Closing the Gap in Florida Windstorm Coverage

A number of all-risk insurers have used their wind and hail exclusions to deny claims for interior water damage where there was no apparent opening caused by damage to the walls or roof. By issuing Bulletin 00-001 on February 1, 2000, the Florida Department of Insurance attempted to close this coverage gap.

In mid-February, over 370 insurers, reinsurers, attorneys, adjusters—both independent and public—as well as engineers, accountants, and government officials met in Orlando to participate in Windstorm Insurance Conference 2000. This was the first of what will become an annual conference sponsored by the newly formed Windstorm Insurance Network, Inc., and the Florida Windstorm Underwriting Association (FWUA).

One topic that drew considerable discussion and debate was Florida Department of Insurance Bulletin 00-001, issued February 1, 2000. This Bulletin addresses the interplay between the coverage provided by the Florida Windstorm Underwriting Association and the all-risk insurer.

The FWUA was created by Fla. Stat. § 627.351(2) as the windstorm "insurer of last resort" for those areas of Florida that have had difficulty obtaining windstorm coverage at reasonable rates. The FWUA provides coverage for windstorms and hurricanes, as those terms are defined by Fla. Stat. § 627.4025.

A "windstorm" accompanying a hurricane means the wind, wind gusts, hail, rain, tornadoes, or cyclones that accompany a hurricane. (There is no definition of "windstorm" when one occurs apart from a hurricane.) The statutory definition also includes water damage to the interior and contents of a building when windstorm first causes damage to the roof or walls, creating an opening through which the water enters. When coverage is written by FWUA, the all-risk insurer is excused from providing coverage for windstorm.

The typical exclusion added to an all-risk policy provides that the insurer does not cover loss caused directly or indirectly by the perils of windstorm or hail and, further, windstorm or hail loss is excluded regardless of any cause or event contributing concurrently or in any sequence to the loss. Under coverage written by the FWUA, interior water damage is only covered if the hurricane first causes damage to the roof or walls through which water enters. Often, however, water seeps in around windows and sliding glass doors, damaging carpets and flooring, drywall and wallpaper, ceilings, etc. There may be no obvious windstorm damage (e.g., broken windows, uplifted roof) that created an opening through which the water entered.

A number of all-risk insurers who have issued wind and hail exclusions have used their exclusions to deny these claims for interior water damage where there was no apparent opening caused by damage to the walls or roof. When interpreted in this fashion, a gap in coverage results.

The Bulletin seeks to close this gap and opines that insurers who have issued wind and hail exclusions cannot disclaim coverage for wind-driven rain in the absence of physical damage creating an opening through which water entered. The Department's rationale is that when it approved the form for the exclusion, it did not intend to permit any gaps in coverage. The Bulletin further states that interpretation of the wind exclusion to create this gap in coverage may amount to an "unfair trade practice" subjecting the insurer to administrative sanctions and penalties.

At this point, two issues emerge: (1) whether the water seeping in around sliding glass doors, windows, etc., is part of the "windstorm" and, if not, (2) the effect of the typical "anti-concurrent causation" language employed in most windstorm exclusions. By statutory definition, a "windstorm" that accompanies a hurricane includes "rain." There is no corresponding definition for "windstorm" when that windstorm is not associated with a hurricane.

Based on dictionary definitions, an argument exists over whether the term "windstorm" includes rain. For example, The American Heritage Dictionary of the English Language, Third Edition, defines "windstorm" as "a storm with high winds or violent gust but little or no rain." Under this definition, a windstorm is one with "little or no rain."

The few cases that have defined the term "windstorm" do not include a discussion of whether there must be "little or no rain" associated with the event in order to qualify as a "windstorm." See the following cases.

• Abady v. Hanover Fire insurance Company, 266 F2d 362, 365 (4th Cir 1959)
• Queen Insurance Co. of America v. Larson, 225 F2d 46, 52 (9th Cir 1955)

Most courts in other jurisdictions that have considered this issue have generally enforced anti-concurrent causation language. See the following cases.

• Prytania Park Hotel v. General Star Indemnity Co., 896 F Supp 618 (ED La 1995)
• Alf v. State Farm Fire & Cas. Co., 850 P2d 1272 (Utah 1993)
• Howell v. State Farm Fire & Cas. Co., 267 Cal Rptr 708, 218 Cal App 3d 1446 (1990)
• State Farm Fire & Cas. Co. v. Paulson, 756 P2d 764 (Wyo 1988)

But see Safeco Ins. Co. of America v. Hirschmann, 112 Wash 2d 621, 773 P2d 413 (Wash 1989).

In State Farm Fire & Cas. Co. v. Metropolitan Dade County, 639 S2d 63 (Fla 3d DCA 1994), the court gave effect to the anti-concurrent causation language in that policy and rejected the County's position that State Farm's replacement cost homeowners insurance policies provided coverage for the cost of code upgrades and home elevation alterations. Moreover, in Wallach v. Rosenberg, 527 S2d 1386 (Fla 3rd DCA 1988), the court suggests that the absence of anti-concurrent causation language in the policy was a significant fact in its analysis of the case when it found coverage in a concurrent causation situation.

Bulletin 00-001 and the questions it has spawned should be of considerable interest and concern to policyholders and insurers of coastal condominiums, hotels, offices, etc., as well as to individual homeowners. Whether the Department's reading as expressed in this Bulletin will be sustained, or whether the insurers' reading will prevail will undoubtedly be the subject of a declaratory judgment action in Florida during 2000. It is hoped that an answer will be available when the conference convenes again in February 2001.

For more information on the Windstorm Insurance Network or next year's conference, contact Michelle Griffin at (850) 469-1566.