Insurance Department Guidance on Application of Named Storm / Hurricane Deductibles

Louisiana’s Department of Insurance, through its Commissioner, James J. Donelon, issued an Advisory Letter No. 2018-01 on June 18, 2018, to inform all property and casualty insurers how the separate named storm deductibles or hurricane deductibles are to be interpreted and applied to claims resulting from a subtropical storm named by the National Hurricane Center of the National Weather Service.

The first storm of the 2018 Atlantic hurricane season was Subtropical Storm Alberto. In the Advisory Letter, the Louisiana Department said there has been confusion among insurers as to whether a named storm deductible or hurricane deductible should be applied to claims for damages resulting from a named subtropical storm.

La. R.S. 22:1337 states:

§ 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.

Emphasis added.

Not only should insurers consider this statute, the Louisiana Department explains 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:

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.

As an example, “if the policy states that a separate deductible applies to a storm system declared by the National Hurricane Center of the National Weather Service to be a tropical storm or a hurricane, then the separate deductible only applies if the storm system is classified as a tropical storm or a hurricane by the National Hurricane 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 Hurricane Center of the National Weather Service assigns a “name” to the subtropical storm.”

This Advisory Letter is important for policyholders and their representatives to be aware of when dealing with a property damage claim resulting from Subtropical Storm Alberto in Louisiana.