Insurance Coverage and Risk Management

Green River Flooding?

Concerned about impacts on your business or home of potential flooding this winter from the Green River? You may be affected even if you do not operate or live in the potential flood zone. Consult the checklist of initial considerations below, prepared by Riddell insurance lawyers David M. Brenner and Jayson Sowers and this powerpoint from a 2007 Washington State Bar CLE presentation by David on Considerations for Effective Disaster Claims Development.

The Problem: Weakness in the Howard Hanson Dam on the Green River may require the Army Corps of Engineers to spill additional water at a far higher rate than usual this winter and over the next several years. Since 1962, the dam has protected manufacturing and distribution centers and public facilities in the lower Green River floodplain and residential areas in the middle Green River floodplain. For an overview of the risk, see information on King County's website. Potentially affected cities are Auburn, Kent, Renton and Tukwila in the Auburn/Kent Valley. Because development in these areas since 1962 has occurred under the protection of flood controls provided by the Hanson Dam, having those protections suddenly compromised may create worse flood conditions than would have existed even in natural conditions. This is a risk not only for businesses and residences in the potential flood zone, but for businesses outside the zone who are dependent on suppliers inside the zone or access through the zone.

The Solution: This is an unusual situation in which a greater risk of potential flooding than normal can be anticipated months in advance. This risk can and should be mitigated by careful planning. Such planning will benefit from a multidisciplinary approach, potentially including advice from a knowledgeable insurance broker, engineers, forensic accountants, and insurance attorneys like us who can help anticipate coverage problems and claim preparation. Here is an initial checklist of considerations:

  • Are your home, business, or goods in the danger zone? Various county, state and federal agencies, as well as private engineering firms, have been studying this question for months. A map at page 3 of the powerpoint for the Green River Flooding Briefing to the King County Council of August 26, 2009, and reproduced at page 52 of the September 18-24 issue of the Puget Sound Business Journal, shows the Preliminary 100 year Floodplain and potentially affected zone in the lower Green River Valley. It is one of the largest manufacturing, distribution, and warehousing districts on the West Coast.
  • Even if you are not in the zone, do you have key suppliers of goods or services in the zone? Your business may be indirectly affected even if it experiences no physical flooding itself. Your commercial property insurance may cover such losses from others' physical property damage, but typically only if the original cause of the loss is also covered.
  • Check your insurance policies to see if you have flood insurance. Most regular commercial and residential property policies exclude flooding from their coverage. Commercial flood coverage typically is found in a supplemental policy called a Difference in Conditions (DIC) policy. Such policies usually have a high deductible for property located in FEMA flood zones. Businesses and homeowners can insure with the federal government's National Flood Insurance Program (NFIP). NFIP policies have fairly low limits but provide a base level of insurance for buildings and contents.
  • Look into acquiring insurance if you do not have it. You should move quickly to consult your broker or agent. The commercial market is likely to pull back. To prevent insuring on the eve of a disaster, NFIP policies will not cover losses until 30 days from the point they go into effect, so it is important to move quickly.
  • If you do have insurance, check your renewal date and cancellation provisions. Commercial insurers may chose to nonrenew, or even cancel if it becomes clear that recurring floods are in the offing.
  • Identify specific mitigation measures to minimize losses in the event of flooding. Insurers may argue that because flooding can be anticipated, the failure to minimize your loss by advance planning puts your policy at risk. Consulting engineers and disaster prevention specialists can provide you with very specific advice for loss mitigation. Your insurer may have loss control consultants who can provide you with free consulting advice. If you get such advice though, you must be prepared to follow it as it has the potential to set a reasonable standard of conduct for a future claim. DIC policies may also have "preservation of property" coverage that could help to pay for some mitigation measures.
  • Identify and preserve accounting records that will help establish a business interruption claim. For businesses, the claim for physical damage to your building and contents is often less than the harm to your bottom line profits from loss of business. Commercial flood policies usually includes coverage for lost profits and extra expenses you incur. Property policies can also cover loss of access and indirect losses from damage to suppliers. These are complicated claims that require demonstrating what your profits would have been but for the loss. This means good records of past revenues and expenses are very important. In this case, projections made before a loss may also help. For tips on how such claims can be effectively presented, see the following powerpoint from David Brenner's presentation to the Washington State Bar Association in August 2007, Considerations for Effective Disaster Claims Development.
  • Consult us. The lawyers in our insurance practice, David Brenner and Jayson Sowers, have more than 30 years of combined experience in counseling policyholders regarding all manner of insurance claims and litigating on their behalf when necessary to secure the full benefits of their policies. We have a long history of handling disaster claims regionally and nationally, including 9/11, Hurricane Katrina, the Nisqually earthquake and 2007-08 regional flooding. David is a leader in the ABA and has chaired and spoken at continuing legal education seminars around the country on such losses. Through such work, we have also developed longstanding relationships with equally experienced brokers, consulting engineers and forensic accountants to whom we can refer you for other specialized help.