Flood victims fight Allstate over ‘ambiguous’ insurance policy

In June 2005, Elmer and Alexa Buente bought their home andpurchased a homeowner’s insurance policy from Allstate Insurance Co. The policywas purchased from Allstate agent Brenda Pace who assured them the policyincluded hurricane damage coverage.

In answer to their questions, Pace’s assistant told theBuentes they did not need flood insurance because their house is not located ina flood plain. She noted the policy would cover any hurricane damage, subjectto the “Hurricane Deductible” in the policy.

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On Aug. 29, 2005, the Buente home was severely damaged byhurricane wind, rain and/or storm surge from Hurricane Katrina. When theinsureds phoned Allstate’s “Natural Disaster Hotline” the Allstaterepresentative assured them their “storm surge” damage would be coveredby their policy.

Allstate’s adjuster later determined the insured damage tothe 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 damagecaused by flood, water on the ground, and damage inside the structure caused byrain unless wind or hail first damages the roof or walls and the wind forcesrain through the damaged roof or wall.

If you were the judge would you rule Allstate may be liableunder its homeowner’s insurance policy to the Buentes?

The judge said yes!

“Any ambiguity in the terms of an insurance policy isto be resolved in favor of the insured and against the insurer who drew thecontract,” the judge began.

“As a general rule of law, both a principal and itsagent are liable for the torts of the agent committed in the course and scopeof the agency and within the actual or apparent authority delegated to theagent by the principal,” he continued.

“I grant the plaintiffs the favorable inference thatthe destruction of their property was attributable in part to wind, in part torain, and in part to storm surge,” the judge explained.

“As to the damage caused by wind and rain, there isapparently no dispute that these losses are covered by the policy. It isapparently undisputed that the winds generated during Hurricane Katrina weresufficient to do substantial damage to the roof of the plaintiffs’ home,”he noted.

“Allstate apparently acknowledges that its policyprovides coverage for wind damage and for rain damage resulting from winds thatbreach the roof or walls of the insured premises. The major dispute is whetherlosses attributable to ‘storm surge’ are covered losses because the ‘stormsurge’ is wind driven or whether losses attributable to ‘storm surge’ areexcluded from coverage because such damages are caused by water or byflood?” the judge emphasized.

The coverage exclusions found in Allstate’s policy arevalid, he continued. “Because this policy contains a specific ‘HurricaneDeductible Endorsement,’ it is apparent to me that it was intended to coverdamages sustained in a hurricane because of the effects of rain, hurricanewinds, and objects that might be carried by those winds, whether or not therewas also damage caused by high water,” the judge ruled. “I find thatthe policy is ambiguous and its weather exclusion therefore is unenforceable inthe context of losses attributable to wind and rain that occur during ahurricane,” he concluded.

Based on the 2006 U.S. District Court decision in Buentev. Allstate Insurance Co., 422 Fed.Supp.2d 690.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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