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State Farm Fire faces regulatory action over Hurricane Barry deductible

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State Farm Fire faces regulatory action over Hurricane Barry deductible

Louisiana Department of Insurance Commissioner James Donelon ordered State Farm Fire and Casualty Co. to cease and desist from imposing a hurricane duration deductible on claims made by its homeowners insurance policyholders for Hurricane Barry losses.

The regulatory action follows a customer complaint questioning the insurer's interpretation of its hurricane duration deductible endorsement language. The regulator launched an investigation of the claim and noted that Hurricane Barry only briefly achieved hurricane strength and was identified by the National Weather Service as a hurricane prior to hitting Louisiana.

However, during a meeting, State Farm Fire and Casualty claimed that the storm ultimately achieved hurricane status, which means that its hurricane deductible applies to all losses rather than the "all-peril" deductible for policyholder claims filed before Barry was declared a hurricane at 10 a.m. ET on July 13.

Donelon informed the insurer that it was incorrectly applying the hurricane deductible to the losses incurred when Hurricane Barry was just a storm. State Farm Fire and Casualty disagreed with the commissioner and said its interpretation of the deductible language was "proper."

Aside from imposing the cease and desist order, the commissioner is proposing the suspension or revocation of the certificate of authority issued to State Farm Fire and Casualty by the state.

"We fundamentally disagree with the [Department of Insurance's] position and rationale, and we are exploring all of our options to address this order," a State Farm spokesman said in an email statement. "Eliminating the hurricane duration deductible, or modifying [it], would have a negative long-term impact on insurance affordability for over [300,000] State Farm customers in Louisiana."