Hurricane Harvey - Six Issues That May Impact Your Policy Wording
Hurricanes, floods, earthquakes, wildfires, hailstorms and tornadoes have wreaked havoc across the U.S. this year, leaving billions of dollars in damage in their wake. As an underwriter in Gen Re’s Dallas office, I am seeing the devastation from Hurricane Harvey up close. And as people are cleaning up and the adjuster is evaluating property damage, it’s important to take a look at what happened and try to learn from it. In a previous blog, I wrote about the factors that contributed to the increase in flooding frequency and severity in Texas and what it means to the insurance industry. In this blog I look at the potential policy wording issues that have come to light after Hurricane Harvey - and their impact.
There are numerous issues of course, many of which may not be clear until claims are settled or litigated in court. Here’s a synopsis of some of what we’re seeing so far:
- How do valuation clauses in the policy compare to National Flood Insurance Program (NFIP) valuation? NFIP is written on actual cash value (ACV), but many of the policies that we see are written on replacement cost value (RCV), which could lead to a discrepancy in the case of a loss where the ACV valuation does not breach the NFIP limit, but the RCV valuation does, causing a gap in coverage. Will the insurer drop down to cover that gap?
- Does the policy specifically reference NFIP or Texas Windstorm Insurance Association (TWIA) coverage within the deductible definition? If so, and that coverage was accidentally or intentionally not purchased, how will the insurance policy react?
- Does the Named Windstorm (NWS) definition include ensuing flood? Most of the damage from Harvey was from flood, and even though flood is specifically excluded in the policy, will the insurer pick up damage it wasn't intending to cover? Or, if the flood loss was more than the flood sublimit in the policy, could the insured claim coverage under NWS instead to access more limits? Over the past few years, we have seen ensuing loss/flood wording enter back into policy wording, and there could be consequences for this.
- Will the hour limitations on your NWS wording cover the full Harvey event, or could there potentially be two "occurrences" by that definition? A second deductible may apply, but assuming an annual aggregate wasn't exhausted, could the insured have access to more limits?
- How is flood defined in your policy? Is your flood coverage wording ambiguous? Could a court interpret it as covering a flood loss, such as Harvey?
- Does your BI wording allow for coverage absent direct physical loss or damage caused by a covered peril?
There is a lot more we will learn from this event as insurance companies work through the claims over the next few months, or even years. At Gen Re we continue to work with our clients to stay on top of the latest developments. Our dedicated flood team of knowledgeable underwriters and experienced claims staff stands ready help you work through any of these issues, so please reach out with any questions.