Concurrent Causation of Loss and the Named Storm Deductible
In the wake of Hurricane Isaac, many homeowners may find themselves dealing with a pair of important issues with their homeowners insurance policies: the "concurrent causation of loss" exception and the "named storm" deductible.
Concurrent Causation of Loss
While there are several different versions of concurrent causation provisions, all attempt to reduce or eliminate insurance coverage where two different perils, one covered by the policy and one excluded from coverage by the policy, act together, or concurrently, to cause damage or loss.
The term "peril" means an effect, action or force that causes damage or loss. The phrase "concurrent causation" generally refers to the combination of more than one peril that causes a specific damage or loss. The general rule is that, if damage is caused both by a peril that is covered by the policy, and a peril that is not covered by the policy, then the insurance coverage applies for the specific damage or loss.
However, insurance policies often include provisions or exclusions that attempt to modify or eliminate that general rule.
Certain provisions state that insurance coverage is only applicable when the predominate or superior peril causing the damage is covered by the policy. Thus, the homeowner would have to show that the damage he or she sustained was caused more by the covered peril than the uncovered peril.
Other provisions exclude all coverage when one of the two concurrent perils that cause loss or damage is not otherwise covered by the policy’s provisions.
Consider the following example:
Homeowners Insurance Policy A provides insurance coverage for damage to the insured property caused by wind, but excludes damage caused by flood.
Homeowners Insurance Policy A also includes a concurrent causation of loss provision stating that insurance is available under the policy only for loss caused by two or more different perils when the predominate peril producing loss is otherwise covered by the policy.
Assume a home insured by Homeowners Insurance Policy A suffers major damage by wind at the same time as minor damage by flood. In this case, the damage would be covered by the policy.
On the other hand, if the home suffers major damage by flood while only suffering minor damage by wind, then the entire loss would be excluded from coverage by the policy.
Homeowners Insurance Policy B provides coverage for damage caused by wind, but excludes damage caused by flood.
Homeowners Insurance Policy B includes a concurrent causation of loss provision indicating that, when loss is caused by two or more different perils at the same time, if any peril causing damage is excluded under the policy, then the entire loss is excluded from coverage, even if the other perils would otherwise be covered by the policy.
If a home insured by Homeowners Insurance Policy B suffers any damage by flood concurrently with any damage by wind, then the loss or damage would be excluded from coverage under the policy.
Property owners should read their property insurance policies carefully to determine if their policy includes a concurrent causation of loss provision, and understand what effect, if any, the provision might have on an insurance claim.
Named Storm Deductible
Homeowners filing claims for damage caused by Hurricane Isaac may be in for a surprise: the so-called "named storm" deductible.
Louisiana state law allows insurance companies to include a special deductible that is specifically applicable to damage caused by named storms or hurricanes. This "named storm" deductible can be as much as four percent (4%) of the value of the insured property.
Consider the following example:
Homeowners Policy C has a general deductible of $1,500 on losses covered under the policy, but it also includes a named storm deductible of two percent (2%). Assume that the home covered by Homeowners Policy C in this example has an insured value of $150,000.
With respect to damage caused by Hurricane Isaac, the homeowner’s deductible would be $3,000, rather than the standard $1,500 deductible.
If the insured home suffers $10,000 of covered damage during the named storm, the insurance company would pay only $7,000 of that damage, rather than $8,500 under the general deductible.
While named storm deductibles in homeowners insurance policies are a relatively recent development in Louisiana, similar named storm deductibles have been included in commercial and other property insurance policies for some time, and commercial named storm deductibles can rise as high as ten percent (10%) or fifteen percent (15%) of the insured property value.
Significantly, Louisiana law expressly provides that any provision of a homeowners policy that would apply more than one deductible to damage from a single incident covered by the policy is void and not enforceable under the law.
Homeowners should read their policies, or check with their insurance agent or insurance company, to determine whether their homeowners policy has a named storm deductible, and prepare accordingly.