United Policyholders


Insurance Claim Help for Property Damage from Hurricanes/Storms/Floods

For Property Owners

General Claim Tips
Standard Flood Insurance Policy (download pdf 336K)
How Will Homeowners Insurance Litigation After Hurricane Katrina Play Out?
Listing and description of the various types of policies that may offer coverage
A Guide to Insurance Coverage for Losses from Hurricane Katrina
   (download pdf 284K) Written by attorneys who specialize in representing the insured
Recovery Resources in Louisiana
Bulletins and updates re: claims under Flood policies
NFIP's bulletin to adjusters on handling Katrina claims (download pdf 196K)
Katrina damage is covered despite insurance industry “spin”
Homeowners Wait for Claims To Be Adjusted

General Claim Tips for Homeowners and Businesses


Even if you do not carry a "flood" policy, or believe your damage may not exceed your deductible, you should notify your agent/broker and carrier in writing that you have sustained a loss and are filing a claim. Coverage for some flood related losses may be available under certain sections of your homeowners or business policy.


The adjuster sent by your insurance company to inspect your home or business after a flood may not know how to look for and identify all flood-related damage. Do not blindly trust your adjuster, especially if he or she tells you no benefits are owed because the damage did not exceed your deductible. Your home and/or businessis simply too valuable for you to rely on one person’s opinion.


Look closely at your "declarations" page. This page states your name, address, policy number, categories of coverage, dollar limits, endorsements, lender, etc. Make sure you have the most current, up-to-date copy. Read the "Endorsements" (extras) that apply to your policy. Every endorsement has a code number that matches text in the policy. If you are confused, do not rely solely on your insurance company or adjuster for answers. Consult with professionals who specialize in advising or representing insurance consumers.


The same dollar amounts of coverage you have under your homeowners policy should suffice for flood coverage as well. CAUTION: Many homeowners' policies have a provision that increases your coverage above the limits stated on the declarations page under certain conditions. These are called "extended replacement" or "guaranteed replacement" clauses. The FEMA flood policy does not have this provision. Your limits will be exactly as stated on the declaration page. For more information see UP's TIPS ON FIRE CLAIMS.


Your adjuster may try to rush you into a fast settlement. Unlike other forms of coverage, your insurance company may farm out all policy services regarding flood coverage to companies that do not even specialize in insurance. The person actually adjusting or deciding your claim may not be trained or even knowledgeable about flood coverage. He or she may tell you that damage pre-existed the flood. Don’t be railroaded. Documenting a major loss to ensure a full, fair recovery requires work. Before you know the true amount of your insurance claim, you must get estimates from reputable contractors, and inventory all lost or damaged possessions. This takes time. A licensed structural engineer should fully inspect and tell you the scope of necessary repairs so you can have a reputable contractor provide an estimate based on that scope.

IMPORTANT: Because flooding leaves water in walls and hidden areas, mold, mildew, and fungus may grow inside the house. Some of these can be extremely dangerous. -- You should monitor your house by having a licensed environmental hygienist test the air inside your home.


Organize all papers related to your claim. A three ring binder with folders is generally the best system. Keep a diary. Record the names, phone numbers, job titles, and supervisor's names of everyone you speak with, and keep detailed notes of all pertinent conversations. Take photos of the damage and keep copies in a safe place.

Communicate with your neighbors, find those insured with your insurance company and meet with them regularly to share information and ideas on securing a fair settlement.

If your adjuster is uncooperative, complain in writing. If you feel your claim is not being handled fairly, contact a qualified attorney or public adjuster who specializes in representing policyholders.


Keep all receipts for meals, lodging, and purchases to replace damaged items from the time you must vacate your home until it is fully repaired. Policies vary on how long this coverage lasts and how much you can recover.


Insurance companies may pressure you to accept their contractors’ cut-rate repair estimates or short-cut repair methods. Check with your local Building Department and reputable contractors who have experience repairing flood damage.

If the adjuster tells you there is no damage inside walls or flooring -- get a second opinion. Push for the best inspection methods on your engineer's recommendation. Don't settle for limited testing. (E.g., inspecting walls by drilling holes in them is not as good as actually tearing off the sections of the wall in areas with suspected damaged.)


  1. Beware of "lowball" estimates from insurance company adjusters and contractors with whom they have relationships.
  2. Beware of out-of-state, inexperienced or unreliable contractors without proper insurance of their own.
  3. If the flood made pre-existing damage worse, you’re covered for the necessary repairs.
  4. Some flood repairs are expensive, especially hidden damage in walls and floors. Wet and mildewed areas can be potentially hazardous. Monitor your air after any flood, especially if you smell mold, mildew, or musky odors. You may have to fight to get the full amount of policy benefits you paid for.
  5. Don't be penny-wise and pound-foolish by refusing to pay experts to advise you on the scope of damage and cost of repairs. They will help you prove your claim.


Read all documents carefully, including both sides of all checks, to make sure they do not contain "final" or "release" language. You should not need to sign a "waiver" or "release" to get monies owed on your claim. Your insurer has the right to take your recorded or sworn statement if it has questions about your claim, but it makes sense for you to check with a lawyer. Signing a final proof of loss prematurely or making a mistake on tape may hurt your ability to fully recover the policy benefits you need to repair your home properly.


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How Will Homeowners Insurance Litigation After Hurricane Katrina Play Out?

The Key Dynamics, the Mississippi Lawsuit, and the Courts' Likely Views

by Adam Scales
as posted at writ.news.findlaw.com

This is one in a special series of columns on legal issues arising in the aftermath of Hurricane Katrina. - Ed.

Over a century ago, an insurance executive observed that, "the insurer proposes, but the court disposes." As the nation reels from Hurricane Katrina and its aftermath, insurance companies and policyholders now living in shelters would do well to reflect on this fundamental characteristic of insurance law.

Insurers have moved swiftly into storm-ravaged areas, setting up mobile claims units and dispatching adjusters to meet with policyholders. While prompt customer service is undoubtedly commendable, there is reason for skepticism here as insurers begin choosing which claims to pay, and which to decline.

In this column, I will discuss three key dynamics that are at play here. In addition, I will comment on how they will affect the lawsuit filed by the Mississippi Attorney General last Thursday, September 15, against a number of insurance companies.

Significantly, substantially similar issues have been raised in Louisiana, where the first lawsuits against insurers were filed last week and more are expected shortly.

The Key Dynamics Likely to Affect Insurance Coverage Issues

As insurers have begun to process the hundreds of thousands of property claims, their adjusters are making coverage determinations, often at the very ruins of the homes where still-shaken policyholders once lived. From published reports, it is clear that adjusters are cutting checks not just for short-term living expenses (to which homeowners are entitled) but for the underlying property damage claims as well. While literally hundreds of coverage issues are likely to arise, policyholders and insurers should consider three dynamics at work.

First, a homeowners insurance agreement is one of the most complicated contracts the average person will ever sign. This is partly due to the historical development of homeowners insurance -- which was stitched together in something like its present form just a few decades ago, from various strands of the law of insurance contracts, which developed over centuries.

Unsurprisingly, given the complexity of these contracts, individual policyholders do not bargain over the terms of their contracts; with rare exceptions, they have neither read their contracts, nor would understand them even if they did. Almost every word in a modern insurance policy has acquired meaning through a cycle of drafting, legal challenge, and redrafting. Indeed, these repeated cycles have often bestowed upon insurance terms not simply a single meaning, but multiple meanings.

Relatedly, courts have long treated insurance as a special sort of contract, recognizing both the complexity of such contracts, and the central importance of insurance in people's lives. For at least 150 years, courts have struggled to match the typically stark and restrictive language of insurance policies with the messy and wide-ranging needs of typical policyholders.

Two complementary doctrines have emerged: First, insurance contracts are construed, wherever possible, to provide coverage. If a word or clause is ambiguous, that doubt is resolved in the policyholder's favor, and against the insurer. This makes sense, as the insurer drafted the contract, and had every chance to make it clear.

Second, courts will honor the "reasonable expectations" of a policyholder even where a "painstaking" reading of the contract (a task invariably left until after a loss has occurred) would reveal the absence of coverage. This reflects the fact that insurers know a great deal about what people (perhaps subliminally) expect from their insurance contracts; it would be wrong to permit insurers to reap the benefit of those expectations (in the form of premiums), while subtly eliminating the very coverage the policyholder thinks he is buying.

Two caveats: These doctrines are not magic wands that point inexorably to coverage, though they do tend to favor the policyholder.

Moreover, as one might expect, courts differ in the zeal with which they apply these doctrines when interpreting insurance contracts. Judges do not like to appear to be rewriting the terms of contracts "freely" entered into. However, most courts do approach the task of interpretation with a pragmatic grasp on the profound limitations policyholders typically bring to the purchase of insurance. Judges generally understand the realities I mentioned above: policyholders who aren't lawyers (and even some who are) simply do not read or understand their contracts.

Whether courts mention them explicitly or not, the doctrines mentioned above exert a strong gravitational effect on the legal meaning of insurance terms - causing courts to bend words, wherever plausible, towards the maximization of coverage.

Third, once the meaning(s) of insurance terms are settled in accordance with the rules described above, it remains to apply them to the facts. But "facts" are rarely determined by judges alone. Rather, courts set wide parameters within which juries are empanelled to find the operative facts that will determine the outcome of a case.

Suppose that each afternoon, an office worker walks across the street to a café to get coffee, often taking requests from his co-workers. On the way back to the office one day, he is hit by a car. Is he covered by workers' compensation - even though he's not in the office, and was getting coffee for co-workers, not the boss? Probably.

Workers' compensation insures against injuries "arising out of, or in the course of, employment." This phrase has been given a broad meaning. A jury could find as a fact that the employee acted for the convenience of the employer (and his fellow employees), and therefore was covered.

The same process is at play whenever a homeowner contests an insurer's claim that damage to the home was caused by an excluded peril (such as flood), rather than an included peril, such as a windstorm. If the jury can find in favor of the policyholder, within the parameters of the judge's instructions, it typically will do so.

Mississippi's Allegations Against Homeowners Insurance Companies

With these observations in mind, consider the lawsuit filed by the Mississippi Attorney General last Thursday. The suit named as defendants insurance companies doing 70% of the homeowners business in that state.

In its complaint, Mississippi makes a number of allegations. It contends that insurers are ignoring the interpretive rules applicable to insurance contracts and taking advantage of homeowners ignorant of their rights under the law. It also contends that the contracts are so complex and beyond the comprehension of the average person as to be "unconscionable," and thus void.

It also alleges that the standard exclusions for "water damage" and "flood" are ambiguous in the context of a homeowners policy. And it alleges that insurers have illegally engaged in unfair trade practices by representing that their homeowners insurance contracts provide "full and comprehensive hurricane coverage" when the policies, in fact, contain substantial exclusions limiting liability.

Mississippi claims that, as a result of such practices, vulnerable homeowners are being pressured into accepting partial payments and signing away their rights. Accordingly, Mississippi is asking a court to order the companies to stop paying less than full value on claims under the policies, and to hold that the water and flood exclusions are unenforceable.

Assessing the Mississippi Suit: Causation Issues Will Be Crucial

On its face, the Mississippi complaint is rather broad. In response to it, insurers suggest the suit is nothing less than an attempt to rewrite contracts after the fact. They note the irony that Mississippi regulators earlier approved the very agreements now claimed to be "unconscionable."

Although it is unlikely that all of its claims will be upheld, Mississippi has a strong chance to blunt the force of the flood exclusion. For at the core of this dispute is the legal doctrine of "proximate cause."

Proximate cause has long been the bane of law students required to learn it, and lawyers and judges required to apply it. Needless to say, it is an object of singular delight to law professors.

Proximate cause describes a relationship between events sufficient to trigger a legal consequence. So suppose a car accident leads to a rather unusual injury. The driver (and his insurer) may be liable if a court finds the injury to have been "proximately caused" by the driver's negligence. Or suppose the "proximate cause" of a loss is something firmly excluded from insurance coverage; then the insurer is not liable.

But what kind of causes count as "proximate"? Simplifying grossly, the damaging consequence must have a sort of thematic connection to the antecedent event that is claimed to be its "proximate" cause. Only then does the law speak of the consequence as having been "legally caused" by that event.

Why "Legal Causation" Will Play a Large Role In Mississippi and Louisiana

Centuries ago, insurance policies were very simple documents with few exclusions. But over time, as policyholders became more creative in their claims, insurers added ever more exclusions.

That caused an important wrinkle for courts: Many policy-excluded perils had some relationship to policy-included perils. But which was the "legal cause"?

Sometimes excluded and included perils act in tandem. For instance, suppose a house is destroyed by a combination of earthquake and flood, when there is a flood exclusion, but no earthquake exclusion.

Or, one peril might cause another, in a way that requires coverage. In the standard homeowners policy, which contains a flood exemption, an explosion that destroys a house is covered, even if the explosion is caused by a flood (imagine an explosion resulting, for instance, from a ruptured gas line).

In some cases, insurers redrafted their policies to preserve coverage, but in others, insurers have tried to make certain exclusions more definite with respect to causation. These exclusions purport to deny coverage for losses "directly or indirectly" caused by, "contributed to" by, or otherwise linked with, an excluded peril.

The contours of the problem in Mississippi and Louisiana will differ, neighborhood by neighborhood. First, there are entire neighborhoods that are simply gone, leaving only a sludge of forensic questions behind. Whether these homes were destroyed by flood or wind is, at present, a matter of speculation.

In contrast, with respect to identifiable shards of former homes, event reconstruction is certainly possible. But few homeowners can evaluate the evidence without professional advice.

I am a great admirer of insurance companies, but all things being equal, they would rather pay less than pay more. With insured losses estimated to be as high as $60 billion (incredibly, this is merely a fraction of total direct losses), insurers have every incentive to construe what evidence there is in their own favor, rather than in policyholders' favor.

Arguments For a Literal Reading of Insurance Contracts Will Probably Fail

These facts alone would counsel caution, but there is a larger issue that implicates the observations above.

As noted above, it is common for excluded perils to play some role in an otherwise insured loss. What of the houses already weakened by flooding (or rain) and subsequently blown away by wind? Such losses are undeniably caused at least "indirectly" by flood, and thus excluded under the literal terms of policies that use the "directly or indirectly" language quoted above.

But the law is unlikely to accept any literal view of the policies. In Mississippi, and elsewhere, courts have frequently held that where a covered cause (in our example, wind) contributes in some significant way to the loss, then there is coverage even though an excluded cause also contributed to the loss. After all, it is in the nature of things for events to have multiple causes; certainly hurricanes can be expected to inflict both wind and water damage concurrently, or in sequence.

To the extent that insurers insist on a literal and restrictive reading of their policies, the core claim of the Mississippi lawsuit is sound.

Insurers should not be surprised by that, because this result is consistent with the interpretive doctrines described above. When courts hold that there is coverage for flood-related wind damage, or for a wind-damaged home that might have remained intact had its roof been perfectly maintained, they do no more than honor the reasonable expectations of the average policyholder.

Conversely, denying coverage under a flood exclusion where, for example, water was only minutely responsible for the loss would likewise frustrate the average person's understanding of his insurance contract.

It is for these reasons that a court is likely to find the terms "water damage" or "flood" ambiguous in the context of loss caused in conjunction with other, plainly covered causes - and thus to construe these terms in the policyholder's favor.

Finally, one must recall that these causal speculations are ultimately questions of fact to be resolved by the jurors. And Mississippi and Louisiana jurors are likely to have a keen appreciation for the effects of wind in these cases - as well as an intense sympathy for the policyholders who lost so much, and thought they were protected.

Of course, no juror or court should disregard the duty to faithfully apply the law, even where both natural sympathy for hurricane survivors and the regrettable antipathy towards insurance companies are at their zenith. But no court or juror need do so, in many cases, in order to decide in favor of the policyholder. Where there exists genuine doubt regarding the cause of losses, the legal system allocates the burden of that doubt to the insurer. As insurers assess their costs and estimate their coverage in the wake of Katrina, they must take that reality into account.

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Hurricane Season and Insurance Coverage

as posted at cms.nationalunderwriter.com

Last year, the words hurricane and Florida seemed synonymous. Today all eyes are on the Gulf states of Louisiana, Mississippi, and Alabama as Hurricane Katrina made landfall near New Orleans. According to a mid-morning public advisory issued by the National Weather Services National Hurricane Center, the center of Hurricane Katrina was again moving ashore near the Louisiana-Mississippi border. The hurricane continued to pound southeastern Louisiana and southern Mississippi (http://www.nhc.noaa.gov/text/refresh/MIATCPAT2+shtml/291438.shtml).

A hurricane warning continued in effect for the north-central Gulf Coast from Morgan City, Louisiana, to the Alabama-Florida border. New Orleans and Lake Pontchartrain were the center of attention.

As of today, probable flooding caused by torrential rains and the hurricane\storm surge were of greatest concern as residents remained evacuated from the city of New Orleans and surrounding areas.

In most of the coastal states, damage caused by windstorm will be covered by the various states’ windstorm or beach pools. Flood-related damage will fall to FEMA and its National Flood Insurance Program. But, how do the standard homeowners policies or commercial property policies apply in this situation? What about business interruption and other consequential losses? How is debris removal to be paid for, and how are property policy deductibles to be applied?

These and other questions are being asked by property owners and business owners throughout the areas that were struck by the hurricanes. This article by the FC&S staff will try to answer the coverage questions.

Homeowners Coverage

Some homeowners, particularly those in a high-risk area, may find they have three policies in force—a standard homeowners policy that covers all but hurricane damage, a windstorm policy that covers damage caused by a hurricane, and a flood policy that covers tidal overflow or the runoff of surface water from the torrents of rain. In other states with a coastal exposure, windstorm pools (also referred to as beach plans) offer windstorm coverage. Binding authority is normally suspended within a certain timeframe when any named storm is approaching. For example, the Florida site of Citizens Property Insurance Corporation, which serves the needs of homeowners in high-risk areas and others who cannot find coverage in the open, private insurance market, (http://www.citizensfla.com) had suspended binding coverage Tuesday night, August 23, in the path of Katrina.

The windstorm Web site for Louisiana, www.lacitizens.com, was unavailable today because of the storm.

Not all windstorm coverage is the same, so in any area offering this coverage the policy should be reviewed. South Carolina’s Wind and Hail Underwriting Association offers a standard dwelling policy that covers direct physical damage to the dwelling, other structures (but not pool screens, fences, greenhouses, etc.), personal property (within a building and with limitations on such items as golf carts), additional living expense or fair rental value (subject to a 10 or 15 day deductible)—but the only covered cause of loss is wind or hail. Even “wind or hail” is limited; the peril does not include “ice (other than hail), snow or sleet, whether driven by wind or not. Those familiar with the ISO “windstorm or hail” named peril will recognize its counterpart: “We will not pay for loss or damage to the interior of any dwelling or other structure, or the property contained inside the dwelling or other structure, caused by rain, snow, sand, or dust whether driven by wind or not, unless the direct force of wind or hail damages the dwelling or other structure causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening.”

Citizens Property windstorm insurance (Florida) was much like South Carolina’s, but the policy has recently been broadened so that coverage B applies to fences, detached pool screens and the like. Coverage A now applies to the dwelling and attached structures such as pool screen cages. Fair rental value has been added to coverage D. Limited fungi, wet or dry rot coverage resulting from windstorm has been added.

Windstorm deductibles vary by state. The South Carolina policy described above offers a choice of deductibles: 1% of the limit of liability as shown on the declarations page, but no less than $250 nor more than $25,000; or 2% but no less than $500 nor more than $50,000. The deductible is, however, applied separately to each dwelling, each other structure, and personal property in each dwelling or other structure on the policy.

Under Florida law, hurricane deductibles are applied on a calendar year basis. If multiple hurricanes occur in one calendar year, the deductible amount must be fulfilled only once by the homeowner. The Louisiana hurricane deductible, however, applies in full to each and every hurricane.

There is no coverage for trees, plants, shrubs, or lawns for damage caused by wind under these policies. But if a tree is blown onto a dwelling, causing damage, then the cost to remove the tree should be covered as part of the cost of repair. Unlike standard homeowners forms, there is typically coverage for debris removal of covered property only. Since trees are not covered property, there is no coverage to remove them if they simply blow over and do not damage covered property.

Coverage for ordinance or law varies by state; read the policy carefully.

And of course, not all damage in the course of a hurricane is wind-related. Much damage results from the large amounts of rain and the ensuing flooding. Although windstorm policies cover damage to personal property caused by rain entering a dwelling when the roof has blown off, they will not cover damage caused by water flowing under a door. That is the province of the National Flood Insurance Program. However, there is a thirty-day waiting period for new applications (they become effective at 12:01 A.M local time on the thirtieth calendar day after the application date and the presentment of premium, which must accompany application). There will be no coverage for any flood damage caused by Ivan unless a policy is already in place.

There is often damage caused by a blackout, even when there is no direct physical damage caused by a hurricane. Some of the damage is insurable; other damage is not.

Damage to a building—in this case, a home—is unlikely simply because of a blackout. It is possible for a consequential loss to occur, such as a burglary because an alarm system did not function. A loss such as this should be covered. Although the standard homeowners forms exclude coverage for loss resulting from power failure off premises, the exception is that if the failure results in an insured peril, that ensuing loss is covered. Although the alarm did not function to warn the homeowner or authorities that a burglary was in process, the actual cause of loss is burglary—not power failure.

However, there is a situation that could arise for the homeowner that may involve some property damage. Say, during the blackout, there are severe thunderstorms and water run-off that would normally cause a sump pump to operate; but in this case, the pump fails. Is there coverage for sump pump failure caused by a power outage? We believe there is if the insured has purchased water back up and sump overflow coverage. The power outage exclusion, as we mentioned, gives back coverage for an insured peril on the insured premises. Purchasing sump coverage effectively means the insured has purchased an additional peril, and so the loss from the inoperable sump pump would be covered.

Damage to personal property could well occur. Lack of air conditioning and the resulting increase in heat and humidity could affect some personal property. Some artwork is particularly susceptible to dampness in the atmosphere. There is no coverage for this, unless the artwork is scheduled. Of particular concern, is the rapid growth of mold. We do not see coverage for loss resulting from mold that grows because air conditioning units are not functioning. Again, damage from power failure occurring away from the insured premises is not covered unless the failure results in a covered cause of loss. Mold is not a covered cause of loss unless it is in itself the result of a covered cause of loss. That is not the case here.

Food spoilage will impact many people. Some standard homeowners forms automatically provide an amount of coverage, usually $500 worth. Other forms do not cover food spoilage unless it is added by endorsement. Bottom line, many people will not have coverage for this loss.

The next items of personal property that could be damaged are those that sustain a power surge when power is restored. Although standard homeowners forms cover loss from artificially generated electrical current, the forms add that damage to electronic circuitry or components that are part of electronic apparatus (home computers, appliances, etc.) is not covered. And, although computer coverage is available by endorsement, two endorsements examined each excluded loss caused by off premises power failure.

The issue of additional living expense may also be raised. Suppose an insured with severe asthma was driven from the home by the heat and lack of air-conditioning and drove 100 miles to a city not affected by the blackout, incurring hotel expenses. Would this qualify for reimbursement under the homeowners form? As additional living expense is triggered by damage to the insured premises, no coverage would be available.

Subscribers to the FC&S Bulletins can find more information by referring to The FC&S. See “Homeowners Exclusions,” Personal Lines volume, Dwellings section, “Sump Overflow and Power Failure,” (Q&A 1284) and see “Power Outage and a Motorhome’s Refrigerator” (Q&A 1301).

Auto Policies

Personal Autos
Autos certainly do get damaged when hurricanes sweep through an area. Vehicles can be damaged by wind, water, and collapsing structures. So, how does the auto policy respond to the damage?

The standard personal auto policy pays for direct and accidental loss to the covered auto or any nonowned auto (a defined term), including their equipment. There is no question that a hurricane and its effects cause direct and accidental loss to autos. The important thing is for the insured to have the proper coverage on the auto. For example, if the insured only purchased collision coverage and the auto was damaged by wind or flood, the insured would have no coverage for the damage to his auto. Faced with the fact that living in a hurricane-prone area is likely to result in wind and water damage to the covered auto, the insured should purchase other than collision coverage as well as collision coverage.

This advice applies to autos owned by the named insured as well as to autos not owned by the named insured, but in his custody or being operated by him—for example, a rental car. Many people fly south on vacation and then rent cars for use on a short term basis. The standard personal auto policy provides physical damage coverage for the rental car, but again, the insured has to have purchased the appropriate coverage under his auto policy, namely collision coverage and other than collision coverage.

If an insured’s car is damaged and cannot be driven, the personal auto policy will also respond to that type of loss. Temporary transportation expenses incurred by the insured in the event of a loss to a covered auto are paid, without application of a deductible. So, if the insured’s car is wrapped around a tree by a hurricane, the auto policy will pay the costs of renting a temporary substitute auto; the standard coverage does not exceed $20 per day for the substitute auto, up to a maximum of $600, but some insurance companies may offer higher amounts.

If the insured (pre-hurricane) has rented a car for his vacation, he has most probably signed a contract whereby he will be legally responsible for loss to and loss of use of that rented car. The standard auto policy provides coverage for the loss of use expenses involved. For example, if the car rental company claims it has lost revenue due to the loss of use of its car, and the insured is legally responsible for that lost revenue, the auto policy will pay that claim. However, the most the policy will pay for any expenses for loss of use is $20 per day (again, some insurers may offer a higher amount).

The insured should also be aware that the transportation expenses are paid only after the covered auto or the rented auto is withdrawn from use for more than a certain period of time—usually twenty-four hours.

The standard auto policy, like any other insurance policy, has exclusions that may affect coverage for a loss caused by a hurricane. For example, if the insured drives away from the expected storm and the car breaks down, mechanical breakdown is not a covered cause of loss. Or, if the insured owns a motor home or a camper body but it is not shown on the declarations page of the auto policy, and hurricane winds severely damage the motor home or camper, loss to such vehicles is not covered by the auto policy. Or, if the hurricane damages custom furnishings or equipment that the insured has in his pickup truck, these items are excluded from coverage under the auto policy. So, the insured should read the exclusions that are on the auto policy to be aware of the losses that are not covered.

One final note on the personal auto policy. One of the duties of the insured after a loss is to take reasonable steps to protect the covered auto or nonowned auto and their equipment from further loss. If, for example, a hurricane damaged the insured’s car or rented car and the car is immobile, the insured should have the car towed to prevent further loss, whether it may be loss by theft or another hurricane. The insurer will pay reasonable expenses incurred by the insured to prevent another loss.

Business Autos
The business auto policy, like the personal auto policy, provides physical damage coverage for loss to covered autos. This would include loss caused by windstorms and floods.

As with the personal auto policy, the insured has to choose what type of coverages he wants. The choices are comprehensive (any cause except collision), specified causes of loss (only those causes of loss that are listed), and collision. To adequately counter against loss by hurricane damage, the insured should have both comprehensive coverage and collision coverage; but at the very least, the insured should have specified causes of loss coverage since that coverage includes loss due to windstorm and flood.

Unlike the personal auto policy, the business auto policy requires the insured to choose what type of auto is to be covered. The business auto policy has symbols to designate covered autos, such as symbol 1 is “any auto,” symbol 2 is “owned autos only,” symbol 8 is “hired autos only,” and symbol 9 is “nonowned autos only.” For the business insured to have proper auto coverage, he must use the correct symbol. For example, if the insured has owned autos only and would never rent a car or use nonowned autos in his business, symbol 2 should be used to designate the covered autos. If the insured chooses symbol 2, rents a car for his business purposes, and a hurricane damages that rented car, the business auto policy would not provide coverage for the damage.

The business auto policy does provide towing coverage. If a hurricane damages the covered auto and the insured wants the car towed, the business auto policy will pay for the tow. However, the amount paid for the tow is limited to the amount that the insured has chosen on the declarations page, and the coverage is only for a private passenger type car. For example, if the insured has a Chevrolet Cavalier and a truck on his business auto policy and both vehicles are damaged by hurricane winds, the auto policy will pay for towing the Cavalier but not the truck. Some insurers may offer towing coverage for all the insured’s vehicles, but the standard policy does not.

The business auto policy provides transportation expenses similar to the personal auto policy, but with a certain limitation. The personal auto policy provides transportation expenses coverage if the loss to the covered auto is caused by such things as windstorm or water; the business auto policy provides such coverage only for theft of a covered auto. So, hurricane damage does not mean that the business auto policy will pay for temporary transportation expenses incurred by the insured.

On the other hand, the business auto policy will pay for the expenses for which an insured becomes legally responsible to pay for loss of use of a rented vehicle. It makes no difference if the loss is caused by theft or hurricane—if the insured has those types of coverages indicated on the declarations page, the business auto policy will pay the loss of use expenses. The insured still has to be legally responsible to pay the expenses, but the loss will be paid.

As with the personal auto policy, the coverages offered by the business auto policy are limited by certain exclusions. There is no exclusion for hurricane damage, but the policy will not pay for loss to tapes or discs or certain electronic equipment. If hurricane winds or hurricane-driven water destroy a covered auto and tapes or discs that the insured had in the auto, the business auto policy will cover the loss to the car but not the loss to the equipment. Individual auto policies may have their own unique exclusions and insureds need to be aware of what their policies will not cover.

There is one more thing that insureds with business auto policies should know. The auto policy has a deductible that applies for each covered auto. Hurricanes can damage many autos at the same time. The auto policy will pay for the damage done to each auto, but the listed deductible will be applied to each auto and not be applied on a per occurrence basis. For example, if the insured has five autos listed as covered autos on a business auto policy with a $500 deductible applying to each of those cars, and a hurricane sweeps in and damages all five cars, the deductible will be applied to each car. It will not be just one $500 deductible applied overall because there was damage caused by just one hurricane; recovery for each auto will be reduced by each auto’s own deductible. This will leave the insured paying a larger portion of the loss than he might have first thought.

Commercial Property Coverage

Hurricanes could produce property losses that may or may not be covered under the provisions of the current version of the ISO CP policy. The commercial property policy promises to pay for “direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Of course this promise is subject to the limitations and exclusions contained elsewhere in the policy.

A standard feature of property insurance forms is the coverage for direct physical loss of or damage to covered property caused by or resulting from windstorm.

The windstorm or hail clause found in the covered causes of loss section of the basic and broad forms of the ISO CP policies covers windstorm or hail, but excludes “loss or damage to the interior of any building or structure, or the property inside the building or structure, caused by rain, snow, sand or dust, whether driven by wind or not, unless the building or structure first sustains wind or hail damage to its roof or walls through which the rain, snow, sand or dust enters.”

A common type of claim reached by this exclusion is water damage to walls, ceilings, or personal property that occurs during a windstorm but for which there is no apparent source. Sometimes this type of damage results from seepage around window casings or eaves that are of adequate soundness for ordinary weather but not for hurricanes or similarly violent happenings.

Another consideration for windstorm coverage is the possible application of percentage deductibles that apply only to the windstorm or hurricane peril. ISO provides a Windstorm or Hail Percentage Deductible endorsement, CP 03 21, that modifies the application of the deductible so that a percentage deductible—1, 2, or 5 percent—applies to loss caused directly or indirectly by windstorm or hail. If loss from a covered weather condition occurs, and that loss would not have occurred but for the windstorm or hail, then that loss is considered to have been caused by windstorm or hail and the windstorm or hail deductible applies. Coverage may be on either a specific basis—for example, each building under a separate limit of insurance; or blanket—such as building and personal property in that building under a single limit of insurance.

ISO provides clear examples of how to apply the deductible and states that it is to be based upon the insured value of the building. However, company-specific forms may not be so precise. For instance, we received a question from an FC&S subscriber whose insured received a double dose of damage from both Charley and Frances in 2004. The insured’s policy contained a per coverage, per item deductible in lieu of per occurrence with no definition of what constituted an item or a coverage, and a 2 percent wind deductible that offered no information on how it would be applied if losses occurred at more than one location under blanket coverage. In this situation, we determined that the policy was not clear and was possibly subject to legal interpretation.

The subscriber’s question brought another question to light—are different storms considered separate events with separate deductibles and limits? While we determined that they are, some insurers may view damage to the same area of a building caused by different storms as continued damage from the first storm. Individual policies should be consulted to conclude how the storms should be viewed.

Windstorm is one of the causes of loss that may be removed from coverage of the commercial property program by endorsement. Its removal is made possible to avoid duplication of coverage for insureds that have windstorm insurance through a catastrophe pool or similar facility.

Windstorm or hurricane coverage may not be available to commercial insureds in certain coastal areas. These insureds may be able to turn to Beach or Windstorm plans that are offered in several states, including Florida and Louisiana.

Flooding Concerns with Hurricane Katrina

Windstorm is not the only cause of loss associated with a hurricane. One huge concern with Hurricane Katrina is flooding. Flood is an excluded peril under most commercial property forms, but coverage for eligible properties may be purchased through the National Flood Insurance Program (www.fema.gov/nfip). However, there is a thirty-day waiting period for new applications (they become effective at 12:01 A.M local time on the thirtieth calendar day after the application date and the presentment of premium, which must accompany application). There will be no coverage for any flood damage caused by Ivan unless a policy is already in place. It is important to note that the NFIP coverage does not include provision for business interruption losses. So, if a business is affected solely by flood waters and not by actual windstorm, business income insurance may not be available.

For more information on the National Flood Insurance Program, see the article that is located in this path on FC&S Online: Topics Home > Commercial Lines > Miscellaneous Lines > National Flood Insurance Program > National Flood Insurance Program—An Overview.

Other losses may result from power outages. In the special causes of loss form, CP 10 30, one exclusion states that the policy does not cover loss or damage caused by “the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises.” The failure includes lack of sufficient capacity and reduction in supply. This would appear to apply to any loss of commercial property covered by the standard CP form.

The form gives back coverage for any loss or damage that results from a covered peril. If a fire starts in a business when the power goes out, any damage done by that fire would be covered.

Electronic equipment is especially susceptible to loss under these circumstances. Power that goes out quickly may damage circuits and other electronic equipment. Such equipment may also be damaged when the power is restored. The CP policy will not extend coverage to these types of losses.

It is also possible that businesses such as restaurants and grocery stores might suffer loss to perishables if their refrigerators quit. These losses are indirect or consequential and are covered only if the insured has purchased the appropriate endorsement.

A commercial property insured may purchase an endorsement to cover exposure to loss from an off-premises power failure, CP 04 17, Utility Services—Direct Damage This endorsement covers the CP insured’s property in case a specified utility service suffers direct damage from a covered peril. The endorsement allows the insured to specify a sublimit of personal property coverage for this peril or to choose to have the entire limit subject to this peril. The addition of the endorsement does not increase the limit of liability for the covered property.

It is important to note that coverage may vary greatly from policy to policy and this information is based on standard wording found in ISO policies.

Business Income (Business Interruption) Coverage

General Coverage Considerations
The operations of many businesses may be interrupted by hurricanes and resulting flooding, and many of these businesses will be turning to their insurance carriers with business income insurance claims.

It is important to note that business income insurance involves two aspects of loss: a suspension of business and a resulting loss of business income. One, without the other, will not result in a covered claim. In addition, typical business income (business interruption) coverage is triggered by a suspension of business that is caused by direct physical damage to or loss of property at the premises described in the policy. The damage must be caused by a covered cause of loss. While hurricane (windstorm) typically is a covered cause of loss, flood typically is not.

In general, insurance forms also include additional coverages that address specific loss situations, such as when a governmental entity shuts down premises or when computer operations are interrupted. A prime example of such loss situations is the closing of roads and bridges, as well as forced evacuations of areas that lay in the path of the hurricanes.

The issue of what constitutes “direct physical damage or loss” and whether this damage is caused by a covered cause of loss lies at the heart of all such coverage analysis. There is little doubt that the hurricanes of 2005 will wreak substantial direct physical damage, and coverage would be inferred as long as windstorm is a covered peril on the insured company's business income policy. The direct physical damage would have to happen on the insured's premises in order for a business's primary business income coverage to be triggered. However, auxiliary coverages—such as contingent business income or action of civil authority—may be triggered as long as the hurricane causes physical damage somewhere away from the premises, if the insured business operations are adversely impacted by the off-site damages.

The typical business income deductible is stated in terms of hours of interruption. The business suspension must last longer than the deductible in order for coverage to be available.

A potential issue may arise if flood is deemed the primary cause of business interruption to a property that is not damaged by wind. That may cause questions of fact as to whether the flood—or the originating hurricane—caused the business interruption. Likewise, if power outages, windstorm, and flooding all converge to cause a suspension of business, finders of fact may question whether the suspension should be covered by business income insurance or not. The details of a given situation may have to be studied to determine whether coverage is triggered or not. But, if windstorm can to any extent be determined as the cause of the suspension, coverage should be triggered.

These items are general considerations, but different types of insurance policies address the prospect of business income losses in various ways. The most broadly used forms (the ISO forms) are discussed in this context. Suffice it to say that if a company does not carry windstorm as a covered peril, business income coverage would not be available.

ISO Businessowners Policy (ISO Form BP 00 03 7/02)
BOP policies typically are used to address the insurance needs of small businesses. The current ISO BOP form provides property insurance on a special form perils basis. Business income insurance is built into the coverage form.

The covered causes of loss that are insured on the 2002 form are risks of physical loss unless they are excluded or limited in the form. However, some exclusions may affect the availability of business income coverage.

The BOP power failure exclusion states there is no coverage for:

Power Failure
The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises (emphasis added).

But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

This exclusion does not apply to loss or damage to “computer(s)” and “electronic media and records.”

Since the power failure exclusion states that there is no coverage if the power failure occurs away from the described premises, a problem could arise if, for example, a business lost power (but was otherwise undamaged by the hurricane) because the hurricane knocked out transmission lines that were not on the insured's premises. However, if the windstorm caused damage to, say, a transformer on the described premises, the exclusion would not apply and coverage could be inferred.

Note, however, that the exclusion does not apply to loss or damage to computer hardware and software. So, if computer operations were suspended, causing a loss of business and lost net profit, coverage might be triggered—again as long as the deductible provision was met.

Business Income Coverage Specific to the BOP
The BOP form does include two auxiliary business income coverage grants that also should be reviewed. These are for business income losses arising from the action of a civil authority and for business income losses arising from dependent properties.

Civil Authority
In order for this coverage to be triggered, the insured must actually incur a loss of business income because civil authority prohibits access to the described (insured) premises. The coverage grant requires there be direct physical loss of or damage to property away from the insured premises as the result of a covered cause of loss.

The forced evacuation of areas of Louisiana and the closing of highways and bridges that lay in the path of a hurricane—which already had damaged property elsewhere—would appear to meet this requirement for coverage. Again, windstorm must be a covered cause of loss on the business's policy, and the business must sustain a loss of business income because it was shut down by the evacuation order.

However, a mere decrease in business because people didn't want to venture outside during a storm, absent a governmental order shutting down access, would not satisfy the criteria for coverage under the civil authority provision.

One other provision of this coverage also would affect coverage. There is a seventy-two-hour waiting period under the civil authority provision. In other words, a civil authority would have to shut down the business for three days before coverage is triggered.

Business Income from Dependent Properties
This BOP coverage grant provides up to $5,000 of insurance for damage to insured businesses that lose business income because one of their “dependent properties” is damaged by a covered cause of loss.

A dependent property is one that delivers materials to the insured, accepts the insured’s products or services, manufactures products under contract for the insured, or attracts customers to the insured’s business.

For example, a restaurant may be in a shopping center that is anchored by a large, prestigious department store. Shoppers might generate the bulk of the restaurant’s business. The occurrence triggering business income coverage for the restaurant would have to occur at the department store in order for coverage to emanate from the dependent properties provision.

Again, there is a requirement for physical damage at one of these properties that arises from a covered cause of loss.

While flooding caused by hurricanes could lead to business interruption losses, flood is not a covered cause of loss on most policies. Although flood insurance may be available to commercial property insureds through the National Flood Insurance Program, it is important to note that the NFIP coverage does not include provision for business interruption losses. So, if a business is affected solely by flood waters and not by actual windstorm, business income insurance may not be available

ISO Business Income (and Extra Expense) Coverage Form (CP 00 30 4/02)
This is a standard coverage form that is used to insure businesses that are larger than those that qualify for a BOP. It often is used in conjunction with a commercial property coverage form and a cause of loss form but may be written as a separate policy. The causes of loss form dictates what perils are insured. In this case we will review potential coverage as it would flow from a special form cause of loss provision, which insures all risks unless they are excluded or limited on the policy. It is similar to the BP 00 03 discussed previously.

The special causes of loss form CP 10 30 (10/00) includes exclusions that are applicable specifically to business income coverage. As with the BOP form, there is no coverage for:

(1) Any loss caused directly or indirectly by the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs outside of a covered building.

But if the failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss resulting from that Covered Cause of Loss.

As with the BOP, this exclusion appears to clearly preclude any coverage for business income arising from an off-premises power outage. Coverage may be purchased for off-premises power failure, and if a business purchased that endorsement, coverage could be inferred if a hurricane tore down lines away from the insured premises, causing it to shut down even though there is no direct damage on the insured site.

The dependent properties and civil authority coverage discussed previously in regard to the BOP is similar to that found in the commercial property form.

Insurer-specific and Manuscript Business Interruption Forms
Many insurers have drafted their own business interruption forms, and some large insureds may have successfully negotiated language that would provide coverage in addition to that discussed previously.

However, most would probably still require direct physical loss or damage to some tangible property in some specific place. They also almost undoubtedly would have a waiting period.

Workers Compensation

Workers compensation coverage is available to employees who are injured in employment-related accidents. Therefore, employees who might be injured by a hurricane-related incident while in the course of employment typically would be successful in filing for workers compensation benefits.

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Homeowners Wait for Claims To Be Adjusted

Industry Chokes on Volume of Work Views

by Dean Starkman and Albert B. Crenshaw
Washington Post Staff Writers
as posted at washingtonpost.com
Thursday, September 29, 2005; D01

WIGGINS, Miss. — Brenda Manning, whose home in Escatawpa, Miss., was nearly submerged by Hurricane Katrina, is resigned to the idea that her insurance policy probably won't cover much of the damage. Her homeowner's policy, like many, excluded flood coverage.

But the 34-year-old mother of two needs to know for sure before she can move on with her life. Before she can apply for help through the Federal Emergency Management Agency, she must demonstrate that her insurance company has investigated and denied the claim.

"I'm still waiting to hear from them," she said yesterday.

The one-two hurricane punch of Katrina and Rita has strained the insurance industry's ability to answer phones, investigate claims and get money into the hands of shattered survivors of the storms.

Some 10,000 insurance adjusters are deploying in the Gulf Coast region to handle more than 1 million claims expected to result from Katrina and Rita. But their progress has been slowed by their inability to inspect houses in inaccessible sections of the disaster areas and by the sheer bulk of the claims.

Katrina-related claims are expected to total between $35 billion and $60 billion — an industry record even on the low end — and Rita claims could reach $7 billion.

Many policyholders will pick up a major share of costs for their uninsured losses, and down the road, insurance premiums are likely to be higher — for less coverage — particularly in the regions where the hurricanes hit.

An insurance industry spokesman said it was too soon to know the extent of rate increases. J. Robert Hunter, a former Texas insurance commissioner who heads the insurance section of the Washington-based Consumer Federation of America, said premiums in some parts of Florida rose between 10 percent and 25 percent after last year's four hurricanes.

But for now, claims-handling is the most pressing issue for policyholders. While some homeowners report prompt service under difficult circumstances, others complain of busy signals, unreturned calls and dangling claims waiting for an insurance adjuster's visit.

Irate homeowners have flooded insurance departments with complaints about claims denied on the basis of the flood exclusion. "I'm just getting killed about it," George Dale, Mississippi's insurance commissioner, said three weeks after Katrina hit. "I'm the messenger, and I'm the one they shoot."

And Mississippi Attorney General Jim Hood has sued insurers, asking a state court judge to stop, among other things, what he described in a statement as "unscrupulous" adjusters from requiring policyholders to waive flood-related claims to receive immediate living expenses.

Robert Hartwig, an economist for the Insurance Information Institute, a New York-based trade group, said insurers had already fielded hundreds of thousands of claims and adjusted "large numbers" of them under extraordinarily difficult circumstances.

"It's proceeding smoothly," he said. "Everyone gets through, eventually."

Consumer groups, however, report hearing a range of complaints from policyholders. Among them: that insurers are sending inexperienced claims adjusters who are too apt to deny claims.

"They're hiring anyone with two legs," said Amy Bach, executive director of United Policyholders, a San Francisco-based consumer group. "Of course, they're going to err on the side that things are not covered."

Insurers are not required to disclose how quickly they investigate claims or how many they deny. And totals of Katrina- and Rita-related complaints to state regulators are not yet available, making it hard to judge the extent of problems.

But claims-handling problems have cropped up, for instance, at the Louisiana Citizens Property Insurance Corp., a state-owned carrier of last resort managed by a unit of American International Group Inc.

Victoria Glodd, 64, whose New Orleans home was submerged by Katrina, tried for weeks to get living-expense money she says is owed under her homeowner's and flood policies before getting a call back on Tuesday. Glodd lives in a motel room in Laplace, La., with a daughter and granddaughter and her 85-year-old husband, Leander, who needs heart medication. The Red Cross pays for the room for now, she says, while the family relies on a local church group for clothes.

She said that when she called Louisiana Citizens, the line was busy or a receptionist took a message that was not returned.

"Terrible, terrible, terrible," she said on Monday, sobbing. "I have a claim number, but that's all I have is a claim number."

On Wednesday, she picked up a $1,500 check, already made out in her name, at a desk set up in a shopping center parking lot in Baton Rouge.

AIG had been managing claims for Louisiana Citizens under a contract that expired Sept. 16. Charles R. Schader, AIG's senior vice president for claims, said that before Katrina hit, the AIG unit had halved its staff in anticipation of the contract's end. He said the unit agreed to stay on, bringing in additional staff members and housing them in recreational vehicles. The unit is processing 60,000 new claims, following 15,000 to resolution and referring the rest to new vendors taking over the contract. The new vendors may have mishandled some claims, he said.

"Everyone is scrambling to throw all the resources we can at it," he said.

Louisiana's insurance commissioner, J. Robert Wooley, said the company was working to solve the problems and urged homeowners to have patience. "This is a marathon, not a sprint," he said.

Gulf-area residents are getting a crash course in collecting homeowner's insurance, which can be arduous even in normal times. Insurance companies generally require policyholders to fill out a claim form, also called a "proof of loss" form; make an inventory of damaged items; and keep receipts from temporary repairs.

Some insurers pay small advances to displaced homeowners for living expenses even before they are able to inspect the property. State Farm Insurance Cos. says it sent out tens of thousands of $2,500 checks to policyholders who were subject to mandatory evacuation and were not able to return quickly to their homes. Lexington Insurance Co., an AIG unit, says it sends living expenses — $1,500 or so — via Western Union to all policyholders making a claim regardless of whether it turns out to be valid.

But for benefits to start flowing, insurance companies usually require a visit to the property by an adjuster, or claims investigator, who estimates the total damage amount, makes a ruling on the cause and sends the paperwork back to the home office for a final decision.

Insurers have dispatched platoons of adjusters to the region, housing them in private homes, recreational vehicles and even ships docked in the gulf. State Farm, which has more than 25 percent of the market in much of the Gulf Coast region, moved 3,100 employees to Mississippi, Louisiana and Alabama to add to the 3,000 it already had in those states, a spokesman said. Plans for beefing up the Texas operation aren't set, he said.

Whether the extra troops are enough is a question.

Randy Lanoix, who owns an independent agency in Lutcher, La., near New Orleans, says most of his 3,500 customers have been able to contact their insurance company, but it is not clear when their claims will be investigated.

"If the companies had their wish, they would certainly take a lot more" adjusters, he said. "They got their bodies spread wide and thin."

Edward T. Whiting, an independent adjuster based in Eatonton, Ga., who is working for three major insurance companies on Katrina-related claims, said the physical obstacles have slowed the pace of his work, from adjusting as many as seven claims a day to two or three. On a recent Thursday, for instance, he drove from Mississippi to adjust a claim in Harahan, La., only to be turned back by authorities because of concerns about Hurricane Rita.

Whiting said he expects to be working in the area for a while. "Put it this way: I rented an apartment for six months," he said.

Starkman reported from Mississippi and New York. Crenshaw reported from Washington.


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