No Direct Physical Loss Decision Upheld Interior Finishes

BUILDING COVERAGE: $250,000

PERS. PROPERTY COVERAGE: $100,000

DATE OF LOSS: November 2022

DATE OF DENIAL: June 2023

APPEAL SUBMISSION DATE: August 2023

APPEAL ELIGIBILITY DATE: August 2023

INSURER’S DENIAL: The insurer denied coverage for interior finishes, citing no direct physical loss by or from flood.

POLICYHOLDER’S APPEAL: Policyholder contests the denial of interior finishes and seeks policy limits, stating that the building has been condemned by local authorities and is a total loss. [1] 

Result: Concur with denial

BASIS FOR DECISION UNDER THE STANDARD FLOOD INSURANCE POLICY (SFIP):[2]

• Under Coverage A – Building Property, the SFIP insures against direct physical loss by or from flood. (See SFIP (III)(A)).
• FEMA’s review finds that neither the adjuster or the engineer found any evidence that flood water entered the interior of the policyholder’s building and damaged the interior finishes of the building. The policyholder states the building is a total loss, but the policyholder has not provided any documentation with their appeal to prove there was damage to the interior finishes directly by or from flood.
• For these reasons, the insurer properly denied coverage for the interior finishes due to no direct physical loss by or from flood.
• In case of a loss or request for payment, the SFIP requires the policyholder to provide a signed and sworn-to proof of loss with the documentation that supports the loss and dollar amount requested. (See SFIP (VII)(G)(3)-(5)). The receival of a “condemned” notice does not prove the building is a total loss due to flood. The SFIP is not a valued policy.[3] The insurer agrees to pay a policyholder for damage caused by direct physical loss by or from flood to the policyholder’s insured property, subject to the terms, conditions, and exclusions of the SFIP.[4]
• As it relates to the foundation of the building, the SFIP does cover damage to a building if the damage results from the collapse or subsidence of land that is the direct result of sudden erosion or undermining to the building’s support soil underneath or directly along the perimeter foundation of the building. It appears the association replenished the sand at the policyholder’s property prior to the adjuster’s and engineer’s inspections. The policyholder should submit to the insurer any documentation associated with cost for replenishing the foundation support soil at their property.