On Wednesday night, New York Governor Andrew Cuomo made a startling announcement: Homeowners “will not have to pay” so-called hurricane deductibles when they file insurance claims for damages caused by Sandy. In a follow-up press release Thursday morning, after other governors joined Cuomo in outlawing hurricane deductibles related to Sandy, Cuomo’s Department of Financial Services, which regulates insurance companies, said that it had “informed the insurance industry that hurricane deductibles should not be triggered for this storm.”
Can Cuomo and his DFS chief, Benjamin Lawsky, do that? Are state governors empowered to determine, by executive fiat, what constitutes a hurricane? The answer to that question, according to three insurance lawyers, is no — and yes.
Here’s why. The insurance industry, as you know, is state-regulated. In New York, insurance policy language on hurricane provisions — which typically impose deductibles of between one and five percent of a home’s value for damages caused by hurricanes — must be approved by the Department of Financial Services, according to Marshall Gilinsky of Anderson Kill & Olick, who represents policyholders in disputes with insurers. So, in a way, state insurance regulators have already decided what constitutes a hurricane, for the purposes of insurance coverage, by regulating the provisions that define hurricanes.
That’s not as absolute a definition as you might think, though. Gilinsky and Texas policyholder lawyer Steve Mostyn of the Mostyn Law Firm pointed out that there’s often considerable uncertainty in meteorological parameters included in hurricane deduction provisions. One critical factor, for instance, is wind speed, which is how the weather service distinguishes hurricanes from less severe storms. (Other factors are the National Weather Service’s categorization of the storm and the time lapse between its landfall and the damage it caused.) But wind speed varies depending on where, when and how it’s measured. It’s conceivable that homeowners affected by Sandy could point to one measurement of wind speed that wouldn’t trigger the hurricane deduction and insurers could point to another wind speed measurement that would require the higher deductible.
With his pre-emptive announcement Wednesday, Gilinsky said, Cuomo sent a warning message to insurers: The state is watching you. “He’s saying that the facts are such that higher hurricane deductibles are not warranted,” Gilinsky said. “That’s consistent with his role as a consumer advocate and regulator.”