By Dana Windisch Chilson, Associate, and Kelly Horein, Summer Associate, McNees Wallace & Nurick LLC
As flooding in the United States continues to escalate, so do the costs associated with the phenomenon. Recent flooding of the Mississippi River, for instance, has resulted in catastrophic damage to countless homes and businesses. Although much of the recent damage has occurred in southern states, such natural disasters can be found all over the country. In fact, Pennsylvania has claimed more losses under the National Flood Insurance Program (NFIP) than most other states.
Today, the federal government, through the NFIP, subsidizes the vast majority of flood insurance policies. Private insurance companies generally only sell and administer these policies. To be clear, insurance companies can, and often do, write flood insurance policies. Even in such cases, however, the Federal Emergency Management Agency (FEMA) still pays the claims through the NFIP.
Since the creation of the NFIP in 2008, Congress has extended the program ten different times, each on a short-term basis. Congress has even permitted the NFIP to expire twice, including once in June 2010. Although Congress retroactively renewed the NFIP late last summer, the government had temporarily stopped issuing new policies. As a result, it became nearly impossible for home and business owners to obtain flood insurance during that time.
Unless Congress once again extends the program, the NFIP will expire in September 2011. In mid-July, the House of Representatives approved legislation to extend the NFIP for five years. It is still unclear whether the Senate will pass the bill, and thus the future availability and reliability of flood insurance policies is equally unclear.
In addition to the difficulties presented by the recent expiration (and subsequent reinstatement) of the NFIP, the rising costs of premiums may present another barrier for many home and business owners looking to buy flood insurance. In 2005, the NFIP incurred more than $17 billion in losses due to Hurricanes Katrina and Rita. To help the NFIP minimize its debt, Congress has suggested various solutions, including the implementation of premiums and placing more responsibility on private insurance companies.
Other factors may also cause a rise in flood insurance premiums. Natural disasters across the country - and even around the world - may increase the cost of reinsurance, which directly affects the rates of insurance companies. Moreover, some insurance companies have factored the rising cost of oil and building materials into their policies.
Despite the potential hardships in acquiring it, flood insurance may be a necessity for many homeowners and businesses. Flood insurance is the only policy that covers direct damage from flooding. Purchasing flood insurance, therefore, may prove to be an invaluable investment - even if the property is not located in a flood zone. Nearly 27% of all flood claims result from homes or businesses outside of flood zones.
It is important to note that, despite the potential difficulties, flood insurance is currently available. In the event that flood insurance cannot be acquired, however, it is important for property owners to be familiar with their coverage under their current home and business policies. Homeowner's insurance does cover some forms of "sudden and accidental" water damage. Common examples of covered damage include:
• Water damage resulting from rain that entered through a leak in a roof;
• Damage caused by a homeowner's own plumbing system or faulty appliance;
• Loss, theft or fire resulting from water or flood damage; and
• Certain damage to property caused by freezing groundwater.
Property owners may be surprised to learn that homeowners' policies often do not cover damage from overflowing sewers, sump pump failures, or swimming pool leaks, without a special endorsement or rider. Additionally, policies may not cover damage resulting from broken water pipes if caused in part by a homeowner's failure to reasonably maintain his plumbing system.
Every insurance policy contains different and specific exclusions. The McNees Insurance Recovery and Counseling group works to help clients understand their insurance policies, submit claims and, where appropriate, sue insurance companies for failing to honor legitimate claims. Please contact the McNees Insurance Recovery and Counseling group for more information.
© 2011 McNees Wallace & Nurick LLC
Insuring Your Business is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.
Read more Insuring Your Business newsletters and other McNees Wallace & Nurick LLC publications.
Lexis.com subscribers can access the text of 2011 H.R. 1309, that was passed by the House of Representatives to extend the NFIP, as well as the complete National Flood Insurance Act, 42 U.S.C.S. § 4001 et seq.
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