In June 2005, Elmer and Alexa Buente bought their home and purchased a homeowner’s insurance policy from Allstate Insurance Co. The policy was purchased from Allstate agent Brenda Pace who assured them the policy included hurricane damage coverage.
In answer to their questions, Pace’s assistant told the Buentes they did not need flood insurance because their house is not located in a flood plain. She noted the policy would cover any hurricane damage, subject to the “Hurricane Deductible” in the policy.
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On Aug. 29, 2005, the Buente home was severely damaged by hurricane wind, rain and/or storm surge from Hurricane Katrina. When the insureds phoned Allstate’s “Natural Disaster Hotline” the Allstate representative assured them their “storm surge” damage would be covered by their policy.
Allstate’s adjuster later determined the insured damage to the Buente home was $2,600, and Allstate tendered its check for that amount. But the Buentes contend their insured losses are between $50,000 and $100,000. They sued Allstate for their damages.
Allstate replied that its homeowner’s policy excludes damage caused by flood, water on the ground, and damage inside the structure caused by rain unless wind or hail first damages the roof or walls and the wind forces rain through the damaged roof or wall.
If you were the judge would you rule Allstate may be liable under its homeowner’s insurance policy to the Buentes?
The judge said yes!
“Any ambiguity in the terms of an insurance policy is to be resolved in favor of the insured and against the insurer who drew the contract,” the judge began.
“As a general rule of law, both a principal and its agent are liable for the torts of the agent committed in the course and scope of the agency and within the actual or apparent authority delegated to the agent by the principal,” he continued.
“I grant the plaintiffs the favorable inference that the destruction of their property was attributable in part to wind, in part to rain, and in part to storm surge,” the judge explained.
“As to the damage caused by wind and rain, there is apparently no dispute that these losses are covered by the policy. It is apparently undisputed that the winds generated during Hurricane Katrina were sufficient to do substantial damage to the roof of the plaintiffs’ home,” he noted.
“Allstate apparently acknowledges that its policy provides coverage for wind damage and for rain damage resulting from winds that breach the roof or walls of the insured premises. The major dispute is whether losses attributable to ‘storm surge’ are covered losses because the ‘storm surge’ is wind driven or whether losses attributable to ‘storm surge’ are excluded from coverage because such damages are caused by water or by flood…” the judge emphasized.
The coverage exclusions found in Allstate’s policy are valid, he continued. “Because this policy contains a specific ‘Hurricane Deductible Endorsement,’ it is apparent to me that it was intended to cover damages sustained in a hurricane because of the effects of rain, hurricane winds, and objects that might be carried by those winds, whether or not there was also damage caused by high water,” the judge ruled. “I find that the policy is ambiguous and its weather exclusion therefore is unenforceable in the context of losses attributable to wind and rain that occur during a hurricane,” he concluded.
Based on the 2006 U.S. District Court decision in Buente v. Allstate Insurance Co., 422 Fed.Supp.2d 690.
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