Flood Insurance

“Flood” is a primary exclusion in practically all builders risk policies. Understandably, many contractors and owners considering this coverage assume their project will be in a flood plain and will be subject to flooding. While this is a compelling argument to get flood insurance, there are others equally important. A common flood exclusion is defined as a general and temporary condition of a partial or complete inundation of normally dry land areas due to:

1. The overflow of inland or tidal waters
2. The unusual or rapid accumulation or runoff of surface water from any source
3. Mudslides or mudflows which are caused by flooding

While this language may not surprise you and may even be expected, consider #2: The unusual or rapid accumulation or runoff of surface water from any source. Consider our monsoon season when heavy rains occur frequently in a short period of time. A claims adjuster told me a few years ago that flood is the most common uncovered builder’s risk claim, but not in the traditional sense. He was referring to the rain that collects on a construction site and seeps into a structure under construction, causing damage to carpet, drywall, and molding. That is a flood claim, and unless flood insurance is added to the policy, there is no coverage.

Here are two additional situations where we have seen “surface water” create a flood claim:

1. Construction of a large park: The site gets planted with grass seed and then a water line breaks away from the site, dumping thousands of gallons of water on it, washing away all the seed and destroying the site.  This was a flood claim.
2. Construction of a gas station: The excavations are dug for the gas tanks, the vaults are lowered into them with a crane, and the piping hooked up. On the same day, a microburst hits the area with significant rainfall.  The street floods, and rainwater seeps onto the site and into the excavations.  As a result, the vaults float, causing damage to the piping.  The crane had to be brought back out to lift the vaults and re-excavate. This was also a flood claim.

Even though neither of the examples above had a body of water nearby, both were flooded. Acquiring flood insurance is relatively affordable if a project is not in a designated flood zone. It’s vital to remember that adding flood coverage to a builders risk insurance will result in a higher deductible. The minimum deductible will be $25,000, with the amount increasing depending on the insurance carrier.

I hope that as you plan your next project, you will think about including this important coverage. We will gladly answer any questions you may have.