Many Americans work at or own a business downstream from a dam. Flooding is a potential hazard in these areas, but business owners aren’t always aware of the danger of inundation. And they might not know they need flood insurance to help with the cost of rebuilding their business.
The U.S. Army Corps of Engineers’ National Inventory of Dams (NID) has catalogued over 92,000 dams. Many of them are old; the average age is 63 years. The fear is some won’t hold up against heavy flooding or rain. In fact, the Federal Emergency Management Agency (FEMA) estimates 27,000 dams are at risk of experiencing damage or failure. According to FEMA, a failure could lead to loss of life, significant property damage, disruption of critical facilities, and lengthy and costly mitigation.
Unfortunately, many business owners are ill-equipped to respond to dam-related flooding. And they’re underinsured for property loss.
How do you know if your business is in an inundation zone?
The Army Corps of Engineers’ National Inventory of Dams is a good place start to see if your business is in a dam failure inundation zone. Search your location in the NID database to find maps of inventoried dams in your area. In addition to providing basic information about the dam, some maps also show the dam’s inundation zone. This is where flooding may occur, how far it may extend and how deep the water may get. Be aware that not all dams have flood inundation maps in the NID.
You can also find information about dams near you by contacting your local emergency management agency or your state’s dam safety agency. Damsafety.org maintains a list of state dam safety agencies. Use its search tool to find your state.
Determining whether your business is in a possible flood zone is your responsibility as a property owner. Take the time to learn whether a dam is upstream from you and what the likely impact would be from flooding. Assess the dam’s hazard potential, what condition it’s in and whether there is an emergency action plan (EAP). An EAP is a formal plan to address emergency conditions, reduce property damage and loss of life, and issue warnings to emergency management agencies. Not all dams have an EAP.
Familiarize yourself with public safety systems that may be in place to warn residents and businesses of a dam incident. Consider which evacuation routes you and your employees can take and the location of emergency shelters. FEMA’s Search Your Location tool shows emergency response resources and disaster recovery centers in your area.
While dam owners are liable for damage resulting from an accident, state laws vary regarding the standard of care an owner must exercise. You can’t assume you’ll be made whole after a dam-related flood. In addition, businesses don’t qualify for FEMA disaster relief. (However, businesses can obtain disaster loans through the Small Business Administration.)
You may need flood insurance
If your business is in an inundation zone, seriously consider flood insurance. Commercial property insurance doesn’t cover flooding, so you’ll need to buy a separate flood insurance policy. You can get flood insurance through FEMA’s National Flood Insurance Program (NFIP) or an insurance company.
FEMA’s FloodSmart.gov provides the basic information you’ll need to get started. Your property-casualty insurance agent is a good source of information, too.
There are several FEMA resources that can help you decide whether to purchase flood insurance and whether you can qualify for an NFIP policy:
Use FEMA’s Flood Map Service Center to find out what flood zone your business is in. Zone A has a high risk of flooding and generally requires flood insurance. Properties in Zones B, C and X have a moderate or low risk of flooding. Note that the flood zone maps may not include the impact from a dam failure.
FEMA has a Community Status Book with a listing of communities that participate in the NFIP.
Flood insurance is also available through insurers that participate in FEMA’s Write Your Own (WYO) program. WYO is a cooperative undertaking between private insurance companies and the government to provide greater geographic distribution of coverage and improved service to consumers. These policies are the same as those issued through the NFIP.
Also ask your agent about coverage for government- or utility-ordered releases of dammed water that result in flood damage. The wording in policies is complex, so make sure governmental and water utility actions are not excluded from coverage.
What NFIP flood insurance covers
The NFIP offers commercial building and commercial personal property policies, with up to $500,000 in coverage for each.
The commercial building policy covers:
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The building and its foundation
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Building equipment and systems such as electrical, plumbing and HVAC
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Fixtures that are permanently attached, including walk-in freezers
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Furniture and fixtures
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Machinery and equipment
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Other personal property used in the business
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Stock such as merchandise held in storage for sale
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Raw materials
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In-process and finished goods
The commercial personal property policy covers:
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Personal property used in the business
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Stock
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Items that are portable or not permanently attached
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Clothes washers and dryers
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Freezers and the food in them
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Certain valuable items (limited to $2,500 in value)
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Nonlicensed, self-propelled vehicles (if stored in the insured building and used for business)
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Improvements you’ve made to the building as a tenant (up to 10% of contents coverage)
NFIP policies use the actual-cash-value method of determining value. This is the cost to replace an insured item, less its depreciation. Business interruptions and loss of use aren’t covered by NFIP policies. Nor is property outside of the insured building, such as plants, trees, wells, septic systems, walkway, patios or swimming pools.
Private insurance options
Flood insurance is also available through insurers not affiliated with the government. There are several advantages to purchasing a privately issued policy, including higher limits, shorter waiting periods and additional coverages not found in an NFIP policy.
Talk to your insurance agent about how best to cover your risk from a dam failure and flooding. Remember, commercial property insurance doesn’t cover flooding. And business interruption insurance doesn’t cover flooding either (unless you already have flood insurance).
With the aging infrastructure in the United States, dam safety has become a significant risk for businesses. Make sure you understand the implications of operating near a dam and are prepared for an overflow. Your insurance agent can explain the types of coverage available and help you insure against flooding. flood.