Wind, Surge, and the Named-Storm Deductible
The Thibodeaux home in Terrebonne Parish is insured on an HO-3 with Coverage A of $450,000, a $1,000 all-perils deductible, and a 2% named-storm deductible. The insured's NFIP policy had lapsed four months earlier for nonpayment and was never reinstated. In September a named hurricane passed 30 miles to the west. Wind first peeled back roof sheathing over the great room; rain poured in for two hours before the eye passed. Ninety minutes later, storm surge pushed four feet of water into the first floor. The adjuster's report separates the damage: $70,000 from wind and rain entering the wind-created opening, and $120,000 from the standing water. The insured argues that 'but for the wind, the water would never have gotten in.'
1. How is the deductible applied to this loss, and why does the answer matter so much here?
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Reasoning:
- The loss arose from a named storm, so the hurricane/named-storm deductible in the policy replaces the $1,000 all-perils deductible for that loss. The named-storm deductible is expressed as a percentage of Coverage A: 2% × $450,000 = $9,000.
- The deductible applies once per named storm, not once per peril or per coverage part. Two adjusters who each apply a $9,000 deductible (one to the wind portion, one to the water portion) would double-count it.
- It applies to the total covered loss from that event, before any sublimit or exclusion analysis on the non-covered water portion.
- Practice point: apply the deductible to the covered wind/rain portion only - $70,000 − $9,000 = $61,000 - since the water portion is analyzed separately.
Conclusion: A single $9,000 named-storm deductible, not the $1,000 AOP deductible. Confirm the declarations express the deductible as a percentage of Coverage A rather than of the total loss; a percentage misread as a percentage of the loss would understate it badly.
2. Is the $120,000 surge damage payable under this policy? What effect does the lapsed NFIP policy have?
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Reasoning:
- The HO-3 excludes water damage, and that exclusion is defined to include flood, surface water, waves, tidal water, and storm surge - whether or not driven by wind. The insured's absence of flood insurance does not make the homeowners form respond; the form never covered it.
- Anticoncurrent-causation wording is common in these forms: loss caused by or resulting from an excluded peril is excluded regardless of any other contributing cause. Where that language is present, the insured's 'but for the wind' argument fails as a contract matter, and the insurer must still carry its burden of proving the water was flood/surge rather than wind-driven rain.
- The NFIP policy lapsed for nonpayment four months before the loss. Reinstatement after a lapse generally requires a new application and a waiting period; a loss occurring during the lapse is simply uninsured. Even if the policy had been in force, NFIP building limits (commonly $250,000 on a residential building) would not have fully matched a $450,000 dwelling.
Conclusion: The $120,000 surge loss is not payable under the HO-3, and there is no federal backstop because the flood policy had lapsed. Total payable: $61,000 (wind/rain $70,000 less the $9,000 named-storm deductible). Advise the insured to reinstate flood coverage in writing, noting the new 30-day wait.
3. The insured disputes the adjuster's split, saying the interior water damage cannot be separated into 'rain' and 'surge' because the rooms were flooded by both. Who bears the risk of that uncertainty?
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Reasoning:
- Burden-shifting is the key. The insured must first show a covered peril (wind) caused a loss. Once that is done, the insurer asserting an exclusion - flood - must prove the excluded peril caused the damage it is denying. Undifferentiated damage is therefore the insurer's problem, not the insured's.
- This is why the file needs a causation record: roof sheathing condition, water-line marks, debris lines, moisture readings, weather data, and photographs taken before cleanup. The adjuster's two-number split is an opinion and will be attacked as arbitrary unless supported by that evidence.
- Where separation genuinely is impossible for a given room, the practical and defensible course is to treat the indistinguishable damage as covered rather than to deny it wholesale.
- Red flag: if the report was written before any engineer or water-line documentation existed, expect the split to be challenged on appraisal or in suit.
Conclusion: The insurer bears the risk of an unprovable allocation. Pay the $61,000 without prejudice, document the causation basis room by room, and revise the split only if the physical evidence supports it.