Over the past several days, severe flooding has inundated several states in the Rocky Mountain Region. Following the nearly fifteen inches of rain dumped on parts of Colorado, the resulting floods continue to wreak havoc in a state already reeling from losses suffered during the recent forest fires ($567 million) and hailstorms ($321 million). Businesses and residents in Utah and New Mexico have also suffered considerable losses from the series of storms. As search and rescue efforts continue and initial damages estimates trickle in, one question regarding the impact of the Rocky Mountain floods, as with any natural disaster, is whether there is insurance coverage for any of the losses and, if so, will it cover the damages sustained?
News outlets are reporting that in Colorado, up to eight individuals have died because of the floods and some 1,250 people are missing. Additionally, according to the Colorado Office of Emergency Management, the floods have destroyed 1,502 residential structures and damaged 17,494 others. These numbers do not include commercial structures or the associated business losses. Boulder County’s transportation director estimates that Boulder County alone will require approximately $150 million to repair 100 to 150 miles of roadway and 20 to 30 bridges. President Obama subsequently signed the Colorado Disaster Declaration and ordered federal aid to supplement state and local recovery efforts.
While the heavy rainfall in New Mexico will assist in the recovery from an unprecedented drought, the cost has been high. At least one person died, and state officials estimate that the overflowing rivers, broken dams and swaths of debris have caused millions of dollars in damage. In Utah, heavy rainfall and the resulting floods and mudslides stranded people in outdoor recreation areas and displaced others from homes and schools.
The Coverage Issues
With some authorities calling the Colorado flooding a 500- or even 1,000-year event, an initial coverage issue is whether a commercial property or homeowner policyholder would have requested flood coverage when the subject property is not located in a high-risk flood plain, or in a flood zone at all. Even with flood coverage, another issue is whether mere exposure to water, without more, constitutes a direct physical loss. Additionally, business owners will need to ask if the flood coverage includes business interruption coverage. Further, absent flood coverage, the typical business owner or homeowner policy often contains exclusions for water or water damage caused by forces or acts of nature.
As business owners are able to access their operations, their primary concern will be getting back to business. Business interruption coverage is essential in such instances. Business income, extra expense and civil authority coverage will be critical. Additionally, given the extent of the destruction and damages to utility services and transportation infrastructure, non-damage business interruption and contingent business interruption coverage are crucial. However, unless flood coverage was sought, it is unlikely business interruption coverage will be triggered.
Potential Legislative Action
Moreover, the Rocky Mountain floods raise a host of anti–concurrent cause issues. If there is no flood coverage or the water damage is excluded, what about potential resulting damage, such as earth movement, structural damage or mold? Colorado courts, for example, have historically enforced anti–concurrent cause language, but the severity of the damages may trigger legislative action overruling those decisions. Indeed, following the Superstorm Sandy losses, New York passed legislation limiting the application of anti–concurrent cause language so as to maximize coverage. The Colorado, New Mexico and Utah state legislatures all passed legislation of some kind in reaction to the considerable forest fire losses sustained in 2012, so it is feasible these states may react in kind to the 2013 flood losses.
Because of the extent of damages throughout the Rocky Mountain Region, insurers should be consistent in their claims handling and coverage positions. As the Rocky Mountain Region continues to assess the impact of the floods, our coverage team members will continue to monitor the situation and be available 24/7 to address coverage questions.