Business or Landlord: Who Buys Commercial Flood Insurance?

Updated: Mar 30

With recent reports of flooding along the Gulf Coast, dam failures and other Midwest flooding, business owners who might not have considered commercial flood insurance in the past are opening their minds to the idea. But what does it all mean for business owners who don’t own the property where their business is based? Are they responsible for buying a commercial flood insurance policy or is the landlord?

Commercial Flood Insurance

Well, the answer is: it depends. In most cases, the landlord purchases and carries a flood insurance policy for the building. That said, commercial tenants should read their leases carefully as some landlords may offer a triple net lease, where the occupant agrees to pay property expenses including real estate taxes, maintenance and possibly flood insurance. Landlords who own commercial buildings in flood zones and have a mortgage from a federally regulated or insured lender are required to buy flood insurance in the amount of the mortgage or up to $500,000, but they can pass those costs down to the lessee.

Bear in mind that neither a standard business owners policy nor a commercial property insurance policy provides coverage for the peril of flood. Before leasing a property, business owners should first work with a flood specialist to determine if the property is in a flood zone. A flood specialist will inform business owners that every property has some level of flood risk. Then, they should check with their landlord to ensure that the property has flood insurance and clarify if they are expected to cover the expenses.

Further, if a commercial property is not in an official Special Flood Hazard Area designated by FEMA, business owners may wish to get a second opinion regarding the property’s flood risk as FEMA’s maps are largely outdated. In fact, First Street Foundation recently reported that 5.9 million properties in the U.S. were at substantial risk of flooding but were not included in FEMA’s 100 year flood zone. Commercial property owners who have questions about their flood coverage can check FEMA’s flood maps and/or consult with a private flood insurance specialist, who will likely assess the property’s risk using more sophisticated modeling technology. Keep in mind no technology on earth can assess a property's flood risk with total accuracy.

When it comes to shopping for flood insurance, the party responsible for obtaining it – landlord or business owner – can buy through the federal government’s National Flood Insurance Program or through the private market. The NFIP provides basic flood insurance for building coverage up to $500,000. Coverage for any amount after that would have to be secured with an excess or surplus policy provided by a private insurer. Insurers in the private market, like those working with, offer a complete commercial flood insurance policy in one simple transaction for any amount up to $5 million with a fair rate based on more accurate risk assessment. For more information on commercial flood risks and options for flood insurance, see our previous post.

Just as homeowners do, business owners and landlords may want to conduct due diligence before moving into a new property. A little research on flood risk and flood insurance could pay dividends in the event of the unexpected.

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