Planning for the worst

Most business insurance doesn’t cover flood damage


Photo by Isaac Bonnell

Von Smith, president of Bob Wallin Insurance, stands outside his office along Whatcom Creek, which reached flood stage during heavy rains in January.


When the rains came down in January and flooded much of Western Washington, Carolyn Lenington thought her business was safe from the high waters. Located in the Haskell Business Center on Meador Avenue, Senior Support Services is not close enough to Whatcom Creek for it to pose any serious flood threats.

But water always seems to find a way. After a storm drain in the parking lot overflowed, Lenington discovered that more than six inches of water had crept into her offices, damaging computers and 18 years worth of client medical files.

Senior Support Services has since moved to a new office in the Haskell Business Center, but starting over has been difficult, Lenington said.

“It took a good three weeks to get everything situated again,” she said. “I had papers drying out everywhere. I was even drying out documents at home in my basement.”

Though most of the office equipment and records were damaged, Lenington considers herself lucky. Thanks to a well-written business insurance policy that covers damage from backed up drains, she was able to make a claim and refurbish the office.

“Thankfully it was the drain that plugged because I didn’t have flood coverage,” Lenington said. “I was really fortunate. I felt very blessed in the situation, even though it wasn’t a happy event.”

Most business insurance doesn’t include coverage for water damage from a backed-up drain, said Von Smith, president of Bob Wallin Insurance and Lenington’s insurance agent. But Lenington had an insurance package called a Business Owner’s Policy (BOP) that included all the bells and whistles that most people don’t think about.

“That’s the broadest type of business policy you can buy because it bundles the property and liability coverage,” Smith said. “That’s the ideal situation if you’re a business owner. Sometimes it throws in coverages that you don’t need, but there is no charge for it. It’s all inclusive.”

Even then, few BOPs include coverage for flood damage or overflowing drains. Lenington got lucky in that her policy included $25,000 for drain backups, where some policies only cover $5,000 if anything at all.

“If the policy didn’t include that as an additional coverage, it would have been excluded as flood damage,” Smith said.


Earth, wind and fire

Rarely does business insurance cover damage from extreme natural disasters like tornadoes or tsunamis, the reason being that it would make insurance more expensive.

“Typically, the things that are excluded are flood and earthquake,” Smith said. “If a policy included flood and earthquake coverage it would be astronomically higher in cost and not give the consumer enough choice. They would just pay that additional premium even if they felt there wasn’t an exposure to earthquakes or if they were not worried about flooding.”

What is covered in many business policies is the range of smaller scale disasters: wind damage, wildfires, freezing temperatures, heavy snow, etc. And those types of events often create more claims than the large-scale natural disasters.

For example, Smith did not get any calls for major flood damage during the recent rains, but has answered dozens of calls about damage from fallen trees and frozen pipes.

In fact, one thing that makes the Pacific Northwest unique from an insurance standpoint is that it is susceptible to a wide variety of natural disasters, said Darrin Sanger, communications director for the NW Insurance Council.

“We may not get that twister that comes through, but the last three Decembers we’ve had significant windstorms come through the area,” Sanger said. “The Northwest is a hotbed for natural catastrophes.”


A la carte insurance

Besides the standard BOP, companies can also create their own package policy based on how much property and liability coverage is needed.

“The underlying message is that insurance is a personal choice. Every business has different needs,” Sanger said.

The one caveat with a la carte insurance packages, however, is that they do not include coverage for items such as damage from a backed- up drain unless the customer specifically requests that type of coverage. These build-your-own packages are typically just property and liability coverage.

No matter what policy you have, the most important thing is to know what is covered and what isn’t, Sanger said.

“You don’t want to wait to get flood insurance when the waters start to rise because it usually has a 30-day waiting period,” he said. “Now is the time to start thinking about that.”


Develop a disaster recovery plan

One-fourth of all businesses that close due to damage from a natural disaster never reopen. Here are some tips from the Insurance Information Institute on how to manage during a disaster.

Identify critical business activities and the resources needed to support them in order to maintain customer service while your business is closed for repairs.

Do research before a disaster strikes by finding alternative facilities, equipment and supplies. Also, locate a qualified contractor who could repair your facility should a disaster strike.

Compile a list of important phone numbers and addresses, including local and state emergency management agencies, major clients, suppliers and insurance agents. Keep a few copies off the premises in case the disaster is widespread.

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