Louisiana Insurance Commissioner Jim Donelon

Louisiana Insurance Commissioner Jim Donelon said he was “shocked” when State Farm representatives told him during a conference call that the company opposed his Sept. 3 request in Bulletin 2021-07 that insurers voluntarily pay policyholders’ additional living expenses related to evacuating from Hurricane Ida even if there were no civil authority’s mandatory evacuation order.

In response to State Farm’s pushback, Donelon held a press conference on Sept. 8 and issued an order (Directive 218) Sept. 7 mandating that insurers pay claims for loss of use for policyholders who evacuated or were prohibited from using their premises because of the storm.

At the press conference, Donelon said that calling State Farm’s position “unconscionable” would “not be inappropriate.”

Acknowledging that his action in issuing Directive 218 is “heavy-handed,” Donelon said it was a necessary response to what will be the state’s second-most costly catastrophe, only exceeded by Hurricane Katrina, when an order like this was last issued.

At the press conference, Donelon said that State Farm cannot ignore his order. “No insurer can. I am their regulator. They can challenge it, either in court or in the Division of Administrative Law. We are anticipating such a challenge if not from State Farm maybe from one of the other 136 companies that write homeowners in our state.”

So far, State Farm is the only company to indicate it would not accommodate Donelon’s request to overlook the requirement for an evacuation order, he said.

According to Donelon, prohibited use coverage generally pays extra expenses for up to two weeks when an evacuation order prohibits policyholders from living in their homes (Donelon’s term: short term additional living expenses). When homeowners have physical damage to their homes that is covered by insurance, additional living expense coverage will pay for a longer term, typically one year, if the home is uninhabitable.

In Bulletin 2021-07, Donelon said, “I join President Biden in urging insurers to forgo the use of policy language restricting insurance coverage only to areas subjected to a mandatory evacuation order. Public officials were facing a devastating hurricane event on short notice and chose not to use mandatory evacuation orders out of concern that attempts to comply with such an order would significantly jeopardize the safety and welfare of their citizens in their attempt to get out of harm’s way.”

During Biden’s visit to St. John the Baptist Parish on Sept. 3, he called on insurers to “not hang their hat” on the requirement of a mandatory evacuation order and urged companies to pay people’s evacuation expenses.

Mandatory evacuation orders aside, Donelon said, “Hurricane Ida was a clear and present danger to the citizens of Louisiana.” Insurers need to treat policyholders as if a mandatory evacuation order had been issued.

At the press conference, he said that this provision protects companies, and State Farm is taking the policy provision and turning it against customers.

When he issued the bulletin of Sept. 3, Donelon thought he was going to get buy-in from the industry at large. Allstate had called the day before Biden made his request and asked the commissioner to issue an advisory or bulletin urging companies to pay additional living expenses and indicated they would comply with such a request. USAA on the president’s urging also began accommodating his request, according to Donelon.

To Donelon’s surprise and disappointment State Farm asked for a call with him on Monday (Sept. 6) and informed him that the company would not accommodate his request and would not move away from the strict language in the company’s policies. When State Farm told him that, he decided that he should take action and issued Directive 218 ordering the industry to waive that part of their policies.

Essentially, Donelon directed admitted and nonadmitted insurers, to the extent any insurance contract may contain any language that implies the need for a civil authority to issue an evacuation order, to treat the multiplicity of actions taken by public officials as tantamount to an order to evacuate that fulfills the policy requirement. The directive clarifies that the policyholder retains the obligation to demonstrate that the expenses incurred during the evacuation were reasonable.

Donelon’s directive is limited to the 25 parishes “in the boot” that are listed in Emergency Rule 47, which protects policyholders from cancellations and nonrenewals after Hurricane Ida.