A Standard Flood Insurance Policy under the National Flood Insurance Program (“NFIP”) pays only for the physical damage to your insured property that is “directly” caused by a flood. The amount of payment is determined by either the replacement cost or actual cash value of the damaged property, up to the policy limit. The NFIP offers two types of coverage for homeowners: building property coverage up to $250,000 and contents coverage up to $100,000.
Replacement cost is the cost to repair or replace that part of a building that is damaged without regard to depreciation. Actual cash value is the replacement cost value, less depreciation for physical wear and tear. In order to qualify for replacement cost, your home must be a single family dwelling; your home must be your principle residence at the time of loss, meaning you live there 80 percent of the year; and your amount of flood insurance for building coverage must be at least 80 percent of the full replacement cost of your home, or be the maximum amount of insurance available for the property under the NFIP. Personal property is always adjusted at the actual cash value.
The following items are covered under a standard building property policy: the insured building and its foundation; the electrical and plumbing systems; central air conditioning equipment, furnaces, and water heaters; debris removal; refrigerators (unless located in a basement), cooking stoves, and built-in appliances; permanently installed flooring (including carpet), paneling, wallboard, bookcases, and cabinets; window blinds; and detached garages (up to 10 percent of building property coverage). All other detached buildings require a separate policy. Personal property coverage protects personal belongings such as clothing, furniture, electronic equipment, curtains, portable air conditioners, portable microwave ovens, portable dishwashers, washers, dryers, food freezers (and the food in them), and certain valuable items such as original artwork and furs (up to $2,500). Neither type of policy covers precious metals, currency or valuable papers such as stock certificates. There is also no coverage for outside belongings such as trees, plants, wells, septic systems, walks, decks, patios, fences, hot tubs, and swimming pools. Likewise, there is no coverage for living expenses such as temporary housing or financial losses caused by business interruption or loss of use of insured property.
Unfortunately, there are number of exclusions to consider as well. For example, there is an exclusion for “loss caused directly by earth movement even if the earth movement is caused by flood.” Similarly, damages caused by a sewer backup is only covered if the backup was a direct result of flooding. Many items located in a basement, including bookcases, window treatments, carpet, TVs, and audio systems are not covered. Perhaps, most importantly, damage caused by moisture, mildew, or mold that could have been avoided by the property owner is excluded from coverage. Therefore, a property owner must take prompt action to mitigate damages following a flood.
Keep in mind if you feel you have not been treated fairly by your insurer following a flood, you have only one year from the date a notice of disallowance or partial disallowance of your claim was mailed to you to file a lawsuit in federal court. Caution should be taken even if you are having ongoing discussions with your insurer as this time limitation is likely to be strictly enforced by the courts. Accordingly, you should contact counsel promptly after receiving a notice of disallowance that you believe is unfair.