Flood: Understanding and Recovering from One of Nature's Worst Disasters



“Unfortunately, unless there is a walkout door, the bottom level is considered a basement and many items are not covered by flood insurance.”

...city’s residents were evacuated. The flood spread for miles. Agarden-style apartment complex several miles from the river was one of many to fall victim to the flood. The complex had the maximumNFIP flood coverage allowed at that time, which was $250,000. The insurance company adjuster classified the first floor as a basement, denying coverage for the contents and finishings, and offered the insured $50,000.

After closely inspecting the premises, it was noticed that the ground surrounding the property did not appear to be the original ground. Rather, it looked as if fill had been placed around the foundation. The insured’s flood policy uncovered some interesting language under the Property Not Covered provision.

Property Not Covered: “Building or units and all their contents if more than 49 percent of the actual cash value of the building or unit is below ground ... .” Most adjusters stop reading there and deny coverage. However, a crucial point is stated directly after that: “ ... unless the lowest level is at or above the base flood elevation and is below ground by reason of earth having been used as insulation material in conjunction with energy efficient building techniques.”

Based on that language in the policy, it appeared that the lower unit of the complex was above the BFE, so it could not be considered a basement, thus allowing full coverage. A surveyor was then hired who verified that this was true and double-checked it with the property’s plat map from city hall. The base of the apartment building was exactly three inches above the BFE, and the ground surrounding the structure was fill. According to the policy, this would classify the first floor as above ground, and all the property and contents would be covered.

The insurance company adjuster had already left the area and had no intention of revisiting the loss. Therefore, the first step after verifying the adjuster’s oversight was to contact the supervising general adjuster at FEMA. The general adjuster commented that this instance was the first time anyone had ever raised the issue of a garden-style apartment being above the BFE. He reviewed the evidence and agreed with the theory. However, FEMA cannot override the insurance company adjuster, so someone at the insurance company needed to agree with the findings. The original adjuster would not revisit the decision, and after three years, just weeks before the loss was scheduled for litigation, a new adjuster was assigned to the loss.

The new adjuster agreed with the findings and paid the insured near policy limits. This is a rare case. However, given the large number of garden-style apartments, many may fall into the same category. Most insurance company adjusters will not look for such subtle issues when adjusting flood losses and, when unique cases like this are discovered, the resulting settlements are not paid quickly.

Estimating Damages

All NFIP or flood insurance policies from private insurers contain the same language and work the same way. The only differences insureds will encounter with various companies involve how different adjusters interpret the policies. The single most important thing an insured can do to achieve a fair settlement is to make sure that they or a trusted adviser are there to work with the insurance company adjuster when they visit the site to inspect the damage.

If alone at a flood loss, flood adjusters will quickly work their way through the property, writing down what they see and filling in...