Update—Florida Windstorm Deductibles
June 2002
To mark the beginning of hurricane season
2002, Doug Berry examines recent hurricane-related insurance issues.
by Doug
Berry
Butler Pappas
June 1 marked the beginning of Hurricane Season 2002. As such, a review of
some hurricane-related issues is in order.
Following Hurricane Andrew, the Florida Legislature enacted amendments to
Fla. Stat. § 627.701 to permit insurers to apply deductibles expressed as a
percentage of the amount insured, rather than a flat dollar amount, to losses
to residential property caused by hurricanes or other named windstorms. The
Legislative intent was:
to encourage the use of higher hurricane deductibles as a means of increasing
the effective capacity of the hurricane insurance market in this state and
as a means of limiting the impact of rapidly changing hurricane insurance
premiums. [Fla. Stat. § 627.701(5)(a).]
Insurers, both personal and commercial lines writers, immediately began rewriting
their deductible provisions to increase substantially the deductible to be applied
in the event of a loss due to a hurricane or other named windstorm event. The
application of these increased deductibles following a loss can be quite expensive
to an insured and, as a consequence, has spawned several legal issues, two of
which have recently been resolved.
In Shoreline Towers Condominium Owners Assoc. v Zurich
American Ins. Co., 196 F Supp 2d 1210 (SD Ala 2002), the Plaintiff was
a time-share condominium association located in Gulf Shores, Alabama, and was
an additional insured as 1 of approximately 40 locations insured under a policy
issued to Resort Development, Inc., which owned, developed, or managed these
properties. Following Hurricane Opal, Zurich determined the covered damages
to be $334,901. Zurich applied a $40,000 deductible under the following policy
provision:
The Windstorm or Hail Deductible, as shown in the Schedule, applies to
the loss or damage to Covered Property, caused directly or indirectly by
Windstorm or Hail, regardless of any other cause or event that contributes
concurrently or in any sequence to the loss or damage.
Following further adjustment, Zurich paid an additional $86,000 in covered
damages. Shoreline, however, contended in its lawsuit1 that the deductible should be applied to the total loss—both covered and uncovered
damages—not simply to reduce the indemnity due for the covered loss. The court
disagreed, finding the windstorm deductible clause "clear and unambiguous."
The court stated:
Shoreline's contention that the deductible should be applied to the loss
caused by both covered and excluded causes of loss is contrary to the plain
language of the insurance contract and results in a tortured interpretation
of the policy.
In Paulucci v Liberty Mutual Ins. Co., 190
F Supp 1312 (MD Fla 2002), the insured sought coverage for loss to the roof
of a warehouse following Tropical Storm Gordon. Under a windstorm deductible
provision nearly identical to the one at issue in the Shoreline Towers case,
the insured contended the language "regardless of any other cause or event that
contributes concurrently or in any sequence to the loss or damage" negated the
applicability of the policy's "anti-concurrent causation" provision. In ruling
against the Plaintiff/Insured, the court stated:
I cannot agree. This provision only modifies the scope and application
of the deductible should windstorm be a contributing cause. The first two
sentences read together indicate the following. First, the intention of
the provision is to apply the windstorm or hail deductible when windstorm
or hail directly or indirectly contributes to the loss, and second when
another "covered" loss occurs, such as fire damage, that would not have
happened but for windstorm or hail, the other covered loss will be treated
as part of the windstorm or hail with respect to the deductible. Because
the windstorm and hail deductible clause modifies application of the deductible
only, it does not negate anti-concurrent language in the exclusion section
of the policy's General Policy Conditions.
Of course, to get to this point, the court first had to uphold the validity
of the "anti-concurrent causation" language. In doing so, the court relied on State Farm Fire & Casualty Co. v Metropolitan Dade County,
639 S2d 63 (Fla 3rd DCA 1994), and, interestingly, reached outside of Florida
to rely on Front Row Theatre, Inc. v American Manufacturer's
Mutual Ins. Co., 18 F3d 1343 (6th Cir 1994), since the form at issue
in that case was the same as in Paulucci. This
appears to be only the second reported Florida decision to discuss this specific
language.
As another hurricane season unfolds, we can expect other deductible issues
to unfold and, eventually, be resolved.
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