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LA Dept of Insurance Issues Cease and Desist Order to State Farm Over Hurricane Barry Deductibles

Aug 24, 2019 01:53PM ● By Flint Zerangue, Sr.

Louisiana Department of Insurance (LDI) Commissioner James J. Donelon issued a Cease and Desist Order* for State Farm Fire and Casualty Company this week to protect the interests of Louisiana policyholders affected by Hurricane Barry. This action prohibits the enforcement of a hurricane deductible for losses occurring prior to 10:00 a.m. on Saturday, July 13, 2019.

Commissioner Donelon notes that “every word in an insurance policy matters” and further cautioned that State Farm’s interpretation “ignores the irregular, but relevant aspects associated with the development of the Barry storm event prior to its designation as a hurricane.”

Donelon’s actions follow a consumer complaint which questioned State Farm’s interpretation of their Hurricane Duration Deductible Endorsement (HDD) language.  The LDI commenced an investigation of the claim, reviewing the timeline of notifications and other milestones associated with Barry’s atypical development. Notable to the LDI review was the distinction that Barry only briefly achieved hurricane strength and was recognized as a hurricane by the National Weather Service just before striking Louisiana.    

Following several conversations with representatives of State Farm, Commissioner Donelon requested a meeting with the insurer to review the LDI’s findings. State Farm contended that because the storm ultimately achieved hurricane status, their hurricane deductible was appropriate for all losses rather than the less costly “all-peril” deductible for policyholder claims sustained prior to being declared a hurricane on Saturday, July 13, 2019 at 10:00 a.m.

Commissioner Donelon informed State Farm that based on the LDI’s interpretation of the insurer’s own policy language, the company was incorrectly applying the hurricane deductible to losses which occurred prior to the storm reaching hurricane strength on July 13, 2019 citing the HDD definition included in the State Farm endorsement. State Farm took the LDI’s comments under advisement, but later notified Commissioner Donelon of their disagreement, asserting that (State Farm’s) interpretation of the deductible language was proper.

Our investigation found that most major insurance companies in the state have named storm/hurricane deductibles of 2% to 5% of the value of their home. For example, at 2%, a $200,000 house would have a deductible of approximately $4,000. 

We spoke with one homeowner in Broussard, who experienced minor wind damage to their roof and a small well/pump house. According to communications between the homeowner and State Farm, the homeowners deductible for Barry was set at $12,000 for a property that is valued at approximately $175,000. 

Regardless of whether the deductible in this situation is deemed to be correct or not, the Louisiana Department of Insurance reminds all policyholders of the importance of reading and reviewing their insurance documents carefully before the need to file a claim.  

State Form is reported to insure more than 300,000 customers in Louisiana.

* A copy for the Cease and Desist Order is attached.