Keeping Businesses Afloat: BOPs, Flood and Business Income Coverage

An insured has a business owners policy that includes coverage for loss of business income. However, flood is not a covered peril under the BOP and it is not possible to add the coverage as an endorsement to the NFIP flood policy. 

Q: How can our agency provide coverage for loss of business income due to flood?

Response 1: The only way I know of is a difference-in-conditions policy. But beware, these policies often have restrictions on properties located in special flood hazard areas, such as zones A and V, and sometimes shaded X zones as well.

Response 2: Look for a standalone product. Easier said than done.

Response 3: We’ve placed flood coverage that includes business income coverage under a difference-in-conditions policy for a couple of our large insureds. One of the biggest claims we’ve ever had at our agency was for business income after a flood at a large printing plant. At renewal the following year, flood coverage disappeared from the policy—imagine that.

Response 4: You need to go to the surplus lines market for a flood or difference-in-conditions  policy. Some might require the insured to have an NFIP policy and then wrap the business income coverage around it, while others might offer the full coverage without an underlying NFIP policy. Typically, the structure depends on the insured’s location and other risk factors.

Response 5: First, check with your BOP carriers. If the insured is in a low-risk area, a carrier might be willing to add flood to the policy. This is the most ideal scenario.

If you can’t find a BOP carrier to offer flood, you will need to go to a private standard flood carrier. A lot of carriers now offer monoline flood insurance that enables you to add business income coverage. Failing that, approach the brokerage marketplace for a private policy.

Response 6: The inability to answer this question has caused many errors & omissions claims—great catch! If none of your BOP carriers offer this coverage, you will have to figure out a way to get manuscript coverage or go to the surplus market to see what a broker can find to help you. I am sure it will not be the first time that they’ve been asked.

Response 7: Private and excess flood providers offer business income and extra expense coverages.

Response 8: ISO has a flood coverage endorsement in their property program which triggers business income coverage. The problem is that this might not be available on a BOP. 

Response 9: Try a difference-in-conditions or excess flood policy form. A difference-in-conditions policy is commonly used to provide additional flood and earthquake coverage.

This question was originally submitted by an agent through the VU’s Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.