The HO 00 03 excludes power failure if the failure of power or other utility service takes place off the "residence premises". An exception exists for a power failure that results in a loss from a peril insured against on the "residence premises"; the policy covers that loss. So if the power failure starts a fire, that fire is covered.

If an insured evacuated because of orders of civil authority before any damage occurred, and there is no damage to the "residence premises" but the insured cannot return to his property because power is out, is there coverage under additional living expenses?

For additional living expenses coverage to apply, there must be a loss covered under Section I that makes the premises not fit to live in. Wind from the hurricane caused widespread power outages; wind is a covered cause of loss. Lack of air conditioning and power when the temperature is in the high 80′s and 90′s could be seen as making the premises uninhabitable; therefore there could be coverage for additional living expenses.

This is much easier if the insured's premises received damage from the storm as well. If the insured's property is damaged making the premises unfit to live in, then additional living expense coverage applies as outlined.

Business Income

Another factor is that of business income; many businesses are closed as well, and employers and employees alike had to evacuate to avoid the storm. Business income coverage, if purchased, will cover the lost income if the business was damaged by a covered cause of loss, or if physical damage away from the business caused the business to have to close, such as downed trees causing road closure, or due to acts of civil authority if the area was closed off and patrons could not come to the business. There is of course a seventy-two hour waiting period before such coverage takes effect.

The damage directly affecting the business must be due to a covered cause of loss for business income coverage to apply. Typically wind damage from the hurricane is a covered cause of loss, however, if damage was due to a flood then there would need to be flood coverage added to the policy for the business income coverage to apply to the business damaged by flood. Most small businesses are covered by a Businessowners policy, which includes business income within the form. However, both the BOP and the commercial property causes of loss forms contain a utility services exclusion that precludes coverage for loss or damage caused by utility failure to the premises if it involves equipment used to supply service to the business from the utility or other source that is away from the business. Therefore, a problem could arise if, for example, the business lost power but was otherwise undamaged by the hurricane, but the hurricane knocked out transmission lines that were not on the insured's premises. However, if the windstorm caused damage to say a transformer on the insured's premises, then the exclusion would not apply and coverage would be available. It is noted that coverage may be purchased for off-premises power failure, and if a business purchased that endorsement, coverage could be available if a hurricane tore down lines away from the insured premises, causing it to shut down, even though there is no direct damage to the insured site.

If covered, the business income coverage would include the insured's normal operating expenses that continue even while the business is shut down, which would include such things as utility charges for the period of the shutdown, leased operating expenses, and salaries of the employees.

In order for the civil authority coverage to be triggered, the insured must actually incur a loss of business income because the civil authority prohibited access to the described (insured) premises. The coverage grant requires there be direct physical loss of or damage to property away from the insured premises as the result of a covered cause of loss.

The forced evacuation of certain areas and the closing of highways and bridges that lay in the path of a hurricane—which already had damaged property elsewhere—would appear to meet this requirement for coverage. Again, windstorm must be a covered cause of loss on the business's policy, and the business must sustain a loss of business income because it was shut down by the evacuation order.

Another coverage provision included on the businessowners policy is that of up to $5,000 for damage to insured businesses that lose business income because one of their "dependent properties" is damaged by a covered cause of loss. A dependent property is one that delivers materials to the insured, accepts the insured's products or services, manufactures products under contract for the insured, or attracts customers to the insured's business.

For example, a restaurant may be in a shopping center that is anchored by a large, prestigious department store. Shoppers might generate the bulk of the restaurant's business. The occurrence triggering business income coverage for the restaurant would have to occur at the department store in order for coverage to emanate from the dependent properties provision.

Again, there is a requirement for physical damage at one of these properties that arises from a covered cause of loss.

While flooding caused by hurricanes could lead to business interruption losses, flood is not a covered cause of loss on most policies. Although flood insurance may be available to commercial property insureds through the National Flood Insurance Program, the NFIP coverage does not include a provision for business interruption losses. So, if a business is affected solely by flood waters and not by actual windstorm, business income insurance may not be available.

Extra Expense

In line with business income, extra expense is another valuable coverage in hurricane situations. For example, if generators are purchased to keep operations running this is a covered extra expense, as is the gas needed to run the generators—even including an insured's gas and car expenses needed to go to possibly another state to obtain the gas. As long as the expense reduces the amount of time the business is nonoperational, or is an expense that will keep the business running, that is a covered extra expense.

If employees are injured by a hurricane-related incident while in the course of employment, such as while boarding up windows and doors or preventing looters from coming into the business, there should be workers compensation coverage available to cover these types of injuries.

Insurance Department Actions

It is common after such a storm for insurance departments to issue bulletins and notices to both consumers and carriers with advice on what to do. The Louisiana Department of Insurance  has a Storm Damage Resource Center for insureds guiding them on what to expect and what to do after damage has occurred. The department has also adopted Emergency Rule 47  from August 26, 2021, through September 27, 2021 unless it is terminated sooner. Effective September 28, the rule has been extended to October 24 unless terminated sooner. Emergency Rule 47 provides that cancellations, nonrenewals, nonreinstatements or other notices are suspended as of August 26, 2021 and such notices are null and void with no force of effect. The notices can be reissued after Emergency Rule 47 expires with the normal requirements for notification.

Policies may be cancelled for nonpayment during the rule. Once a cancellation notice is issued the applicable notice period begins to run but cancellation itself cannot take effect until after the expiration of Emergency Rule 47. Policies may not be cancelled or nonrenrewed solely because an insured filed a claim during or because of Hurricane Ida and the aftermath.

The only cancellation, nonrenewal, or nonreinstatement provisions that may be enforced are those relating to acts or practices constituting fraud or intentional material misrepresentation on the part of the insured. Cancellations at the request of the insured may be honored. Emergency Rule 47 does not prevent an insurer from cancelling or terminating a policy for fraud or material misrepresentation.

Renewals are treated similarly. Renewals are suspended during Emergency Rule 47 and are deferred until the rule expires. Policies subject to renewal after Emergency Rule 47 will continue in full force at the previously established premium until Rule 47 expires.

Normal claim notification procedures are suspended, including normal procedures related to the time period within which to initiate a claim or loss settlement. Insurers have a total of sixty days to initiate loss adjustment of a property claim after notification of loss by an insured. Insurers are required to promptly identify, evaluate and resolve claims resulting from Hurricane Ida. They must promptly acknowledge receipt of claims and make appropriate adjuster assignments.

If an insured owes premium funds, carriers may offset claims settlement by the amount due for the loss. Insureds are still obligated to pay their premiums, Rule 47 simply extends a grace period. Insurers are to work with insureds impacted by the storm where payments would have become due by either establishing a payment plan for any unpaid premium or by providing a further extension for the payment of that unpaid premium. Fees, penalties or other charges are suspended during Rule 47.

On Friday Louisiana Insurance Commissioner Donelon issued bulletin 2021-07 to remind insurers that policyholders should be treated fairly, and that insurers should honor the spirit and intent of additional living expense coverage due to the loss of use of their premises following the issuance, or lack thereof, of a civil authority as a result of Hurricane Ida. The bulletin notes that Ida formed so rapidly that many civil authorities were not able to issue mandatory evacuation orders, and that many policyholders correctly identified the risk and left of their own accord. The commissioner also states that he supports President Biden and his urging of insurers to forgo policy language restrictions when dealing with this issue. The commissioner also urges and asks insurers to be lenient and interpret policy language broadly when dealing with loss of use claims.

The bulletin states that insurers should waive the language requiring mandatory evacuation to trigger civil authority coverage for the twenty-five parishes listed in Emergency Rule 47. A link to Emergency Rule 47 can be found here.

This brings up an issue; the policy language for additional living expenses and civil authority relies on physical damage on nearby or insured property to trigger coverage. We agree with the commissioner that insurers should be lenient, but hurricanes are not a new hazard and our ability to predict the path of the storm and expected damage has only improved over the years. It seems like rates could be developed so that the policies could be modified to allow coverage for when a civil authority requires an evacuation for certain predicted damage to local areas, even when damage hasn't yet occurred. It would make the time immediately after a crisis easier on insureds and carriers both. Something carriers and ISO might want consider thinking about. It's better to develop rates and adapt coverages than have insurance departments override policy language; that's a path I don't think the industry really wants to travel down.

There is yet another complication; even with an order to pay ALE and civil authority coverages, there is the issue of not just the regular deductible, but the hurricane/wind deductible, which is often a percentage of the Coverage A amount, either 1, 2, 5, 7.5 or 10 percent, or a dollar amount beginning at $1,000 with optional $2,000, 5,000, 7,500 or 10,000 amounts. Nothing in the policy, the deductible forms or the manual itself indicates that the deductibles do not apply to ALE or civil authority coverage. So even with the order from the insurance department, insureds may still not be compensated until their deductible has been met.

So far Allstate and USAA have announced that they will cover additional living expenses for those residents who evacuated. Other carriers are expected to follow suit but those carriers have not been announced yet.

UPDATE: On Tuesday, September 7, 2021, Commissioner Donelon issued Directive 218 to address statements by various carriers that they would not pay loss of use claims where no express civil authority order to evacuate was in place at the time the insured left the premises. It is noted that statute  La. R.S. 29:730.3 provides in part that evacuation orders will be lifted only when public services are available and the area is opened for reentry as determined by the parish homeland security and emergency preparedness agency.

The directive points out the short period of time from when the first advisory about the tropical storm was issued and the landfall of the storm as a category 4 hurricane. The directive highlights that the advance warnings were sufficient for any policyholder to evacuate, and the aftermath demonstrates that the warnings from authorities were indeed correct.

The commissioner then directs all authorized and surplus lines insurers that, to the extent that any policy contains language that implies the need for a civil authority to issue an evacuation order, that those insurers rely on the many actions taken by all public officials and the spirit and intent of communications issued to the public as equal to an order to evacuate that fulfills such policy requirements. Policyholders are still obligated to demonstrate that expenses claimed for such coverage were reasonable. The directive applies to the 25 parishes listed in Emergency Rule 47 and referenced in Bulletin 2021 -07. Insurers are directed to immediately comply with the directive, a copy of which can be found here.

September 13 – With tropical storm Nicholas approaching, Commissioner Donelon indicated that steps to remediate damage from Hurricane Ida would be considered part of an insured's claim for damages. He indicated that remediation efforts are looked at differently with named storms. He advised insureds to file claims so that even unpaid amounts would be applied towards deductibles. He encouraged insured with roof damage to sign up for the free Blue Roof program through the Army Corps of Engineers. Information can be found here.

The New York Department of Financial Services has a Disaster and Flood Resource Center on the Mobile Command Center, a disaster hotline number, and information on filing a claim after a loss. It has also issued a circular to expedite claims and allow temporary permits to out-of-state independent insurance adjusters here. Carriers are to increase resources, allow insureds to make immediate repairs if necessary to protect health or safety, allow insureds to provide reasonable proof of property such as photos, video, material samples, inventories and receipts, claims are to be promptly assessed, make timely payment of claims, and provide insureds with fair and equitable claim settlement in accordance with New York Insurance Law and Regulations. Lastly, carriers are not to deny claims caused by multiple perils when not all perils are covered under the applicable policy. These provisions apply equally to policies under the NFIP Write Your Own program.

The Mississippi Department of Insurance has general advice for various weather disasters.

The New Jersey Department of Insurance has issued a news release advising insureds on how to file and claim and understand flood insurance. On September 1, the department released a bulletin encouraging all insurers to take into consideration difficulties consumers are facing as a result of Hurricane Ida, including relaxing due dates, extending grace periods, waiving late fees and penalties, allowing forbearance with regard to cancellation/nonrenewals, allowing payment plans for premium payments, and working with insureds to ensure their policies do not lapse. A copy of the bulletin can be found here.

Hurricane/Tropical Storm Nicholas has affected many areas in Texas. The department has set up a page for consumers giving advice on protecting property, submitting claims, and providing a list if resources here. 

We will provide updates as we see them from these or other departments. Please let us know if we've missed something.