Louisiana Insurance Commissioner Jim Donelon

The Louisiana Division of Administrative Law (DAL) on Jan. 3 ruled that Insurance Commissioner Jim Donelon was justified in his decision to prevent State Farm Fire and Casualty Company from enforcing a hurricane deductible for certain losses caused by Hurricane Barry in July 2019.

Donelon announced the DAL’s decision in a news release on Jan. 10.

The crux of the dispute was over State Farm’s application of the “hurricane duration” as defined in its policy, according to the DAL’s order.

The commissioner interpreted that the definition of the hurricane duration means the period of time that begins “when a hurricane watch or warning is issued for any part of Louisiana because of a storm system that has been declared to be a hurricane by the National Hurricane Center,” according to the DAL order.

State Farm disagreed and argued that the language in the policy reading “has been declared” is present perfect tense and does not necessarily indicate that the action referred to occurred before another action.

The DAL decided the language in State Farm’s policy was not sufficiently specific, and that Donelon’s order was not arbitrary capricious, or an abuse of his discretion.

Donelon issued the cease-and-desist order in August 2019 following a policyholder’s complaint that State Farm’s hurricane deductible was improperly applied to the policyholder’s claim. Donelon’s action prohibited the enforcement of a hurricane deductible for losses occurring prior to 10 a.m. on July 13, 2019, when the National Hurricane Center (NHC) declared the tropical system had developed maximum sustained winds of 75 mph and had become Hurricane Barry. At 1:00 p.m. on July 13, 2019, the NHC announced that Hurricane Barry made landfall near Intercoastal City, Louisiana, and had weakened to a tropical storm with maximum sustained winds of 70 mph.

The DAL found that the Commissioner’s order was reasonable, and that the decision was made following the Louisiana Department of Insurance’s investigation and extensive communication with State Farm.

“Protecting policyholder rights is the core of what we do, and I’m gratified that we were able to succeed on their behalf,” said Commissioner Donelon. “The consumer complaint process is a vital piece of monitoring the insurance market after natural disasters. Our Consumer Services staff spends a considerable amount of time and effort on their investigations, and I appreciate their dedication.”

State Farm has 30 days from the date of signing/issuance of the decision to file an appeal.