Hurricane Isaias recently barreled up the East Coast, leaving destruction in its wake and prompting thousands of homeowners and businesses to submit insurance claims. Unfortunately, many policyholders are being caught off-guard by unanticipated gaps in their coverage.
Why these gaps in coverage exist
With the high value of property in coastal areas, the price tag for repairing the damage from hurricanes has escalated over the last couple of decades. Major 2017 storms Harvey and Maria, for instance, resulted in respective losses of $125 billion and $90 billion, according to the National Hurricane Center. In an attempt to limit their exposure, insurance companies have included sophisticated exclusionary language in their homeowners’ and commercial property policies and, in the process, have made storm claims unnecessarily complicated and difficult to manage.
Property policies provide limited protection
Homeowners’ and commercial property insurance policies typically cover wind damage caused by a storm or hurricane, but not flood or storm surge-related damage. However, even in the case of wind damage, homeowners are often on the hook for more than they anticipated. In 19 states – most of them along the East and Gulf Coasts – and the District of Columbia, insurers sell policies with hurricane or windstorm deductibles that are equal to a certain percentage – typically 1 to 5 percent – of the home’s value. So if a home valued at $500,000 has a 5 percent deductible, the homeowner has to shell out for the first $25,000 in damage. Conversely, a homeowners’ policy will typically have a flat deductible, such as $1,000, for perils like fire and theft, so many homeowners are unaware of this high deductible for windstorms or hurricanes. What triggers the deductible varies by state and insurer: It ranges from a category 2 hurricane down to any type of windstorm.
FEMA insurance and assistance
Damage from flooding is not covered in standard homeowners’ policies or in most commercial property policies. Flood coverage is available through the National Flood Insurance Program (NFIP) – which is managed by the U.S. Federal Emergency Management Administration (FEMA) – as well as from a few private insurers. Until recently, private insurers avoided the market because they did not have a reliable method for measuring flood risk. Modeling methods have improved, however, prompting private insurance firms to begin dipping their toes in the water, so to speak, helped by federal regulators, who in 2019 mandated that mortgage lenders must accept private homeowners’ flood insurance that meets certain requirements.
For homeowners, NFIP flood insurance only pays up to $250,000 for damage to a home’s structure and $100,000 for damage to contents. Commercial property owners can get $500,000 in coverage for each property. Flood insurance is usually only required in areas at high risk for flooding and if there is a mortgage on the property. As a result, many homes and businesses are not covered for storm surge.
There is some governmental insurance for people who do not have an individual policy covering storm damage. For example, FEMA approved $172 million in disaster aid following Hurricane Harvey.
Residual market property insurers
In certain high-risk areas, residual market providers have been established to cover property owners who can’t get insurance elsewhere. The Texas Windstorm Insurance Association, for instance, was set up in 1971 by the Texas Legislature with the purpose of providing windstorm and hail insurance in counties along the Gulf Coast. In Florida, the Citizens Property Insurance Corp. was created by the Florida Legislature in 2002 as a not-for-profit insurer of last resort, providing both windstorm and general property policies.
Insurance company conduct
Many hurricane damage claims are denied by insurance companies. Commonly, they will declare the property had pre-existing damage, wear and tear, or that the damage was caused or concurrently caused by water (which is not covered) rather than wind or wind-driven rain.
Insurance companies also frequently dispute the value to repair or replace damaged structures, or the value of damaged or destroyed personal property items.
In addition to damaged property, businesses often experience problems with the business interruption coverage available under their policies, where insurance companies frequently rely on crafty policy language to deny or limit claims.
As those who suffered losses in past hurricanes and storms can attest, insurance companies slow down claim payouts, sometimes for years, by requesting home and business owners to file a vast amount of information, often of questionable necessity.
If you or your business suffered losses from Isaias or another storm event and your insurance company is not keeping the promises it made to you, feel free to contact us today. It is our mission to make insurance companies keep their promises.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack