After Hurricane Georges hit Puerto Rico in September of 1998, many policyholders considered that their claims were unfairly denied due to the ambiguous language in their policies. The main issue was that the policies did not have a specific deductible language for hurricane damage. If the policy did not have specific deductible language for hurricane, the insurance companies would apply the wind damage deductible but, in some claims, they applied the deductible classified under “basic damages.” Many of the policyholders filed complaints in the Insurance Commissioner’s Office against the insurance companies for the ambiguity in the language related to hurricane damage deductible. Some of those cases were then appealed. Below is what the Court of Appeals of Puerto Rico held in United Surety & Indemnity Company v. Insurance Commissioner of Puerto Rico,1 regarding this issue.
Policyholders notified the Insurance Commissioner’s Office of this ambiguity issue because they understood insurance companies should apply the “basic deductible” on their declaration page if hurricane deductible was not specified and thought that it was unfair to apply windstorm deductible to their hurricane damage claims because it was not the same phenomenon. The Department of Investigation of the Insurance Commissioner’s Office began to investigate United Surety & Indemnity Company (USIC) a company that was applying windstorm deductible to hurricane damage. They concluded that USIC had to re-evaluate the claims filed by the policyholders. Their conclusion was based in the fact that the controversy in their complaints were not only limited to determine if windstorm and hurricane were synonyms but that the declaration page language were not redacted in a manner for equal treatment for any event that could be considered a hurricane. In their conclusion they emphasized the difference between a hurricane and a windstorm stating:
Although winds are less or more in a windstorm and in a hurricane, they are not the same phenomenon and are completely distinguishable…A windstorm has been defined as a “storm with heavy wind, but little or no precipitation.2
On the other hand, a hurricane is considered more as a “storm with violent wind, in particular a tropical cyclone in the Caribbean.”3
USIC then, filed a Administrative Review in the Appeals Court against the Insurance Commissioner’s Office and their defense was that there was no ambiguity and deductibles were applied correctly based on the logical interpretation of the word “windstorm” that applies to all phenomenon related to extraordinary force of wind capable of causing damage, and that includes hurricane. Therefore, alleging that the terms windstorm and hurricane are synonyms.
The Supreme Court of Puerto Rico has held that: the norm is that an insurance contract is susceptible to two interpretations, and the court shall use the one that favors the insured.4 The Insurance Code of Puerto Rico states:
All insurance contracts shall be interpreted globally, based on the total of its terms and conditions, per expressed on the policy and per the amplifications, extensions or modifications, endorsements or requests adhered to the policy and that is part of it.5
In this case, the policy had an endorsement that amended the deductible clause specified on the declaration page that stated:
For the premium charged, we will only pay that part of each loss that exceeds percent of the Windstorm Deductible Clause, Hurricane or Hail established above, in case of direct physical loss to property covered under this policy caused by Windstorm, Hurricane or Hail.
The appellate court concluded that, this endorsement substitutes in its totality de deductible clause specified in the declaration page of the policyholder. The appellate court confirmed the Insurance Commissioner’s Office determination that, due to the omission of the specific percent of deductible that should be applied to hurricane damage, the most favorable shall apply to the insured, and in this case the basic deductible for $250.00 and not the $500.00 deductible for windstorm.
Today, twenty years later, this interpretation may differ in some jurisdictions and would consider that windstorm damage synonymous with hurricane damage. However, jurisdictions would still agree with wherever there is ambiguity in an insurance contract, it should be interpreted in favor of the insured.
1 United Sur. & Indem. Co. v. Comisionado de Seguros de Puerto Rico, 2004 WL 1181427 (TCA).
2 Webster’s Encyclopedic Unabridged Dictionary of English Language, New York, Gramercy Boks, 1989, page 1636.
3 https://www.lexico.com/en/definition/hurricane, retrieved June 25, 2020.
4 Leon Ortiz v. Comisión Industrial, 101 DPR 781, 787 (1973).
5 Article 11.250 of the Insurance Code of Puerto Rico, 26 LPRA section 1125.