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Never Say Your Client Doesn't Need It

The couple sitting in your office has just told you that they understand that the homeowners policy they are buying does not cover flood insurance but they aren't worried because their house is nowhere near a body of water.

You are familiar with where this house is located. There hasn't been any flooding in that area for as long as you can remember. You take pride in your reputation and your service to your clients. Your guidance is especially important because consumers usually have limited knowledge of the levels of flood risk they face and often hold misconceptions about this. Additionally, you want to be sure you are not exposing yourself or your agency to potential Errors and Omissions (E & O) litigation.

What should you tell this couple?

"Do not tell a potential customer that they do not need flood insurance or that they need only minimal limits," says Pete Travis of North Pointe Insurance Company. "If your prospective clients do not wish to purchase a flood insurance policy, have them sign a Rejection of Coverage form and maintain it in their file."

Failure to place coverage on a building at risk of flooding has resulted in all too many E & O claims against insurance agents. This type of litigation does not just come from new customers. Policyholders who renew coverage on buildings that have seen substantial improvements also submit E & O claims if their agent does not use foresight at the time of renewal.

"If they request that you underinsure a building, again, have them sign a rejection form stating that they were offered and did not purchase higher coverage limits," adds Travis.

Coverage against flood losses doesn't end at the front door. Make sure that you offer contents coverage to your clients, whether or not they own their building. Help them analyze the costs of replacing uninsured contents against the annual premium to protect their belongings. However, "If contents coverage is rejected," warns Travis, "make sure you get a signed Rejection of Coverage form. In instances where a policy is being purchased for loan closing or because it is required by the lending institution for an existing loan, make sure you explain that contents coverage is not included as part of the requirement, and offer it."

What about property that has multiple buildings?

"Explain to your potential and existing customers that a separate flood insurance policy is required for each building," says Travis. There is one exception. "The only appurtenant structure coverage allowed is afforded under the Dwelling Form and only allows 10 percent of the dwelling's coverage to be applied to a detached garage. This only applies when the garage is used solely for parking and storage. If the garage has plumbing or is used for other purposes, a separate policy must be purchased to cover it."

Have more NFIP coverage questions? Explore the NFIP's online training modules for help in complying with state and Federal laws regarding flood protection.
 Last updated on September 1, 2007