Consumer Group Asks Officials to Monitor Deductibles, ACC Clauses

November 7, 2012

A consumer advocacy group has sent letters to government officials in the northeastern states, urging officials to monitor how insurers handle claims after Superstorm Sandy.

The group, the Consumer Federation America (CFA), asked officials to pay close attention to how insurers determine claims deductibles to ensure that consumers are not subject to unjustified, higher out-of-pocket costs. The group also asked officials to scrutinize how the anti-concurrent causation (ACC) clause is used.

The CFA said that after the storm, governors from northeastern states moved quickly to protect consumers from high insurance deductibles associated with their wind damages claims caused by Superstorm Sandy. The decisions will result in millions of dollars in savings and will ensure that much-needed resources will remain with homeowners during the recovery in following weeks and months, the CFA said.

But the group said there are already strong indications from the insurer trade organizations that some insurers may not comply with these orders.

J. Robert Hunter, director of insurance at the CFA, wrote in the letter to officials, “We encourage you to work closely with your state’s insurance department to ensure that your determination is implemented and homeowners are only charged the lower, flat rate deductible applicable to their claim, rather than the much higher percent of replacement cost deductible associated with hurricane coverage.”

“Many insurers do not explicitly define the percentage of a replacement cost deductible as a ‘hurricane’ deductible. Rather, they use terms such as ‘wind speed’ or other
nomenclature,” Hunter wrote.

Hunter: ACC Clauses Could Result in Denial of Legitimate Claims

Additionally, commenting on the anti-concurrent causation (ACC) clause, Hunter warned that some policies may contain ACC clauses that could result in the denial of some legitimate claims. These provisions allow insurers to deny claims based on excluded causes, in many cases flooding, if they occur at the same time as other covered causes, such as wind damage.

A typical anti-concurrent causation (ACC) clause might read, “[w]e will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Hunter said this list almost always includes flooding as an exclusion. Different insurers have different formulations of the clause in place in their policies.

Hunter said the ACC clause was intended to limit the insurer’s liability when a covered risk damages a structure at about the same time as an excluded risk, regardless of the order of such events. After Hurricane Katrina, courts were asked to determine whether the insurance companies’ language supersedes the common law doctrine of proximate cause.

Hunter said that while many of the courts ruled that insurance companies could, in fact, use ACC clauses to avoid the common law rule of proximate cause, others found the clause too ambiguous and, ruled against the insurance companies.

Storms such as Superstorm Sandy result in considerable wind and flood damage, and consumers who face property loss from both should be treated fairly in the claims process, said Hunter.

“CFA calls on you to block application of this clause for victims of the winds and floods of Sandy in your state,” Hunter wrote in the letter.

A copy of Hunter’s letters sent to government officials can be found on the CFA’s website (a PDF file).

 

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  • November 8, 2012 at 6:52 pm
    Geoff Gordon says:
    The only problem with changing terms of a contract after the fact is that you add a risk premium to the pricing model, and render any savings for consumners choosing higher wi... read more
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