Are you wondering if your restaurant will need commercial flood insurance? When your passion is food and your livelihood depends on a safe, dry place where you can serve it, you don’t want a flood to come along and ruin your dream. Of course, you probably don’t have much to worry about. After all, your restaurant sits in the driest part of town. And isn’t commercial flood insurance part of your business insurance policy?
While a flood may not be your biggest worry today, thinking you’re covered by a standard business insurance policy is concerning. Why? Because if you assume you’re covered, it means you didn’t read your policy. It’s possible your insurance agent didn’t think you needed flood insurance, but wouldn’t you feel better if you knew for sure?
Here are 7 facts about flood insurance you need to know, especially if you own a restaurant.
Flood Insurance Is Not Included
When you purchased your business owner’s policy (BOP) did you assume it included coverage in the event of a flood? An easy mistake, but a catastrophic error if a flood damages your restaurant. A BOP doesn’t include flood insurance. It’s confusing because if you skim your policy, you’ll notice words like peril and severe weather.
The policy covers damages to your restaurant and equipment due to weather, so it makes sense to think it covers damage from floods too. Isn’t a flood caused by the weather? Sometimes the weather can cause flooding, but not always. Either way, standard business policies don’t include flood insurance. Besides, your interpretation of the word flood is a little different than how it’s defined by your insurance company.
The Demystification of the Word Flood
Remember when that water main broke and in the aftermath, you replaced most of the carpeting and several tables and chairs? Your staff talked about the flood for weeks. While it felt like a flood, your insurance company didn’t look at it that way. They covered water damage, not flood damage. It sure seemed like a flood, didn’t it?
The Federal Emergency Management Agency (FEMA) defines a flood by how much acreage or how many properties are affected. They go even further to say that the land is only considered flooded if it’s normally dry. Also, the land or properties are considered flooded if they’re covered by water or mud.
Your insurance company likely follows FEMA’s lead on how they define flooding.
Your Lender Company May Require Insurance
If you have a mortgage on your restaurant’s property, you already know whether they require flood insurance. But wait! Sometimes, those requirements change, especially if there’s a change in flood plain zoning. For the restaurant entrepreneur just starting the business loan process, if you’re applying for financing through a federally insured lender and the property sits in an area at high risk for floods, the lender will require a flood insurance policy. It doesn’t matter whether the area hasn’t seen a flood in over 100 years, if it’s zoned as high-risk, you need the insurance.
How Much Will I Pay?
The cost of this insurance depends on several factors. First, like any other type of insurance, you pay based on how much coverage you buy. The standard coverage is $1M. You’ll have $500,000 for your building and another $500,000 for the contents.
Second, the cost depends on where you purchase your policy. Flood insurance is available through the National Flood Insurance Program (NFIP). You can also buy a policy through a private insurer. Buying through a private insurance provider may save your business a considerable amount of money. Since each provider sets their own fees, it’s best to speak directly with a representative from the companies you’re interested in.
How Do I Know if My Restaurant Is at Risk?
If you’re curious about your risk factor for flooding, find out whether your restaurant is located in a flood zone. Also, consider where you’ve placed your restaurant equipment and inventory. If you have a lower level and use it for storage, things located there are at greater risk for flood damage. You also have tools available that can help you figure out your proximity to a flood zone. Fema offers a flood map tool where you can enter your address and view your business community’s flood map. Keep in mind that flood zones do change. Where you are today, as far as flood risk, may not be where you are tomorrow.
Is Everything Covered by Flood Insurance?
Great question! And the answer is no, flood insurance doesn’t cover everything you own through your business. If you own a storage shed and it sits outside your restaurant, flood insurance won’t cover damages. Also, if a flood destroys landscaping, flood insurance doesn’t cover replacement costs. Do you own business vehicles, like delivery or catering trucks? Flood insurance won’t cover them. However, if you have comprehensive coverage on your business vehicle insurance policy, your vehicles are covered.
How Do I Replace Food Lost in a Flood?
Replacing lost or spoiled food after your restaurant suffers flood damage is a little tricky.
Your flood insurance policy may cover the cost if floodwaters seep into the refrigerator/freezer and cause damage to your food items. It’s not uncommon for a restaurant to experience a power outage during a flood. Flood insurance won’t cover spoilage if you lose power to your refrigerators or freezers.
It’s best if you clarify with your insurance representative what is and isn’t covered as far as food loss.
Insurance is often a complex issue for a restaurant. You have a range of things you need to cover, and multiple ways your restaurant can suffer a loss. Hopefully, we’ve answered at least some of your questions about commercial flood insurance. If not, let your insurance representative help. If you enjoyed this post, check out our archives where you’ll find articles on an array of bar and restaurant industry topics.