"We have a client who had flood insurance. With all the rain in Georgia he had water coming in from the outside into his basement. The insurer denied the claim and FEMA sent a letter stating since there were not 2 contiguous homes affected or more than 2 acres of land has to be effected by a "Flood." So how do we provide coverage for this insured in this situation for a homeowner that has a retention pond that overflows due to large amounts of rain and comes into the house or when all this rain water comes into the basement?"

First, if the loss truly doesn't trigger the NFIP flood policy, then you're probably looking at some sort of independent/excess flood policy or a DIC form. You'd probably have to go to the E&S market for that. However, unless there was some miscommunication, what you were allegedly told by the NFIP folks is incorrect. Below are some comments from the VU faculty, followed by a more detailed article from FAIA flood instructor, David Thompson.

I have only seen one occasion years ago where a carrier, in an enhancement endorsement, offered a special limit for this kind of event, and that was on a commercial policy. It's a serious exposure for a few folks, but unfortunately, one that either applies to your property or it doesn't. When that is the case, loss control is the answer, not insurance.
 

The NFIP policy defines a flood (I am paraphrasing) as water which covers at least two acres OR touches two premises. It is not necessary that water actually touch two homes, all that is required is that the water is not confined to your premises. In other words, if your house is damaged by flood waters and that water was in the street or city owned drainage ditch, then you have a flood that triggers NFIP coverage. Plus, the houses (or whatever structure we are talking about) don't have to be located next to each other. You could have one house flooded, two next door not flooded, and one house down the block flooded and you have a flood.
 
In 23 years of insurance experience in Florida (we write 40+% of the flood coverage in the country) I have never seen a claim denied because of the two acres/two premises rule. Two specific cases I was involved in....
 
In Vero Beach, Florida a street named Royal Palm Blvd. floods a lot. One of my customers was on vacation during a rain event and her house sustained flood damage. No house next to her was damaged so the adjuster denied it. Our agency happened to have the local newspaper and the front page showed water close to knee high on the street right in front of our customer's house. It took all of 5 minutes to get the adjuster to pay the claim.
 
In another house flood, the adjuster went out and saw that only one house (our customer) had flooded. He walked around the premises and was able to see what I refer to as "the trash line" which was in both our customer's yard and his neighbor's. You know what the trash line is...small sticks, leaves, etc pushed by water. The adjuster could determine that water had, in fact, left the property of our insured. It was not necessary that the other house be damaged. The claim was paid.
 
My speculation (and it is only that) is that there was a flood as defined by NFIP. If, however, it was truly a case where the water did not leave the insured's property and that area of displacement was less than two acres then it's not covered by NFIP. It's also not covered by the homeowners policy. While you don't find much of it out there, some companies write flood "on their own paper" so to speak...it's a non-NFIP policy. The policies I have seen by private carriers do not impose the two acres or two premises requirement, thus coverage in this situation would be provided.
 
The gap pointed out by this agent is one I have referenced many times in class by saying, "If a customer has an NFIP policy and a homeowners policy, there are still some water claims that won't be covered." This is the perfect example if the loss is localized and less than 2 acres in breadth. 
 

A Homeowners DIC (Difference in Conditions) form can cover this type of loss. These are typically E&S products, have high deductibles and may not be available in flood prone areas. You can find more information about one of these programs at www.catcoverage.com, though I don’t think that program is available in GA.
 

I'm not an authority on flood coverage, but at least one mainstream standard company I represent offers an expanded flood coverage that includes surface water. There are probably other coverages. All of these coverages are limited, of course, but worth checking into.
 

The denial is correct. Flooding has to involve two different properties or 2 acres or more at one location to be covered by a federal flood policy. I know of no way to cover the exposure you’re asking about. You might be able to find some sort of Personal Property Catastrophe insurance in the E&S market. Otherwise the exposure might need to be handled by a non-insurance risk management approach. 
 

Does the client have two acres or more of affected land? I f the pond overflowed and that was the cause, did the flood cover over two acres of area before entering the house? If so, resubmit the flood claim for a review and adjustment.
 

Leaking foundations are not necessarily the same as flood, and the basement in Georgia could have been one or the other or both. Sometimes it is difficult to tell what happened, particularly if there was no damage to the upper level(s) of the house. FEMA’s definition of flood is different from a policy’s definition of flood. 

Two Acres – Two Properties Rule

QUESTION:
“We have a client who has a flood insurance policy. With all the rain in Georgia, he had water coming in from the outside into his basement. The flood insurer denied the claim and sent a letter stating that since two contiguous homes were not affected and less than two acres of land was affected, this was not a “flood” as defined in the NFIP policy. So how do we provide coverage for this insured in this situation; a homeowner has a retention pond that overflows due to large amounts of rain and comes into the house or with all this rain water that comes into the basement?”

ANSWER:
This is an excellent question and it points out the fact that an insured with both a flood policy and a property policy (homeowners or commercial property) can suffer a water loss that might not be covered by any policy.

Let’s look, however, at this situation and see what it takes for water to be considered a “flood” under the NFIP policy. The term “flood” is defined as follows:

Flood, as used in this flood insurance policy, means:
1. 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 your
   property) from: 
   a. Overflow of inland or tidal waters; 
   b. Unusual and rapid accumulation or runoff of
      surface waters from any source; 
   c. Mudflow.

Note the reference to “…two or more acres of normally dry land area or of two or more properties….”  Putting this statement into “plain talk” language it says, “If the water covers two or more acres you have a flood, or if the water is not confined to your property you also have a flood." Common misconceptions are:  two separate structures must be damaged and the water has to cover at least two acres. Examples will help illustrate this concept. (All examples are based on actual claims.)

• Bill owns a house on 1/4 acre of land. His neighbors along the street own property of similar size. Heavy rains cause surface water to damage Bill’s house. No other structure on Bill’s street was damaged. The water, however, was in the public street. In this case, the water touched two or more properties (Bill’s house and the public street); thus, Bill has suffered a “flood.”

• Sue owns a house on 1/2 acre. During heavy rains, water pools upon the ground and gets into Sue’s house causing damage to carpet, walls, furniture, and other personal property. No other house near Sue sustained any damage. The adjuster initially denies the claim, but after further investigation a supervisor goes to the property and can see what is referred to by some as “the trash line.” The supervisor recognizes this “trash line” as the small line of leaves and yard debris that often shows how much area the water covered and where the water stopped. This “trash line” clearly touches Sue’s yard as well as her neighbor's. It was not necessary that the neighbor’s house sustain damage; it was only necessary that the water was not confined just to Sue’s property. In this case the water touched two properties, so Sue suffered a “flood” under the NFIP policy.

• Lisa lives on a five-acre tract. Heavy rains cause surface water to damage her house. Lisa takes photographs of the water and they clearly show a vast expanse of area covered. While the water was confined to her five-acre tract and did not touch any other property, the adjuster can see from the photographs that the area of displacement is over two acres. Lisa’s claim is covered.

• Fred gets a “deal” on a half-acre vacant lot, mainly because the lot is located in a sinkhole area. During heavy rains surface water damages Fred’s house. Due to the low-lying nature of Fred’s lot, the water is confined to his property. Since neither two acres were flooded nor two properties were touched, Fred does not have a valid “flood” loss under his NFIP policy. Additionally, his homeowners policy excludes the loss due to the water exclusion.

• Lucy owns a house on a typical 1/4 acre lot. Her street has about 20 houses on it. Heavy rains cause surface water to damage Lucy’s house. While neighbors on either side of Lucy sustained no flood damage, three other houses on her street (just a few hundred yards away) did sustain damage. This fits the “general condition” of flooding. Since water touched two or more properties Lucy has a valid flood claim.

So, in the question asked by the agent, it would be key to know all the specifics of the damage. The agent said the claim was denied because two contiguous homes were not affected. As pointed out in the examples, such requirement does not exist; it’s only necessary that the water was not confined to the insured’s property.

Let’s assume, however, that in this particular case the insured lived on one acre and the water was in fact confined to his property. Such being the case, this is not a covered claim under the NFIP. As pointed out earlier, the homeowners policy would also exclude the loss. Is this an exposure that can be covered? Yes, but seldom does a market exist. There is no endorsement to the NFIP or homeowners policy to fix this gap. 

A few insurance companies write flood insurance under their own private, non-NFIP, form. Underwriting is quite selective, but for those who qualify for this “private flood insurance” one benefit is that the policy often has a broader definition of “flood.” It’s common that the reference to two acres or two properties is not present, meaning that almost all surface water claims would be covered under this non-NFIP policy. 

Additionally, some excess flood policies do not impose the two acres/two properties limitation so it’s possible that the underlying NFIP policy would exclude the loss but the excess might cover it. Of course, these private and excess policies are company specific and each policy must be read to determine coverage.

Last Updated:  January 30, 2010

Portions copyrighted 2009 by the
Florida Association of Insurance Agents.
Reprinted with Permission