🔒As storms worsen, property owners are having mixed success with their insurance options

Last winter’s storms caused significant damage to Greenhead Lobster’s two facilities in Stonington.

“Structurally, it was in the hundreds of thousands of dollars,” says Hugh Reynolds, Greenhead Lobster’s owner.

Losses included an entire marina and electrical systems. Forklifts and trucks were underwater.

The cost of replacing the vehicles was covered by Reynolds’ standard insurance policies.

But neither flood insurance nor standard commercial insurance covered the cost of repairing or replacing fixed structures built over the water, such as a bait shed and part of a dock supported by pilings.

Reynolds pays $6,000 to $8,000 per year for flood insurance, which is required by federal lending regulations in designated flood-prone areas. Reynolds wasn’t particularly surprised to discover its limitations.

“You would have thought it covered you in an event like this,” he said. “I didn’t really know.”

Worsening storms

Paying for climate-resilient infrastructure repairs and rebuilds along coastal and inland waterways are a critical topic at the local and state levels in the face of worsening storms.

Devastating storms in December 2023 and January 2024 caused over $90 million in damage to public infrastructure across the state, and millions more to private property, such as homes and working waterfronts, leaving many Mainers to deal with flooding issues.

The state committed $60 million in storm relief for working waterfronts, infrastructure projects and business recovery, through the Working Waterfront Resilience Grant Program, Maine Infrastructure Adaptation Fund and Business Recovery and Resilience Fund.

So far, funding has enabled repair and recovery in over 40 towns and cities, nearly 70 working waterfront facilities, and over 100 businesses and nonprofits. Working waterfront projects include reconstruction and improvement of damaged wharves and piers, rebuilding and restoration of support buildings such as bait sheds, and repairing and upgrading fuel and electrical systems.

Preliminary grants included $2 million each for the Custom House Wharf and the Maine Wharf LLC in Portland, and $516,500 for the New Harbor Co-op.

“These funds will help rebuild the docks higher by up to 2 feet, repair the wiring, replace our freezer and move the office to a safer location,” Linda Vannah, the co-op’s manager, said at the time.

Long-term plan

Accelerating the investment is a $69 million federal grant prepare critical infrastructure for future storm impacts.

In May, Gov. Janet Mills created the Maine Infrastructure Rebuilding and Resilience Commission to develop a long-term infrastructure plan to ensure Maine is ready for harsh storms ahead.

“We kicked off this commission six months ago in my home of Stonington, which suffered multiple devastating blows in the January storms that struck Maine’s working waterfronts and flooded inland communities,” says Linda Nelson, Stonington’s director of economic and community development and the commissions co-chair. “As we traveled the state, one message became resoundingly clear — climate change is harming the daily lives and future prospects of Maine people, and our communities need help.”

The commission recently issued an interim report with recommendations to strengthen communities and infrastructure against future extreme storms (see sidebar on page 17).

Role of insurance

Flood insurance could play more of a role in the recovery mix, if more people adopted it, commission members said.

Standard residential homeowners and commercial policies contain exclusions for water-related damage that are more extensive than most realize, says Bob Carey, superintendent of the Maine Bureau of Insurance. Exclusions include direct or indirect losses caused by things like flooding, spray and below-ground seepage.

After last winter’s storms, the bureau received over 100 complaints from standard policyholders who had claims denied for situations such as storm surge causing dock collapses and building loss.

By contrast, the National Flood Insurance Program is the primary source of coverage for water and flood damage. But only about 1.3% of all Maine properties are enrolled in the program.

The need for the program is accelerating. In the decade from 2013 to 2023, there were 443 NFIP claims in Maine with a total payout of over $16 million.

In 2023 alone, there were 164 claims and a total payout of $8 million.

However, NIFP provides limited benefits. It covers up to $250,000 for a residential building and property and up to $100,000 for contents.

NFIP’s commercial policies provide up to $500,000 for structures and up to $500,000 for contents.

Limited uptake

Like the public option, uptake on private flood insurance is also small. Carey cites National Association of Insurance Commissioners data for Maine of fewer than 1,000 residential flood insurance policies and 1,100 commercial policies.

“The bottom line is that most properties in Maine are not covered for flooding or water damage,” says Carey.

A “community rating system” has had little luck. The FEMA program extends premium discounts to NFIP policyholders in communities that implement additional flood protection activities, such as adopting a flood hazard mitigation plan. Discounts can be as much as a 45% reduction in flood insurance.

But only 22 Maine communities participate in the rating system.

“The key message is, so far, Maine communities haven’t availed themselves of the community discount program,” says Carey.

Carey says the state has a role to play in promoting national and private flood insurance to improve uptake.

“I put out press releases that there are programs out there,” says Carey. “But it’s a bit of an uphill slog.”

Destabilization

Climate change and associated severe weather events are destabilizing the insurance industry, says Cale Pickford, director of Allen Insurance and Financial’s Compass Group in Camden.

However, insurers in Maine haven’t been as directly impacted by severe weather-related losses.

“From the perspective of climate risk, Maine is still seen as a relatively safe place to insure,” he says.

But Maine is not immune to “macro trends characterized by increasing rates and an unwillingness of many insurers to cover what is perceived to be higher risk homes and commercial properties,” he adds.

Reinsurance — insurance that insurers buy to offset large losses — has increased in cost dramatically, with Maine insurance consumers footing some of the bill for large losses in other states, Pickford says.

Says Timothy McGonagle, a partner and senior vice president at United Insurance in Portland, “With so many weather events last year, it’s quite possible FEMA could adjust their rates to better reflect a property’s risk to offset last year’s considerable losses.”

Limited liability

In recent years, Travis Fifield anticipated worsening storms and proactively rebuilt and raised his wharf at Fifield Lobster Co. in Stonington.

Even so, the January storm surge worked up some of the shallower pilings of one section. Repairs included pile driving and installing granite blocks to chain down the section.

Fifield doesn’t have flood insurance and wasn’t surprised that his standard commercial property insurance didn’t cover the $100,000 in repairs.

“Acts of god is not a thing most insurance will cover and structures over bodies of water generally have limited liability,” he says.

Reimbursement dispute

At 27 Fathoms Waterfront Grille on Stonington’s waterfront, the Jan. 10 storm surge pushed through the kitchen’s back wall and destroyed the space and equipment, says Laura Johnson, who owns the restaurant with her husband Erik Johnson and their business partner Mike Brennan.

The partners pay $26,000 per year for a $1 million flood insurance policy with a $5,000 deductible. That’s on top of standard commercial insurance, which is almost as much.

“We figured, we paid so much per year for it, they would cover it,” says Johnson.

But a year later, reimbursement remains a struggle.

“We had the mold remediation people come and take everything out and dry the place out. We had heaters put in because all of our pipes were exposed to the elements. That bill was astronomical,” says Johnson. “Our flood insurance wouldn’t even cover that bill.”

The kitchen was flooded by several feet of water, requiring $250,000 in repairs and new equipment. The insurance policy paid a small amount, says Johnson, but nothing close to the true cost.

“They didn’t even come close to it,” Johnson says. “They didn’t come up with what our premium is per year.”

The partners were approved for a $300,000 U.S. Small Business Administration low-interest loan, but that hasn’t come yet either. So Johnson took out two short-term personal bank loans to cover repairs while the partners continue to seek insurance reimbursement.

The restaurant is back up and running, with precautions such as a raised floor and repositioned equipment.

“We love what we do,” she says. “If we didn’t, we would have given up.”

Winter’s coming

At Greenhead Lobster, Reynolds made immediate repairs on his own so he could resume operations.

“We got everything going,” he says. “But when the electrical systems get contaminated with salt water, when does the damage end?”

He applied for a $500,000 50/50 matching grant from Maine’s Business Recovery and Resilience Fund, which rolled out in May to help businesses and organizations affected by specified severe weather-related events. Reynolds’ goal is to rebuild infrastructure able to withstand continued severe weather. But first he must come up with the match, probably from conventional bank financing.

Anticipating more storms, Reynolds installed immediate precautions such as electrical upgrades. When the next storm comes, he and his team will move as much stuff as they can.

And yet.

“The system is flawed,” Reynolds says. “Because I don’t know if anything can protect us.”

Says Carey, “It’s such a massive problem that it deserves a massive response in terms of all the various and sundry ways that we’ll be affected by climate change. We’ve been super lucky since March. Hurricane season didn’t affect us that much. But winter’s coming.”