Ask PIA

FEMA assistance, seawall damage and more

Change in hurricane deductible

Q. We have a carrier that has changed our insured’s hurricane deductible, without the insured’s request, on renewal. This is not considered a coastal risk. The only way we knew of the change was by going through the entire policy and we saw that the deductible was changed. Aren’t carriers supposed to notify the insureds when coverage is changed like this?

A. Yes. The Connecticut Insurance Department issued Bulletin PC-88, which states that if a carrier changes the policy that affects the coverages of the insured, it must issue either a nonrenewal or a conditional renewal. Section D (2) states [emphasis added]:

Any significant reduction of coverage requires either a notice of nonrenewal or a conditional renewal notice. Some examples where conditional renewal notices are appropriate are: • an increase in the policy’s deductible or retention; • a decrease in the limits of coverage; or • a new exclusion or deletion of coverage. PIACT contacted the department for further clarification of this situation. PIACT was advised that, “a conditional renewal would be required in our opinion, along with a notice to the insured about the change.” The department went on to state that it had also “advised companies that they may not mandate deductibles outside of the immediate coastal areas where they may mandate a 5% hurricane deductible.”—Bradford J. Lachut, Esq.

Surcharges

Q. We represent an insurer that surcharges for the first auto accident. I thought an insurer could not surcharge for a first accident. What is the rule on this?

A. Connecticut General Statutes Section 38a-686(b)(3) prohibits insurers from surcharging policies if the accident involves only property damage and the amount of damage is less than $1,000. If the damage exceeds $1,000, the insurer is prohibited from surcharging the first accident of this type when the insured is at fault. In addition, if the accident is not the insured’s fault, the first two accidents with damage in excess of $1,000 are not chargeable. All at-fault accidents involving bodily injury (in any amount) are chargeable.—Dan Corbin, CPCU, CIC, LUTC

Tax implications–FEMA disaster grants

Q. My insureds have received Federal Emergency Management Agency disaster assistance because of a severe storm. How will this affect their income (regarding taxes, Social Security or other assistance)?

A. Disaster assistance/grants from either state or federal governments are not treated as income. Since these grants are not considered income, they are not taxable. Therefore, this type of assistance will not have any effect on other assistance programs such as Medicaid, food stamps, Temporary Aid to Needy families, Social Security benefits or taxes. For more information, see FEMA’s press release on this issue, bit. ly/3Ot8GvZ.—Clare Irvine, Esq.

Seawall damage

Q. During a heavy windstorm, a dock broke loose from another property and crashed into a seawall on our client’s property. The owner of the dock remains unknown. Our insured has a Dwelling Fire (DP 00 03) policy. The insurer has

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denied a claim for damage to the seawall under General Exclusions, Item 3. Water. The insurer’s claims manager and adjuster both take the position that this damage was an indirect result of tidal water and, therefore, would fall under this exclusion. We cannot see why this exclusion would apply for damage caused by the collision of the dock into the seawall. Doesn’t the exclusion refer to damage caused by the water itself?

A. The General Exclusions language of this policy states that the exclusions apply to “loss resulting directly or indirectly” from any of the excluded causes. The damage to the seawall is clearly an indirect result of one of the excluded causes, i.e., “water damage, meaning ... waves, tidal water ... whether or not driven by wind.” Because waves, driven by wind, broke loose the dock and carried it into your client’s seawall, the company appears on solid ground in denying this claim.—Dan Corbin, CPCU, CIC, LUTC

Fire after lengthy unoccupancy due to storm aftermath

Q. What if my insured’s house is unoccupied due to a storm, and a fire or any other type of loss happens? Will the insured still have coverage for the subsequent loss?

A. Yes, if the loss is a result of a covered peril. However, the adjusters will have to review the loss and see what would be considered new damage and what would be attributable to the prior loss. Unoccupancy does not impact the validity of the subsequent fire claim.—Dan Corbin, CPCU, CIC, LUTC

Business interruption from power outage

Q. Because of a storm, my client lost power and he is unable to operate his business until it is restored. Will the Business Income Coverage be applicable to this loss?

A. According to the language of most business owners and commercial property policies, the failure of power (or any other utility service) being supplied to the insured premises is excluded if the failure occurs off the premises, regardless of cause. The cause might be a flood event, vehicle damage, an earthquake at the generating plant, a fire at the transformer, an explosion at the substation or transmission lines downed by wind. Fortunately, a solution exists with the Utility Services–Time Element (BP 04 57 or CP 15 45) endorsement, which may be offered by the insurer to provide business interruption coverage when property of the power supply company has been damaged from a covered cause of loss. An option in these forms can provide coverage for loss resulting from damage to overhead transmission lines, as well as other power company property. However, keep in mind that flood is not a covered cause of loss on the typical BOP or commercial property policy. If the power company suffered damage from wind, this endorsement should respond, but not if the cause was flooding. If coverage for the breakdown of a power company’s equipment is desired, an Equipment Breakdown Policy will be required.—Dan Corbin, CPCU, CIC, LUTC

FEMA’s HO declination requirement

Q. My clients—whose house suffered only flood damage—are being required to get a declination of coverage from their homeowners insurer in order to collect FEMA disaster assistance. Why is this necessary?

A. FEMA states: “By law, we cannot provide money to individuals or households for losses that are covered by insurance.” But, that does not mean the existence of insurance will preclude payment of FEMA disaster assistance. Despite the homeowners having insurance, there may be extraordinary delays in payment by the insurer; limits may have been exhausted; needs may have been unmet by the insurance policies; or local housing may be unavailable. Given that the homeowners’ property might not get inspected right away, FEMA will need assurance that no portion of the direct damage or loss of use is covered by the homeowners policy. For example, there may be wind damage to the roof and flood damage to the lower part of the house. Before assistance can be offered, the loss first must be denied under the terms of the insurance policies in place on the house. Obviously, the claim processing and denial of flood damage losses by the homeowners insurer is a gross misuse of adjuster resources—especially when those resources are so scarce in the midst of a catastrophic event. For more information from FEMA on the application for disaster assistance, see bit.ly/3HTSqla.—Dan Corbin, CPCU, CIC, LUTC