that can be clearly identified as
caused by the fire and explosion. |
This exclusion does not apply to accounts
receivable, computers, property on exhibition, fine arts, mobile equipment,
property in transit, salespersons samples, or valuable papers and records.
Related Article: OP 00 01–Capital Assets Program Coverage Form (Output Policy) Analysis
This endorsement applies to only covered property and coverages that are described on the OP DS 03 and for which a limit is provided.
The Capital Assets Water Exclusion analysis provided above is a reminder that this endorsement does not eliminate the Water Damage exclusion. Instead, specific coverage is granted. When the coverage granted and the exclusion conflict, the coverage granted overrides. Therefore, it is very important to compare the coverage provided by this endorsement with the Water exclusion. The coverage provided by this endorsement form addresses parts of items (1) and (2) but does not cover any of items (3), (4) or (5). In particular, note that the waterborne material item remains intact so that even if a water event is covered by this endorsement, damage due to waterborne material from that flood remains uncovered.
The endorsement defines the covered flood cause of loss as a general and temporary condition where normally dry areas are partially or totally submerged. This condition can be due to any of the following:
The endorsement explains that a mudslide or mudflow must involve liquid and flowing mud. This mud must travel over land that is normally dry. A mudslide or mudflow is like a current of water carrying earth that it deposits along the path over which the current is moving.
Note: The definition of mudslide and mudflow in this endorsement is not the same as the definition of mudslide and mudflow in the water exclusion.
This endorsement uses the term single flood. It is defined as all flooding in a continuous or extended event. This is important because the limit of insurance applies only once for a single flood.
1. All exclusions and limitations in the policy apply to this endorsement's coverage except as stated in paragraphs 2. and 3. below.
2. Any part of the Water exclusion that conflicts with this endorsement's coverage does not apply.
3. The earthquake part of the earth movement
exclusion does not apply for only loss or damage resulting from a tsunami
caused a tidal wave.
4. This endorsement has six additional exclusions and limitations:
a. Coverage does not apply if a flood begins within 72 hours after the time it is purchased. This limitation does not apply when the policy is a renewal of an existing policy with flood coverage as long as there was no break in coverage between the expiring policy and the renewal policy. (04 13 addition)
In addition, any increase in limits made fewer than 72 hours prior to a flood event do not apply to any flood loss or damage caused by that particular flood event. The only exception is an increase in limits due to renewing the policy. (04 13 addition)
A flood event due to the overflow of inland waters begins when the water
first breaks out of its banks.
Note: This exclusion is very important because it prevents individuals who know that a flood event is occurring or will be occurring shortly from purchasing flood coverage and then canceling it afterward.
b. Coverage does not apply to loss or damage caused when water beneath the surface destabilizes the earth above it.
c. Both the policy and the endorsement treat land as Property Not Covered. The costs of grading, excavating, filling, and backfilling are also not covered except when such grading, excavating, filling, or backfilling is required in order to repair or replace covered property.
This means that the cost to restore or remediate land that collapsed or sank because of flood is not covered except when such cost is needed to repair or replace covered property. Another exception is when covered buildings and/or business personal property are damaged because the land along the shore of a body of water collapses or sinks because of flood-related erosion.
Note: The land itself is still excluded. Only the damage to the building and business personal is covered.
d. Loss or damage caused by flood to business personal property in the open is excluded unless specifically listed as covered on the schedule or the declarations.
e. These properties are considered Property Not Covered but only for Flood Coverage:
f. Loss or damage
caused by or that results from sewer backup or overflow is excluded. However,
there is coverage if the backup or overflow is due to a flood and takes place
within 72 hours of the flood receding.
1. With respect to Flood Coverage, the Debris Removal Additional Coverage in the policy does not apply. The following replaces it:
a. The costs to remove debris of covered property and other types of debris at a covered location are covered but only for the debris from the flood. Expenses to remove mud from the grounds of the location are excluded.
Note: Using the word grounds suggests that the expense to remove mud from inside buildings and structures is covered.
b. Expenses to remove covered property that floated away or that flood swept away from the location are covered.
c. Debris Removal
Coverage does not increase the limit of insurance that applies to flood.
Note: Because cleanup is a major part of most flood losses, this coverage is very important. However, this coverage does not provide additional limits. The debris removal is part of the flood limit of insurance. As a result, it is very important to have a limit that is high enough to cover both the potential flood damage and any cleanup and retrieval expenses.
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Example: Promotion Enterprises has a $4,000,000 blanket flood limit on the building and its business personal property. The river overflows its banks during heavy spring rains. A shed from a property upriver washes up on Promotion's property while one of Promotion's sheds and some outdoor equipment winds up on somebody else's property further downstream. The main building is not structurally damaged but is filled with mud and leftover debris. All business personal property is damaged, but most can be cleaned and reused. The claim is as follows:
Coverage applies as outlined above but payments end when the $4,000,000 limit is used up. |
2. This extension applies only if OP 14
01–Scheduled Location is attached.
Note: It is not needed when OP 14 01 is not
attached because OP 00 01 automatically covers newly acquired property.
a. Flood coverage extends to apply to Newly Acquired or Constructed Property that is a part of OP 14 01. However, it applies to only buildings or structures that are fully enclosed by walls and a roof.
b. The limits in the policy do not apply to flood coverage.
Instead, 10% of the total of all flood coverage limits in this endorsement
provides is available for loss or damage to newly acquired or constructed
property as described in
OP 14 01. This coverage is part of the flood limit on the schedule, not in
addition to it.
3. The flood limit of insurance is not increased by any additional coverage or extension in the policy. The only exceptions are as described in paragraphs 1. and 2. above.
Note: This statement is odd because neither of the listed
paragraphs provides any increase in the
flood limit of insurance.
Note: It is important to remember that the
coinsurance condition in the coverage form applies to only business income and
extra expense coverage. The OP 14 01–Scheduled Location endorsement contains a
coinsurance condition that applies to direct damage loss, but this section does
not make reference to that.
1. If a coinsurance condition is part of this policy it also applies to flood coverage unless the No-Coinsurance Option on the Flood Coverage Schedule is selected.
2. When the no coinsurance option is selected is applies to this endorsement's Additional Coverages or Coverage Extensions too.
1. General Information
The flood limit of insurance can be equal to or less than the limit of insurance that applies to fire. The limit is the same as the fire limit of insurance when no flood limit is entered on the schedule.
2. Application of
Limit and Aggregate
This limit is the most the insurance company pays in a single flood event. The annual aggregate limit is the most the company pays for flood in any policy period. It is the same as the flood limit when no entry is made in the annual aggregate limit space on the schedule. If a flood event begins in one policy period and continues into a second, the only aggregate that applies is the aggregate from the first policy period.
Note: The annual aggregate is not required to be a particular amount or a multiple of the limit of insurance.
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Example: George Thomas Window Treatments purchased a blanket fire limit on property of $3,500,000 without listing specific locations. It purchases flood insurance without a specific limit for either flood coverage or the annual aggregate. Coverage runs from October 1 to October 1. During the winter season, an ice jam at a nearby dam causes severe flooding in the area, including $2,000,000 in damage to the Thomas plant. The good news is that it resumes operations in April, just in time for the spring buyers. Then the rains begin. The earthen dam that the winter ice jam weakened gives way, totally floods the area, and completely inundates the Thomas facility. The bad news is that only $1,500,000 of the limits remained to start all over again because of the annual aggregate. |
3. Ensuing Loss
If a covered ensuing loss due to a covered flood event occurs, the most the insurance company pays is the limit of insurance that applies to fire, not the total of the fire and flood limits.
Note: This section concludes with two examples of ensuing losses.
1. The flood deductible on the endorsement schedule or the declarations applies to the coverage this endorsement provides.
2. When this endorsement is excess over an NFIP policy, it cannot be used to satisfy any part of a deductible under the NFIP policy.
3. If both flood damage and ensuring cause of loss damage are sustained at the same time, only the highest deductible applies.
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Example: The flood at Pretty Pam’s causes her stove's pilot light to go out. The gas flow continues, a spark ignites the gas and causes a fire. Pam has both flood insurance and fire insurance. The flood coverage has a $10,000 deductible and the fire coverage has a $5,000 deductible. Only the $10,000 flood deductible is applied because it is the higher of the two. |
This condition replaces the Other Insurance Condition in the policy.
1. If the NFIP provides flood coverage, or if the property is eligible for flood coverage under NFIP but it wasn’t purchased, this coverage is excess over the maximum limit available from NFIP.
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Example: Robert learns he can purchase flood coverage with a $600,000 limit through the NFIP. However, his agent gives Robert a flood quote for the same limit that looks much better. He purchases a policy through the NFIP with a $200,000 limit and places the rest using this endorsement. After a flood loss occurs, the claims adjuster reviews the situation and discovers the NFIP limit that was offered. Instead of paying the entire amount for the flood loss, he reduces the payment by $400,000 which is the difference between the amount Robert could have purchased from NFIP and the amount he actually did purchase. |
Some risks are at locations that would qualify for NFIP treatment except that it is not currently available for any of a number of reasons. The NFIP requirement is waived in those cases.
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Example: The village of Fairfield has 90 days to resolve all flood-related issues the Army Corps of Engineers brought to its attention. When it fails to do so, NFIP begins cancelling all its policies. In addition, the Federal Emergency Management Agency (FEMA) informs Fairfield that it is not eligible for disaster relief the next time flooding occurs. Suddenly, the light goes on! Fairfield gets the message, understands what must be done, and starts doing it. About this time, flooding occurs at Presley Heights, a suburb in the northern section of Fairfield. Because Fairfield is not eligible for NFIP at the time of the flooding in Presley Heights, this endorsement covers insured losses up to the flood limit of insurance without the NFIP underlying. |
An insurance company may agree to write the entire flood amount without requiring NFIP underlying coverage. If it does, an “X” must be entered in the checkbox next to the Underlying Insurance Waiver statement on the Flood Coverage Schedule. That checkbox is vital and must be checked if the underwriter agrees to waive NFIP. If it is not checked, the insurance agent should contact the underwriter immediately and receive confirmation of the waiver in writing and an endorsement indicating the change.
2. If any flood coverage other than NFIP is available, this insurance pays only its proportional share but not more than the limit of insurance for flood.