Louisiana Commissioner, State Farm Dispute Hurricane Deductibles

Louisiana Insurance Commissioner James Donelon has issued a cease and desist order against State Farm in a dispute over policy deductibles related to Hurricane Barry.

The state Department of Insurance received a complaint July 17 from a policyholder who claimed the company was requiring a hurricane deductible for losses that happened before the storm was declared a hurricane July 13.

Donelon said State Farm claimed it would impose a hurricane deductible on losses rather than a less expensive out-of-pocket deductible known as “all peril.” The average all peril deductible is between $500 to $1,000. On average, hurricane deductibles are between 2% and 5%, the department said.

A house that is insured up to $300,000 with a 5% deductible means the policyholder must pay up to $15,000 out of pocket before insurance kicks in to pay for damage to property protected by a homeowner’s policy. A 2% deductible would be up to $6,000 on a $300,000 home.

Donelon said State Farm’s interpretation of the policy “ignores the irregular, but relevant aspects associated with the development of the Barry storm event prior to its designation as a hurricane.”

The cease and desist order, dated Aug. 20, 2019, applies to any policyholder of State Farm who is facing the same situation and disallows the company to collect the larger deductible. There were several complaints filed after Hurricane Barry but just one related to the hurricane deductible.

As of July 15, State Farm had about 730 homeowner claims for any loss, which includes, wind, water or even tree damage.

State Farm has 30 days to appeal the order.

“We fundamentally disagree with the (Department of Insurance’s) position and rationale and we are exploring all of our options to address this order,” State Farm said in a statement.

The company claims that eliminating its hurricane duration deductible or modifying its policy “would have a negative long term impact on insurance affordability for over 300,000 State Farm customers in Louisiana.”

State Farm says the Department of Insurance approved its policy language “many times without issue” and that collecting hurricane deductibles when it applies has contributed to keeping the price of homeowner premiums down in Louisiana.

“For Hurricane Barry, the hurricane deductible applies starting at the point when a hurricane watch or warning was issued for any part of the state of Louisiana by the National Hurricane Center of the National Weather Service and ends 72 hours after the termination of the last hurricane watch or warning for any part of the state,” the company statement continued.

A hurricane watch was issued for Hurricane Barry on July 10 and a hurricane warning was issued on July 11, according to the National Weather Service National Hurricane Center.