Some Homeowners Unexpectedly Hit With ‘Windstorm Deductible’

November 7, 2012

In the immediate days after Superstorm Sandy, officials in the Northeastern states declared that hurricane deductibles would not apply to Sandy claims.

Officials from northeastern states including New York, New Jersey and Connecticut said hurricane deductibles wouldn’t be applicable in this case because Sandy was reclassified by the National Weather Service as a “Post-Tropical Cyclone” before landing, and there were no sustained hurricane-strength winds reported in their states and no hurricane warnings were issued.

This distinction has been described as potentially saving thousands of dollars in out-of-pockets costs for homeowners. A hurricane deductible typically can be in the amount of up to five percent of a property’s insured value.

Some Homeowners May Be in for a Surprise

For ordinary homeowners, these announcements may sound like they would be paying a smaller, flat-rate deductible — but they could be in for a surprise. Some insurance agencies say a number of insurers have been applying “windstorm deductibles” in homeowners policies. These deductibles, like hurricane deductibles, can also run up to five percent of a property’s insured value and are not affected by regulators’ recent announcements.

One licensed property/casualty insurance broker in New York told Insurance Journal he is starting to see denials from insurance companies.

He said in one case, his insured had nearly a $10,000 loss from Sandy but the insurer sent back a response saying they are denying the claim because the loss amount is smaller than the policy’s windstorm deductible of five percent of the home’s insured value.

The broker said he called the New York insurance department’s disaster hotline. “I basically told them, ‘I don’t understand. The governor said there won’t be any hurricane deductibles.’ And they said, no, the windstorm deductibles will apply.”

“So I pulled this particular person’s policy and it is not a hurricane deductible. It’s what’s called a windstorm deductible,” said the broker, who wished to remain anonymous. “It seems some insurers will use windstorm deductibles. It’s very interesting.” He said some homeowners in New York may have windstorm deductibles on their policies.

The broker said the insurer had used ISO’s HO 03 40 endorsement. “It basically says for a windstorm, you have a deductible. However, it does not define what a windstorm is.”

“I think some people will have a real problem,” the broker said.

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