Anticipating the 100 year flood event that occurred in my native southern West Virginia was the last thing on my mind when I wrote and published my recent blog Troubled Waters – Insurance Claims Under Attack, about the “Troubled Water Claims” phenomena we are currently experiencing in Florida. But given the fact that Florida’s water problems and West Virginia’s terrible flooding disaster have one common denominator - water, I thought it would be helpful and hopefully educational to distinguish a flood event versus a water loss since these terms are often misused in the property insurance world. In addition, for those who do have flood insurance, we want to share some knowledge and information in the form of tips from my firm’s extensive experience in water/flood losses including our most recent work handling Super Storm Sandy flood claims in New York.

Water losses: In the insurance world water losses and the claims that follow are the most frequent claims that are reported to insurance companies. Generally speaking most property insurance policies cover these type of losses but the water damage has to occur from an event inside a building or home. Examples are broken water lines, water that overflows from an appliance such as a dishwasher, a hot water heater break or a ruptured ice maker line to name a few. For these types of losses to be covered they have to be sudden and accidental. Long-term water leaking issues are generally excluded. But for those who are covered for a water loss a common mistake insured policyholders often make is to report them as a flood loss. While seemingly a flood to the policyholder, reporting a water loss as a flood is a sure bet to get you off to a wrong start with your property insurer.

A flood loss: In the insurance world, a flood loss occurs when water originates from outside a building or home. If this water enters into the building it will not be covered under most standard insurance property policy forms. Insurance coverage from a flood event will only occur if the property owner purchased a flood policy from the National Flood Insurance Program (NFIP). There are other flood policies available such as excess flood insurance as well as some types of manuscript policies generally sold to commercial clients. Some state regulators (including Florida) have recently approved some private carriers to sell their own brand of flood policies. This is the result of an $18 billion deficit in the NFIP flood program which now requires the NFIP to be actuarial sound, or in others words the premiums must cover the expected claim payouts. As NFIP premiums have sky rocketed private carriers are looking at jumping in to capture market share.

But back to the government flood program, the NFIP even has a definition for a flood event. In order for a flood to be covered in their policy, flooding conditions must meet the following conditions: A flood is a general a temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow.  

So what is covered and what is not covered in the standard NFIP program?

Building Property

• The insured building and its foundation
• Electrical and plumbing systems
• Central air conditioning equipment, furnaces and water heaters
• Refrigerators, cooking stoves and built-in appliances such as dishwashers
• Permanently installed carpeting over unfinished flooring
• Permanently installed paneling, wallboard, bookcases and cabinets
• Window blinds
• Detached garages (up to 10 percent of building property coverage); detached buildings (other than garages) require a separate building property policy
• Debris removal

Personal Contents Property

• Personal belongings, such as clothing, furniture and electronic equipment
• Curtains
• Portable and window air conditioners
• Portable microwave ovens and portable dishwashers
• Carpets that aren’t included in building coverage
• Clothing washers and dryers
• Food freezers and the food in them
• Certain valuable items such as original artwork and furs (up to $2,500)

What’s Not Covered

• Damage caused by moisture, mildew or mold that could have been avoided by the property owner
• Currency, precious metals and valuable papers such as stock certificates
• Property and belongings outside of an insured building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs and swimming pools
• Living expenses such as temporary housing
• Financial losses caused by business interruption or loss of use of insured property
• Most self-propelled vehicles such as cars, including their parts (see Section IV.5 in your policy)

Flood Insurance for Basements and Areas Below the Lowest Elevated Floor

Coverage is limited in basements regardless of zone or date of construction. It's also limited in areas below the lowest elevated floor, depending on the flood zone and date of construction. These areas include:

• Basements
• Crawl spaces under an elevated building
• Enclosed areas beneath buildings elevated on full-story foundation walls that are sometimes referred to as "walkout basements"
• Enclosed areas under other types of elevated buildings

So there you have it, this is what the National Flood Insurance Policy covers. And remember; because it is a federal program this coverage will be applied uniformly across the U.S., regardless of where a flood loss happened and in spite of any state insurance regulations or state statues.

But what if you did not have flood insurance as I expect many of the folks in West Virginia may not have. Are they out of luck? Maybe not, the facts of a loss need to be closely looked at to see if some other insurance coverage may kick in like a standard homeowner’s policy or a business property policy. Remember, when flooding occurs like the one that devastated parts of southern West Virginia other events were likely happening at the same time or in close proximity to the rising water. Events like pounding rainwater against homes and buildings, rainwater ponding on roof’s, high winds with flying debris, sewer backups and the list could go on and on depending on the facts issues of each property or the specific geographic location. In fact, one property can have completely different fact issues or patterns of damages than their neighbor next door or other property owners blocks or miles away.

So how does insurance work when there may be a combination of events i.e., different perils that may have caused damage at the same time or in close proximity to each other with some that may be covered and others that may be excluded depending on your insurance policy terms and conditions?

In a scenario with different causes of loss (depending on when and how they impacted the insured property) you may find yourself in the murky waters of legal terms like concurrent causation, anti-concurrent causation, efficient proximate cause and similar terms that have evolved with the expansion of insurance coverage’s such as all risk coverage as well as exclusions that are written to be exceptions to all risk forms.  

This issue is not unique to the West Virginia floods; in fact multiple causation issues and how they impact property insurance coverage has been debated and litigated across the United States. As an example, here is a paper published by the American Bar Association on this issue; Concurrent Causation versus Efficient Proximate Cause in First Party Property Insurance Coverage Analysis, by Michael C. Phillips & Lisa L. Coplen.

As you can read, different states address causation issues differently. The fact that causation has become a big issue nationwide is the result of litigation some years back in California. The argument back then was that if an insurance policy was “all risk” and two events occurred at more or less the same time, and damaged or destroyed an insured property, and one cause was covered and one was not then the whole loss would be covered particularly if the covered cause were the efficient proximate cause of the loss.

Needless to say, the insurance industry was not too happy with this ruling. So they started adding anti-concurrent causation clauses to their policies. Under these new forms, if a loss occurred that was caused by two events (a covered cause and an excluded cause) then the whole loss was likely excluded. From this harsh outcome some states adopted the efficient proximate cause doctrine which as stated above means if the efficient or most likely cause of a loss occurred first, and it was likely the dominant cause, and was a covered cause of the loss, the whole loss or at least a portion of it would be covered regardless if a non-covered cause contribute to the loss.

So where is West Virginia on this issue? As you will note in the link above, West Virginia does not allow insurance forms with anti-concurrent causation language but instead uses the efficient proximate cause doctrine.

What this means for some West Virginia policyholders is that it may allow for some type of insurance recovery from property polices other than flood. As an example, if wind, water or some other covered peril (remember all risk means all risk from anything other than the exclusions) causes damages, then maybe a policy other than flood would provide coverage to pay for damages that were likely to have occurred to the property before the floodwaters either washed away a building or significantly damaged it.

The following example speaks to how you might find other coverage if the loss conditions and pattern of damages are documented and you are aggressive in pursuing your claim. In 2004, Hurricane Ivan devastated the Florida panhandle. The flooding was so severe that part of the interstate highway over the bay was washed away. My client, who was circuit court judge and served on the county’s emergency management committee, which meant that at the time of the hurricane, he was in a secure bunker helping coordinate emergency rescue operations.  At the same time his family’s home was being battered by hurricane force winds and subsequently his home was completely washed away by the floodwaters surging across the bay.

To their credit, this family had the foresight to purchase flood insurance but even at maximum limits the payout was woefully inadequate to cover their losses. I was retained to see if other coverage could be obtained. After doing a site inspection, reviewing weather and other available reports, it was my opinion that this home was severely damaged by wind first.  This allowed water to enter through damaged openings destroying most if not all the personal property as well as parts of interiors wall surfaces. The battle with the homeowner carrier was not easy but at the end of the day this family recovered a very significant settlement from their homeowner’s insurance carrier due to wind and water damage before the flood. When added to the flood payments, it allowed them to recovery for the majority of their losses. 

My guess is that most insurers will not volunteer to make payments under any other covered loss where flooding caused significant damages. But it does not hurt to press them regarding other possible covered items that may have damaged your property before it was flooded or washed away. Also, remember that if you have a mortgage on your property most lenders have their portfolios insured and there is a good chance your home or business while not covered by a government flood policy, may be covered under your lenders policy. This may benefit you if your lender receives funds to cover their loss and potentially may extinguish or reduce your mortgage obligation to your lender. Again it does not hurt to ask. Call your lender and ask them if your mortgage is in the pool that insures all the properties they have loaned money on. If so, file a claim and a proof of loss with your mortgage holder for the amount of your mortgage.

Another tip to remember is that FEMA will not distribute money (with the exception of emergency funds) until they are satisfied that all possible private insurance has been claimed and paid. In other words, policyholders must pursue all available insurance from private policies they have purchased before FEMA will step in. This is a big burden on the policyholder especially given the stress and recovery issues they are going through, not to mention the complex insurance policy terms and conditions.

Finally, I asked my talented staff of public adjusters to share some of the best tips they could think of. The following are some tips that hopefully will help folks should they have flood coverage.

1. Take photographs of all damaged content items including discarded objects, structural damage you intend to claim.
2. Take photographs of the water line (standing flood water levels) both inside and outside the residence. Note how long the water remained in the house if possible. 
3. Make sure the replacement cost includes sales tax and delivery/setup fees for each item.  Don’t undervalue your content items.
4. Make a list of damaged or lost items by the room and include their date of purchase, value, and receipts.
5. Officials may require disposal of damaged items so, if possible, place flooded items outside of the home.
6. Reference the consumer NFIP Handbook and more technical Insurer’s Flood Insurance Manual

Cleaning Up After the Flood

1. Help prevent mold by removing wet contents immediately. Saturated carpeting, stuffed furniture, bedding and any other items holding dampness, moisture or water inside the property should be removed – but samples saved.
2. Get a written quote from demo/dry out company before they do the work and get it approved by the carrier.
3. Keep notes of your conversations/agreements with adjuster and carrier representatives. Get the company adjuster's e-mail and regular mail as well and document everything in writing.  Don't rely on verbal comments from the insurance company. Save important voice mails.
4. Walls, floors, doors, closets and shelves should be thoroughly washed and disinfected to help avoid mold.
5. Thoroughly dry out the properties’ interior using a portable dehumidifier (rental costs may be covered by flood policy). Your air conditioner can also be used to start the drying process.
6. If the walls are damaged, take photographs of the baseboard, then remove it. Knock small holes at floor level in the drywall between the wall studs to permit moisture trapped behind the drywall to seep out and begin drying.
7. Have your furnace and hot water heater checked for damage. While they may seem to work, the floodwater may have damaged the internal elements.

Managing the Repair Process

1. Most claims are settled within 30 to 60 days of the filing. Repairs however, will probably take longer than this.  Be attentive.  Ensure you get a quality job at a fair price.
2. For major repairs, get a minimum of three estimates. Don’t hesitate to question the contractors on variations in pricing.
3. Make sure all estimates provide work details, offer a fixed price and are signed.
4. Never proceed with repairs on the basis of a verbal agreement.
5. Ask for state licenses and references and take the time to call them. Natural disasters often attract unqualified contractors looking to work for cash.

Rebuilding After a Flood

"The National Flood Insurance Program (NFIP), which is part of FEMA, requires you to file a document called a Proof of Loss within 60 days of the flood detailing everything you are claiming. This can be overwhelming for some in cases of severe flooding. The NFIP can actually deny your claim if you cannot meet their deadline. Although the NFIP has the authority to extend the 60-day deadline, as the consumer, you can't necessarily count on them to do that. So if you have a large loss, you may wish to seek the services of a professional public adjuster who is trained and well versed in the process."

It’s not always easy, but the time you take to ensure your repairs are completed properly, will be well worth it in the long run. While you can’t control when a flood will occur, you can control how well you are prepared. Keeping accurate records, along with photos, receipts and itemized lists will expedite your rebuild if your property should flood in the future.

If you have questions regarding flood or water related property insurance claims visit our website or contact us to submit a question to one of our public adjuster insurance claim experts.