Unusual Flood Losses

Lars Rathje of Lockton Companies examines the importance of having the proper insurance

The Southland can’t seem to catch a break, with a devastating rainstorm causing mud and debris to flow through the south-facing slopes of Santa Barbara County following record-breaking fires. Flooding can take many shapes and having proper insurance is ever so important to protect your assets and life.

Twenty percent of flood claims that are filed with the National Flood Insurance Program (NFIP) come from areas outside what is considered to be high risk for flooding. Floods are not all due to storms in coastal areas. In fact, many floods do not look like floods at all. 

A medical device designer located on the 18th floor of a Los Angeles high rise had a near total loss from a flood. A water tank on the building’s roof leaked and water ruined the suites on the top floors of the building. 

In the insurance world, a flood is defined as outside water that enters the premises and causes damage. This can happen in many ways besides rain.  

Twenty percent of flood claims that are filed with the National Flood Insurance Program (NFIP) come from areas outside what is considered to be high risk for flooding.

A cold storage facility had a refrigerator malfunction and leak over a weekend. The tenant in the facility next door found that water had ruined cases of packaged food. A team had to be brought in to move thousands of pallets and rent temporary space. The resulting insurance claim was more than $600K.  

A pharmaceutical business with an office in Petaluma, California was near a dry creek. An unusual storm flooded an area upriver that included a chicken ranch, and the employees came back to work to an atrocious mess throughout the facility. Because the area was not in a flood zone, no flood insurance was in place.  

The cost of the cleanup was over $100K and other related costs were an additional $750K. These other costs included staff time managing the incident, lost time of workers, costs associated with upgrading the facility for future flooding, and business interruption losses. The other business units that relied on Petaluma for a key part had to shut down for two weeks while they rebuilt.

The well-prepared organization has flood insurance designed to cover any scenario, not just a flood for coastal Florida locations. The NFIP is a federal program that offers a limit of $500K for property only. There is no business interruption or contingent coverage included, and this is the same limit that has been offered since 1994. Many buyers find it far from adequate.

Organizations have access to flood insurance programs that cover all of these things. It is important to design the flood insurance program so that it wraps all locations, including third party sites where stock or property may be warehoused.  

For a full risk assessment around flood or other risks, please contact me directly.

Written with the support of EVP at Lockton Alex Michon