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Katrina Coverage Q&A
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Katrina Q&A from the VU Faculty
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The purpose of this area is to present coverage questions and answers as they arise, from agents, adjusters, and consumers. We anticipate that this page will continue to grow in the coming weeks and months. If you have a Katrina-related question, please email Bill.Wilson@iiaba.net. All other coverage questions should be submitted via our Ask an Expert service.
To return to the main Katrina resource page, click here.
"Thank you! Thank you! Thank you! You are so kind to take the time to help us. My daughter has tried and tried to reach someone who can answer her questions. Until now, she has only heard recorded messages or has waited endlessly "on hold" hoping to hear a human voice. We will put this information to good use. Words cannot express my appreciation."
Sincerely,
Barbara Maurer
Mother of a Katrina victim
September 21, 2005
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Disclaimer
Information provided in this area is intended for educational and informational purposes only. IIABA does not make any warranty or representation, express or implied, with respect to the accuracy, completeness or usefulness of the information provided. Information provided in this area represents the views of one or more experienced professionals and is not a recommendation that a particular course of action be followed. IIABA does not assume, and takes no responsibility for, any liability or damage which may result from the use of any of this information.
 "What should I do to report a claim? How can I find out where to contact my insurance agency or company? What other things should I be doing when I'm able? What should I do NEXT TIME to minimize losses?"
 First of all, follow any specific instructions provided by your agent or insurer. If you aren't sure who your agent or company is, check with your bank or mortgage company who may have that record or can identify check payees. If you know the name, but don't know where to find them, check out the links on our Katrina resource page to directories of insurers and agencies.
If you have flood insurance, mold damage is excluded if you don't take proper remediation steps after flood waters recede. Also, here are two articles from VU faculty members Barry Zalma, J.D. and Al Diamond that provide some general considerations for what to do following a disaster: Claims in a Catastrophe and Disaster Recovery Plans.
In addition, here are two public articles from the International Risk Management Institute:
"We have insureds in Louisiana affected by Hurricane Katrina. The governor and/or state police officials declare a mandatory evacuation of residents in several parishes. Is there any coverage under an HO-3 to cover the extra living expense incurred for having to stay in a hotel for a few days or longer?"
Additional living expenses coverage under the ISO HO-3 is only triggered if there's first been a covered loss. If the damage is due to an excluded peril such as flooding or windstorm (assuming windstorm is excluded and required to be covered by a state windstorm association for direct damage only), there's no coverage. If there are expenses in evacuating prior to loss, those expenses aren't covered.
The only expenses covered are those incurred after loss because the dwelling is unfit to live in. Below is what the current ISO HO policy says. As you can see, the civil authority coverage also only applies after loss.
D. Coverage D – Loss Of Use
The limit of liability for Coverage D is the total limit for the coverages in 1. Additional Living Expense, 2. Fair Rental Value and 3. Civil Authority Prohibits Use below.
1. Additional Living Expense
If a loss covered under Section I makes that part of the "residence premises" where you reside not fit to live in, we cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living.
Payment will be for the shortest time required to repair or replace the damage or, if you permanently relocate, the shortest time required for your household to settle elsewhere.
2. Fair Rental Value
If a loss covered under Section I makes that part of the "residence premises" rented to others or held for rental by you not fit to live in, we cover the fair rental value of such premises less any expenses that do not continue while it is not fit to live in.
Payment will be for the shortest time required to repair or replace that part of the premises rented or held for rental.
3. Civil Authority Prohibits Use
If a civil authority prohibits you from use of the "residence premises" as a result of direct damage to neighboring premises by a Peril Insured Against, we cover the loss as provided in 1. Additional Living Expense and 2. Fair Rental Value above for no more than two weeks.
Similarly, costs to repair property to prevent further damage is covered only AFTER there has been damage. In other words, there's no coverage for boarding up your windows BEFORE the loss (even if it saves the insurer thousands), but there is coverage AFTER the loss to prevent further damage.
"It looks like thousands of businesses will be shut down for months or longer, or may never open again. What about business interruption coverage for forced evacuation, sewer backup, contingent basis under loss of power, governmental intervention?"
Business income is typically covered under a BOP or using one of the CP Causes of Loss forms, so it depends on the peril. Again, if the cause of loss (reason for business interruption) is flooding, there's no business income coverage. The NFIP commercial flood policies cover direct damage only, not business interruption. As for windstorm, it might depend on the residual plan or JUA...the one I'm familiar with does NOT cover business income losses due to windstorm, just direct damages.
Off-premises, system-wide power outages usually aren't covered unless added by endorsement. The same is true of sewer backup...unlike homeowners, ISO has no commercial endorsement for sewer backup that I'm aware of. There is typically three weeks of coverage for government entities prohibiting access to premises, but again the reason for it must be a covered peril.
Business income starts with the causes of loss forms which almost never include flood and rarely include windstorm in coastal areas. It's quite possible that much of the huge business income loss will be uninsured. This may be compounded by reports that many properties are significantly underinsured. (See Q&A below for more information.)
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"In a TV interview about Katrina, someone said that many older, unmortgaged properties were un(der)insured. Have you heard this? This same expert claimed that thousands of businesses might never recover. What is your opinion?"
It's too early to make accurate predictions about the specific properties affected by Katrina, but these comments are generally true. In a recent survey published by IIABA, the following statistics were cited:
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Less than half (perhaps only 30%) of businesses purchase Business Income & Extra Expense insurance unless it is automatically included in a policy like a BOP form.
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43% of businesses that experience a serious loss never reopen...28% of those that do, close within 3 years.
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40% of South Carolina small businesses closed by Hurricane Hugo in 1989 never reopened.
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75% of small businesses in Florida were found to be underinsured following Hurricane Andrew.
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95% of business income losses countrywide do not adequately compensate the insured...85% are underinsured by 40-50%.
According to a survey by Safeco of small-business owners:
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More than half (55 percent) said they do not have business income insurance.
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Even more (63 percent) say they are unfamiliar with business income insurance.
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Many may underestimate their risk. Nearly half (45 percent) estimated it would take them less than three months to recover to their current level of operations if their business was totally destroyed - half the time that insurance experts say is common.
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Six out of ten say they don't have the information they need to determine their business income insurance requirements.
Here is an article on the VU about selling business income coverage: Selling Business Income Insurance.
Here's a VU article specifically about: Hurricanes and Business Income
In an October 2004 press release, Marshall & Swift/Boeckh reported that 61% of U.S. homes were undervalued by an average of 25%. In some cases, according to MS/B, as much as 73% of an agency's book of homeowners business may be undervalued by an average of 35%. Keep in mind, too, that when you have a disaster of these proportions where the impacted area is almost as large as Europe, that the costs of materials and labor can escalate dramatically, resulting in significantly inadequate coverage limits.
Here is an article on the VU about underinsured properties: The HO Undervaluation Problem.
"If a neighbor's tree is uprooted during the hurricane (actually tropical storm in our area) and hits our insured's property, does the $500 HO debris removal limit apply? I thought that if a tree falls onto covered property, the cost to remove the entire tree and repair the damage was covered but the insurer says that only the $500 debris removal limit applies to the tree, but will pay $350 to repair the property. Our insured has been quoted $2,500 just to have the tree cut up and removed."
The debris removal limit applies to the cost to remove the tree from the premises (see policy language below). It does not apply to the cost to remove the tree from covered property. If a tree falls on a house, for example, the cost to take it off the house isn’t subject to the limit. It’s a necessary cost to fix the house. The same principle applies with a fence or other property, but the cost to remove the tree from a fence is probably much less than the cost to remove it from a house. Here's what the 1991 ISO HO-3 policy says:
We will also pay your reasonable expense, up to $500, for the removal from the "residence premises" of:
a. Your tree(s) felled by the peril of Windstorm or Hail;
b. Your tree(s) felled by the peril of Weight of Ice, Snow or Sleet; or
c. A neighbor's tree(s) felled by a Peril Insured Against under Coverage C;
provided the tree(s) damages a covered structure. The $500 limit is the most we will pay in any one loss regardless of the number of fallen trees.
Below is a link to an article from our Florida association offering their interpretation. According to this article, after hurricane Charley struck Florida in 2004, the local news media reported several cases where tree services were charging over $10,000 to remove one tree from a residence.
"I'm concerned about the number of uncovered claims we can expect. Some properties may have damage from windstorm, flood, looting, and fire. How can an adjuster determine what damage is caused by what peril since many properties might not have any flood or windstorm coverage?"
Unfortunately, there is no simple answer to this question. In that respect, claims adjusting is more an art than a science. No doubt we will see this issue arise in the coming weeks and months. Likewise, if it truly may be up to three months before some flooded areas are dried out, expect to see major toxic mold claims, most of which are now excluded by both personal and commercial lines policies for loss arising out of flooding. Likewise, we can expect fraud claims to escalate dramatically. All of these issues will combine to make it very difficult on adjusters.
To illustrate, here's a preliminary report from our Alabama association where losses aren't nearly at the overall magnitude as they are in Southern Mississippi and Louisiana:
"It's been nothing short of insanity since Monday here. We are so thankful that all of our members on the coast escaped death but most did suffer damage either personally or professionally. We have some members who lost everything in the storm.
"We were spared the worst of the wind which thankfully saved a lot of the property from being completely blown away as it was in Mississippi but we were not spared the storm surge. Downtown Mobile had 10 feet of water at one point during the storm, so the flood damage is huge. I have an agent with over 2,000 flood claims.
"The exception was Dauphin Island's west side where 49 of 50 homes completely vanished. The island had been hard hit during Ivan but this was much worse.
"Wind deductibles in Alabama range from 2-5% and as you know flood policies can only be written to maximum limits that are not always adequate for businesses or residences. Even where coverage is in place, there will be significant amounts of uninsured losses."
The Wall Street Journal has reported that, according to the NFIP, as of June 30, 2005, only 20% of the homes and businesses in Mississippi in the areas most at risk for flooding were covered by flood insurance. Estimates for Louisiana are only around 40%.
To address the issue of covered vs. uncovered losses, frequent VU contributor Randy Maniloff, J.D. has just published a new article entitled "Unraveling Insurance Coverage for Hurricane Katrina: No Big Easy Task," the article examines coverage issues such as flooding, fire. looting, vandalism, pollution, power failure, government action, mold, wet rot, deterioration, and other causes of loss. At issue are policies providing coverage on the basis of "efficient proximate cause" and others denying coverage on the basis of "concurrent causation." Included are citations of several court cases related to these issues, including some from Louisiana. To access the PDF download, simply click the link above.
"We are located in North Louisiana, but we write 3 or 4 property policies in South Louisiana. All of these policies have a 2% hurricane deductible. Can you tell me if a hurricane deductible is standard for the lower parts of Louisiana? Also, we have heard that some carriers write policies that exclude wind damage. We know ours do not, but are just curious if that is correct. We would like to know so we can tell our insureds what the general practice is. Any light you can shed on this will be appreciated and will help us help our insureds."
On our main Katrina resource page, we have links to information about the various coastal beach and windstorm plans. For your specific question, we asked Louisiana coverage guru and honorary Cajun, Mike Edwards, who responds:
1. Hurricane deductibles are very common in coastal areas, including Louisiana. They range from 2% to 5% usually. The deductible applies to the value of the coverage limit on the building. (Some erroneously believe the deductible applies to the loss.)
2. Many coastal insurers do exclude wind on certain risks. There is a separate wind-only policy available through the Louisiana residual market, called Louisiana Citizens Property Insurance Corporation. Here is a link: http://www.lacitizens.com/ (see also the full state by state listing on our Katrina resource page).
3. FYI, some insurers also exclude wind on commercial policies that include business income coverage; thus the wind exclusion would apply to the business income loss as well. Louisiana Citizens insurance does not have business income as an option.
4. For businesses with a flood loss, the standard NFIP Flood Policy does not include business income coverage. Usually, flood business income coverage is found on only a few larger commercial policies. For example, one account I'm familiar with is a multi-location apartment complex risk. They have something like $100 million TIV (total insured value) and the policy covers "all risk," including flood and earthquake, for both direct damage and business income.
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"I work with several larger contractors based in SC and they have been asked to help renovate some large commercial properties in Louisiana. One of them is insured through a large national carrier (Assigned Risk) and I do not believe that they will allow the existing assigned risk policy to be endorsed to include Louisiana. What is the proper way to facilite this new exposure? Another carrier writes the other account and endorsing LA should not be a problem. I trust you can let me know how to respond."
"We have contractors from Virginia that are thinking of going to the Gulf states to assist in the rebuilding effort. Is there insurance coverage advice, especially in the workers compensation (WC) area, that insurance agents should be telling their insureds who are going to this area to work? If they hire individuals from Gulf states to assist them, are their other concerns? Are the evacuees considered Louisiana residents or are they now considered Texas residents if hired to work for a Virginia domiciled contractor? We are worried about the WC coverage, but if there are other issues you can think of please let us know."
"We expect many Texas-based contractors and other businesses will soon be seeking opportunities in Louisiana. If worker compensation for these contractors is written through our Texas WC fund (Texas Mutual Insurance Company) or one of our group self-insured trusts, they won't be covered for Louisiana WC benefits that might become payable at least to employees hired in Louisiana. Will LWCC take applications from Texas-resident agents with Louisiana non-resident licenses? If so, who should they call, email or fax to get set up to do so? If not, and for those without a Louisiana license, is there a way to partner with Louisiana agents to help?"
As to the residency of the evacuees, we certainly can't advise you and we're not sure who can at this point. My gut feeling (and it is only that) is that these folks are still Louisiana (to name one state) residents temporarily displaced. Needless to say, that can change quickly, but until they've effected a permanent change of address, I'd think it's safe to presume them to still be LA residents.
One issue is the state's WC law and whether it permits workers to elect benefits if injured while working in that state. For example, in Tennessee, our law allows anyone injured in TN (whether a resident or an out-of-state worker temporarily here) to claim TN benefits. If the worker is from MS and our benefits are better, you can be assured he will choose TN benefits if injured.
The only way to get these beneifts via a WC policy is to include TN on his WC policy and, if he can't, buy a separate policy for TN...not very practical, particularly given the emergency conditions. That may be the case in the Gulf states...time permitting, we'll do some checking to see how this should be effected and post it here. Otherwise, it is probably a safe assumption that the state must be added to the existing policy or a new one issued for that state.
This is admittedly a particular problem for accounts in the residual market because often the servicing carriers are not licensed in all states and are unable to add a state under Item 3.A. of the policy. In such cases, the agent has no choice but to seek a market in the other state...something that can be very difficult given the current situation.
Another issue is using local workers. In these instances, there's no question that the state must be added to the existing WC policy, or a separate policy obtained for that state, something that might be very difficult to do from an underwriting standpoint in a state decimated by a natural disaster when WC claims can expect to escalate for many reasons.
With regard to the Louisiana Workers Compensation Corporation (LWCC), the Louisiana residual market, information may be obtained at www.lwcc.com. If Louisiana benefits must be provided to workers, Louisiana must be added to the existing WC policy of the out-of-state employer or coverage must be sought with a carrier licensed in Louisiana or with the LWCC.
This is just an example of where varying state laws and plans might be disadvantageous compared to a national standard. However, under the circumstances, I don't know what else can be done. Again, we'll try to check state WC laws in the affected states and add something about this to this FAQ page if and when possible.
"I had an email debate with a consumer watchdog after they proclaimed that insurers were going to be denying legitimate claims in LA. His bluster bothered me, so I wrote him and said that flood was not covered on a standard HO policy. You had to buy flood insurance. He retorted that if windstorm was the proximate cause, then the water entering after the roof loss would be covered.
"I responded that he had a error-filled idea of proximate cause. I gave him an example of a house on fire. The fire is the proximate cause. The ensuing water damage from the fire department and resulting smoke were covered because the proximate cause was the fire. I then went to the hurricane example. A house that has lost its roof is covered for the wind damage to the roof if that peril is on the policy. The flooding afterward is not, because a house under 10 ft. of water with an intact roof does not keep the water from entering any more than the house under 10 ft. of water without the roof does.
"Is my example correct or am I all wet as well? Thank you for making this forum available."
He's correct that interior water damage caused by rain entering a breach in the roof caused by windstorm is covered. However, any damage caused by the accumulation of surface water wouldn't be covered whether caused by windstorm or not. Other than something like a failed dam or levee, flooding is almost always the consquence of windstorm/rain. That doesn't mean that it's covered though because you have to look at the policy language.
Most policies cover certain ensuing losses from otherwise excluded perils. For example, earthquake damage is excluded, but ensuing fire is covered (a good reason NOT to buy those vibration-activated automatic gas shut-off devices if you don't have EQ coverage :-). Damage caused by rodents is excluded, but if one gnaws through an electrical cord and causes a short and fire, the fire damage is covered. So, typically, if the damage arises directly from a covered peril, the loss is covered even if the cause that preciptated the chain of events isn't.
Just the opposite is typically true as well. Windstorm is covered but flooding often arises from windstorms, but direct damage by flood waters is excluded...even though you could argue that windstorm, a covered peril, is the proximate cause. However, some courts have taken a different approach in the past to this and found coverage under the doctrine of efficient proximate cause. As a result, ISO and most insurers introduced concurrent causation wording into their policies.
Here is a good article that provides an overview of the concurrent causation doctrine and exclusions:
In their current homeowners policy, ISO attempts to avoid efficient proximate cause and concurrent causation doctrines in two ways. First, with the lead-in language (see A. below) of the general exclusions section and, second, with a specific exclusion (see B. below):
SECTION I – EXCLUSIONS
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
B. We do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not precluded by any other provision in this policy is covered.
1. Weather conditions. However, this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in A. above to produce the loss.
2. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
3. Faulty, inadequate or defective:
a. Planning, zoning, development, surveying, siting;
b. Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
c. Materials used in repair, construction, renovation or remodeling; or
d. Maintenance;
of part or all of any property whether on or off the "residence premises".
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"Will the resultings hurricane losses be claimed under wind damage or under flood damage, or will both be considered by claims departments?"
Undoubtedly both will be considered, depending on the actual nature of the damage. You might have windstorm damage to roofs, shingles, siding, windows, etc., along with interior water damage from the wind-driven rain. Damage to the lower level might be predominantly due to flooding.
Unfortunately, there will be no simple way to determine the extent of each type of loss and this futher complicates the adjustment of consequential losses such as HO additional living expenses, fair rental value, and CP business income losses.
Quite possibly, there are those who will claim that the cause of the loss in New Orleans is not flooding or windstorm per se, but rather negligence in the design, construction, or maintenance of the levees. A similar claim was made in Safeco Insurance Co. v. Guyton, 692 F.2d 551 (9th Cir. 05/17/1982) where a flood was found covered because of negligence involving flood controls. However, since that time, ISO and most carriers have introduced exclusions designed to preclude coverage for such claims. This is discussed in this article:
Each loss will have to be negotiated on its own merits. Just imagine the nightmare of adjusting a rental income loss when a tenant decides to stay where they've relocated. Did such loss arise from windstorm, flooding, etc.? How is the duration of the loss affected by the time required to drain the flood waters or the delay in getting adequate numbers of contractors and materials, not to mention the increased cost of all of this.
It goes without saying that some attorneys may look to the potential billions in uncovered losses as an economic opportunity, as outlined in this Wall Street Journal article.
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"Is the state of Louisiana a 'valued policy' state and, if so, what perils does it apply to...fire, windstorm, flood, etc.?"
"I came across an article about valued policy laws that said that insurers might have to pay flooding claims. What do you think? Here's an excerpt:
"[Insurers] are facing more than ever-rising damage estimates for Hurricane Katrina. Once the waters recede, [insurers] will have to face lawsuits that will try to make them responsible for paying damages due to flooding, which homeowners policies routinely don't cover.
"But a recent court decision in Florida, which required insurers in that state to cover flooding from last year's spate of hurricanes, has insurance lawyers predicting there will be similar court cases in Louisiana and Mississippi. If those lawsuits are successful, the price tag for [insurers] would rise substantially since so much of Katrina's damage is related to flooding.
"The reason the insurance industry is concerned is that Louisiana and Mississippi have a similar statute to the one in Florida that plaintiffs successfully used last year to force insurers to pay for flood damage to homes. Those statutes, called Valued Policy Laws, say that insurers must reimburse their customers for the total value of a destroyed home if the insurers' premiums were calculated based on that total value. For years, insurers have interpreted these laws to mean they're responsible only for the amount of damage caused by something their policies covered. So, for example, if wind is half-responsible for destroying a home and flooding caused the rest of the damage, then insurers pay claims for just half the value of the home.
"That changed suddenly in Florida last year after a state Appeals Court affirmed a lower-court decision in the so-called 'Mierzwa case,' ruling that insurers in such situations have to reimburse for the total loss. Stunned insurers successfully lobbied the state legislature to pass a law several months ago overturning the ruling, but the statute applies only to future events, not last year's hurricanes. Now, insurers are bracing for a similar battle in Louisiana and Mississippi."
Below is the Louisiana valued policy law [emphasis added]. As we read it, it applies to all insured perils, not just fire. So it would apply to any total loss involving an insured peril such as windstorm. It isn't clear to us if the valued policy law applies to a policy that doesn't include the peril of fire. Our presumption is that the reference to "fire insurance policy" refers to policies that include that peril. If that's the case, then the law wouldn't apply to a monoline windstorm policy or a flood policy. As we all know, NFIP flood policies are available only up to certain limits and not always the full value of a building.
§695. Valued policy clause; exceptions
A. Under any fire insurance policy insuring inanimate, immovable property in this state, if the insurer places a valuation upon the covered property and uses such valuation for purposes of determining the premium charge to be made under the policy, in the case of total loss the insurer shall compute and indemnify or compensate any covered loss of, or damage to, such property which occurs during the term of the policy at such valuation without deduction or offset, unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefor, shall set forth in type of equal size, the actual method of such loss computation by the insurer. Coverage may be voided under said contract in the event of criminal fault on the part of the insured or the assigns of the insured.
B. Any clause, condition, or provision of a policy of fire insurance contrary to the provisions of this Section shall be null and void, and have no legal effect. Nothing contained herein shall be construed to prevent any insurer from cancelling or reducing, as provided by law, the insurance on any property prior to damage or destruction.
C. The liability of the insurer of a policy of fire insurance, in the event of total or partial loss, shall not exceed the insurable interest of the insured in the property unless otherwise provided for by law. Nothing in this Section shall be construed as to preclude the insurer from questioning or contesting the insurable interest of the insured.
D. This Section shall only apply to policies issued or renewed after January 1, 1992, and shall not apply to a loss covered by a blanket-form policy of insurance nor to a loss covered by a builders risk policy of insurance.
Acts 1991, No. 850, §1; Acts 1995, No. 737, §1.
With regard to the Florida court case referenced in the new article above, the Louisiana statute seems to clearly state that the law applies only to "covered loss...or damage" and flooding is an excluded loss. For reference, here is the Florida court case:
Examining the Florida valued policy law, the court's decision seems incongruent with the law and how the court reached its conclusion based on the language of the law is still a mystery even after reading the court case. For example, the old law clearly stated, "...the insurer's liability under the policy for such total loss, if caused by a covered peril...." The language seems clear that the law is triggered if the total loss is caused by a covered peril. While a covered peril caused SOME loss, it didnt' cause the TOTAL loss...flooding, an excluded peril, contributed greatly to the total loss.
In any case, as a result, the Florida legislature amended the statute as outlined below. How this will all play out in the Katrina-impacted states remains to be seen.
New Florida Valued Policy Law
Note: The new part of the law, in response to the lawsuit above, is in red below at 627.702(1)(b).
627.702 Valued policy law.
(1)(a) In the event of the total loss of any building, structure, mobile home as defined in s. 320.01(2), or manufactured building as defined in s. 553.36(12), located in this state and insured by any insurer as to a covered peril, in the absence of any change increasing the risk without the insurer's consent and in the absence of fraudulent or criminal fault on the part of the insured or one acting in her or his behalf, the insurer's liability under the policy for such total loss, if caused by a covered peril, shall be in the amount of money for which such property was so insured as specified in the policy and for which a premium has been charged and paid.
(b) The intent of this subsection is not to deprive an insurer of any proper defense under the policy, to create new or additional coverage under the policy, or to require an insurer to pay for a loss caused by a peril other than the covered peril. In furtherance of such legislative intent, when a loss was caused in part by a covered peril and in part by a noncovered peril, paragraph (a) does not apply. In such circumstances, the insurer's liability under this section shall be limited to the amount of the loss caused by the covered peril. However, if the covered perils alone would have caused the total loss, paragraph (a) shall apply. The insurer is never liable for more than the amount necessary to repair, rebuild, or replace the structure following the total loss, after considering all other benefits actually paid for the total loss.
(c) It is the intent of the Legislature that the amendment to this section shall not be applied retroactively and shall apply only to claims filed after the effective date of such amendment.
(2) In the case of a partial loss by fire or lightning of any such property, the insurer's liability, if any, under the policy shall be for the actual amount of such loss but shall not exceed the amount of insurance specified in the policy as to such property and such peril.
(3) The provisions of subsections (1) and (2) do not apply when:
(a) Insurance policies are issued or renewed by more than one company insuring the same building, structure, mobile home, or manufactured building, and the existence of such additional insurance is not disclosed by the insured to all insurers issuing such policies;
(b) Two or more buildings, structures, mobile homes, or manufactured buildings are insured under a blanket form for a single amount of insurance; or
(c) The completed value of a building, structure, mobile home, or manufactured building is insured under a builder's risk policy.
(4) The amount of any loss referred to in subsection (1) or subsection (2) shall be subject to any coinsurance clause contained in the policy pursuant to s. 627.701.
(5) This section does not apply as to personal property or any interest therein, except with respect to mobile homes as defined in s. 320.01(2) or manufactured buildings as defined in s. 553.36(12). Nor does this section apply to coverage of an appurtenant structure or other structure or any coverage or claim in which the dollar amount of coverage available as to the structure involved is not directly stated in the policy as a dollar amount specifically applicable to that particular structure.
(6) With regard to mobile homes included in subsection (1), any total loss shall be adjusted on the basis of the amount of money for which such property was insured as specified in the policy, whether on an actual cash value basis, replacement cost basis, or stated amount, and for which a premium has been charged and paid only if the insured has elected to purchase such coverage at the inception of the policy. However, when coverage is written for a mobile home on any basis other than stated value, a complete disclosure of the relative cost between that policy and the stated value policy shall be made to the insured on a form and in a format approved by the office. Such forms shall disclose and describe the differences between the types of policies and shall be signed by the insured. Copies shall be maintained in the insurer's file, and a copy shall be made available to the insured. Each insurer licensed to write insurance covering mobile homes shall make such stated value coverage available at the option of the insured.
(7) Nothing herein shall be construed as prohibiting an insurer from repairing or replacing damaged property at its own expense and without contribution on the part of the insured except, as provided in subsection (6), when an insured has elected to purchase stated value coverage. Such repair or replacement of damaged property shall be in lieu of any liability created by subsection (1); and any insurer so repairing or replacing shall have no liability pursuant to subsection (1), provided such insurer returns to the named insured a portion of the premium, for all policy terms during which the policy limits were the same as those in effect on the date on which the loss occurred, equal to that portion of the premium paid for limits of insurance on the structure in excess of the cost of replacement.
(8) Any property insurer may, by an appropriate rider or endorsement or otherwise, provide insurance indemnifying the insured for the difference between the insurable value of the insured property at the time any loss or damage occurs, and the amount actually expended to repair, rebuild, or replace within this state, with new materials of like size, kind, and quality, such property as has been damaged or destroyed.
History.--ss. 606, 608, ch. 59-205; s. 3, ch. 76-168; s. 1, ch. 77-457; ss. 1, 2, ch. 79-237; ss. 1, 2, ch. 80-326; s. 1, ch. 81-280; ss. 2, 3, ch. 81-318; ss. 539, 541, 809(2nd), ch. 82-243; ss. 65, 79, ch. 82-386; s. 1, ch. 83-191; s. 114, ch. 92-318; s. 357, ch. 97-102; s. 98, ch. 2002-1; s. 1188, ch. 2003-261; s. 16, ch. 2005-111.
Note.--Consolidation of s. 627.702 and former s. 627.704.
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"Our home is located in a non flood zone C. Never in 36 years has it ever flooded on this property. Hurricane Katrina's winds pushed 8 ft. of water into our home. Everything is ruined!!
"We lost a great deal of shingles and a little vinyl siding. We have huge pines that snapped off at about 10 ft. up. The adjuster has not been to our home yet. I keep hearing that it will not be covered under our homeowners with State Farm. Others have said it is a natural disaster and that flood zones and non flood zones incurred a great deal of water damage. Do you you have any information on this topic? I am losing sleep!!!
"Thanks
"Worried in Zone C"
Virtually all homeowners policies exclude flood losses regardless of where the property is located. A flood is defined by the National Flood Insurance Program as: A general and temporary condition of partial or complete inundation of normally dry land. The flood can occur from several specific sources including an overflow of inland or tidal waters; unusual and rapid accumulation of run-off of surface water from any source; mudslides and erosion of land along shores due to the effect of unusual wave action.
I believe (going from memory) that Zone C is a 500-year flood zone with only a small likelihood of a flood claim of up to one foot of standing water within 100 years. In other words, you are located in an area where flooding is very rare. Of course, rare doesn't mean impossible...it just means that your exposure to flood loss is very small. Even so, about a third of all flood losses occur outside special flood hazard areas.
However, IF a flood occurs, the results can be catastrophic and imperil the solvency of any insurance company. Therefore, virtually ALL flood-related losses are excluded from standard homeowners policies and coverage must usually be sought through the federally- backed National Flood Insurance Program.
You'll have to confirm it with your agent, but it is regretably likely that your homeowners policy will not cover the damage caused directly by flood. If you have other damage due to windstorm and rain, that most likely is covered.
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"Today a coworker said she approached five insurers for CGL quotes for a construction contractor going to Louisiana and Mississippi for Hurricane Katrina cleanup. All of these companies said they would exclude General Liability coverage in Louisiana and Mississippi. I heard similar information earlier today from an agent in another state. I am also aware of a huge national carrier referring workers compensation that included Louisiana to their home office 'to evaluate their position' on insuring risks in Louisiana. Since the standard coverage territory includes all the United States, does it sound as if they will manuscript exclusions for Louisiana and Mississippi or use existing exclusions to accomplish this? Do you think we have misunderstood the intention of these companies? Or that these exclusions are very isolated and not widespread? What's the word on the street?"
We ran this by the VU faculty and got the following responses:
Sound like they are frightened of the exposure and there is no question they would have to write a manuscript.
A couple of surplus lines friends of mine offered some insight into this.
1. Where the company is newly created to do work in MS/LA, etc., underwriters are averse to providing coverage, since these companies have no prior experience to adequately judge their work and the associated risks. Often, individuals with a pickup truck and a chain saw head to disaster areas to do "FEMA work," which usually pays well without a lot of oversight.
2. If the company is an existing one currently insured, and the underwriter is reluctant to cover them in LA/MS, etc., the insurer would have to have a state-specific exclusion, since the unendorsed CGL would automatically provide coverage. However, the state law might not permit such an exclusion being added mid-term.
3. One surplus lines broker friend actually has an account that produces and installs electrical substations around the country, and the insurer excludes certain states, but this is done at inception each year.
4. As to WC, since not all states are automatically covered with amendment, it seems logical that each insurer would make a decision about whether or not to add a particular state their insured might want to do work in. If MS/LA could not be added by the existing WC carrier, coverage would have to be secured by a separate policy that could provide WC in those states.
Post disaster responses include a lot of "operators" who obtain contractors licenses (perhaps) and arrive on scene with certificates of insurance (perhaps) and a twenty-year history of trouble behind them. They are too often unqualified for the work they pursue, incapable of performing the work they receive, and/or corrupt as heck, etc. It's hard to blame the insurers for being wary unless the agent can strongly vouch for the client.
Louisiana is a direct action state. Insurance rates - particularly in south Louisiana - are very high. Mississippi has its own history as one of the worst state in the country in terms of litigation "black holes." Workers' compensation in both states have a long history of problems. Established contractors had insurance last month. It is only prudent for carriers to look carefully at someone attempting to obtain contractors coverage in response to this disaster.
I haven't heard about this. I agree that they'd have to manuscript endorsements to exclude coverage in specific states. They would probably have to get approval for the endorsements too. Of course, they don't have to write new business for contractors working in those areas.
I have heard nothing, but NOTHING would surprise me. They would need to manuscript an endorsement. One of the carriers she named is not "wild" about contractors anyway. Think about the exposures, other than the normal ones. Asbestos and other "pollutants." Completed Operations - mold, etc. Little wonder that the insurers are uncomfortable with underwriting these risk. Following 9/11, there were a number of suits against contractors for "improper" cleanup and disposal. Sadly, disasters like this are a field day for the trial bar and insurers are reticent to increase their liability exposures to the same degree that their property exposures are already stretched.
I've not heard anything about this, but I can understand insurers being wary. It's unfortunate because we all want to get reconstruction underway, but we should also be managing risk too. There will probably be all kinds of fly-by-night contractors trying to capitalize on this disaster, along with contractors using incompetent or "accident-prone" workers. Because of conditions, you can probably expect a higher incidence of injuries. If I'm not mistaken, there were a number of lawsuits against contractors (and others) following Hurricane Andrew because of improper cleanup and disposal of asbestos, pollutants, and other stuff. With the hit many insurers have just taken, I'm sure they're being very careful about who they insure in these areas..
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"Could you please clarify the following: Tree falls, does not damage any property - what is the coverage? Tree falls, does damage property - please address, does insured get coverage for value of tree? Does insured get debris coverage? Also, under an ISO Homeowner Policy, is there food spoilage? If so, is there a limit?"
Here's an article from our Florida association that explains tree coverage:
As for food spoilage, there's no coverage for that under the ISO HO policies if caused by an off-premises power failure, which is typically the cause in a weather-related disaster. The coverage can be purchased by endorsement. Here's a hurricane-related coverage listing, also from our Florida association:
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"I see that the Mississippi Attorney General has filed a lawsuit to void the flood exclusions in insurance policies. In addition, there is a class action lawsuit out of Louisiana trying to do the same thing for somewhat different reasons. Do you think these suits will be successful and why or why not?"
We have now completed a preliminary analysis of these suits which can be obtained here.
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"So you have a Katrina coverage question?"
If so, email it to Bill.Wilson@iiaba.net. If your question is not specifically related to Katrina, please submit it via our Ask an Expert service.
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