Hurricane Total Loss: Valued Policy Law, Limit Caps, and a 5% Named-Storm Deductible
A named hurricane crossed Terrebonne Parish and tore the roof off a duplex insured under a Louisiana homeowners policy: Coverage A limit $350,000, Coverage B $35,000, and a 5% named-storm deductible calculated on the Coverage A limit. The dwelling's replacement cost is $400,000. An engineer reports the structure is a total loss: repair cost exceeds $350,000 and the parish has ordered demolition. Storm surge also entered and ruined the flooring before the roof failed; the insured carries no flood policy. The insured, citing Louisiana's valued-policy law, demands $400,000 and argues the deductible should not reduce anything because the loss 'exceeds the limit anyway.' A mortgagee is named on the policy.
1. State the maximum amount payable on Coverage A and show the arithmetic. Address the insured's valued-policy argument.
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Step 1 - Identify the cap. The $350,000 Coverage A limit is the most the policy can pay for the dwelling, whatever its replacement cost. Replacement cost matters only up to the limit; in a total loss where rebuilding is barred, the limit is the measure.
Step 2 - Test the valued-policy argument. Louisiana's valued-policy statute (La. R.S. 22:1318) fixes liability at the stated policy value only for a total loss by fire of insured immovable property. It does not convert a wind loss into a claim for replacement cost above the limit. The $400,000 demand fails.
Step 3 - Apply the deductible. A percentage named-storm deductible is computed on the limit stated in the policy: 5% x $350,000 = $17,500. It is subtracted from the loss and is not waived because the loss exceeds the limit. Net payable: $350,000 - $17,500 = $332,500.
Step 4 - Mechanics. Where the limit itself is paid, no depreciation holdback is taken. Issue the draft jointly to the named insured and the mortgagee to the extent of the debt, and give written notice of the figure plus the appraisal and suit-limitation provisions.
2. The engineer attributes the flooring damage to both surge and wind-driven rain that entered after the roof failed. How do you evaluate and document the covered portion?
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Separate the causes on the evidence, not on the label the insured uses.
- Read the water-damage/flood exclusion and any anti-concurrent-causation lead-in first. If the lead-in is present and clear, surge damage is excluded even though wind also contributed.
- The burden of proving a covered cause rests on the insured. Ask the engineer for a line of demarcation: surge height, the time the roof opened, and whether the flooring was submerged before or after rain entered.
- If the flooring was already saturated by surge, that portion is excluded even though rain later fell on it. If wind-driven rain alone would have ruined the same flooring, that portion is a covered wind loss.
- Document with the engineer's report, moisture readings, and photographs; issue a written partial denial quoting the exclusion relied on; reserve rights on the remainder.
Never label flood damage as 'wind' to close a file. That is both a coverage error and a suitability problem.