Jack Burke shares responses to a Flood and Business Interruption question from a reader.
In regard to an article about an agency being sued over failing to offer Flood insurance to a business in a flood plain, reader Susan Roberts wrote:
“I read your article regarding the agency that was sued for not offering Business Interruption coverage for flood. What was the end result of that claim? For months, I’ve been seeking a market that sells Business Interruption to insureds in a flood zone and have been unable to find a carrier that even offers this coverage. Do you know of a carrier that sells this type of insurance? How can an agency be liable in this instance if no carrier is selling Business Interruption coverage in a flood zone and NFIP doesn’t sell it?”
Jeff Neilson replied:
“First. let me say thanks for taking the time to read our newsletter. You are one of more than 42,000 Property/Casualty professionals, and we enjoy hearing from as many of you that have the time to send us any challenge.
“I’m not an attorney and we don’t sell insurance. So I’m going to reply by copying our good friend and editor Jack Burke, along with Consultant Chris Burand, an expert on E&O carrier- approved procedures and agency operations.
“When I went online today and searched key word 'Flood,’ with four additional key words in the state of Pennsylvania, I came up with a list of 11 different providers”
In turn, I responded:
“Hi, Susan. Reiterating Jeff’s comment, we’re glad to have you as a reader. Let me see if I can help make sense of the article for you:
- “The claim is currently in the judicial system and hasn’t been litigated yet; the story announces the filing, not the final results.
- “The issue was failure to offer Flood coverage, not Business Interruption (which the plaintiff had purchased from the agent).
- “The Business Interruption coverage apparently had an exception for flood, due to the flood plain location, which was the basis for the BI underwriter to deny a claim.
“The main point of the article was for the agency to offer the client everything and document their response. The moral: Be sure to inform your clients about exceptions to coverages.”
Chris Burand was also quick to reply:
“Dear Jeff,
“Please forward this to Susan Roberts.
“She has a very good point that Business Interruption is not covered by the NFIP Flood policy, which makes one wonder why or how the agency could be sued for not offering a coverage that doesn’t exist. Weirder things have happened, though.
“I’ve been told that a specialty market or two might exist to provide this coverage, but I haven’t been provided with any additional information. The point is that agencies are well-advised to go through coverage checklists advising clients what’s available so that: (1) the insured is made well aware of their situation; (2) the insured hopefully buys more insurance so that they have better protection; and (3) the agency has less E&O exposure.
“This brings up the issues of whether the insured has the responsibility to read their policy and whether the agent has the responsibility to advise what coverages should be purchased. Since I’m not an attorney, I can’t offer any legal advice on this. My experience has been that the legal answer to these issues varies significantly from state to state and case by case.
“There seems to me to be a trend toward defining the agent as a professional or a salesperson. If the salesperson is seen as a professional, and the agency portrays themselves as professional advisors, the legal standard usually appears to be higher than if they’re only salespeople.
“However, these last two issues are secondary because once an E&O claim has been filed, the agency has lost — it’s just a matter of how much they have lost. Coverage checklists offer a great tool for preventing the claim from ever being filed.”