In active hurricane seasons, coastal communities may face more than one named storm in a season. Named storm and hurricane deductibles are very high, sometimes as high as 5% of the insured value of the property, which amounts to thousands of dollars in a time of diminished resources. Some states have passed laws to prohibit insurers from applying these high deductibles more than once during the calendar year. After Hurricanes Katrina and Rita impacted Louisiana’s coastal communities within two weeks of each other in 2005, Louisiana passed its Annual Deductible Law.
Louisiana’s deductible statute covers three different wind events and windstorm deductibles found in homeowners policies written in the state:1
§1337. Homeowners’ insurance deductibles applied to named-storms, hurricanes, and wind and hail deductibles
A. For purposes of this Section, the following definitions shall apply:
(1) “Hurricane” means a storm system that has been declared a hurricane by the National Hurricane Center of the National Weather Service.
(2) “Named storm” means a storm system that has been declared a named storm by the National Hurricane Center of the National Weather Service.
(3) “Separate deductible” means a deductible that applies to damage incurred during a specified weather event and may be expressed as a percentage of the insured value of the property or as a specific dollar amount and includes hurricane, named-storm, and wind and hail deductibles.
B. For all homeowners’ insurance policies or other policies insuring a one- or two-family owner occupied premises for fire and allied lines, issued or renewed by authorized insurers on or after January 1, 2010, any separate deductible that applies in place of any other deductible to loss or damage resulting from a named storm or hurricane shall be applied on an annual basis to all named-storm or hurricane losses that are subject to the separate deductible during the calendar year.
C. If an insured incurs named-storm or hurricane losses from more than one named storm or hurricane during a calendar year that are subject to the separate deductible referred to in Subsection B of this Section, the insurer may apply a deductible to the succeeding named storms or hurricanes that is equal to the remaining amount of the separate deductible, or the amount of the deductible that applies to all perils other than a named storm or hurricane, whichever is greater. Insurers may require policyholders to maintain receipts or other records of such losses in order to apply such losses to subsequent named-storm or hurricane claims.
The Louisiana deductible statute allows the insurer to apply any remaining amount of the first applied named storm or hurricane deductible to the later named storm or hurricane in the same calendar year, or the amount of the other all perils deductible, whichever is greater. However, with the tracking of tropical systems well inland, questions arose regarding the application of the annual deductible law to subtropical systems.
In June 2018, the Louisiana Department of Insurance (LDI) issued Advisory Letter 2018-01 seeking to clarify the law:
Given that the insurance policy is a ‘contract’ between the insurer and the insured, both parties are governed by the terms, conditions and definitions set forth in the policy. Each insurer is allowed to use the policy to determine the event that will ‘trigger’ when a separate deductible is to be applied to a claim under the policy and the amount of that separate deductible.
Some insurers allow the naming of the storm system by the National Hurricane Center of the National Weather Service to be the trigger for this separate deductible. Other insurers use their own policy form to define when this separate deductible is to be applied.
La. R.S. 22:1337(A)(2) specifically defines a named storm as ‘a storm system that has been declared a named storm by the National Hurricane Center of the National Weather Service.
Thus, for those policies which provide that a separate ‘named storm deductible’ applies, the operative trigger is whether the storm system is assigned a ‘name’ by the National Hurricane Center of the National Weather Service, regardless of whether it is classified as a subtropical storm, a tropical storm, or a hurricane.
On the other hand, if the policy states that a separate deductible applies to a storm system declared by the National Weather Center of the National Weather Service to be a tropical storm or hurricane, then the separate deductible only applies if the storm system is classified as a tropical storm or hurricane by the National Weather Center of the National Weather Service.
In that case, if the storm system is classified as a subtropical storm, the separate deductible would not be triggered, regardless of the fact that the National Weather Center of the National Weather Service assigns a ‘name’ to the subtropical storm.
The importance of this, to both the insurer and the insured, is that the specific terms and conditions in the policy will be determinative of whether a separate named storm deductible is to be applied in each given situation.2
As Louisiana once again braces for a possible double whammy with Hurricane Sally projected to come on the heels of Hurricane Laura, it will be important for policyholders to have a full copy of their policies to understand the proper application of the policy deductible. We are hoping for the best for all our friends on the Central Gulf Coast. Be safe!
If you want further information or have questions about this topic and want to learn about appraisal in Louisiana and Mississippi, please attend Tuesday at @2 With Chip Merlin this afternoon.
1See, LA Rev Stat § 22:1337 (2019).
2La. Dept. of Ins. Advisory Letter NO. 2018-01, June 20, 2018.