Helping your investor clients understand the difference between Flood, Water Damage and Sewer Back-Up is a common challenge. Which covers what exposure? Where are there gaps? How can your client purchase these coverages if they are excluded from their current policy? Let’s start by defining each, then outlining the differences.
FEMA defines a flood as a “general and temporary condition of partial or complete inundation of two or more acres and two or more properties of normally dry land.” Flood damage can only be caused by the “overflow of inland or tidal waters, unusual and rapid accumulation or runoff of surface waters from any source, mudflow, or collapse of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels.”
Most property policies exclude coverage for damage caused by Flood. Thus, Flood coverage must be purchased separately through either the National Flood Insurance Program (NFIP) or a private flood option. Costs vary and are dependent upon the amount of coverage desired and the property’s location within specified flood zones.
REInsurePro offers a private Flood option on a monthly reporting form with no waiting periods that can be easily added on to your clients schedule.
Water Damage must be “sudden and accidental” to be covered, such as a pipe bursting or the accidental overflow of a bathtub. In colder seasons if freezing causes a pipe to burst, one must certify that they have done their best to maintain heat in the building or have fully drained the system and shut off the water supply in order for coverage to be available for the ensuing water damage. Rain that damages the interior of a property after the roof is compromised from a storm also falls under the category of Water Damage.
The easiest way to ensure your investor client has Water Damage coverage included on their policy is for them to purchase a Special property coverage form.
What is the difference between Flood and Water Damage?
Flood may occur when water from natural sources such as rivers and lakes breach their banks during heavy rains or when the ground is over-saturated with water and causes the excess to seep through foundations or other vulnerable parts of the structure. Thus, Flood is caused by an external water source. Water damage typically (though not always) occurs from the interior of the premises, and caused by water before it comes in contact with the ground (versus flood, that results from water pooling outside the premises). A Flood usually affects multiple properties, whereas Water Damage typically just affects (or is triggered by an event on) one property premises.
Sewer Back-Up is another common water-related exclusion in property policies and is defined as “water that backs up or overflows from a sewer, drain or sump.” (ISO) Drains and sewers can back up during storms. Other causes of sewer back-up may be aging sewage systems, tree roots, or blockage. With investment properties, it is not uncommon for tenants to cause sewer back-up when foreign objects are flushed down the toilet.
Sewer and Drain Back-Up can sometimes be purchased for an additional premium. This is not always the cheapest coverage to add, so you may consider exploring a higher deductible for this peril to offset the additional cost (if cost is an issue for your clients). In order to obtain this coverage through REInsurePro, clients can opt for the Tenant Protector Plan.
What is the difference between Sewer Back-up and Flood?
What you or I call a “flooded basement” may or may not technically be “flooded” when it comes to insurance – it all depends upon how the water enters the dwelling. That stated, investors will want to make sure that any drainage systems in basements are well-maintained and that sump pumps are regularly tested to help avoid water damage from Sewer Back-Up.
Other Water-Related Considerations
It is important to note that even a property policy that covers Named Windstorm typically does NOT cover damage caused by a Flood that occurs as a result of that storm surge. By policy definition, a Named Storm is defined as: Any Storm, Cyclone, Typhoon, Atmospheric Disturbance, Depression, Hurricane, Tropical Storm or other Weather Phenomena designated by the US National Hurricane Center and where a name has been applied. In short, Named Windstorm is intended to cover damage to the property caused by wind. Consider advising your clients in hurricane-prone areas to carry Flood to account for the damage caused by flooding as a result of the storm. Most REInsurePro policies automatically include coverage for Named Windstorm.
Standing water from any of the above perils can cause mold issues if not caught within 24-48 hours of the damage. Mold, mildew, and fungus is typically excluded from property policies, so advise your clients to take swift action to remove water and moisture.
Some REInsurePro policies include limited coverage for mold, so if this is important to your clients, ask your Sales Manager.
As always, if your client is unclear about their coverages, it is important you help them understand each. Many losses can be avoided by being aware of common risks and taking prudent steps to maintain and protect their property.
Note: This piece is not to be construed as contractual. Applicable policy language supersedes it. Information contained in this excerpt is intended to provide a brief overview of the coverages provided for reference purposes only. It is not intended to provide all policy exclusions, limitations and conditions.