BP 10 79–FLOOD COVERAGE
(September 2019)
INTRODUCTION
The Water exclusion in the Insurance Services Office (ISO) BP 00 03–Businessowners Coverage Form excludes flood damage. This endorsement modifies that exclusion and provides coverage in specifically described circumstances. It contains numerous exceptions and deviations from the basic coverage form that affects the coverage provided. This analysis examines each of them.
Note: This analysis is of the 07 13 edition of this endorsement and schedule. Changes from the 01 10 edition are in bold print.
BP DS 06–FLOOD COVERAGE SCHEDULE (07 13 change)
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: The flood coverage endorsement explains this limitation.
Description of Premises or Location(s)
The location(s) covered is/are entered in the space provided.
Description of Business Personal Property in the Open if Covered for Flood
Property in the open subject to flood coverage is described in the space provided because otherwise damage to all property in the open is not covered.
Flood Deductible
The deductible amount that applies to loss or damage caused by or that results from flood is entered in the space provided.
Other Flood Insurance (If Any)
If any underlying insurance is written that applies to the risk, the insurance company name and the policy number must be listed.
Note: The National Flood Insurance Plan (NFIP) coverage is primary.
Related Article: National Flood Insurance Program General Property Policy Coverage Analysis
Underlying Insurance Waiver
The Underlying Insurance Waiver box must be checked if there is no underlying flood coverage. The 07 13 edition allows the waiver to apply per location.
Note: This verifies that the insurance company has waived the requirement that NFIP be primary.
Limit(s) Of Insurance
The Flood Coverage Limits of Insurance also apply to Additional Coverages–Business Income and Extra Expense. Paragraph E. in the endorsement provides additional information.
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 any one occurrence.
A. Blanket Limit
The coverage(s) the flood blanket limit applies to must be selected. The options available are Building and Business Personal Property
Note: This limit is the total paid for all loss or damage to covered property/coverage at the scheduled locations, subject to the provisions that apply to Limits in BP 10 79–Flood Coverage.
B. Separate Limits
If a separate limit of insurance for a specific covered property/coverage is entered in this section, the blanket limit does not include that covered property/coverage.
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Example: Manley's has four locations. Two are included in the flood blanket limit of $1,500,000 and two are covered on a scheduled basis. A flood occurs, Manley discovers that the limit at one of the two scheduled locations is inadequate to cover the amount of loss, and he decides to claim the blanket coverage limit. His request is denied because a specified location with its own limit cannot collect under the blanket limit. |
BP 10 79–FLOOD COVERAGE ANALYSIS
A. Application
This endorsement applies to only Section I–Property covered property and coverages that have a limit for Flood Coverage entered on either BP DS 06–Flood Coverage Schedule or on the declarations.
B. Additional Covered Causes of Loss
Flood is added as a covered cause of loss. This endorsement defines it as a general and temporary condition where areas that are usually dry are partially or totally submerged. This condition can be caused in one of three ways:
1. Overflow of inland or tidal waters
2. Rapid or unusual build-up of surface waters. The source of the water is irrelevant.
3. Mudslide or mudflow but only if the
rapid or unusual build-up of surface water causes it. Mudslide or mudflow in
this endorsement is a river of liquid flowing mud that covers land that is
usually dry. An example is when such a flow carries earth and subsequently
deposits it along its path.
All flooding in a continuous or extended event is considered a single flood.
C. Exclusions, Limitations, and Related Provisions (07 13 changes)
1. Except as stated in 2 and 3 below, the exclusions and limitations sections in the Businessowners Coverage Form apply to this endorsement's coverage.
2. Any part of the Water exclusion that conflicts with the coverage this endorsement provides does not apply.
Note: It is important to review the water exclusion in the Businessowners Coverage Form.
3. The earth movement exclusion does not exclude coverage if it was the proximate cause of loss that triggered a tsunami that resulted in an overflow of tidal waters.
4. BP 00 03–Businessowners Coverage Form Section I–Property B. Exclusions 1. a. Ordinance or Law applies with respect to any loss (including losses this endorsement covers) unless BP 04 46–Ordinance or Law Coverage is attached and applies to the specific loss.
5. This
endorsement has six additional exclusions and limitations: (07 13 change)
a. Coverage
does not apply if a flood begins within 72 hours after the inception date on
the endorsement schedule. In addition, any increase in limits during the policy
term does not apply to any flood loss or damage that occurs within 72 hours
after the named insured requests the increase. The 07 13 edition revises this exclusion to provide that the 72-hour
waiting period does not apply when the previous policy included flood coverage,
the policy periods were consecutive, and there was no break in coverage. In
addition, the 72-hour waiting period to increase the limit of insurance does
not apply to increases that were done as part of the renewal process.
The
start of a flood event caused by an overflow of inland waters begins when the
water first breaks out of its banks.
Note: This exclusion prevents individuals who anticipate a flood event from purchasing flood coverage and then cancelling it when the threat passes.
b. Coverage does not apply to loss or damage caused when water beneath the surface destabilizes the earth above it.
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Example: The land beneath the area consists of three yards of soil on top of a rock formation. An inundation of rain causes a river to form under the soil, separates it from the rock formation, and causes the buildings above to move. This endorsement does not cover this loss. |
c. Land is excluded. As a result, this endorsement's coverage does not include costs to restore or remediate land that collapses or sinks due to flood. It also does not cover the costs to grade, excavate, fill, or backfill land. On the other hand, coverage applies to damage to covered portions of buildings and business personal property caused by land along the shore of a body of water that collapses or sinks due to erosion or undermining. This is not all inclusive thought because loss or damage to the building or business personal property is covered only if erosion or undermining occurred because currents or waves of water were higher than their cyclical levels and caused a flood.
d. Loss or damage to business personal property in the open that flood causes is excluded. However, there is coverage for property in the open that is specifically described and scheduled on either the flood schedule or the declarations and for for which a premium is paid.
e. Property Not Covered with respect to Flood Coverage:
(1) Buildings or other property not eligible for flood insurance based on the Coastal Barrier Resources Act and the Coastal Barrier Improvements Act of 1990
(2) Boathouses, open structures, and property contained within them. They are excluded only if situated on or above a body of water.
(3) Bulkheads, pilings, piers, wharves, docks, and retaining walls are covered only if they are part of a covered building.
f. There is no coverage for loss or
damage caused by or that results from water
or waterborne material discharging
from a sewer, drain, or sump unless the discharge results from flood and
takes place within 72 hours after the flood recedes. (07 13 change)
D. Additional Coverages and Coverage Extensions
1. Section I–Property A. 5. a. Debris Removal Additional Coverage does not apply. The following replaces it but only with respect to this endorsement.
Debris
Removal
a. Coverage applies to expenses to remove debris from covered property and other debris deposited at covered premises due to flooding. Expenses to remove mud from the premises' grounds are not covered.
Note: Using the word grounds suggests that expenses to remove mud from inside buildings may be covered.
b. Expenses to remove debris of covered property that floated or was swept away from the covered premises are covered.
c. This Additional Coverage does not increase the Flood Limit of Insurance. If a building is destroyed and floats downstream, the most paid is its limit of insurance. No additional limit is available to cover the costs of debris removal.
Note: This coverage is very important because cleanup is a major part of most flood losses. Debris removal covers the costs to remove covered property that floated away or that the flood removed from the location. It does not include costs to remove mud from the premises' grounds. This does not mean that loss or damage caused by or that results from mud is excluded. It means that such loss or damage on the premises' grounds to covered property that is not in a building is excluded.
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Example: Paul's Promotional Gadgets has a $3,000,000 blanket flood limit on its building and business personal property. During heavy spring rains, the river overflows its banks. A storage shed from a property upstream winds up on Paul's property at the same time that one of Paul's sheds and some outdoor equipment lands on somebody else's property further downstream. The main building is not damaged structurally but is filled with mud and leftover debris. All business personal property is damaged but most can be cleaned and reused. The claim handling is as follows:
Coverage applies as indicated above but payments end when the $3,000,000 blanket limit is used up. |
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2. Section I–Property 6. Coverage Extensions a. Newly Constructed or Acquired Property is amended and the following added with respect to Flood Coverage:
a. This Coverage Extension does not apply to buildings or structures that are not fully enclosed by walls and a roof.
b. The amounts of coverage for buildings or structures that this Coverage Extension insures do not apply to Flood Coverage. The most the insurance company pays for loss or damage to such property is 10% of the total Flood Limits of Insurance this endorsement provides. This extension does not increase the Flood Limit of Insurance.
3. The
Flood Limit of Insurance is not increased by any additional coverage or extension
in the Businessowners Coverage Form. The only exceptions are those described in
D.1 and D.2 in this endorsement.
E. Limit of Insurance
1.
General Information
The Flood Limit of Insurance can be equal to or less than the limit of insurance that applies to other covered causes of loss. If a there is no Flood Limit of Insurance on the Flood Coverage Schedule or the declarations, the limit is the same as the Fire limit of insurance.
2.
Application of Limit and Aggregate
The Flood Limit of Insurance is the most paid for loss or damage in a single flood. The Flood Annual Aggregate Limit is the most paid for all loss or damage that flood causes in any policy period.
The Flood Limit of Insurance and the Flood Annual Aggregate Limit may be the same or there may not be a Flood Annual Aggregate Limit. When the declarations does not display an aggregate limit, the Flood Limit of Insurance is the most paid for all loss or damage due to flood that takes place in a 12-month policy period, regardless of the number of flood events that occur during the period.
If a flood event begins in one policy period and continues into a second, only the aggregate from the first policy period applies.
The Flood Limit of Insurance also applies to Additional Coverages–Business Income and Extra Expense.
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Example: Wild Willie's Wicker Rockers purchases the Flood Coverage endorsement with a $2,000,000 blanket limit but the declaration does not contain an annual aggregate limit. 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, resulting in $600,000 in direct damage and $700,000 in business income/extra expense. The good news is that Wild Willie's resumes operations in April, just in time for the spring buying season. Unfortunately, the spring rains begin, the earthen dam that the winter ice jam weakened gives way, totally floods the area, and submerges Willie's facility. The bad news is that there is only $700,000 left of the annual policy limit to respond to this loss because the insured did not request an aggregate limit which results in the Flood Limit of Insurance being the annual aggregate. |
3.
Ensuing Loss
A covered ensuing loss caused by or that results from a covered flood event may occur. In that case, 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.
F. Deductible
1. The deductible on the Flood Coverage Schedule or the declarations is the one that applies to the coverage this endorsement provides.
2. This endorsement is not used to pay any part of a loss that consists of any deductibles in the National Flood Insurance Program (NFIP) policy.
3. If flood results in another covered cause of loss to the extent that damage by both ensues, only the highest deductible applies.
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Example: The flood at Chester's Conserved Classics causes a stove's pilot light to go out. The gas flow continues, a spark ignites the gas, and causes a fire. Chester has both flood insurance and fire insurance. Flood coverage has a $10,000 deductible and fire coverage has a $5,000 deductible. The $10,000 Flood deductible applies to this loss because it is the higher of the two. |
G. Other Insurance
This condition replaces the Other Insurance Condition in BP 00 03–Businessowners Coverage Form.
1. If the NFIP provides flood coverage, or if the property is eligible for flood coverage under NFIP, this coverage is excess over the maximum limit available from NFIP. This is regardless of the limits purchased, whether or not they were kept in force, or if the limits can be collected at all. The insurance company never pays more than the Flood Limit of Insurance that applies.
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Example: Alexander discovers that he can obtain flood coverage through NFIP with a $500,000 limit of insurance. However, his agent gives him a flood quote for the same limit that looks much better. He purchases a NFIP policy with a $200,000 limit and places the rest on his Businessowners Coverage Form. After a flood loss occurs and during his review, the claims adjuster discovers the NFIP limit that was offered. Instead of paying the entire amount for the flood loss, he reduces the payment by $300,000. This is the difference between the amount Alexander could have purchased from the NFIP and the amount he actually did purchase. |
Some risks are at locations that would qualify for NFIP treatment but that is not currently available for various reasons. The NFIP requirement is waived in those cases.
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Example: The town of Winchester 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 to cancel every flood policy that covers the affected area. In addition, the Federal Emergency Management Agency (FEMA) informs Winchester that it is not eligible for disaster relief the next time flooding occurs. Winchester suddenly gets the message, understands what needs to be done, and starts doing it. About this time, flooding occurs at Springfield Commons, a southern suburb of Winchester. Because Winchester is not eligible for the NFIP when flooding occurs at Springfield Commons, this insurance covers the flood losses for several businesses located there up to the flood limit of insurance. |
An insurance company may agree to write the entire flood amount without requiring NFIP underlying coverage. If it does, the box next to the Underlying Insurance Waiver statement on the Flood Coverage Schedule must be checked. Checking the box is critical if the insurance company agrees to waive NFIP. If it is not checked, the insurance agent should contact the company immediately, have the policy endorsed, and receive written confirmation of the waiver.
2. If any flood coverage other than NFIP is available, this insurance pays only its proportional share but not more than the flood limit of insurance.