Named Windstorm deductibles are quite common in areas exposed to hurricanes. Instead of a policyholder being responsible for deductibles who can regularly rise to several thousand dollars, in the case of a named storm, which tropical storms and hurricanes become, a higher Named Windstorm Deductible applies and usually provides a very high deductible. Many named windstorms are deductible percentages.
For commercial properties where the values can rise to hundreds of millions of dollars, a percentage deductible can make the dollar amount seven or eight digits. Many of these major business policies also cover flood insurance with a very high deductible dollar usually starting at $ 500,000, which is the limit of the National Flood Insurance Program to insure a building. Thus, in many cases, the National Flood Insurance policy is the first layer and trade policy, with high deductibles, as an overflow of flood insurance.
The hurricanes generally cause massive wind losses and can cause massive flooding and storm disruption. My experience has been that carriers apply the named wind storm, which is deductible for wind damage and flood deductions for the flood and storm flow part of the policy. This may change after a recent case in Texas that was otherwise decided. Commercial insurance brokers, agents and risk managers may want to note this case and contact the insurers about their interpretation and processing of these clauses.
The case involved a large commercial site with flood loss and no wind damage from Hurricane Harvey. The parties agreed that the policyholder was hit by $ 6.7 million in flood damage and no wind damage. This was a very common scenario in the Houston area after Harvey due to the enormous flood caused by the historic rain of Hurricane Harvey.
Regarding the deductibles, the court statement noted:
The deductible section states that if "two or more deductible specified in this policy applies for a single occasion, the total amount will be deducted from not exceeding the maximum deductible, if not otherwise stated "… The general deductible under the policy is $ 100,000.00."
An exception to the general deductible amount is for "any adjusted loss due to flood." … Flood Deductible gives a $ 1,000,000.00 per seat deductible.
Another exception to the general deductible amount is for "any adjusted loss due to Windstorm and Hail" … Entitlement to the general wind storm deduction is $ 100,000.00 per event …. An exception to the general wind tax deduction rate a deductible of:  5% of the total insurance values at the time of loss one at each site involved in the loss or damage caused by a named storm (a storm declared by the National Weather Service to be a hurricane, typhoon, tropical cyclone, tropical storm or tropical depression) ….
The deductible which was 5% was greater than $ 6.7 million. The insurer claimed that this deductible applied to flood or wind damage and not just to wind damage so that nothing was owed. The policyholder claims that SEK 1,500 million was deductible and $ 5.7 million was owed.
The court agreed with the insurer stating:
The named storm deductible in the wind storm deduction right does not apply only to wind damage. Instead, the name Storm Deductible undoubtedly means "regardless of the number of covers, locations or hazards involved (including but not limited to all flood, wind, gusts, storm surges, tornadoes, cyclones, hail or rain)." … With its clear and unambiguous language, the named storm applies to the deductible policy of any loss caused by a named storm, including a loss caused by floods due to the heavy rains associated with a named storm.
I've seen hundreds of these situations and this is the first thing I've read about an insurance company that deals with similar clauses in this way. I would strongly urge brokers to review these regulations as I am sure many have advised their policyholders that they have higher wind damage that is deductible if a hurricane hits but will cover the hurricane flood that will float with the National Flood Program or anyone other floods are eligible instead of named wind storm deductions.
Quotes of the Day
Insurance contracts are long, dense documents that are difficult for insurance personnel, including agents and claims adjustments, to understand, much less the typical consumer.
-Rob Galbraith, "The End of the Insurance We Know: How Millennials, Insurance and Risk Capital Will Disrupt The Ecosystem"