Flood Insurance Exclusion of Basements Could Include the Bottom Floor of a Home

Many people who have a basement in their home are unaware that standard flood insurance policies exclude coverage for damage to their basement.  Some people also have no idea that flood damage to the lower level of their home is not covered by their policy because of the nuanced definition of the term “basement” under Write-Your-Own policies issued under the National Flood Insurance Program (NFIP).  Because policies must conform to the language and terms dictated by the NFIP, this flaw in the protection of the lower level of homes from flood applies to many policyholders.  Further, flood policies are interpreted narrowly because the program is subsidized by public funds.

The First Circuit opinion in Matusevich v. Middlesex Mutual Assurance Company offers a cautionary tale for those who perform improvements like adding a patio, deck, swimming pool or similar improvement to their home.  The insured purchased a Standard Flood Insurance Policy which included an exclusion for coverage of damage to the basement.  Under the policy a basement was defined as “[a]ny area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.”

The insured owned a two level house which included a subgrade on three sides.  On the fourth side of the home, which faced the backyard, the insured had a pool installed which was surrounded by a concrete apron that sloped down from the edge of the pool to the rear of the home.  While individuals did not need to negotiate steps or a ramp when walking from inside the house to the pool, they had to step up slightly to exit the home. 

The home was badly damaged during a severe rainstorm that resulted in between 39 and 50 inches of water flooding the bottom floor of the property.  The insured filed two separate flood claims: (1) $136,588 for damage to the lower floor of the structure; and (2) $12,159 for damage to specific personal property on the lower floor that was damaged.  The insurer paid the claim for the smaller amount pursuant to a provision that indicated enumerated items of personal property were covered no matter where they were located in the home.  However, the insurer denied the larger claim based on the contention that the lower level of the home was a “basement” as defined by the policy.  The insured filed a lawsuit against the insurer with both parties seeking summary judgment.

Evidence produced in the case revealed that the lower level of the home was 3.49 inches higher than the ground underneath the concrete apron surrounding the pool.  The apron was 4.25 inches thick which means the bottom level of the house was 0.76 inches lower than the top surface of the concrete apron.  According to the appellate court, the fourth side of the home would be below ground level (subgrade) if the proper measuring point was the top of the concrete apron.  Under this analysis, the bottom floor of the home would be subgrade on all four sides which would preclude coverage because the bottom floor would fit the policy definition of a “basement.”  If the proper measuring point was the soil beneath the concrete apron, the rear of the house was not subgrade, so the basement exclusion would not apply.

While the district court ruled in favor of the insured based on the proper measuring point being the soil underneath the concrete apron, the appellate court reversed.  The appellate court first indicated that the “commonsense” meaning of “flood” involves water rising above and flowing over the existing ground level.  The court reasoned that this meant that “ground level” under the policy should be equated with the ground level that was actually flooded.  Because the water rose over the concrete apron and flowed down the 0.76 inch sloop flooding the bottom level of the home, the apron was the ground level outside the home.  The court also pointed out that a person must step up to exit the residence, so the bottom floor was below “ground level.”

The appellate court also relied on public policy grounds to support its conclusion.  Because flood insurance claims are actually paid from government funds, the court reasoned that the terms of the policy must be narrowly construed.  The court noted that the matter of stepping up was the key fact regardless of the distance involved.  The court contended public policy also bolstered the insurer’s position in another respect.  The court observed that the purpose of the NFIP is to encourage construction practices that mitigate future flood damage.  If “some arbitrary baseline which has no effect on current flood risks” was the proper measuring point, the court reasoned that it would be encouraging the type of construction that caused the flood in the first place.

The bottom line is that home improvements like adding a concrete patio, deck or other improvement in your backyard could mitigate the protection provided by your flood insurance.  When making such improvements or purchasing insurance, you might want to seek legal advice to avoid these types of insurance pitfalls.  If your insurance company refuses to pay for losses covered by your insurance policy, you might have a legal claim for financial compensation.  My law firm represents policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations with our experienced Miami home insurance claims attorney. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM. 

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