Basement Coverage Limitations Decision Overturned

Overview

The policyholders, through their representative (hereinafter “policyholders”) filed an appeal in August 2020, alleging their flood insurance carrier (hereinafter “insurer”) improperly denied all of their claim under the Standard Flood Insurance Policy (SFIP) [1] for damages to covered property arising from a claimed flood event dated June 2020. [2]

In its review, FEMA found the following facts relevant:

• At the time of loss, the policyholders had $250,000 of building coverage and $100,000 in personal property coverage.
• The insured building is a single-story building, partially on a concrete slab foundation with a subgrade crawlspace.
• Following the claimed flood event, the policyholders filed a claim with the insurer and the insurer assigned an adjuster to inspect the property.
• On July 2020, the adjuster inspected the property and could not confirm a general and temporary condition of flood existed on the claimed date of loss. The adjuster found no waterlines to the exterior or interior of the building. The adjuster observed sagging of the living room sub-floor, moisture in the crawlspace, and rotted floor joists.
• The adjuster canvassed the neighborhood and found no evidence of flooding. The adjuster spoke to the policyholders’ neighbor, and the neighbor reported there had been no flooding in the neighborhood for at least five years.
• In a letter dated July 2020, the insurer denied coverage due to no general and temporary condition of flood and the moisture exclusion under the SFIP.
• The policyholders appeal the insurer’s denial of coverage and contend flooding existed on their property on the claimed date of loss. In support of their appeal, the policyholders submit an estimate from a mitigation contractor.
• Because this information does not respond to the insurer’s reason for denial, FEMA’s decision is based on the documentation in the claim file.

Rules

The insurer agrees to pay the policyholder for direct physical loss by or from flood to covered property, provided the policyholder complied with all terms and conditions of the SFIP. [3]

The SFIP defines a basement as any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level on all sides. [4]

Analysis

The policyholder is appealing the insurer’s denial of coverage due to basement limitations.

The insurer agrees to pay the policyholder for direct physical loss by or from flood to covered property. The SFIP defines a basement as any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level on all sides.

FEMA’s review finds the first-floor slab has two levels making this a multi-level first floor. The insurer’s engineer provided a report that included a diagram of the building’s slab. This diagram shows spot elevations throughout the first floor slab and the surrounding ground surface areas and demonstrates the slab for the two rear apartments is higher than the slab for the two front apartments. The diagram shows the slab elevations for the two front apartments are higher than the exterior ground level on three sides. The engineer’s diagram confirms that the floor of the front apartments is above ground level which eliminates the SFIP basement classification.

Based on documentation in the insurer’s claim file and contained in the engineering report, FEMA’s review finds the claim needs to be re-evaluated.

Conclusion

Based on the facts and analysis above, FEMA overturns the insurer’s determination that the two rear apartments are basements as defined by the SFIP. FEMA requests the insurer re-open the claim and apply the correct SFIP coverage for the two rear apartments.

Any further adjustment of the claim remains under the direction of the insurer in accordance with all terms and conditions of the SFIP.