NFIP Flood Insurance (the Federal Flood Program): Separate the Event, the Property and the Limit

Introduction

When water damages a home, it's tempting to ask one big question: "Does flood insurance pay?" That question is too big to answer. Break it into three smaller questions and ask them in order:

1. The event: Was this a flood as the policy defines it, or some other kind of water or ground damage?
2. The property: Is the damaged item part of the building, part of the contents (belongings), or something the policy doesn't insure at all?
3. The limit: How much coverage was bought for that category, and what deductible applies?

If the first answer is "no," the other two don't matter. If the second answer is "not insured property," the limit doesn't matter.

What NFIP means. The National Flood Insurance Program (NFIP) is the federal flood insurance program run by FEMA, the Federal Emergency Management Agency. The NFIP policy for homes is the Standard Flood Insurance Policy Dwelling Form, called "the Dwelling Form" in this lesson. It is the federal contract that insures one-to-four-family homes, single-family condominium units, and personal belongings in a building. The policy says it is governed by federal flood regulations, the federal flood insurance law and federal common law. So the rules in this lesson come from federal sources, not from a Nevada statute.

All people, homes and dollar amounts in this lesson are invented. When a calculation needs a limit or deductible, the lesson states it as an assumption. Real amounts come from the actual policy.

What You'll Be Able to Do

By the end of this lesson, you should be able to:

• Decide whether a water or mud event meets the Dwelling Form's definition of flood, including the sewer-backup and earth-movement rules.
• Sort damaged items into building coverage or personal property (contents) coverage, and say whose belongings are insured.
• Spot the main things the policy won't pay for, including living expenses, cash, cars and landscaping, and the limited coverage in basements.
• Apply the maximum NFIP limits, the limits shown on a policy, and separate building and contents deductibles to a loss.

Before you start: This lesson builds on Map a homeowners loss to the right coverage and Commercial property: build the package, classify the loss. The calculation section uses ideas from Calculate deductibles, limits and coinsurance.

Step 1: Was It a "Flood" in the Policy's Sense?

In everyday speech, any unwanted water inside a house can be called a flood. The policy's meaning is narrower.

Flood, in plain English: water or mud temporarily covering land that is normally dry, across a wide area. The area has to be at least two acres of normally dry land, or at least two properties, and one of those properties must be the insured's. The policy's word for this covering is inundation. It just means "being covered over."

For this ordinary inundation part of the definition, the water or mud must come from one of three sources:

• Overflow of inland or tidal waters, such as a creek, river or lake rising over its banks.
• Unusual and rapid buildup or runoff of surface water from any source, such as storm water rushing down streets and pooling across a neighborhood.
• Mudflow, which is explained below.

These three sources are not the only way a loss can fit the flood definition. The definition also includes a separate, narrow route for shoreline collapse, explained under "Mudflow vs. landslide" below.

The policy pays for direct physical loss by or from flood. That means physical damage that the flood directly caused. There must be evidence that the property physically changed.

Worked example: the creek

Ana's house sits near a creek. A spring storm sends the creek over its banks. Water spreads across Ana's backyard and three neighbors' lots, then into Ana's living room.

Check each part of the definition:

• Normally dry land: The yards are normally dry. ✓
• Wide enough: Water covers at least two properties, including Ana's. ✓
• Allowed source: The water came from the overflow of an inland waterway. ✓
• Temporary: The water rose and will recede. ✓

This is a flood under the policy.

Change one fact: the pipe

Now suppose the creek stays in its banks. Instead, a supply line under Ana's kitchen sink bursts and soaks the floor.

This is not a flood. Only one property is affected, and the water came from Ana's own plumbing, not from an overflow, runoff or mudflow. The policy also separately excludes water damage that stays mainly inside the dwelling, and damage from broken or failed pipes, drains, pumps or equipment.

The tempting mistake: "There was a lot of water, so it's a flood." The amount of water inside one house is not the test. The test is how widespread the water was outside and where it came from.

Rain needs the same care. Rain falling through a damaged roof is not a flood, and the policy excludes damage caused by rain itself. Heavy rain only matters when it produces the kind of widespread runoff or overflow described above.

Mudflow vs. landslide

Mudflow is a river of liquid, flowing mud moving across the surface of normally dry land, as when a current of water carries earth along with it. The flowing part is what counts. Mudflow is one of the flood sources, so it can be covered.

A landslide is different. Ground slides down a slope as a mass, even if the ground is soaked. The policy says that landslides, slope failures and saturated soil moving down a slope are not mudflows.

That difference matters because of the earth movement exclusion. The policy does not pay for loss caused directly by earth movement, even if a flood caused the earth movement. The policy's examples include:

• earthquake
• landslide
• land sinking (subsidence)
• sinkholes
• gradual erosion

There are two exceptions, both written into the flood definition itself. The first is mudflow. The second is a narrow provision for land along the shore of a lake or similar body of water that collapses because waves or currents above their normal cyclical levels eroded it, resulting in a flood.

For earthquake coverage questions outside flood insurance, see Earthquake and windstorm: find the coverage gap before calculating a payment.

Try it. Decide whether each event is a flood under the Dwelling Form:

• (a) A desert thunderstorm sends unusually fast runoff down Marco's street. Water pools across a dozen lots, including Marco's, and enters the house.
• (b) Days of rain soak the hillside behind Marco's house. A section of the hill slumps downward and pushes in the back wall.
• (c) The hose on Marco's washing machine splits and water covers the laundry room floor.

Sewer Backup: The Flood in the Area Must Be the Main Cause

Water can enter a home from below, through a drain or a sump. A sump is a pit that collects water, often with a pump that pushes the water away. The policy has a specific rule for this kind of water.

The rule: The policy excludes water that does any of these things:

• backs up through sewers or drains,
• discharges or overflows from a sump, sump pump or related equipment, or
• seeps or leaks through the property.

There is one exception. These losses are not excluded if both conditions are true:

1. There is a flood in the area, and
2. That flood is the proximate cause of the backup, overflow or seepage.

Proximate cause means the main, direct cause that set the damage in motion. It is not just something that happened around the same time.

Worked example: the overwhelmed sewer

The creek floods Ana's neighborhood. Floodwater fills the city sewer, and sewage backs up through Ana's floor drain.

• Flood in the area? Yes.
• Did that flood cause the backup? Yes. The floodwater overloaded the sewer.

The backup is not excluded by this rule. Every other policy rule still applies, including which property is insured.

Change one fact: the clogged line

Now there is no flooding anywhere nearby. Tree roots clog Ana's own sewer line and sewage backs up through the same drain.

There is no flood in the area, so the exception can't apply. The backup is excluded.

Change it once more. A flood is happening across town, but Ana's backup was caused only by the clogged line. The flood is not the proximate cause, so the backup is still excluded.

Two opposite mistakes to avoid:

• "Sewage in the house means the flood policy pays." The cause decides it, not the type of water.
• "Flood policies never cover backup." They can, when a flood in the area caused it.

Try it. A river overflows across several blocks. The floodwater raises groundwater beneath Leo's house, and water seeps up through cracks in the floor. Does the backup/seepage exclusion block this loss?

Step 2: Building Property (the Structure) or Personal Property (Belongings)?

The Dwelling Form splits property into two main categories:

• Coverage A — Building Property. This covers the structure itself and the things built into it or permanently installed.
• Coverage B — Personal Property. This covers belongings, also called contents.

Coverage B applies only if personal property coverage was purchased. Building coverage does not automatically include belongings.

For belongings to be covered, three things must be true:

• Whose they are: The belongings are owned by the insured or members of the insured's household. Guests' or household employees' belongings can be included at the insured's option.
• Where they are: They are inside a building at the described location, which is the insured address shown on the policy. Personal property outside a building is not insured.
• What they are: The item falls under the coverage the insured actually bought.

Use the list, not just your instinct

A useful first question is: "Is it built in, or could you unplug it and carry it out?" That instinct helps, but the policy's named lists control the answer. For example, the Dwelling Form places refrigerators and cooking stoves under building coverage even though they can be moved.

There is one narrow exception. A tenant who has insured personal property under Coverage B has the tenant's own stove and refrigerator covered there.

Each row pairs items that seem alike but fall in different categories. The deciding fact is how the item is installed, or which list the policy puts it on. What the item does is not the test.

Worked example: Ana's kitchen

The creek flood damages these items in Ana's kitchen:

• built-in dishwasher
• permanently installed cabinets
• countertop microwave
• dining table

Building coverage: the built-in dishwasher and the cabinets. They are installed parts of the home.

Personal property coverage: the countertop (portable) microwave and the dining table. They are belongings.

Change one fact. Ana bought building coverage only. Now the microwave and the table are not covered. The building limit doesn't stretch to cover belongings.

Renters

Jordan rents a house. The landlord's building coverage, if the landlord bought it, protects the structure and its built-in items. It does not protect Jordan's furniture or clothes. Jordan needs a policy with personal property coverage in Jordan's own name.

A renter in an apartment building can get contents coverage under the Dwelling Form but not building coverage.

Try it. A flood damages these items in a home whose owner bought both building and personal property coverage. Sort each item into a category.

• (a) a window air conditioner
• (b) a furnace
• (c) carpet laid over finished hardwood floors
• (d) light fixtures

What the Policy Won't Pay For (the Main Exclusions)

An exclusion is something the policy specifically says it will not pay for, even after a real flood. The Dwelling Form's main exclusions fall into two groups.

1. Losses that aren't physical damage to insured property

The Dwelling Form pays only for direct physical loss. It does not pay for:

• Additional living expenses (ALE). These are the extra costs of living somewhere else, such as a hotel or rental, while the home is repaired or can't be lived in. If you've seen another kind of property policy pay for a hotel stay after a covered loss, don't carry that over to this form.
• Loss of use of the property, or loss of access to it.
• Lost revenue or profits, and loss from interruption of business or production.
• Any other economic loss.

2. Property the policy doesn't insure

• Money and papers: currency, coins, money, stored-value cards, postage stamps, securities, deeds, bullion, manuscripts and other valuable papers.
• Land and landscaping: land, lawns, trees, shrubs, plants, growing crops and animals.
• Vehicles: cars and other self-propelled vehicles, including their parts. A narrow exception exists for certain machines not licensed for public roads, under the conditions the policy states.
• Outside items: personal property not inside a building, plus walks, decks, driveways and patios outside the building's exterior walls.
• Other outside structures and equipment: fences, swimming pools, hot tubs and spas that aren't bathroom fixtures, and underground structures such as septic systems and wells.

These rules come from the NFIP Dwelling Form. A private flood policy may be written differently, so don't assume its exclusions match.

Worked example: what Marco lost

After the runoff flood, Marco lists these losses. Marco bought both building and personal property coverage.

Only the couch can be paid under the policy, subject to the deductible and limit.

Try it. A flood damages Leo's home. Which of these can Leo's NFIP Dwelling Form policy pay for, assuming both coverages were bought?

• (a) a wooden fence
• (b) a deed stored in a desk
• (c) a bookcase permanently installed in the wall
• (d) the cost of eating at restaurants while the kitchen is unusable

Basements: A Short List, Not a Blanket "No"

Basement, in the policy's sense: any area of a building, including a sunken room or sunken part of a room, whose floor is below ground level on all sides.

In a basement, the policy covers only items on two limited lists. Each item must be installed in its working location and, if it needs power, connected to a power source.

Building items covered in a basement include:

• furnaces and water heaters
• central air conditioners and heat pumps
• electrical outlets, switches, junction boxes and circuit breaker boxes
• sump pumps
• stairways attached to the building
• foundations and the supports that hold up the building
• fuel tanks, well water tanks and pumps
• unfinished drywall, meaning not taped or finished
• clean-up

Contents covered in a basement are limited to:

• clothes washers and dryers
• window or portable air conditioners
• food freezers (other than walk-in) and the food in them

The same limited lists also apply below the lowest elevated floor of certain raised buildings in high-risk flood zones. This lesson focuses on basements.

Worked example: Dana's basement

Dana's basement floor is below ground on every side. Floodwater fills it. Dana bought both coverages. Damaged items:

• furnace
• washer and dryer (installed and plugged in)
• upholstered sofa
• chest freezer full of food (plugged in)

Covered: the furnace (building basement list); the washer, dryer, freezer and food (contents basement list).

Not covered: the sofa. It isn't on the contents basement list. In a living room upstairs, the same sofa would be ordinary covered contents.

Change one fact. Dana's lower level opens onto the backyard, and the floor is at ground level on that side. The floor is no longer below ground on all sides, so this space does not meet the policy's basement definition, and the basement limitation does not apply on that basis. The sofa is judged like any other belongings. Every other policy rule still applies.

Two mistakes to avoid:

• "Nothing in a basement is covered." Some items are, by list.
• "Anything that's contents is covered in the basement." Only the listed contents are.

Try it. In a basement below ground on all sides, flood damages a sump pump, a home gym treadmill, and an electrical breaker box. Which are covered?

Step 3: Which Limit and Which Deductible Apply?

Limit, in plain English: the most the policy will pay for one category of property. NFIP limits work at two levels.

Level 1: The most the law allows

In a community in the Regular Program, the NFIP's maximum amounts are:

The Regular Program is the full phase of a community's participation in the NFIP. In this phase, a flood insurance rate map is in effect and full coverage limits are available.

Other situations have different maximums:

• other building types, such as larger residential buildings,
• a condominium association's policy for a whole building (the Residential Condominium Building Association Policy, or RCBAP), and
• communities in the Emergency Program, an earlier, initial phase with lower limits.

This lesson uses only the four amounts in the table.

Level 2: What the policyholder actually bought

The declarations page is the summary page that is part of the policy. It shows the policy term, the limits chosen and the premium. The limits there can be lower than the maximums.

The building limit and the contents limit are separate. Unused building coverage can't be moved over to pay for belongings, and unused contents coverage can't be moved over to pay for the building.

Deductibles

Deductible, in plain English: the part of a covered loss the policyholder bears before the policy pays. The amount is shown on the declarations page.

In each flood loss, separate deductibles apply to the building and to personal property.

Do the math one category at a time:

1. Start with the covered loss for that category.
2. Subtract that category's deductible. If the result is below zero, use zero.
3. If the result is more than that category's limit, use the limit.
4. Repeat for the other category, then add the two results.

Assume the covered loss amounts given here already reflect the policy's valuation rules. Real claims also involve how damaged property is valued; see Value damaged property correctly.

Worked example: Dana's payment

Assumptions (all invented): single-family home in a Regular Program community. The declarations page shows:

• building limit $180,000, building deductible $2,000
• contents limit $40,000, contents deductible $1,000

Covered flood damage is $26,000 to the building and $6,500 to contents.

Total payment: $29,500.

Change one fact: contents damage is only $700.

• Contents: $700 − $1,000 is below zero, so contents pays $0.
• Building still pays $24,000.
• Total: $24,000.

The tempting mistake is to combine everything and subtract once: $26,700 − $3,000 = $23,700. That's wrong. Each deductible applies only to its own category, and the contents deductible can't "use up" building dollars.

Change a different fact: contents damage is $58,000.

• Contents: $58,000 − $1,000 = $57,000. That exceeds the $40,000 contents limit, so contents pays $40,000.
• Building still pays $24,000.
• Total: $64,000.

The $17,000 that exceeds the contents limit can't be shifted to the large unused building limit. Dana could have bought contents coverage up to $100,000, but the policy pays based on what was actually bought.

Try it. Assume a single-family home in a Regular Program community.

• Building: limit $120,000, deductible $1,500
• Contents: limit $30,000, deductible $1,500
• Covered loss: building $9,800, contents $1,200

(a) What does the policy pay? (b) The owner wants to raise the building limit to $275,000 at renewal. Can they?

Practice on Your Own

These cases use the same rules in new situations. Work each one through all three steps: event, property, limit.

Case 1. Decide whether each event is a covered flood event.

• (a) A summer storm drops heavy rain. Water drips through a hole in Lin's roof onto a bed. No water collects on the ground anywhere nearby.
• (b) A current of water carries liquid mud down a wash and across several normally dry lots, including Lin's, and the mud flows into Lin's garage.

Case 2. Sam rents a ground-floor unit (not a basement) in an apartment building and bought personal property coverage with a $20,000 limit. A river overflow floods the street and Sam's unit. Sam lists these losses:

• bed
• laptop
• window air conditioner
• the building's built-in dishwasher
• Sam's car parked outside
• three nights in a motel

Which can Sam's policy pay for?

Case 3. Rosa's basement floor is below ground on all sides. Rosa bought both coverages. A flood in the area overloads the city sewer, and sewage backs up through the basement floor drain. Damaged items:

• water heater
• chest freezer with food (plugged in)
• bookshelf of novels
• sump pump

(a) Does the sewer-backup exclusion block this loss? (b) Which items are covered?

Case 4. Assume a single-family home in a Regular Program community.

• Building: limit $250,000, deductible $5,000
• Contents: limit $60,000, deductible $2,000
• Covered loss: building $270,000, contents $4,000

What does the policy pay?

Case 5. A shop owner in a Regular Program community asks for NFIP coverage on a non-residential building: $600,000 on the building and $500,000 on contents. The owner also asks whether the flood policy will replace lost sales while the shop is closed for repairs.

What should the owner be told?

What to Remember

• Ask three questions in order: Was it a flood? Is the item insured property, and in which category? What limit and deductible apply?
• Flood usually means temporary water or mud covering at least two acres of normally dry land or two properties (one of them the insured's), from overflow, unusual rapid runoff or mudflow. The definition also separately includes land along the shore of a lake or similar body of water that collapses because waves or currents above their normal cyclical levels eroded it, resulting in a flood. A burst pipe or a leaking roof in one house is not a flood.
• Mudflow is covered; landslides and other earth movement are excluded, even when water caused them, apart from the narrow shoreline-collapse route above.
• Sewer backup, sump overflow and seepage are excluded unless a flood in the area is the main cause.
• Building property (Coverage A) is the structure and the listed installed items. Personal property (Coverage B) is belongings, and only if purchased. The policy's lists beat instinct; for example, carpet depends on the floor underneath.
• Main exclusions: additional living expenses, loss of use, business interruption, currency and valuable papers, cars, landscaping, and items outside the building.
• Basements (floor below ground on all sides) get limited lists of covered items, not zero coverage.
• Regular Program maximums: single-family building $250,000 and residential contents $100,000; non-residential building $500,000 and contents $500,000. The declarations page shows what was actually bought.
• Separate deductibles and limits apply to building and contents. Work each category on its own, then add.

To practice next: Take any flood scenario and say out loud which of the three questions decides it. Then change one fact and see whether the answer moves. When you're ready for mixed review, use Solve mixed cases and repair your weak spots.