Hurricanes Harvey and Irma caused massive devastation to Texas and Florida and now frustration for policyholders, their attorneys and public adjusters due to the named storm deductible on some policies.
This week Cozen O’Connor hosted a webinar to provide a refresher on what the named storm deductible is, how it works and some issues that can arise from them.
Stephen Pate, a Houston-based member at the law firm and past director of the Windstorm Insurance Network, said the period between Ike and Harvey caused some people to forget about the deductible. In fact, he’s fielded a lot of claims where adjusters have been questioned on it.
According to Pate, survey results published by the Insurance Research Council last year revealed that more than a third of policyholders had no idea they had a hurricane deductible, a type of named storm deductible.
The difference between a regular deductible and a named storm deductible, Pate explained, is that deductibles are usually a flat rate, expressed as a monetary amount, while the amount in a named storm deductible is expressed as a percentage of the risk value. This usually makes for a higher deductible, said Pate, but the tradeoff is the insured has an affordable policy and carriers can cover the risk.
The named storm deductible developed in coastal areas after Hurricane Katrina, he said, where many natural disasters, not just hurricanes, caused premium rates to become unaffordable. Currently, 19 states and the District of Columbia have named storm deductibles.
Generally, to invoke the deductible, there must be a “named storm”. It doesn’t have to be a hurricane, added Pate. It can be a typhoon, tropical storm or a cyclone. On the other hand, if there is a hurricane deductible on the policy it will only apply in the event of a hurricane.
Another presenter during the webinar, John David Dickenson, a member who practices out of the firm’s South Florida offices, said there’s little case law on the matter and what there is hasn’t been applied to new storms.
He explained that a typical named storm deductible will be as a percentage of the policy limit. For example, if the policy limit is $1 million, the named storm deductible will range between 3-10 percent of the value of the risk.
This can have a significant impact on claims, he said, especially when the policyholder is unaware the deductible exists.
A homeowners’ policy will generally include language defining what a named storm is. It will describe the length of time it applies and will state it begins when the storm or hurricane is named by the National Hurricane Center or National Weather Service when a watch or warning is issued and ends 72 hours following issuance of the last watch or warning.
Dickenson used the example of South Florida and the Keys. September 7, 2017 was the date of the first hurricane watch associated with Irma. The last watch or warning ended at 9 pm September 11 for that area. In other others of Florida, the named storm deductible may apply for a longer period, up to three more days – a week long occurrence for some. He explained the same claim could be handled very differently depending when it happened.
For example, if a tree fell on September 14 or 15, the outcome could be very different as far as coverage is concerned.
“It’s very important to pay attention to that temporal aspect of the named storm deductible,” Dickenson said.
According to Pate, the requirements or triggers can be very different in Texas policies or in a manuscript policy.
For example, he referenced a policy that had language which didn’t require a storm to be named by the National Weather Service or the National Hurricane Center.
Before the deductible applies, there are certain triggers which must occur, Pate said, noting that triggers can vary from carrier to carrier and from state to state.
Whether other deductibles apply, isn’t a question addressed by manuscript policies. Other unanswered questions include whether the named storm deductible applies to the flood sublimit and whether it is considered one or two occurrences.
He emphasized reading the policy carefully.
Pate indicated this could become an issue for agents and brokers because insureds may cast blame on them for not explaining the policy to them. He said he’s heard rumblings that litigation against agents and brokers may ensue.
A few cases heard by Texas courts and the Fifth Circuit address issues related to named storm deductibles.
In Suncor Holdings v. Commonwealth (2015), the Fifth Circuit determined the flood sublimit doesn’t apply where a named storm deductible applies. In Six Flags v. Westchester (2016), the court determined that both the flood sublimit deductible and the named storm deductible applied.
Dickenson outlined the few cases heard in Florida on this issue, including QBE Ins. Corp. v. Chalfonte Condo Apt Ass’n (2012) and El-ad Enclave at Miramar Condo Ass’n v. Mt. Hawley Inc. Co. (2010). He said the main point is that the Florida Supreme Court and federal district courts have held that the named storm deductible is enforceable.
He said Florida statute 627.701 provides for certain font and language requirements in disclosing the named storm deductible, but failure to comply doesn’t void it.