Hurricane Insurance Claims

Coverage Issues Likely to Arise in the Aftermath of a Hurricane

Hurricane Katrina, in 2005, cost insurers more than $41 billion at the time. After the extraordinary losses and immense damage caused by Hurricane Katrina and Rita, insurers made changes to their policies to limit their exposure to catastrophic losses from natural disasters by selling homeowners insurance policies with percentage deductibles for hurricane damage instead of traditional dollar deductibles, which are used for other types of losses such as fire damage and theft. A percentage deductible is based on the home’s insured valued. So, if a house is insured for $300,000 and has a five percent deductible, the first $15,000 of a claim must be paid out of the policyholder’s pocket. Depending on the state, insurance companies determine the level of the hurricane deductible and where it should apply, except in Florida where state law dictates these variables. However, each insurance company’s hurricane deductible plans must be reviewed by the individual state insurance department where they may be subject to various regulations and laws. Insurers also limit the exposure to catastrophic losses from natural disasters by selling policies that contained flood damage exclusions, concurrent cause clauses, and valued policy statutes requiring payment of full policy limits in the event of a total loss have recently become of paramount importance in insurance information.

Everyone needs financial protection from the dangers of hurricane. During or in the aftermath of a hurricane, your property may be damaged by wind, entry of rainwater into the interior of buildings, flash flooding, and loss of power. Some of the issues will involve the application of flood exclusions contained in most personal line policies and in many commercial policies; causation; provisions addressing loss of utilities, including electricity; civil authority coverage; contingent business interruption coverage and named windstorm or hurricane deductibles.

Causation

In the aftermath of a hurricane, there are three potential categories of damage: (1) damage caused exclusively by wind; (2) damage caused exclusively by water or flood; and (3) damage caused by wind “concurrently or in any sequence” with water. Typically, damage caused solely by wind will be covered. In contrast, the courts have held that the water damage exclusion is applicable to damage caused exclusively by water, flood, storm surge or inundation of water as a result of a hurricane. Finally, an evaluation of coverage will largely depend on the jurisdiction’s approach to concurrent or sequential causation. An additional consideration is whether the particular water damage exclusion at issue is preceded by anti-concurrent and/or anti-sequential causation language and, if so, whether that language will be upheld in a particular jurisdiction.

Windstorm

In the context of claims arising out of hurricane losses, issues relating to water damage exclusions often arise in tandem with the covered peril of windstorm. For that reason, when dealing with hurricane losses, any discussion regarding the applicability of a water damage exclusion often necessitates both a review of causation and also the covered peril of windstorm. Whether wind-driven water is included in the windstorm peril is also of particular relevance to hurricane coverage claims. In more recent years, exclusions have been written into property policies precluding coverage for damage caused by wind-driven rain unless wind first caused an opening in the structure through which the rain entered. These exclusions have been enforced.

Flood or Water Exclusions

Flooding or water damage can arise in various ways during the course of a hurricane, including storm surge and/or waves; the overflow of rivers or streams as a result of heavy rainfall often associated with such storms; the failure of flood control structures; or from the back up of water through sump pumps or other drainage systems. Various arguments and issues are likely to be raised concerning the application of specific flood or water exclusions to the range of circumstances in which insured property has suffered water damage.

Many property policies contain exclusion provisions exempting loss caused by water damage (including flood). In order to avoid application of flood exclusions to water damage, policyholders have argued damage resulting from floodwaters occurring during the course of a hurricane or other windstorm should not be deemed to have been caused by flood for purposes of those exclusions; rather the proximate cause of such losses should be considered wind or windstorm.

Loss of Power and Other Utilities

One of the most significant impacts of a hurricane is the prolonged loss of electric power and other utilities; however, without resulting property damage, the loss of electricity alone will not typically result in a covered claim under a standard homeowners or commercial property insurance policy. Most first-party property policies only offer coverage when the insured property sustains structural or other direct damage, the mere loss of power and utilities, without more, does not trigger basic business interruption coverage. However, there is an exception for situations where an insured has been forced to suspend its business operations due to loss of power. In addition to losses to the insured premises, loss of power or other utilities can also result in losses to insured property at the insured premises, which are excluded from coverage under most personal and commercial property policies. A typical enforceable exclusion provides the insurer “will not pay for loss or damage caused directly or indirectly by utility services and the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises.” However, factual issues can arise regarding the cause of the failure and its location, which may lead to a coverage claim.

Some insurers now offer utility service interruption coverage either as a part of standard coverage or as an optional coverage that can be separately purchased by the insured, which may cover damage to the insured’s property resulting from interruption of utility services, including water, communication, and power. Similarly, many commercial policies provide extensions of coverage for business income losses sustained as a result of loss of utilities, even in the absence of physical damage to insured property. However, even with an extension, it is not just any loss of services that will trigger business interruption coverage. The typical extension of coverage requires physical loss or damage to the property of the service provider caused by a peril insured against under the policy to which the extension is attached. Issues will arise as to cause of the service interruption and whether it falls within the scope of the coverage extension.

Civil Authority Coverage

Many policies provide business interruption coverage where the property does not sustain physical loss or damage, but the insured’s business operations are disrupted when the law or government prohibits access to the insured’s place of business, including government policies restricting access to areas impacted by a natural disaster. Thus, hurricanes frequently give rise to civil authority and ingress/egress claims. Business interruption losses are only covered when the government prohibits all access to the insured’s premises, and is not available when access is still possible though limited by physical damage or orders of civil authority. Such coverage is unavailable when access is still possible though it may be limited or hindered by physical damage or orders of civil authority. The existence of an order or action of civil authority that prohibits access to an insured property may at time be obvious, but under other circumstances there will likely be disputes as to whether this requirement has been met. In addition to showing access was prohibited, the prohibition of access to the insured premises must be caused by the property damage giving rise to the order of civil authority. This requirement is not met when the governments actions are predicated on a potential future threat; instead, the governments actions must be a reaction to a past event that already damaged property in the general location of the insured’s property.

Insurance Dispute Lawyer Blog – General Hurricane Dispute Information