FD 00 01–ISO PERSONAL FLOOD POLICY ANALYSIS

(January 2025)

Definitions

Coverages

A. Coverage A – Dwelling And Coverage B – Detached Garage

C. Coverage C - Personal Property

D. Coverage D - Loss Of Use

E. Additional Coverages

Exclusions

Conditions

This analysis is based on the inaugural 11 18 edition of FD 00 01–Personal Flood Policy.

INTRODUCTION

The introduction includes a statement that the coverage provided by this form is from a private source. It is not associated with the public protection available under the National Flood Insurance Program (NFIP). The statement also shares that NFIP coverage is available from licensed insurance representatives and directs interested persons to seek more information from www.floodsmart.com or the Federal Emergency Management Agency (FEMA) website.

AGREEMENT

Under this provision, the insurance carrier agrees to provide insurance (as described in the following policy pages) in exchange for the named insured paying the policy premium AND complying with the required policy provisions. The agreement only applies to coverages accompanied by a specified liability limit.

Note: The named insured must meet BOTH conditions to qualify for coverage.

DEFINITIONS

This portion of the Personal Flood policy defines the terms critical to understanding how the policy responds to coverage situations. The following is a summary of the defined terms that, throughout the policy, appear in quotation marks:

A. You and your are used in the policy to refer to the named insured that appears on the policy’s declarations. You and your also extend to the named insured's spouse, but only if he/she lives in the same household. Our, us and we are used as references to the company providing the personal flood policy.

B. The Personal Flood Policy also makes use of the following defined terms:

1. Below Ground Area

Any real property space with floors located entirely below the surface of the ground. Basements, garages, living areas, storage, and utility spaces are mentioned but not limited to only those spaces.

Note: The definition only applies to floor area below the surface.

Example: Sullivan’s home is bi-level. The lower floor is roughly three feet below grade. The lower-level portion of the home would qualify as a below-ground area.

2. Business

This term applies to a variety of situations. Business refers to a trade, occupation, or profession, EVEN when such activity occurs only on a part-time or occasional basis.

The policy’s definition does exclude the following instances from its business definition:

Activities that only reimburse volunteers for expenses that are directly related to the activity
An insured who provides home day care to his or her relatives

Mutual exchanges of home day care services

The business definition also makes an exception for activities involving modest amounts of income. Specifically, an activity is not considered a business if it generates $2,000 or less in compensation during the 12-month period before the flood policy period.

Note: This refers to the value of compensation, NOT merely cash. So, the details surrounding an activity greatly affect how the activity is classified.

Example: Lorelei’s home is protected under a personal flood policy. Her agent finds out that she cares for her good friend’s two children and is paid a total of $1,800 a year. The agent asks for more details and finds that her home’s heating and cooling bills are in that friend’s name, and that friend pays the utilities directly. The agent informs Lorelei that the total compensation turns the daycare into a business.

3. Described Location

This term refers to the reported location (ideally in sufficient, identifying detail) in the policy’s Declarations.

4. Elevated Building

Any building with its lowest floor existing above the ground. The lowest floor may be supported by walls (foundation or shear), posts, piers, or similar items.

5. Flood

There are multiple parts to this definition.

a. Flood is typically dry areas that have temporarily been covered in whole or in part by any of the following:

(1) Overflowing inland or tidal waters

(a) Waves, tidal waves, and even catastrophic events such as tsunamis

(b) Storm surge, which is seawater driven over land by serious wind events

(c) Water spray from any source of overflow

The above are all forms of flooding, regardless of whether influenced by winds or the involvement of either natural or manufactured bodies of water.

(2) The fast accumulation or run-off of surface waters.

The origin of such activity does not matter and includes containment systems, dams, levees, seawalls, deluges, etc.

(3) Mudflows (a separately defined term)

b. The collapse or subsidence of shores. However, the collapse or subsidence must be due to the action of flood-level water, such as erosion or undermining.

This policy deems flood activity that is lengthy or continuous as a single event.

6. Fungi

Any fungus (including but not limited to mildew and mold), as well as any substances released or created by such matter, qualifies as fungi.

7. Insured

Besides the named insured and resident spouse, the Personal Flood policy considers all of the following to be insureds (with notes on any exceptions):

a. Relatives of the named insured and/or spouse if residents of the named insured’s household

(meaning relatives who live at the insured location with the named insured)

b. Individuals under the age of 21 who reside in the household of the named insured and are in the care of either the named insured or a resident relative must meet the following criteria: they must be younger than 21 AND have either the named insured, their spouse, or a relative of the named insured or spouse as their caregiver.

When the term – an insured – appears in the policy, it refers to either a single insured or more than a single insured.

8. Mudslide or mudflow

Refers to the movement of saturated earth over land that is normally dry. The term refers to such material while actively carried by water current and deposits.

9. Residence Employee

Refers to a person hired directly by a person who, by definition, is considered to be an insured. It also applies to a person an insured hires to work for him or her via a contract with a firm that leases workers. In either case, the worker’s duties must be related to maintaining or using the insured premises.

A person who performs such duties for an insured, but at a different location, also qualifies as a residence employee as long as that work is not connected to an insured’s business.

Temporary workers, whether hired as substitutes for residence employees or to perform household-related duties just for peak need (such as seasonal or holiday work), do not qualify as residence employees.

Example: Chamberlane has employed a household staff for several years. When Penelope, his full-time cook, took off for several weeks for a serious illness, Chamberlane hired Natalie. Natalie left upon Penelope’s return. Natalie did not qualify as a residence employee.

COVERAGES

A. Coverage A – Dwelling and Coverage B – Detached Garage

1. Coverage A - Dwelling

This coverage section protects the following types of property against flood loss:

· The residence that appears on the declarations page

· Any structures that are attached to the described residence

· Any materials or supplies

However, any material or supplies have to be for the purpose of adding to, altering, or repairing the residence or detached garage described on the declarations. Further, such property must be within a structure that is completely enclosed (four walls and ceiling/roof) and which is on or next to the property that meets the policy’s definition of described location.

Example: Patricia is building an addition onto a home covered by a Personal Flood policy. On the day drywall is delivered, it is ruined by a flood triggered by a huge rainstorm. The destroyed drywall is not insured under Coverage A. Even though the material was intended to become a part of the dwelling, the material was stacked in the open and is ineligible for flood protection.

This section provides coverage of last resort to certain property. If no other part of the policy applies, then Coverage A supplies flood protection for building equipment that maintains/services a covered structure (dwelling or detached garage).

2. Coverage B – Detached Garage

This coverage section protects a single detached garage. The garage must exist in the area qualifying as the described location. The coverage amount is 10% of the limit that appears for the dwelling under Coverage A. Any amount paid under the 10% limit reduces the policy’s available coverage.

Example: Paul’s home is protected by a Personal Flood Policy. It has a limit of $180,000. The home is severely damaged by flooding that affected his home and his two-and-a-half-car detached garage. His insurer pays for $17,000 in damages to his garage. That leaves a maximum remaining amount of $163,000 available for addressing the damage to his home.

[$180,000 - $17,000 = $163,000]

3. Property Not Covered

There are various situations that do not qualify for protection under Coverage A.

a. Detached Garages

No coverage is available for detached garages that meet the following criteria:

1. Rented or made rentable by any person except a dwelling’s tenant. An important exception exists. Protection is still available for rentals restricted to the use of the property as a private garage.

Example: Jeremy’s detached garage is not used, so he rents his unused garage to his neighbor, Jason.

Scenario 1: Jason does some renovation and uses it as a small salon. This would not be covered under the personal flood policy.

Scenario 2: Jason uses it to store his personal auto. This would be covered under the personal flood policy.

2. Used for commercial purposes

3. Involved in any form of farm activity

Example: Sharla and her friends live in a city with an aggressive urban farm program. They plant and harvest a variety of crops on 1.5 acres. Harvests in the last few years have been bountiful. They are active in canning produce they sell to area stores. Her garage is used mostly for storing canning equipment, supplies, and finished canned goods. This garage would not be eligible for coverage under her Personal Flood policy.

b. Any building or structures located upon or over water

c. Non-structural property such as land (including land values, restoration, or remediation expenses), lawns, trees, shrubs, plants, or growing crops.

Example: Jim’s home is on two acres, and three-quarters of the space is used as a substantial personal vegetable garden. When his property is flooded, his home suffers minor damage, but he estimates losses of several thousand dollars in crops. Only the structural property damage is eligible for protection under the Personal Flood Policy.

d. Wells, septic tanks, septic systems, and similar underground structures and equipment

e. Walks, walkways, decks, driveways, patios, and similar surfaces that do not exist within a building’s exterior walls. This coverage limitation even applies to such property that may be covered by a roof.

Example: Non-covered property

f. Outdoor and waterfront property such as fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, or docks

g. Hot tubs and spas. An exception is made for hot tubs and spas located in bathrooms as fixtures

h. Swimming pools and related equipment (for instance, pool heaters, covers, filters, pumps, or liners)

B. This Section Reserved for Future Use

This allows for future policy wording changes without affecting the policy sections that follow. As the program matures, the combined protection initially offered under Coverage A will likely separate.

C. Coverage C - Personal Property

1. Covered Property

a. The Personal Flood Policy protects against direct physical loss from flood that occurs to personal property owned by or used by an insured. Coverage protection applies only while such property is contained within a building found at the defined (described) location.

Personal property owned by others can be covered but only if the insured asks that it be covered and both of the following apply:

· The property is contained within a building found at the defined (described) location

· The property belongs to an insured’s guests or a residence employee

Example: Anthony’s home suffers a flood loss during the time that relatives are visiting. The relatives’ luggage and clothing are ruined. Anthony’s claim for damages includes the loss of the luggage and clothing. That part of his claim is eligible for Personal Flood coverage.

b. Certain instances involving personal property do not qualify for Personal Flood coverage. Non-qualifying situations are:

(1) Personal property in areas defined as a below-ground area

(2) Personal property in an area lower than an elevated building’s (as defined) lowest elevated floor

Important: Paragraph C.1.b. has an important exception. Personal property coverage is granted for certain portable or window air conditioners, washers, dryers, refrigerators, and freezers and their food even though located in areas described in C.1.b.(1) or (2) but only if installed in those areas and connected to a power source. The exception does NOT apply to walk-in refrigerators or freezers.

This restriction is important as it limits coverage to such property in actual use and not to expensive unused or merely stored property.

2. Special Limits of Liability

The Personal Flood Policy includes many classes of personal property with specific monetary limitations. You should notice the categories involve different classes or property highly susceptible to loss or destruction due to their nature. This limitation is a sub-limit that does not increase the personal property insurance amount that appears on the policy declarations. Specifically, a maximum coverage amount of $2,500 applies separately to each of the following classes of property:

· Furs

· Jewelry, watches, semi-precious and precious stones (gems)

· Artwork, photographs, collectibles, rare books, memorabilia, sports cards, figurines and similar property

· Personal property used primarily in business

· Solid or plated silverware, goldware, platinum ware, pewterware, including hollowware, flatware, tea sets, trays, and trophies

3. Property Not Covered

Under Coverage C- Personal Property, eleven categories of property are excluded from coverage. The excluded classes of property are:

a. Any property separately described and specifically insured in this or other insurance.

This exclusion prevents insureds from collecting twice for the same loss. This applies regardless of the amount of coverage provided by any other source of insurance. Besides discouraging “double-dipping,” this should encourage insureds to insure property under the most appropriate policy.

b. Personal property located outside of buildings

Flood coverage will not be offered to property not protected from immediate exposure to water.

c. Personal property located in any building upon or over any body of water

This aligns with the same exclusion for building property. The high vulnerability to water loss due to extreme proximity to water is as great for both major property classes.

d. Motor vehicles

The reference to motor vehicles (including semi or full trailers) applies to related equipment and parts. The following are exceptions to this exclusion:

(1) Portable electronic audio, visual, and data devices, but only if they can be powered by a source that is NOT a motor vehicle’s electrical system.

Note: The exclusion of property powered exclusively by the motor vehicle is intended to eliminate coverage for equipment that should be covered more appropriately elsewhere, such as under an auto policy, which generally provides more complete coverage for permanently installed electronic apparatus.

(2) This exclusion has another important exception. There is coverage for certain motor vehicles. The Personal Flood policy covers motor vehicles not subject to motor vehicle registration and meets one of the following criteria:

· Have the single purpose of servicing an insured's residence.

· Designed to assist the handicapped.

Example: Motorized wheelchair

e. Animals, birds, or fish

f. No coverage for a wide variety of security-level property, such as the following:

· Money	· Bullion	· Tickets
· Coins	· Bank notes	· Stamps
· Securities	· Letters of credit	· Passports
· Currency	· Deeds	· Accounts
· Manuscripts	· Evidences of debt	· Personal records
· Bills	· Medals	· Gold other than goldware
· Notes other than banknotes	· Silver other than silverware	· Scrip (of or converted to monetary value)
· Platinum other than platinum ware	· Stored value cards and smart cards

g. Underground equipment

h. Tanks including contents

i. Aircraft

The policy defines aircraft as something used or designed for flight. This property exclusion does not apply to hobby or model aircraft not designed or used to carry people or cargo.

j. All forms of watercraft

This exclusion extends to related property, including furnishings, equipment, outboard engines, and motors.

k. Hovercraft and parts.

This exclusion is for any self-propelled motorized ground effect vehicle and includes flarecraft, air cushioned, and similar vehicles.

l. Hot tubs and spas. An exception is made for hot tubs and spas located in bathrooms as fixtures

m. Swimming pools and related equipment (for instance, pool heaters, covers, filters, pumps, or liners)

Related Court Case: Pool Collapse Damage Not Covered

D. Coverage D - Loss of Use

This portion of the Personal Flood Policy provides coverage for Additional Living Expenses, Fair Rental Value, and Civil Authority. The insurance limit that appears for Coverage D is the total amount that applies to all three coverages. Specifically, Coverage D provides:

1. Additional Living Expenses

If a flood loss to covered building property and/or its contents makes the insured premises unusable, this coverage pays an insured’s expenses beyond normal living expenses. It also applies if the insured is a tenant in a building damaged by flood.

Note: The extra expenses must involve the cost of maintaining an insured’s normal way of life.

Example:

Scenario 1: The added cost of renting a regular hotel room for a couple is likely covered.

Scenario 2: The added cost of renting a luxury suite hotel room for a couple is likely only partially covered.

A time limit controls the payment of these expenses. Payment will last until the damaged home is repaired or replaced, or until the insured has found a new, permanent residence, whichever occurs first.

Related Court Case: HO Claim Includes Structure, Contents and A.L.E.

2. Fair Rental Value

This coverage pays an insured the fair rental value of the part of the described location that the insured rents out or holds for rental. Any payment is reduced by any expenses that cease while the residence can’t be used.

Of course, the covered building property and/or its contents must first be made unavailable or unlivable by a covered flood.

Payment under additional living expenses or fair rental value will be for the shortest time required to repair or replace the damaged property. This coverage applies to loss involving covered building contents only when the party affected is a tenant of the described building property.

3. Civil Authority Prohibits Use

If a civil authority prohibits the described location from being used due to direct damage to neighboring premises by a covered cause of loss, the additional living expense and fair rental value loss as provided under additional living expenses and fair rental value is covered for a maximum of two weeks.

Example: After a flood, the foundation of Frank’s neighbor’s home was damaged to the point that the home is likely to collapse. A city inspector decides it would be best for Frank to live elsewhere while the neighboring property is demolished. The most time the policy will pay for is two weeks. After two weeks, the additional costs of temporary living arrangements become Frank’s out-of-pocket expense.

The coverage periods extended under additional living expenses, fair rental value, and civil authority are not limited by the policy's expiration date.

4. Loss or Expense Not Covered

There is no coverage for the cancellation of a lease or an agreement.

Example: Klay’s home is flooded. It is a two-story, two-family home, and he rents out the upstairs. When his tenant finds out it will take several weeks before the home can be inhabited again, she breaks her lease. Klay can’t recoup the loss of the remaining lease payments.

E. Additional Coverages

The Personal Flood policy provides several coverages in addition to coverage parts A, B, and D.

1. Debris Removal

This portion of the Personal Flood Policy will pay the reasonable expenses to remove debris of covered property if a flood causes the loss

Example: Henry returns to his home after flood waters have cleared. He is upset to find his yard is covered with debris from his neighbor’s house. Unfortunately, since the debris is from elsewhere, his policy’s Debris Removal coverage WOULD NOT be available to pay for the expense of clearing his property.

This coverage is a part of the limit of insurance available to respond to repairing or replacing damaged property. If the sum of the amount paid for actual property damage and the debris removal exceeds the limit of liability for the damaged property, an additional 5% of that limit of liability is available for debris removal expense.

2. Reasonable Repairs

If covered property is damaged by flooding, this additional coverage will pay the reasonable cost an insured incurs for protecting the property from additional damage. Coverage includes reimbursement for repairing other damaged property.

Remember, to qualify for this additional coverage, the expenses must involve covered property damaged by a flood. This coverage does NOT increase the limit of insurance that applies to the covered property, AND the insured is still obligated to protect the property from further damage per other policy conditions.

Examples:

· Buying plywood and materials to board up basement-level windows broken by debris in flood waters

· Hiring workers to move personal belongings from a flooding lower level of a home to its dry, second story.

3. Property Removed

If covered property is being removed from a described location endangered by a flood, the property moved is covered for any direct damage for a maximum of 45 days. This additional coverage does not affect the insurance limit that applies to the covered property. However, it does provide temporary protection that is much broader than the normal policy coverage.

During a maximum 45-day window in which endangered property has been removed, coverage applies to ANY source of DIRECT damage.

This additional coverage pays up to $1,000 for the costs of removing property. However, there are conditions. The removed property must be placed in a fully enclosed structure above ground level.

4. Sandbags, Supplies and Labor

This policy portion provides help for measures taken to mitigate damage to covered property in the midst of or endangered by flooding.

A total of $1,000 is available to offset the costs of sand and sandbags, fill material for creating temporary levees, pumps, plastic sheeting, and lumber. This modest amount is available without a deductible, and payment under this provision does not reduce the policy’s other available coverage.

5. Improvements, Alterations and Additions

This coverage extension is available to a tenant occupying the described location. If the tenant has paid for an improvement, alteration, or addition to the property at the described location, it is covered for up to 10% of the Coverage C limit. This property must be located in a part of the described location where the tenant resides.

Payment under this coverage DOES NOT reduce the amount of coverage available to protect personal property that may be damaged in the same loss.

6. Loss Assessment

The insurance company will pay up to $1,000 for the named insured’s share of a loss assessment charged during the policy period against it by a corporation or association of property owners. The assessment has to be due to a direct loss to property collectively owned by all members.

In addition, the loss that triggers the assessment has to be caused by flooding. Regardless of the number of assessments, $1,000 is the maximum amount that will be paid for a single occurrence.

Example: The Todders own a home in a gated community that includes a clubhouse, basketball courts, health club, etc. The Todders are members of the homeowners association that oversaw maintenance of its common property. During a flood, the health club is destroyed. The association’s insurance policy doesn’t pay the entire loss. The Todders, along with the other homeowners in the community are assessed $3,400 each to pay for the remaining cost of rebuilding. The Personal Flood policy will pay $1,000 toward this assessment.

This is a very specific coverage and applies only to those loss assessments charged against the named insured because it is the owner or the tenant of the described location.

An unusual feature is that Section I Condition P. Policy Period does not apply to this coverage, which means that the loss that causes the assessment is not required to occur during the policy period.

Ineligible Assessments - No coverage is available for assessments made by ANY governmental body against the named insured or a corporation or association of property owners.

Deductible –There is no separate deductible for this coverage. This means it is subject to the policy deductible on the declaration page. Regardless of the number of eligible assessments in a single occurrence, the deductible only applies once to each residential unit owned by the named insured.

Note: This is a per-loss deductible, not a per-coverage deductible. If the loss is ONLY for loss assessment coverage, the single deductible applies. If the loss is for personal property and assessment, the deductible applies only once and to the total of those two coverages amounts.

EXCLUSIONS

Part A.

This section is extremely important in answering the question often posed by insureds: “Does my policy cover this?”

The first place an agent often looks is in the Exclusions section of the policy. There is no insurance protection for direct or indirect loss due to any of the sources of loss that appear in this policy section. The loss is excluded:

· Regardless of any other cause or event contributing concurrently or in any sequence to the loss, and;

· Regardless of whether the damage is localized or widespread.

Under this part of the Personal Flood Form policy, there is no coverage for:

1. Ordinance or Law

This exclusion refers to any loss or expense created by the enforcement of any ordinance or law regulating the construction, repair, remodeling, renovation, or demolition of a building or other structure, regardless of whether a physical loss occurs.

Besides construction-related costs, the exclusion also applies to any loss in property value, pollution-related loss (including expenses associated with monitoring, testing, or remediation of polluting events), and requirements to remove debris.

2. Earth Movement

Earth movement is defined as an earthquake and includes land shock waves or tremors that occur before, during or after a volcanic eruption, landslide, mine subsidence, mudflow, destabilization, gradual erosion, or earth sinking, rising, or shifting.

This source of loss is excluded regardless of whether it is connected to human, animal or natural (force of nature) activity.

An important element of this exclusion is IF flooding occurs after any earth movement, the policy will pay for the damage caused by the subsequent loss.

Note: Such events are often referred to as ensuing losses.

3. Rain, Snow, Ice or Sleet

Exclusion extends to damage caused by spray from any of these.

4. Freezing, Thawing, Pressure or Weight or Water or Ice

While these sources of loss are excluded, coverage is still granted for related flood damage.

5. Fungi, Wet or Dry Rot or Bacteria

This exclusion refers to a loss that may result from its development after a flood when waters leave the described location. No coverage is available when fungus or rot occurs because of the insured's neglect in post-loss maintenance or care.

6. Water

The exclusions in this item apply regardless of whether they are connected to human, animal or natural (force of nature) activity.

The Personal Flood policy does not cover a loss caused by any of the following:

a. Water (including waterborne material) that does either of the following IF it is not a consequence of flood activity:

· Backs up through sewers or drains

· Overflows from a sump, sump pump, or similar system

b. Water below the ground's surface, including water that exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool, or other structure. Again, the exclusion does not apply if this source of loss is a consequence of flood activity.

7. Theft, Fire, Explosion, Wind or Hail

8. Intentional Loss

This exclusion refers to any loss due to any intentional act of any insured covered by the Personal Flood policy. An intentional act includes any act that is meant to create a loss. Any conspiracy to commit such an act also qualifies as an intentional act. The exclusion applies even to innocent insureds (insureds who do not participate in an intentional act, including its planning). Adding the reference to innocent insureds is a response to decisions in various jurisdictions that obligated insurers to settle certain intentional losses.

Example: Charles is upset when he is denied selection as his town’s fire department chief after many years of service. As a prank, he opens a fire hydrant near his home, hoping to waste the department’s time making a run to close it. He did not know that the department was busy with an emergency elsewhere. He’s unable to close the hydrant, and so much water is released that his and several other nearby homes are flooded. This loss is not covered by his Personal Flood Policy.

9. Power Failure

This exclusion involves losses caused by a failure of power or other utility service. However, there are two important exceptions:

The exclusion applies ONLY when the failure takes place off the described location. This means that if the utility power failure happens on premises, coverage applies.
When loss by a covered flood occurs on the described location because of an excluded power failure, that ensuing loss is covered.

10. Neglect

This exclusion bars coverage for any failure of the insured to use all reasonable means to save and preserve property at and after the time of a loss. This exclusion fits perfectly with the intent of insurance to cover losses that are accidents or, in other words, which are beyond the policyholder's control.

It is logical to exclude payment for losses that could have been prevented by an insured taking care to protect the property. Remember, though, the exclusion is for failure to take ordinary, rather than heroic, measures.

Related Article: Saving Water Damaged Property

11. War

War is considered to include any of the following and any consequence of any of the following:

· War	· Undeclared war	· Civil war
· Rebellion	· Revolution	· Insurrection
· Warlike act by military force or personnel	· Destruction, seizure or use for a military purpose

Even if a nuclear event is entirely accidental, the discharge of a nuclear weapon will be treated as a warlike act.

12. Nuclear Hazard

This exclusion consists of the event as defined and to the degree explained in the nuclear hazard clause found in the Personal Flood Policy’s CONDITIONS section.

13. Governmental Action

The policy does not allow coverage for property described in Coverage A - Dwelling, Coverage B - Detached Garage, and Coverage C - Personal Property that is destroyed or seized under the orders of any government unit or public authority.

There is a very important exception connected to this exclusion. If the government action or order is related to a fire or the prevention of the spread of fire, any loss caused by the fire IS eligible for coverage.

Part B.

The Personal Flood Policy does not respond to flood activity (whether direct or indirect) that occurs before the policy inception date or before the date that either an increase in coverage or new coverage is added.

CONDITIONS

A. Insurable Interest and Limit of Liability

Regardless of the number of people with an insurable interest in the property covered, the insurance company providing the Personal Flood coverage is limited in its response. It won’t pay any insured more than the amount of that insured's interest applying at the time of loss. It also will pay no more than the limit of liability for the covered property.

Specifically, the Personal Flood Policy is only obligated to pay the policy limit that applies to a covered entity that has suffered a loss to covered property.

B. Deductible

This section merely says the insurer will pay only the portion of an eligible loss that exceeds the applicable deductible and the payment is subject to the given limit of insurance.

When, in a given situation, more than a single deductible applies to a loss, the insurer will only use the highest applicable deductible. This provision also states that this item may be pre-empted by specific deductible language that applies to other coverage parts.

C. Duties after Loss

This provision reinforces an insured’s prime obligation to strictly comply with its requirements. It mentions that if an insured fails to perform the duties, and if that failure adversely affects (prejudices) the insurer, the insurer is no longer obligated to provide coverage. An insured's cooperation is critical to an insurance company's ability to perform under the insurance contract.

Related Court Case: Uncooperative Insured Can’t Seek Arbitration

In case of a loss to covered property, the named insured, the insured seeking coverage, or a representative of either party is responsible for the following:

1. Giving prompt notice to the insurance company or the insurance company’s agent.

2. Protecting the property from further damage.

If repairs to the property are necessary, the insured is required to do both of the following:

· Make reasonable and necessary repairs to protect the property

· Keep an accurate record of repair expenses because most are covered under the policy

Example: The Sandersons home was severely damaged by flooding. The base of the home’s porch stairs caved in during the height of the flood. Fearing the rest of the stairs and portion of the porch might be in danger of being submerged, they hired a handyman who was able to shore up the base and secure it for later repairs. The Sandersons further complied with their policy by keeping record of both materials and labor for the work.

3. Cooperate with the insurance company in the investigation of a claim.

This item acts as an important reminder that the insured must be an active and willing participant in the claims process.

4. Prepare an inventory of damaged personal property.

The inventory must show the quantity, description, actual cash value and amount of loss. The insured should also attach any bills, receipts and related documents that will justify the figures reported in the inventory.

Related Article: Actual Cash Value Guide

5. As often as is required by the insurance company, the insured must do all of the following:

a. Show the damaged property

b. Provide the insurance company with the records and documents that they request and allow them to make copies

c. Submit to and sign an examination while under oath and without being in the presence of any other insured.

This condition is onerous, but the insurer is in the vulnerable position of relying on the insured concerning the scope of the loss. The insurer uses this condition to maximize its chances of getting accurate information for investigating a claim.

Unfortunately, this condition often becomes a battleground between insurers and claimants. The interests of insureds may have been better served if this condition contained some wording that obligated an insurer to exercise courtesy and reasonableness when enforcing this provision.

6. The named insured must send to the insurance company, within 60 days after its request, a signed, sworn proof of loss which, to the best of the named insured’s knowledge, describes the following:

a. The time and cause of loss

b. The interest of all insureds and all others in the applicable property, including complete information on any and all existing liens on the covered property

c. The availability of other insurance that may apply to the loss

d. Details on status changes affecting the property’s legal ownership (title) or occupancy that took place during the policy term.

e. Any details on the damaged buildings regarding repair estimates and specifications

f. The inventory of damaged personal property described in an earlier part of this section

g. Additional living expense receipts and other information that can document a loss involving fair rental value

Related Court Case: Confusion Caused by Treatment of Proofs of Loss

D. Loss Settlement

Any mention of replacement or repair cost does NOT include any expense created by any ordinance or law. In light of this clarification, covered property losses are settled in the following manner:

1. The following types of property are paid at actual cash value at the time of loss but not more than the amount required to repair or replace it:

a. Personal property

b. Awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment. The exclusion is not affected if such property is attached to structures.

Actual cash value is generally considered to be today’s replacement cost of the item minus depreciation.

Example: Jen Ludway’s favorite drum set was among the many furnishings ruined in a flood. She is upset when her settlement includes only $170 for the drums. She shared pictures and her original receipt documenting the purchase price of more than $1,100. Though unsatisfied, Jen accepts the explanation that the settlement reflects the drums’ aging and her regular use of the them for more than a dozen years.

2. Dwellings and other structures are covered at replacement cost without deduction for depreciation. However, any payment is conditional upon the following:

a. At the time of loss, if the amount of insurance in this policy for the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, the insurance company will pay the cost to repair or replace, after application of deductible and without deduction for depreciation. In no case will the insurance company pay more than the least of the following:

(1) The limit of liability under this policy that applies to the building.

(2) The replacement cost of the portion of the damaged building, based on the building’s function and use of similar materials.

(3) The amount sufficient to either repair or replace the damaged building.

Under this section, it does not matter if the covered property is rebuilt at a new location. Such a move would be considered inconsequential to the operation of the policy settlement. The payment under the policy would be limited to the maximum eligible cost that would exist if damaged property were rebuilt at its original location. The additional cost would belong to the policyholder.

b. The relationship of the amount of coverage carried on a damaged building to that building’s full replacement cost is critical. When a loss occurs, if the insurance limit is less than 80% of the building’s full replacement cost (before the loss), the insurance company isn’t obligated to pay more than the limit of insurance under the policy; further, the insurer is limited to paying the greater of:

(1) The damaged portion’s actual cash value.

(2) That proportion of the cost to repair or replace, after application of deductible and without deduction for depreciation of the part of the building damaged, based on the ratio between the part of the limit carried on the policy and the amount equal to 80% of the replacement cost of the building.

c. The calculation of the 80% of the full replacement cost figure should not include the value of any of the following:

(1) Excavations, footings, foundations, piers, or any supports beneath the covered structure’s below-ground area.

(2) If there is no below-ground area, then those supports described in c. (1) that are beneath the ground located within the foundation walls.

(3) Underground flues, pipes, wiring, and drains

d. The insurance company pays no more than the actual cash value until the actual repair or replacement is complete. Once it is complete, the insurance company will settle the loss according to the provisions discussed above. If, however, the cost to repair or replace the damage is less than 5% of the amount of insurance in this policy on the building and less than $2,500, the loss will be settled according to the provisions listed above, regardless of whether actual repair or replacement is complete.

e. An insured has the option to forego replacement cost loss settlement provisions and ask that the loss or damage to buildings be settled on an actual cash value basis. However, if the insured changes their mind, they have up to 180 days from the date of the loss to ask for any additional amount due according to a settlement based on the replacement cost. If the insured misses this 180-day window, the actual cash value settlement basis is their only reimbursement.

This condition emphasizes the point that it is very important to accurately document the replacement cost of the covered property. Property not complying with the policy’s replacement costs provisions is subject to a tedious and complicated settlement process.

E. Loss to a Pair or Set

When property that is part of a pair or set suffers a covered loss, the insurer can choose to settle on one of the following basis:

1. Repair or replace any component that results in returning the pair or set to its pre-loss value

2. Pay the amount equal to the pair or set’s pre-loss and post-loss actual cash value

Note: This condition DOES NOT say whether the insurer has the option of paying the least or most expensive of the two options. However, it would be consistent with other settlement provisions of the policy that an insurer is likely to select the least expensive option.

F. Appraisal

If the named insured and the insurer disagree on the amount of loss, either party can demand the loss be appraised. In this process:

· Each party chooses a competent, impartial appraiser no later than 20 days after getting the other party’s request for an appraisal.

· The two appraisers will choose an umpire.

· Each party has to share the cost of the judge and pay the entire expense for their own appraiser.

If the appraisers cannot agree upon an umpire within 15 days, either the insurer or the insured can ask that a judge be selected by a court of record in the state where the residence premises is located.

The appraisers must submit separate opinions on the loss amount, and an agreement (submitted to the insurer in writing) between any two persons (among the appraisers and the judge) becomes binding on both the insurer and the policyholder.

G. Other Insurance and Service Agreement

This represents a broader intent than the traditional other insurance provision since it addresses other sources of protection.

1. If a covered loss is also protected by other insurance, the insurer’s payment obligation is shared with the other coverage source. Specifically, the insurer becomes obligated to pay only its share of the loss. The share is determined by taking the total amount of available insurance and determining the insurer’s percentage of coverage.

2. If any valid service agreement applies to the covered property, this insurance is triggered once the amount available under the service agreement is paid.

Service agreement refers to the following:

· Service plan

· Property restoration plan

· Home warranty

· Other warranties.

This condition applies even if, rather than being called a warranty or plan, the other source of coverage calls itself insurance.

Note: This condition only refers to other coverage but does not specify whether the other source has to be valid and collectible. Therefore, a dispute could arise depending upon how this condition is exercised.

H. Suit Against Us

This condition states that an insured cannot sue the insurer without fully complying with the various terms and conditions of the Personal Flood policy. Further, any suit has to be filed no later than two years after the loss date.

The intent of this provision is to make certain that an insured takes every course of action available and to use a lawsuit only as a last resort. It should be to everyone’s advantage if conflicts can be resolved without going to court. However, suits happen, and if this alternative is chosen, the insured must file the action within two years of the loss date.

I. Our Option

“Our” refers to the insurance company. This condition obligates the insurer to either repair or replace the damaged property within 30 days after receiving the insured’s signed, sworn proof of loss. The insurer also has the option to use material similar in type or quality to repair or replace the damaged property. In other words, the insurance company is not obligated to pay a loss with cash. The insurance company can actually replace the damaged property with new or like property.

J. Loss Payment

The insurance company will adjust all losses with the named insured. The insurance company will pay the named insured unless some other person is named in the policy or has a legal right to receive payment.

All losses will be payable 60 days after the insurance company receives the named insured’s proof of loss and after one of the following occurs:

1. The insurance company reaches an agreement with the named insured

2. An entry of final judgment is entered

3. The insurance company receives the filing of an appraisal award.

This condition explains to the insured that the insurance company is only obligated to deal with persons who have a valid interest in the loss, not with disinterested third parties such as lawyers, independent brokers, or specialists.

K. Abandonment of Property

The insurance company is not required to accept any property abandoned by the named insured. In other words, an insurance company is not automatically responsible for taking care of or disposing of damaged property.

Example: Shana’s pressed wood ping pong table was reduced to a crumbled pile during a flood. Shana’s insurer pays her $75 for the table, which she bought nearly two years earlier. The table cost $320 new, so the $75 reflected two years’ depreciation and use. Because it was a minor loss, the settlement was handled over the phone. Shana asks her company to get rid of the ruined ping pong table, which was moved to a space next to her driveway. Her company claims specialist advises that it’s her responsibility to dispose of the table.

L. Mortgage Clause

1. When the policy’s declarations page includes a mortgagee, that mortgagee will be paid along with the named insured for any eligible loss involving property covered under dwelling coverage (Coverage A) or other structures coverage (Coverage B). The payment will be made according to the mortgagee’s insurable interest. It will reflect any order of precedence if there is more than one mortgagee.

2. If the insurance company denies the named insured’s claim, that mortgagee may preserve its right to a loss payment by taking corrective action as described below:

a. The mortgagee notifies the insurer of any change in ownership, occupancy, or substantial change in risk of which it is aware

b. The mortgagee pays any premium due if the named insured fails to make the premium payment

c. The mortgagee provides the insurer with a signed, sworn statement of loss within 60 days of being told that this has NOT been done by the named insured.

In other words, when a mortgagee exists, an insured’s failure to comply with the policy conditions does NOT endanger the mortgagee’s recovery for a covered loss IF the mortgagee agrees to fulfill the policy conditions in place of the named insured.

In addition, if there are disputes involving a claim, the mortgagee assumes the ability to exercise the rights to appraisal or legal action against the insurer. However, the mortgagee is also obligated to the same terms: specifically, to comply with ALL policy provisions and to be subject to the same two-year time frame for filing a lawsuit.

3. If the insurer cancels or does not renew the policy, the mortgagee will be notified of its intent before the termination. The notification is at least 10 days before the date of cancellation when the reason is for nonpayment or when the initial policy is in its first 60 days (not a renewal policy). Otherwise, the Mortgagee receives an advance notice of at least 45 days.

4. When a decision is made not to renew coverage, the Mortgagee receives an advance notice of at least 45 days.

IMPORTANT: While these are the time frames appearing in the policy, the time limit and notification requirements are determined by state laws in which the policy is issued.

5. If the insurance company pays the mortgagee for any loss and denies payment to the named insured, the insurance company receives the mortgagee’s subrogation rights.

The insurer reserves the option of paying the mortgagee the entire principal balance on the mortgage along with any accrued interest. If the principal and interest are paid, the insurer acquires a full assignment and transfer of the mortgage. The transfer includes all securities held as collateral for the mortgage.

6. However, any subrogation will not impact the mortgagee's right to receive the full amount of their claim.

M. No Benefit to Bailee

Through this policy provision, an insurer denies any policy benefit to entities (personal or commercial) that charge or receive a fee for providing any of the following services:

· Holding property

· Storing property

· Moving property

This applies irrespective of what is stated in any other provision of the Personal Flood Policy.

N. Nuclear Hazard Clause

Nuclear hazard refers to the following:

· Nuclear reaction

· Radiation

· Radioactive contamination

These terms apply regardless of the incident being controlled and how the event is caused. Any consequence of a nuclear hazard is also considered a nuclear hazard.

The Personal Flood Policy does not cover ANY loss caused by nuclear hazard.

O. Recovered Property

The named insured and the insurer must tell each other when, after a loss has been paid, property involved in the claim has been recovered. What happens next is up to the named insured. The named insured may allow the company to have or keep the property, or the property may be kept by (or returned to) the named insured.

If the property is returned to the named insured, any payment will be adjusted to account for the condition or value of the property. This means that the named insured may have to return part or all of any loss payment received.

P. Policy Period

This item merely states that coverage supplied by this policy is only valid for loss that actually occurs during the applicable policy period.

Q. Concealment or Fraud

This provision voids coverage to all persons otherwise eligible for protection if the insurer discovers any incidents of significant information being kept from it (either due to concealment or misrepresentation). Loss of coverage also results if any otherwise covered persons are guilty of fraudulent behavior or lying (false statement) regarding any aspect of the applicable insurance coverage.

R. Loss Payable Clause

The purpose of this provision is to change how the policy operates when a loss payee appears on the policy declarations. When a loss payee is included, they are included in the definition of insured but only concerning the specifically covered property. Additionally, the loss payee is entitled to receive written notification if the policy is canceled or not renewed.

S. Liberalization Clause

If the insurance company makes a change that broadens coverage under this edition of the policy and there is no additional premium charge for the change, it automatically applies to this policy as of the date the change is implemented in the state where the policy is issued. Because policies are often renewed in advance, such changes made up to 60 days prior to renewal or made during the policy term are automatically part of the policy without needing to be endorsed.

IMPORTANT NOTE: This clause does not apply to changes introduced in a general program revision, including broadening and restricting features. A general program revision can be implemented through a subsequent policy edition OR an amendatory endorsement.

T. Waiver or Change of Policy Provisions

An insurer has to give an insured written permission or approval to make any valid waivers or changes in the policy. However, an insurer’s request for an appraisal or examination will not waive any of an insurer’s rights.

U. Cancellation

1. The named insured has the right to cancel the policy at any time and for any reason. The only requirement is that the policy be returned or a written notice be given to the insurance company. The named insured must specify the date upon which the cancellation is to be effective.

2. The insurance company is more restricted in how it may cancel the policy. A written notice must either be given to the named insured or mailed to the mailing address on the declarations. Proof of mailing is sufficient proof of notice.

The reason for the cancellation must be stated, and those reasons and when they can be used are explained as follows:

Non-payment of premium - When the premium has not been paid, the insurance company may cancel at any time by providing no less than 10 days’ notice before the date cancellation takes effect.
Under 60 days of coverage - When this is the first policy issued by this insurance company for this named insured, and it has been in effect for less than 60 days, the insurance company may cancel for any reason by providing no less than 10 days’ notice before the date cancellation takes effect.
All others - The policyholder receives an advance notice of at least 45 days, but this is subject to applicable state law.

3. The premium for the unused days of insurance must be refunded when the policy is cancelled. The refund must be calculated on a pro-rata basis.

4. The return premium can be provided with the notice of cancellation or at a later date, provided the time frame is reasonable.

V. Nonrenewal

The insurance company has the right not to renew the policy. If they do, they must either deliver a non-renewal notice to the named insured or mail such a notice to the mailing address on the declarations. The notice must be provided no less than 45 days before the expiration date of this policy. Only proof of mailing is required as proof of notice.

IMPORTANT NOTE For Cancellation and Nonrenewal Conditions:

For the purpose of providing a complete analysis, we have included comments on both of these conditions.

State laws control most aspects of how, when and if a policy can be cancelled or nonrenewed. Individual companies should be thoroughly familiar with the law of each state in which it uses the Personal Flood Policy since these laws may stipulate what is required for:

· Nonrenewal or cancellation reasons

· Parties who must receive advanced notice of either cancellation or nonrenewal

· An insured’s recourse concerning a cancellation or nonrenewal

· How notices must be mailed

· Whether a notice must indicate the reason for either a cancellation or nonrenewal

· How much advanced notice is required for cancellations or nonrenewals

· The timing of such notices, etc.

W. Assignment

This policy provision merely states that a policy assignment cannot take effect unless and until the insurer gives its approval in writing.

While a company may validate a policy assignment, such arrangements are rare. Typically, once the insurable interest in a home has changed, it is preferable to terminate the old policy and rewrite coverage in the name of the current insurable interest.

X. Subrogation

This part of the policy gives an insured the choice to waive all his or her rights to recover against any person legally responsible for a loss paid under this policy. The waiver must be in writing and performed before any applicable loss. If these rights are not waived, the insurer may require the insured to assign the rights so that the insurer can attempt to recover payment from another party responsible for the loss. The rights are only good for the maximum amount the insurer paid to handle the loss. When an insured assigns its rights to the insurer, it must sign and deliver all related papers and cooperate with the insurance company.

Y. Death

If the named insured dies, the insurance company will insure the legal representative of the deceased. This insurance is limited to only the premises and property of the deceased covered under the policy at the time of death. This also applies to the death of the named insured's spouse, provided that the spouse is a resident of the same household as the named insured.

If the named insured and/or spouse dies, the insured household’s circumstances could alter radically, so in this section the term insured is changed. Whoever was a member of the named insured’s household at the time of the death is an insured but only while a resident of the residence premises. Also, whoever has temporary custody of the named insured’s property is an insured, but only until the appointment and qualification of a legal representative.