Hurricane Insurance Claims: Common Disputes and Coverage Exclusions
Coverage Issues Likely to Arise in the Aftermath of a Hurricane
Hurricane Katrina cost insurers over $41 billion in 2005. Following the catastrophic losses from Hurricanes Katrina and Rita, insurance companies adjusted policies to limit exposure to natural disaster-related risks. These changes included the introduction of percentage deductibles for hurricane damage, which are calculated based on a home’s insured value. For instance, a 5% deductible on a home insured for $300,000 requires the policyholder to pay the first $15,000 of a claim. Insurers also began selling policies with flood damage exclusions and concurrent cause clauses to further limit their liability for catastrophic losses.
In the aftermath of a hurricane, property damage often results from wind, rainwater intrusion, flash flooding, and power loss. Key coverage issues typically involve flood exclusions, causation, utility loss provisions, civil authority coverage, and windstorm deductibles.
Causation
Hurricane damage generally falls into three categories:
- Damage caused exclusively by wind.
- Damage caused exclusively by water or flood.
- Damage caused by wind “concurrently or in any sequence” with water.
Damage caused solely by wind is typically covered by insurance policies. However, courts have consistently ruled that water damage exclusions apply to damage caused exclusively by water, flood, or storm surge resulting from a hurricane. Coverage disputes often hinge on a jurisdiction’s approach to concurrent or sequential causation and the specific language of any anti-concurrent causation clauses in the policy.
Windstorm vs. Water Damage
Issues related to water damage exclusions frequently arise alongside covered windstorm perils in hurricane claims. Determining whether wind-driven water is included in the windstorm peril is crucial. Many modern property policies contain enforceable exclusions that preclude coverage for damage from wind-driven rain unless the wind first created an opening in the structure through which the rain entered.
Flood or Water Exclusions
Flood and water damage during a hurricane can occur due to storm surge, river overflow, failure of flood control structures, or backups from drainage systems. Policyholders often challenge the application of flood exclusions by arguing that water damage caused during a hurricane should be attributed to wind or windstorm as the proximate cause.
Loss of Power and Other Utilities
Prolonged power outages are a common consequence of hurricanes. However, the loss of electricity alone, without resulting physical property damage, typically does not trigger coverage under standard homeowners or commercial property insurance policies. Most first-party policies require structural or direct damage to the insured property to activate coverage.
Exceptions exist, such as when an insured is forced to suspend business operations due to power loss, though this often hinges on specific policy extensions. Many commercial policies now offer extensions for business income losses due to utility interruption, but these generally require physical loss or damage to the utility service provider’s property caused by a covered peril.
Civil Authority Coverage
Many policies include business interruption coverage that applies when government orders prohibit access to the insured’s place of business, even in the absence of physical damage to the insured property. This coverage applies only when all access to the premises is prohibited by civil authority, not when access is merely hindered or limited. The prohibition must be caused by property damage related to the past event that led to the government order, rather than a potential future threat.
Additional Resources
For more information on specific types of insurance disputes related to hurricanes and other disasters, explore the following topics:
- Commercial Property Insurance Claim Disputes
- Homeowner’s Insurance Claims
- Business Interruption Claim Disputes
- Condominium Association Insurance Claims
- Flood Policy Claim Disputes
- Apartment Complex Insurance Claims
- Coverage Disputes
- Renter’s Insurance Claims
- Insurance Agent Negligence Claims
- Mold Claims and Disputes
- Home Totaled Claims