4.4 Hurricane Deductibles, Co-Pay Provisions & Required Notices (s. 626.9374)

Outline item I.H, Liability of Insureds; Deductibles and Coinsurance, refers to s. 626.9374. The statute is short: two warnings that must appear on the face of certain residential surplus lines policies. The concepts behind those warnings, percentage hurricane deductibles and coinsurance or co-pay provisions, are what make the warnings matter, so this section teaches both.

Why a Special Rule Exists

Section 626.916(1)(c) generally limits exported deductibles to those available from authorized insurers, but it carves out windstorm. Surplus lines insurers can therefore use large windstorm or hurricane deductibles. The admitted-market hurricane-deductible rules in Chapter 627 do not apply unless they specifically say so (s. 626.913(4)). The Legislature responded in 2009 by requiring plain, prominent warnings instead of limiting the deductibles.

The Two Required Statements: s. 626.9374

Both apply to surplus lines, personal lines residential property policies issued on or after October 1, 2009. Both must appear on the face of the policy in at least 14-point, boldface type.

Key limits of the rule:

• It applies to personal lines residential policies such as homeowners, dwelling, and condominium unit owners policies. It does not apply to commercial property.
• It is triggered by a separate hurricane or wind deductible, or by coinsurance that applies to hurricane or wind losses.
• The warnings supplement, and do not replace, the s. 626.924 stamps that every surplus lines policy carries. Those include the 14-point bold statement that surplus lines rates and forms are not approved by any Florida regulatory agency.

Understanding Percentage Hurricane Deductibles

A percentage deductible is calculated on a stated value, usually the dwelling limit, rather than being a fixed dollar amount.

Example: a surplus lines homeowners policy has a $600,000 dwelling limit and a 5% hurricane deductible.

• Hurricane deductible = 5% x $600,000 = $30,000
• If hurricane damage is $85,000, the insurer pays $85,000 - $30,000 = $55,000, and the insured bears $30,000.
• For a non-hurricane fire loss, the policy's ordinary all-other-perils deductible, such as $2,500, applies instead.

That is why the statute uses the phrase "high out-of-pocket expenses."

Understanding Co-Pay and Coinsurance Provisions

The statute calls a coinsurance provision applicable to wind losses a co-pay provision. Two different mechanisms fall under that description.

1. Percentage participation after the deductible

Some policies require the insured to share a percentage of each covered wind loss.

Example: a $200,000 wind loss, a $30,000 hurricane deductible, then a 10% insured share of the remainder.

• Remaining after deductible: $200,000 - $30,000 = $170,000
• Insured's 10% share: $17,000
• Insurer pays: $170,000 - $17,000 = $153,000
• Insured's total out of pocket: $30,000 + $17,000 = $47,000

2. Insurance-to-value coinsurance penalty

A traditional coinsurance clause requires the insured to carry insurance equal to a stated percentage of the property's value. Underinsuring triggers a proportional penalty:

Payment = (insurance carried / insurance required) x loss - deductible

Example: replacement cost $500,000 and an 80% coinsurance clause, so the required amount is $400,000. The insured carries $300,000. The wind loss is $100,000 and the deductible is $10,000.

• Ratio = $300,000 / $400,000 = 0.75
• 0.75 x $100,000 = $75,000
• Payment = $75,000 - $10,000 = $65,000

Either mechanism can leave the insured with a large unreimbursed loss, which is the reason for the 14-point warning.

Compliance Checklist for a Residential Surplus Lines Policy

1. Is it a personal lines residential property policy issued on or after October 1, 2009?
2. Does it contain a separate hurricane or wind deductible? If so, print the deductible statement on the face in at least 14-point bold type.
3. Does it contain coinsurance applicable to hurricane or wind losses? If so, print the co-pay statement on the face in at least 14-point bold type.
4. Are the s. 626.924 stamps also present?
5. Did the insured acknowledge the s. 626.916(1)(d) disclosure before placement?

Exam Traps

• The type size is at least 14-point and boldface, the same size as the rates-and-forms stamp in s. 626.924(2).
• The statute speaks to personal lines residential property, not commercial buildings.
• Windstorm deductibles are free of the "available from an authorized insurer" limit in s. 626.916(1)(c). The consumer protection is disclosure, not a cap.