While there is an exception to almost every rule, the “general rule” is that Florida residential insurance policies (that would include homes, residential condominium associations, homeowners associations, and residential apartments) have a separate deductible that applies to losses occurring during a hurricane. Therefore, most residential policies have an “all other peril” (AOP) deductible for losses caused by perils such as fire, lightening, and theft and a separate deductible for hurricane losses. The hurricane deductible is mandated by Florida statutes.
The hurricane deductible is expressed as a percentage, typically two percent, but higher percentages are available. The percentage is a percentage of the coverage amount, not a percentage of the loss. For an example, a structure insured for $400,000 with a two percent deductible would have a deductible of $8,000 for damage caused by a hurricane.
The hurricane deductible applies only for a hurricane as defined in the statutes. According to Florida Statute 627.4025, a hurricane means a storm system that has been declared a “hurricane” by the National Hurricane Center of the National Weather Service. Note that a named tropical storm does not trigger the hurricane deductible.
According to the statutes, the duration of a hurricane in which the hurricane deductible would apply includes the time period:
- Beginning at the time a hurricane watch or warning is issued for any part of Florida by the National Hurricane Center.
- Continuing for the time period during which the hurricane conditions exist anywhere in Florida; and
- Ending 72 hours following the termination of the last hurricane watch or hurricane warning issued for any part of Florida by the National Hurricane Center.
To summarize, to trigger the hurricane deductible there must first be a named hurricane. Then, a hurricane watch or warning must be issued for any part of Florida. There have been situations when these conditions did not exist and some carriers incorrectly applied a hurricane deductible. For example, in 2013, Tropical Storm Karen formed on October 3. Simultaneous with the National Hurricane Center naming Karen as a tropical storm, they issued a hurricane watch and warning for parts of Florida, anticipating that Karen would likely become a hurricane. Karen was never declared to be a hurricane. As such, wind damage caused by Karen was not subject to the hurricane deductible; the AOP deductible applied instead.
The deductible applies on a calendar year basis. (For commercial residential policies such as a condominium association policy, the customer can select either a hurricane deductible on a calendar year basis or a hurricane deductible that applies to each hurricane.) Using the earlier example of the $8,000 hurricane deductible, that $8,000 applies for all losses during the calendar year for losses due to hurricanes. For example, in 2004 some areas of Florida were hit by three major hurricanes in about 40 days. This calendar year deductible applies only if the customer was insured by the same company (or group of companies if an insurer has multiple companies) during all hurricanes. Assume that a hurricane causes $40,000 in damage; the claim is paid less the $8,000 deductible. If there is a second hurricane during the calendar year, the $8,000 hurricane deductible does not apply; instead the AOP deductible applies. In a different example, suppose that the first hurricane causes damage of only $3,000. Due to the $8,000 deductible, nothing is paid. If a second hurricane were to cause $35,000 in damage the claim is paid less a $5,000 deductible ($8,000 hurricane deductible less the $3,000 that applied for the first hurricane, leaving $5,000 deductible). If a third hurricane were to cause damage in the same calendar year, the AOP deductible would apply. Many, if not most, insurance policies require that the customer report all hurricane losses, even those that are clearly below the deductible. Failing to do so could result in the full application of the hurricane deductible for second and subsequent hurricane claims.
There are other key points to keep in mind:
- Policies are different; it’s key to read the specific policy in question to see how deductibles are structured.
- The statute dealing with hurricane deductibles applies only to “admitted” insurers; it does not apply to surplus lines insurers. While surplus lines insurers typically also use a hurricane deductible, they are not required to do so.
- Wind damage that is not associated with a hurricane (such as a tornado or summer thunder storm) is not subject to a hurricane deductible. An insurance company may, however, issue a policy with a separate “windstorm” deductible that would apply to wind losses not due to a hurricane as long as the deductible was approved by the Florida Office of Insurance Regulation.
- Hurricane deductibles on policies typically can only be changed at the renewal date of the policy.
- Commercial non-residential policies (for example policies covering a hotel or office building) are not required by the statutes to have a separate hurricane deductible. If an insured desired to use a hurricane deductible for these type of structures, they would be free to do so as long as it was approved by the Florida Office of Insurance Regulation.
- Florida Statute 627.701 contains the information on deductibles; F.S. 627.4025 defines "hurricane" and "hurricane coverage."
Copyright FAIA, November 2022