Flood and Other Limited Policies
Flood Insurance
The peril of flood is excluded from virtually all policies providing property coverage. The National Flood Insurance Program is a government sponsored program which provides subsidized flood insurance to property owners in qualified or flood prone areas.
This program is currently administered by the Federal Insurance Administration (FIA), which is part of the Federal Emergency Management Agency (FEMA). Flood insurance policies are issued by the government and private insurers in a partnership between the federal government and the private insurance industry. The purpose of the program is to make flood coverage available to the owners of property in flood-prone locales.
Cities, towns and counties generally submit a request to the FIA for consideration to be included in the program. Only those persons in an area prone to floods and designated as such by the NFIP may purchase flood coverage. The federal government has designated various areas as those located in a “flood plain” or “flood zone”.
During the initial thirty days that flood insurance is available to a new community, policies written will become effective immediately upon issuance. A policy issued after the initial thirty-day period will become effective after an additional 7 day waiting period once the application is presented to the NFIP.
There are two programs provided by the National Flood Insurance Program (NFIP):
Emergency Program
Goes into effect as soon as a community has met its land use control requirements stipulated by the federal law. Rates are subsidized by the federal government under the Emergency Program, and the following are the only limits offered:
• Building:
- Single Family - $35,000
- Other residential - $100,000
- Non-residential - $100,000
• Contents (per unit):
- All residential - $10,000
- All non-residential - $100,000
Regular Program
Becomes effective once a flood insurance rate map is prepared that divides the community into specific zones to determine the probability of flooding in each area and the community agrees to adopt more stringent flood control and land use measures. Rates are no longer subsidized, and the following limits are offered:
• Building:
- Single Family - $250,000
- Other residential - $250,000
- Other Non-residential - $500,000
• Contents (per unit):
- All residential - $100,000
- Other non-residential - $500,000
The policy also covers removal and debris removal. Property removed is covered at its new location for up to 30 days on a named peril basis. Debris removal is covered but only for the cost incurred to remove the covered property. This would not include trees, shrubbery, and any other materials that “washed up” on the insured premises.
The insuring agreement of the flood policy provides coverage for the peril of a direct physical loss by or from a flood. The actual definition of a flood as it actually appears in the policy is as follows:
“A general and temporary condition of partial or complete inundation of normally dry land area resulting from the overflow of inland or tidal waters or the unusual and rapid accumulation or runoff of surface waters from any source. Flood may also include mudslide, mudflow, surface runoff flood related erosion of shorelines or lake overflow that are caused by the accumulation of water on or under ground.”
The description “general condition” means that the flood must be a condition of that geographical area. The policy does not cover water damage coming from the insured’s own property. In addition, the policy will not cover damage caused by a broken or stopped-up sewer, a faulty sump pump, earthquake damage, landslide damage, or accumulation of water on an insured’s property due to the formation of the land.
As with any property policy, flood insurance has deductible. It is separately applied to building and contents under the flood insurance policy. There are two minimum deductibles available for the NFIP policy. If the exposure is considered by the NFIP to be low risk, the standard deductible is $500. If the exposure is considered high risk, the standard deductible is $750. Higher deductibles are available in order to reduce premium. These deductibles range from $1,000 to $5,000 (in increments of $1,000).
The following are excluded from coverage:
- Trees, shrubs, plants and lawns
- Reduction in land value
- Fences
- Outdoor swimming pools
- Walks, driveways, and paved surfaces
- Underground structures (i.e., wells)
- building components located below the lowest elevated floor
- Equipment outside a foundation wall (i.e., air conditioner)
- Money and securities
- Animals, birds, and fish (including livestock)
- Aircraft
- Automobiles
- Trailers
- Watercraft
Other Property Insurance Forms
Mobile Home Insurance (MH)
Mobile homes may be insured with the same type of protection that is included in a homeowners policy. This coverage, however, is modified by several unique provisions. In general, an MH policy will provide property and liability protection in a similar fashion to that found in a homeowners’ policy form, except that the exposure (the mobile home) is different.
To be eligible for mobile home coverage, the mobile home must be designed for portability and year-round living and must be at least 10 feet by 40 feet. This restriction eliminates a small camper or trailer being insured as a “home.” The mobile home must also be made up of a frame and wheels. Mobile homes that are permanently attached to a foundation may only be covered in certain situations.
Coverage A provides protection for the mobile home described in the declarations. Structures not attached to the mobile home are generally not covered. Coverage is also provided for personal property and additional living expenses. $500 of coverage is provided for removal when it is endangered by a covered peril.
A transportation endorsement is available, which covers damage caused by collision, upset, stranding, or sinking while the mobile home is being moved to a new location. Once the move begins, the policy will cover these perils for up to 30 days while in transit.
Watercraft
Watercraft property coverage may be obtained to protect against damage by covered perils to an insured’s boat or yacht. A homeowners’ policy provides only limited protection for watercraft. Therefore, boat owners need more comprehensive protection for greater exposure. Liability incurred as a result of the operation or ownership of watercraft is generally excluded by homeowners’ policies. Boat owner policies cover the following:
- Inboard or inboard/outboard boats of over 50 horsepower owned by or rented to an insured
- Any boat powered by an outboard motor(s) in excess of 25 horsepower
- Sailboat that is 26 feet in length or more which is owned by or rented to the insured
A Boat Owners Policy is a package type policy providing property insurance for the insured’s boat and liability protection if the insured is legally liable for bodily injury or property damage to others arising out of its operation, maintenance, or use (although liability for small crafts may be endorsed to a homeowners policy). Property losses are settled on an ACV basis and are subject to a deductible. Coverage is generally provided on an all-risk basis. Someone who owns a sailboat that is longer than 26 feet without inboard power may secure coverage under this policy.
Earth Movement (Earthquake)
Coverage for this peril may be added to some property insurance policies by endorsement. This endorsement generally modifies the earth movement exclusion of most property insurance forms. Coverage is provided for loss to insured property resulting from earthquake or volcanic eruption (does not cover flood or tidal waves generated by these perils). Damage to land is also not covered. Losses will be subject to a deductible. Most property policies now provide coverage for volcanic eruption under the earth movement peril. With regard to most personal lines policy forms, any volcanic eruptions that occur within any 72-hour period will be considered a single or the same occurrence.
Inland Marine Insurance
This type of property insurance was developed many years ago to provide protection for goods or products being transported from place to place. As this type of insurance evolved, the National Association of Insurance Commissioners (NAIC) proposed a “Nationwide Definition” with regard to marine insurance protection. This definition recognized the following classes of property as those eligible to be covered by marine insurance:
- Imports
- Exports
- Domestic shipments (railroads, ships, autos, barges)
- Instrumentalities of transportation and communication (bridges, tunnels, pipelines, power transmission lines, and radio and T.V. equipment)
A risk must include an element of transportation to be eligible for an Inland marine contract. The property must be in transit, be held by a Bailee, be at a fixed location that is considered an important instrument of transportation or be a transportable property which is often different locations.
These all risk forms cover shipments of goods by air, rail or motor carrier. They may also cover the legal liability of the carrier against loss or damage to the merchandise. Goods in transit may be covered in one of two methods depending on whether a common carrier or the insured’s own trucks are being used. An annual transit policy may be used to cover all shipments in a single year when a common carrier is used. Another type of transit policy available to cover single shipments is a trip transit policy. If goods are shipped on the property owner’s trucks, a motor truck cargo policy is used. It functions similarly to the annual transit policy, except the owner of the goods, as mentioned, is using its own trucks, and it is subject to a coverage limit on any one truck in any one place, with a further coverage limit on any one disaster.
Comprehensive Personal Liability (CPL)
A dwelling fire policy provides protection against covered losses as a result of fire, lightning, extended coverages, and several other perils. There is no coverage under a property insurance policy for an insured’s legal responsibility for bodily injury (BI) or property damage (PD) to others arising out of personal activities. Therefore, this exposure may be insured if a person purchases a Comprehensive Personal Liability (CPL) policy. This type of personal liability policy is included as Section II of a homeowners policy.
Under the CPL policy, as in the homeowners Section II coverage, the named insured includes:
- The named insured in the declarations
- Any family or relatives living in the household
- Any other person under age 21 who is in the care of any of the aforementioned insureds
According to a CPL policy, the insured location is:
-
The residence premises
-
Vacant land other than farmland owned by the insured
-
Individual or family burial or cemetery plots
-
Any premises acquired by the insured during the policy period if used for nonbusiness purposes and…
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Any part of a premises not owned by any insured where any insured is temporarily residing
There are two sections of coverage that are identical to Coverage E and F in a homeowners policy.
The CPL policy has some additional coverages, including:
• Supplementary Claim Expense
Also known as supplementary payments, this coverage states that the insurer will pay, in addition to the limits of liability provided by the policy all expenses incurred in the defense of any legal suit (even if groundless) plus any other legitimate and applicable legal expenses.
• First Aid Expense
The insurer will pay, in addition to the policy’s limits, expenses incurred for first aid performed related to any BI covered by the policy.
• Loss Assessment
The insurer will pay up to $1,000 for any assessment against an insured by a condominium or cooperative association. This limit may be increased for an additional premium.
• Damage to the Property of Others
This provides additional insurance up to $500 if the insured is responsible for the damage to the property of others. This coverage pays for smaller PD claims that would not necessitate legal action (and payment from Coverage E, Personal Liability).
• Exclusions
No liability protection is provided to an insured for the following:
- Damage to property owned by the insured
- BI that is covered by Workers’ Compensation
- BI to any insured
- BI or PD arising out of business activities
- BI or PD arising out of the ownership, operation, or use of an aircraft auto or watercraft
- Intentional injury or damage to others
Umbrella and Excess Liability
Everyone is subject to liability claims of catastrophic proportions. Wealthy individuals can be targets of larger-than-normal legal suits. Liability protection may be secured by umbrella or excess liability policies to cover these potential losses.
Excess Liability is designed to provide excess limits of coverage above the limits of applicable underlying coverage. This type of policy does not provide broader protection than is provided by the underlying policy. It provides a greater coverage limit only.
An umbrella liability policy may be purchased for business or personal reasons. An umbrella liability policy provides the excess liability coverage feature of higher limits, but it also provides broader protection not provided by the primary policy.
Specific limits of underlying liability must be purchased before insurers allow an insured to purchase umbrella coverage.
Lesson Summary
The National Flood Insurance Program (NFIP) provides subsidized flood insurance to property owners in flood-prone areas, administered by the Federal Insurance Administration.
- Flood insurance policies are issued by the government and private insurers.
- Program purpose: Make flood coverage available in flood-prone locales.
- Two NFIP programs:
- Emergency Program: Subsidized rates, limited coverage.
- Regular Program: No subsidies, higher coverage limits.
The flood policy covers direct physical loss by or from flood, with specific definitions and exclusions:
- “Flood” definition includes inundation from various sources.
- Exclusions: Various water-related damages and losses.
- Deductibles apply to both building and contents coverage.
Other property insurance forms include:
- Mobile Home Insurance: Specific provisions, property, and liability protection.
- Watercraft Insurance: Protection beyond typical homeowners’ policies for boats and yachts.
- Earth Movement (Earthquake) Coverage: Added to property insurance policies for earthquake or volcanic eruption losses.
- Inland Marine Insurance: Protects goods being transported and includes specific property classes.
- Comprehensive Personal Liability (CPL): Covers legal responsibility for bodily injury and property damage arising from personal activities.
- Umbrella and Excess Liability: Provide broader protection with higher limits than primary policies, with specific requirements.
Chapter Vocabulary
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