Ask SmallBiz

Q. I’m told my business would not have been covered if we’d been hit by the March 11 tsunami. But, last year, I added “water damage” to my insurance. What gives?

A. I can see why you’re confused. A tsunami is a “flood,” which is not the same as water damage in an insurance policy. Let’s talk about that.

Flood is not covered by common fire/property insurance policies. True, you can endorse those policies to cover water damage as you did (a good move), but policies define water damage as leaking pipes or sewage backup. “Flood” means the overflow of inland or tidal waters (like a tsunami). Flood insurance is separate from your property policy and covers your building and the stuff inside against damage from a flood. Pretty simple, right? But wait. As always, there are details.
National Flood Insurance Program

Almost all flood insurance is provided by the NFIP. You buy it through the local insurance company of your choice, which provides the claims service, but the actual coverage comes from the NFIP. Because it’s a government program, it’ll cost you the same no matter where you get it. In most cases, there’s a 30-day waiting period before coverage begins (to keep you from buying it the day before a big storm).

There are limits to how much the NFIP will cover. The most it will pay to repair or rebuild a commercial building is $500,000. Since most commercial buildings cost way more than that, excess flood insurance must be purchased outside of the NFIP; you can get that from local insurance companies, too. For the contents inside your building, the limit is also $500,000. Again, if you need more, buy excess.
“Business interruption”

Of course, you should know what’s not covered. The big one for businesses is this: Flood
insurance won’t cover the income you would have made while your business recovers and can’t operate, known as business interruption. This is different from most property policies; if you’re closed because of a fire, good policies will cover that lost income. You can buy business-interruption coverage for flood insurance separately, but it’s pricey.
Are you in a flood zone?

Go to www.freeflood.com, type in your address and it should tell you whether the building is in a flood zone. But keep this in mind: One-third of all flood claims come from outside a designated flood zone. The good news: Flood insurance is cheaper for locations outside flood zones. So talk to your agent and get a flood quote.
By the way, you’re lucky. The Hawaii businesses that were hit by the tsunami are still trying to recover. The damage statewide could have been much, much worse.

Tom Allen, CIC
Commercial Insurance Agent with Insurance Factors
tallen@insurancefactors.com 
546-7414