2.7 Flood (NFIP), Earthquake & Personal Watercraft Coverage
Key Takeaways
The NFIP Standard Flood Insurance Policy defines flood as a general and temporary inundation of two or more acres of normally dry land or two or more properties, one of which is the policyholder's.
NFIP residential limits are $250,000 building and $100,000 contents; non-residential limits are $500,000 building and $500,000 contents; a new policy generally has a 30-day waiting period.
An NFIP policyholder must file a signed and sworn proof of loss within 60 days after the loss, and Increased Cost of Compliance pays up to $30,000 when a substantially damaged building must be brought up to floodplain rules.
The ISO earthquake endorsement treats all shocks within 72 hours as one earthquake, applies a percentage deductible, and excludes masonry veneer unless the schedule removes that exclusion.
Homeowners Section II excludes liability for owned inboard or inboard-outdrive boats, sailboats 26 feet or longer, and owned outboard motors over 25 total horsepower; a watercraft endorsement or boatowners policy fills the gap.
2.7 Flood (NFIP), Earthquake & Personal Watercraft Coverage
Section I.D of the Hawaii adjuster outline groups three "other" personal lines exposures: flood, personal watercraft, and earthquake. All three are excluded or tightly limited in standard property forms. In Hawaii, they are not academic: hurricane storm surge, tsunami and heavy-rain flash floods; earthquakes on Hawaiʻi Island, such as the magnitude 6.7 Kīholo Bay earthquake of October 2006; and thousands of recreational boats moored or trailered across the islands.
Flood: Why a Separate Program Exists
Property forms exclude water damage caused by flood, surface water, waves (including tidal waves and tsunami), and overflow of a body of water, whether or not driven by wind. Private insurers historically avoided flood because losses are catastrophic and concentrated, and because only high-risk owners tend to buy (adverse selection). Congress responded with the National Flood Insurance Act of 1968, which created the National Flood Insurance Program (NFIP). The program is administered by the Federal Emergency Management Agency (FEMA).
Key structural points:
- Coverage is available only in participating communities that adopt and enforce floodplain management regulations.
- Policies are sold through Write Your Own (WYO) private insurers, which issue and service the policy under their own names while the federal program bears the risk, or directly through NFIP Direct.
- Lenders must require flood insurance on federally backed mortgages for buildings in a Special Flood Hazard Area (high-risk zones beginning with A or V on the Flood Insurance Rate Map).
The Standard Flood Insurance Policy (SFIP)
There are three SFIP forms: the Dwelling Form (one- to four-family residences and residential units), the General Property Form (other residential and non-residential buildings), and the Residential Condominium Building Association Policy.
Flood is defined as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder's), caused by:
- overflow of inland or tidal waters;
- unusual and rapid accumulation or runoff of surface waters from any source;
- mudflow; or
- collapse or subsidence of land along the shore of a lake or similar body of water caused by erosion or undermining from waves or currents above anticipated cyclical levels.
A tsunami surge that inundates a coastal neighborhood is a flood. A burst pipe that floods one house is not, and neither is lava.
| NFIP limit | Residential | Non-residential |
|---|---|---|
| Building | $250,000 | $500,000 |
| Contents | $100,000 | $500,000 |
Contents coverage is purchased separately. Increased Cost of Compliance (ICC) coverage pays up to $30,000 toward elevating, floodproofing, relocating or demolishing a building that a community declares substantially damaged.
Waiting Period and Valuation
A new NFIP policy generally takes effect 30 days after the application and premium are received. Exceptions include coverage required in connection with making, increasing, extending or renewing a loan, and certain map revisions. An owner cannot wait until a storm is forecast.
Under the Dwelling Form, a single-family dwelling that is the insured's principal residence is settled at replacement cost if it is insured to at least 80% of its replacement cost or to the maximum amount available. Other buildings and all contents are settled at actual cash value. The SFIP does not pay additional living expenses or business income. Basement coverage is limited to listed items.
NFIP Claim Rules Adjusters Apply
- The policyholder must send a signed and sworn proof of loss within 60 days after the loss. The adjuster may help prepare it, but the deadline belongs to the insured.
- NFIP claims are adjusted by adjusters who meet FEMA's flood adjuster certification requirements. In Hawaii, a flood adjuster still needs the appropriate Hawaii adjuster license or emergency registration (5.3).
- After a hurricane, the adjuster must separate wind damage, paid by the homeowners or commercial wind coverage, from flood damage, paid only by the NFIP or a private flood policy. Each is documented separately because anti-concurrent causation wording in property forms lets the wind insurer exclude water-caused damage.
Earthquake and Volcanic Eruption
Property forms exclude earth movement: earthquake, landslide, mudslide, subsidence and sinkhole (sinkhole collapse is covered in some commercial forms). The earth movement exclusion in the ISO homeowners form expressly includes land shock waves or tremors before, during or after a volcanic eruption. Two Hawaii consequences follow:
- Volcanic eruption is a covered peril in homeowners and dwelling broad and special forms and in the commercial Basic, Broad and Special causes of loss forms. It covers lava flow, airborne blast and shock waves, and ash or dust (2.3).
- Earthquake damage that accompanies an eruption is still excluded unless the insured buys earthquake coverage. Fire, explosion, theft or glass breakage that results from earth movement is covered.
The Earthquake Endorsement (HO 04 54)
The ISO earthquake endorsement adds earthquake (including volcanic tremors) as a covered peril. Key terms:
- Percentage deductible — the deductible is a percentage (commonly 5% or more) of the applicable dwelling or personal property limit shown in the schedule, not a flat dollar amount.
- 72-hour rule — one or more earthquake shocks within 72 hours count as one earthquake, so one deductible applies.
- Masonry veneer — loss to exterior masonry veneer (brick or stone facing) is excluded unless the schedule shows that the exclusion does not apply.
- No flood coverage — the endorsement does not cover flood, waves or tidal water even if an earthquake caused them. A tsunami triggered by an earthquake remains a flood loss.
Commercial insureds buy earthquake through commercial property earthquake endorsements or a separate difference-in-conditions (DIC) policy.
Personal Watercraft
Homeowners Property Coverage
Under homeowners Section I (see 2.2):
- watercraft, including trailers, furnishings, equipment and outboard engines, has a $1,500 special limit;
- theft of watercraft and their equipment away from the residence premises is excluded on the named-perils property coverage;
- windstorm or hail damage to watercraft is covered only while the boat is inside a fully enclosed building.
Homeowners Liability Exclusions
Section II covers bodily injury and property damage arising from many small boats but excludes liability arising out of watercraft that are:
| Excluded watercraft (unless an exception applies) | Not excluded (covered) |
|---|---|
| Inboard or inboard-outdrive power owned by an insured (including most personal watercraft such as jet skis) | Rented or borrowed inboard boats of 50 horsepower or less |
| Inboard or inboard-outdrive of more than 50 horsepower rented to an insured | Sailboats under 26 feet |
| Sailing vessels 26 feet or longer owned by or rented to an insured | Owned outboard motors totaling 25 horsepower or less |
| Outboard motors of more than 25 total horsepower owned by an insured, unless the policy's acquisition-and-declaration exception applies | Any watercraft while stored |
A watercraft endorsement can extend Section II liability to a described boat.
Boatowners and Yacht Policies
A boatowners policy is a package for small and mid-size boats. It provides physical damage on the hull, motor, trailer and equipment (usually open perils, on ACV or agreed value). It also includes liability, medical payments, and often uninsured boater coverage.
A yacht policy uses ocean marine terms. It provides hull coverage and protection and indemnity (P&I) liability. It also has warranties an adjuster must check — the navigation limits warranty (for example, Hawaiian waters only) and lay-up periods. A loss outside the warranted navigation area can void coverage.
Heavy rain causes a hillside drainage channel to overflow, and muddy water inundates five neighboring homes in Mānoa, including the insured's. The insured has a homeowners HO-3 policy and an NFIP Dwelling Form policy. Which policy responds to the water damage?
The HO-3, because water damage from rain is a covered open-perils loss to the dwelling
Both policies equally, sharing the loss under the other insurance clause
The NFIP policy, because the inundation of two or more properties is a flood
Neither policy, because mudflow is excluded under every standard flood form
A homeowner buys an NFIP Dwelling Form policy on June 1 for the first time, with no loan transaction involved. A tropical storm floods the home on June 20. What is the likely result?
Not covered, because a new NFIP policy generally takes effect only after a 30-day waiting period
Covered, because NFIP coverage begins at 12:01 a.m. on the day after the application is received
Covered only if the homeowner files a signed proof of loss within 10 days of the flood
Covered at 50%, because the loss occurred during the waiting period
An insured has an HO-3 with an HO 04 54 earthquake endorsement. A series of shocks over 48 hours cracks the foundation, and a later inspection shows separate damage from the first and last shocks. How many earthquake deductibles apply to the dwelling?
None, because earthquake endorsements carry no deductible on the dwelling
One for each shock that caused separately identifiable damage to the foundation
Two, one for the first shock and one for the last, because each caused separate damage
One, because all shocks within a 72-hour period are treated as a single earthquake
Sections you finish are checked off in the contents.