State Insurance Departments’ Declaration on the Applicability of Hurricane Deductibles and the Affect on the London Market

David L. Brown

One of the myriad of issues that has arisen from Sandy is the applicability of hurricane deductibles in insurance policies. Due to Sandy’s unique nature as a hybrid tropical and post-tropical storm, the applicability of these deductibles to property damage claims stemming from the superstorm is ripe for controversy. Just prior to making landfall in New Jersey, the National Weather Service downgraded Sandy from a hurricane to a post-tropical cyclone. Based on this, numerous state insurance departments have proactively ended the controversy by issuing state-wide directives as to the applicability of hurricane deductibles. As of November 2, 2012, the status of hurricane deductible-related directives is as follows:

  • New Jersey: Ken Kobylowski, Acting Commissioner of the State of New Jersey Department of Banking and Insurance, issued a statement that the hurricane deductible would not apply because the National Weather Service downgraded the storm to a “post-tropical cyclone” prior to impacting the shoreline.
  • New York: The New York State Department of Financial Services and Governor Cuomo informed the insurance industry that hurricane deductibles should not be applied. The decision was based on the fact that the storm did not sustain hurricane-force winds while over New York. Governor Cuomo’s press release specifically referred to homeowners policies.
  • North Carolina: The North Carolina Department of Insurance noted that hurricane deductibles would likely be applicable because Sandy was still classified as a hurricane while North Carolina sustained damage. Spokesperson Kerry Hall also noted that North Carolina policies refer to “named-storm” deductibles rather than hurricane deductibles.
  • Connecticut: The Connecticut Insurance Department issued a notice that because the National Weather Service did not issue a hurricane warning, and Connecticut did not sustain hurricane force winds, no hurricane deductibles could be applied. The requirement that a hurricane warning be issued is a new requirement advanced by Governor Dannel Malloy after Hurricane Irene. This declaration is specifically limited to homeowners policies.
  • Maryland: The Maryland Insurance Administration issued a bulletin noting that, pursuant to state law, because the National Weather Service did not issue a hurricane warning, Maryland’s admitted insurance carriers should not apply hurricane deductibles. This declaration is specifically limited to homeowners policies.
  • Pennsylvania: Governor Tom Corbett announced that hurricane deductibles would not be applicable to Sandy-related damages. Insurance commissioner Michael Consedine lauded the quick and proactive responses of the insurance companies that write policies for Pennsylvania residents. Governor Corbett’s announcement specifically referred to homeowners policies.
  • Rhode Island: The Rhode Island Department of Business Regulation issued an Industry Alert stating that because no hurricane warning was issued for the State of Rhode Island, no hurricane deductibles could be applied pursuant to state law. This declaration is specifically limited to “residential claims.”
  • Washington, DC: William White, Insurance Commissioner of Washington, DC, has issued an Insurer Notice stating that since hurricane-force winds did not affect Washington as a result of Sandy, insurers may not apply a hurricane deductible with regard to Sandy-related claims.

To date, the states of Delaware, Kentucky, Maine, Massachusetts, Michigan, New Hampshire, Ohio, Tennessee, Vermont, Virginia and West Virginia have not issued any orders addressing the use of hurricane deductibles for Sandy.

Whether the above declarations are applicable to both admitted and non-admitted carriers is still developing. Unless a written declaration specifically says that it applies only to admitted carriers (such as in Maryland’s release), the London Market should assume for now that the declarations are intended to apply to both admitted and non-admitted carriers.

In addition to hurricane deductibles, property insurance policies may contain other deductibles applicable to Sandy-related claims, such as “named-storm” deductibles. While state insurance departments do not appear to have expressly limited the use of such deductibles at the present time with regard to Sandy claims, the potential exists that some departments will do so in the near future.

Although some of the above declarations refer specifically to homeowners policies, insurers should look to the policy language and any relevant statute or regulation to determine whether the restriction on the applicability of hurricane deductible also applies to commercial property policies.

It is important for adjusters and TPAs retained to investigate property damage claims resulting from Sandy to analyze whether a hurricane deductible applies in the state of the loss. Given the sheer number of claims that adjusters and TPAs will be facing, however, it is equally important for the London Market to be aware of the state declarations discussed above and to verify that any application of a hurricane deductible is appropriate. It is likely that insurance regulators for each of the aforementioned states will be closely monitoring how claims stemming from Sandy are handled.