It seems that lately, more and more insurance departments are taking closer looks at insurance company actions in response to consumer complaints or regional catastrophes that impact the industry. Recently, the Louisiana Department of Insurance announced that Commissioner Donelon issued a cease and desist order against State Farm Fire and Casualty for applying a Hurricane Duration Deductible outlined in their homeowners policies when application of that deductible was inappropriate.
The policy language states that the deductible applies to certain damages that occur during a Hurricane Duration and result from a storm system that triggered the duration. The storm must have obtained hurricane status as classified by the National Weather Service within 48 hours before causing damage or after first causing damage as long as hurricane status was designated while a hurricane watch or warning was in effect in the state. A Hurricane Duration period starts when a watch or warning is issued by the weather service.
The consumer complaint centered around damages an insured sustained before Hurricane Barry was declared a hurricane; apparently State Farm denied the insured's claim, and the insured filed a complaint with the department.
Upon review, the insurance department determined that the weather service bulletins for July 13, 2019 were to warn that there was a possibility of a hurricane developing, but a storm was not yet named or declared a hurricane. At 10:00 a.m. central time on July 13 the weather service declared the storm system as being named Hurricane Barry and that it had achieved hurricane status, and that it weakened to a tropical storm at 1:00 p.m. central time. In light of this the insurance department finds that State Farm's imposition of the Hurricane Duration Deductible for losses occurring prior to 10:00 a.m. on July 13, 2019 is a violation of the insurance code dealing with unfair or deceptive claim practices, and that State Farm cannot apply the Hurricane Duration Deductible to any Louisiana policyholders before 10:00 a.m. on July 13, 2019.
As a result of the department's investigation, a cease and desist order from applying the Hurricane Duration Deductible to insured homeowners in the state of Louisiana when the policy indicates that deductible is not applicable is imposed upon State Farm Fire and Casualty. Failure to comply may result in further action. Proposed action by the Commissioner is listed as suspension or revocation of State Farm's Certificate of Authority for the state of Louisiana.
This action is considered an administrative action, and State Farm may need to notify other states, depending on those states' regulations. In order to avoid the suspension/revocation action, State Farm must explain how the actions were lawful and in compliance with the insurance code and why the Commissioner should not take the proposed action against the company. State Farm has thirty days to make a response to the Commissioner.
This is a serious allegation, and highlights how seriously the insurance departments take consumer complaints and the interpretation of policy language. The policy language is clumsily worded, and the insurance department's opinion is correct. If the department finds State Farm's response lacking, they can suspend the carrier's ability to provide policies in the state. It is more likely that a fine will be levied, although time will tell what actions the department finally decides on. A copy of the order is here: https://bit.ly/2ZnrIhG