It’s that time of year again where the rain starts to fall, and flooding and other rain-related issues arise that businesses typically don’t have to deal with during the rest of the sunshine-filled year— at least in California.
As a business owner, it’s important to understand how your coverage will protect you during various seasons of your business. First and foremost, did you know that Property Insurance has a surface water exclusion? What does this mean for your business?
What is Surface Water?
Surface water is also known as flooding but doesn’t always mean a full-blown flood. In this case, surface water is defined as spring thaw, flash floods, excessive rain, storm drain overflow.
Additionally, surface water is any water that runs through or travels over land where it’s not supposed to be located. It’s typically determined as any damage that has occurred by water that filtered through man-made objects, instead of from the ground
Why is there an Exclusion?
Investopedia outlines some of the main reasons behind the exclusion, “The reasoning is that only specific areas are prone to water-related natural disaster events, such as floods, tidal waves, or tsunamis.” The insurance industry wants to make sure policyholders with these specific water-related exposures purchase specific Flood policies that can address these loss conditions.
Surface Water Insurance
The Standard Flood Insurance Policy (SFIP) Forms contain complete definitions of the coverage they provide. Direct physical losses caused by “floods” are covered. Also covered are losses resulting from flood-related erosion caused by waves or currents of water activity exceeding anticipated cyclical levels, or caused by a severe storm, flash flood, abnormal tidal surge, which result in flooding, as defined. However, damage caused by mudslides as specifically defined in the policy forms is covered under “Catastrophe Coverage.”
In 2012 there was a court case titled, “Union Street Furniture v. Peerless Indemnity Insurance Company,” where the definition of surface water cost Union Street Furniture and Carpet lost substantial amounts of money.
In this case, there was a large storm that funneled rainwater from the parking lot into their commercial building causing water damage. The case claimed that the water damage was not covered by their insurance policy because the water was deemed to be caused by surface water or flooding.
Do you need it?
Take the above example as a learning opportunity. Reach out to your insurance broker to see if it may be a good idea to start investing in a Surface Water Insurance policy. Let your broker know if the topography of your location(s) lend themselves to water damage that fits the definition of “Surface Water”.
Of course, it depends on your specific business situation. If you’re concerned about flood damage specifically, then buying separate flood coverage might be necessary. Flood insurance coverage is available for both commercial and residential properties. With the rainy season approaching in Southern California, there are unpredictable factors that may not be included in your General Liability coverage.
As a business owner, you have or will need to file some kind of insurance claim. Understanding what that means is essential to your success. Read more about commercial insurance claims, and what you need to know here.