When it comes to commercial flood insurance, a common question is, “Can businesses get flood insurance?” While this appears to be a simple inquiry, there are multiple factors to consider. Here is a 3-step approach to help connect the dots:

Step 1:Three Questions
Lead with these questions:

• Is the business owner also the property owner or are they a tenant?
• What are the flood insurance requirements, if any, outlined in the lease agreement?
• What type of coverage is needed? Building coverage only, Contents coverage only, or Building and Contents?

With this information, move to step 2 which will help your business owner understand their options, in order to submit a commercial flood insurance application.

Step 2: Owner vs. Tenant options
If the business owner is the commercial property owner
Commercial flood insurance is mandatory for commercial properties located in a Special Flood Hazard Area, (A or V zone), if the mortgage is secured from a federally backed lender. A commercial property owner may submit a commercial flood application through an agent or broker with access to the National Flood Insurance Program (NFIP) to procure flood insurance coverage for Building and Contents, with limits up to $500,000 for each coverage.

As an agent or broker, if you have access to private commercial flood insurance markets, you may also submit a commercial flood insurance application to determine a property’s eligibility under a private commercial flood insurance program. Potential benefits of private commercial flood insurance may include higher primary limits for both the Building and Contents coverage. A private market may also be able to consider loss of rents, including the loss of profit for the interruption of business activity in the event of covered flood damage. Another potential benefit of private commercial flood insurance is a private market can consider writing flood coverage for multiple commercial buildings on one single policy. Many private flood markets also provide the commercial property owner the option to purchase excess flood limits.
 
Even without mandatory requirements, a business owner who owns a commercial property should consider purchasing a commercial flood insurance policy to help protect their business and livelihood in the event of a flood.
 
If the business owner is a tenant (lessee)
Under the NFIP policy, there are 2 sections of Tenant’s Coverage for businesses who do not own the commercial property - Contents and Building coverage.
 
Contents under the Tenant Coverage section of a NFIP policy may include items such as furniture, machinery and equipment, stock, and more. Per the NFIP Flood Insurance Manual, a tenant may purchase coverage for contents in which they have an insurable interest (up to the maximum $500,000 contents limit), including limited coverage for building improvements and betterments (fixtures, alterations, installations and additions). The maximum amount payable for improvements and betterments for the NFIP is 10% of the Contents coverage.
 
If a lease agreement requires the tenant to purchase commercial flood insurance for the building, then tenants may purchase a separate NFIP policy for Building coverage, up to the NFIP maximum of $500,000 limit. In this case, the policy must include the building owner as a named insured.
 
It is essential for the tenant to understand the terms of their lease agreement. For example, tenants should not purchase Building coverage if the owner or another party has NFIP or private commercial flood insurance coverage on the same building.
 
Step 3: The Big Picture
To recap, when speaking with your business owner about commercial flood coverage, determine if they own the property or if they are a tenant. Discuss the flood insurance requirements, if any, that are outlined in the lease agreement. Then you can navigate flood coverage options and limits, and approach available flood markets.
 
By following this 1, 2, 3 approach, you’ll be able to help your business owner connect the commercial flood insurance dots quickly and easily.
                                                                      
This article is provided for general informational purposes only and is not intended to provide any individualized legal or regulatory advice. Please refer to NFIP materials to learn more about the NFIP.