The impact of Hurricane Delta six weeks after, and within fifteen miles of the same path of Hurricane Laura’s landfall in Southwest Louisiana, has many policyholders questioning the application of the Louisiana Homeowners’ Hurricane, Named-Storms, and Wind and Hail Deductible Law.1 We have received many calls from policyholders and public adjusters regarding various interpretations of the law, particularly, the misconception that it allows insurers to apply only one deductible in a calendar year. In recent blogs we discussed the Law and its triggers. Today we want to help Louisiana policyholders understand the legislative intent and the correct application of deductibles in the event of more than one Hurricane, Named-Storm, or Wind and Hail loss impacting their covered property in the same calendar year.
First, a deductible is the policyholder’s share of the loss to be assumed or paid prior to the insurance company paying for coverage under the policy. Typically, there are standard or “other perils” deductibles of $500.00 or $1,000.00 in most homeowners’ policies. The deductible is listed on the summary page or declarations page of the policy.
After seeing billion-dollar storm losses since Hurricane Andrew in 1992, including Hurricane Katrina in 2005, insurers sought ways to reduce their potential losses and began to transfer some of the risk back to policyholders via Specified or Separate Deductibles called Hurricane Deductibles or Named-Storm Deductibles.2 These Separate Deductibles are calculated as a percentage of the dwelling or building coverage, usually at 1%, 2% or 5%, though some are even higher.
According to the Insurance Information Institute (III), nineteen states and the District of Columbia now have approved the insertion of Hurricane or Named-Storm Deductibles into insurance policies.3 After Hurricanes Gustav and Ike in 2008, less than two weeks apart, made landfall on Louisiana’s coastline, the Louisiana Legislature realized the enormous and unfair impact on Louisiana policyholders if insurers were allowed to transfer their risks through multiple, high-percentage deductibles to the policyholders. In the 2009 Legislative Session, House Bill 333 was introduced expressing the desire to protect policyholders:
Proposed legislation provides that 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 hurricane/named storm deductibles. Proposed legislation also provides that if an insured incurs named-storm or hurricane losses from more than one named storm or hurricane during a calendar year (subject to separate deductibles), 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.4
The above intent of the Louisiana Legislature was signed by the governor and passed as Act 134 and later codified as La. Rev. Stat. § 22:1337. This statute, also know as the Louisiana Homeowners’ Hurricane, Named-Storms and Wind and Hail Deductible Law, addresses both the trigger and the application of the Specified or Separate Hurricane, Named-Storms, and Wind and Hail Deductibles in homeowners’ policies issued in Louisiana. [Note: It does not apply to commercial property policies—those policies define the trigger and application for their deductibles.]
§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.
Acts 2009, No. 134, §1, eff. June 25, 2009.
Previously we discussed the triggers, now let’s look at a practical application based upon some recent Hurricane Laura estimates received by policyholders in Lake Charles. The policyholder has a homeowners’ policy with Dwelling Coverage of $400,000.00, with a standard or “other perils” (fire, theft, etc.) deductible of $1,000.00 and a Hurricane Deductible of 5% of Dwelling Coverage for a hurricane deductible of $20,000.00.
The insurance company’s adjuster writes an estimate of hurricane wind related damage of $16,400.00 and advises the policyholder that the damages are less than the deductible and there will be no payment issued. (Hurricane Deductible $20,000.00 – Damage $16,400.00 = $3,600.00 Remaining Deductible Amount). Then, for example, Hurricane Delta makes landfall six weeks later (within the same calendar year) and causes separate and distinct hurricane wind related damages to the same insured property in the amount of $10,000.00. If the Louisiana Homeowner Hurricane, Named-Storms, and Wind and Hail Deductible Law was not in place, the policyholder would receive no benefits or proceeds under the policy for either event, as the $10,000.00 for Hurricane Delta damage is again below the 5% Hurricane Deductible of $20,000.00.
However, with the one-time application of the Hurricane or Named-Storm Deductible in a calendar year, the policyholder’s Hurricane Delta deductible would be the greater of the remaining Hurricane Laura deductible amount of $3,600.00, or the standard or “other perils” deductible of the policy in the amount of $1,000.00. In this scenario, the Hurricane Delta deductible would be $3,600.00, the greater of the two.
One more example, for the same policy terms in the scenario above: If the insurance company’s adjuster writes an estimate of Hurricane Laura wind related damages for $100,000.00 and deducts or exhausts the entire $20,000.00 hurricane deductible in the Hurricane Laura claim, then the subsequent Hurricane Delta wind related damages of $10,000.00 would be subject to the standard or “other perils” deductible of $1,000.00, as it is the greater of zero remaining after the application of the Hurricane Laura Deductible.
Application of deductibles may prove to be complex with various triggers and applications pursuant to statutes and approved policy terms. Insurance policy language is subject to the approval of the state insurance department with its consideration of laws and regulations in the state where issued. However, sometimes the governing language is found in an Amendatory Endorsement or Disclosure attached to the policies. We always suggest that policyholders request a full copy of their policies, including all forms and endorsements, so they may be fully informed of the rights and obligations under their contracts of insurance. We are committed to assisting policyholders in their recovery efforts. Our thoughts and prayers are with those affected by Hurricanes Laura and Delta. May God Bless you all.
1 La. Rev. Stat. § 22:1337 (2019).
2 https://www.iii.org/article/background-on-hurricane-and-windstorm-deductibles, August 27, 2020.
3 Id. “Nineteen states and the District of Columbia have hurricane deductibles: Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia and Washington DC.”
4 La. Leg. Session 2009, Act 134, Legislative Fiscal Note, HB 333 Named-Storm Deductibles, Enrolled.