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By David B. Winter
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As reported in the national news, North Texas recently experienced multiple significant hail storms. This article will address some of the issues associated with insurance claims arising from multiple hail events over a short period of time.

Application of Deductibles

Most insurance policies provide a certain amount of coverage to the insured on a “per occurrence” basis.[1] In other words, for each event that causes damage to insured property, the insurance policy will respond to the loss up to that amount. Similarly, those insurance policies typically contain a “per occurrence” deductible that must be satisfied before coverage is available.

As noted by the Fifth Circuit, “[t]he purpose of a deductible is to shift some of the insurer's risk (that is, covered risk) to the insured, which is accomplished by setting a limit on the value of covered losses below which the insurer is not obligated to pay.”[2] In simple terms, by virtue of the deductible, an insured assumes responsibility for a portion of the loss caused by each insured event.

Typically, applying policy deductibles to multiple losses is straightforward. When the damage associated with a particular event is readily identifiable, separate deductibles will apply to each event. For example, if a building experiences a fire one week and a hail storm the next week, the amount of loss attributable to each event should be relatively easy to quantify and the deductibles applied accordingly.

However, when multiple losses of the same nature occur within a relatively short period of time (such as multiple hail storms within the span of a few weeks), the proper application of the policy’s deductible provision can become more difficult. The following examples illustrate this difficulty. For these examples, assume the insured has a $1,000 per occurrence deductible.

Example 1: The insured’s property experiences two hailstorms within a two-week period. After the first storm, an adjuster inspects the property and values the loss at $5,000. After the second storm, the adjuster returns and determines the roof has sustained an additional $3,000 in damage to a different part of the roof.

This answer here is easy — the insurance carrier can apply two separate deductibles, one for each storm that caused damage to the insured property.

Example 2: The insured’s property experiences two hailstorms within a two-week period. After the first storm, an adjuster inspects the property and values the loss at $5,000. After a second larger storm, the adjuster returns and finds the second storm caused $8,000 in damage, and included within that scope of damage was the original $5,000 in damage from the first storm.

Since the scope of damage caused by the second storm encompasses the damage caused by the first storm, applying a second deductible may be problematic. When a single event causes the entire scope of damage, the damage should be treated as the result of a single loss and a single deductible applied.

Another way to view this example is to consider the outcome if the larger storm had happened first. In that case, the $8,000 in damage would have been determined and the second storm would have added no additional damage. In that case, there would be no basis to apply a deductible for the second storm.

Example 3: The insured’s property experiences two hailstorms within a two-week period. After both storms, an adjuster inspects the property and values the total loss at $8,000. In this case, if the adjuster is able to allocate more than $1,000 to each event, then two deductibles will apply as in Example 1. However, to the extent the adjuster is unable to allocate at least $1,000 to each event, application of two deductibles is difficult for the same reasons discussed in Example 2.

Ultimately, the number of deductibles that apply to an insured’s claim for damage stemming from multiple events is dependent on the facts at issue. If there is independent loss from each event, that independent loss is subject to a separate deductible. When damage cannot be specifically attributed to a particular loss, the application of deductibles is more difficult. However, fundamentally, for each covered event, the insured has agreed to share the burden of a deductible associated with that event. Accordingly, to the extent multiple events do, in fact, cause damage to insured property, the loss associated with each event should be subjected to the associated deductible.

Late Notice Issues

Based on the above examples, it may appear that an insured has an incentive to wait to report damage to its insurance carrier in an effort to avoid the application of multiple deductibles. For example, an insured may elect to wait until after “hail season” to report a claim to its insurer. However, there are potential pitfalls associated with such thinking.

First, most insurance policies contain a condition requiring an insured to provide “prompt” notice of loss or damage as soon as possible. If an insured fails to provide timely notice of a loss and that failure either results in further damage or otherwise prejudices the insurance carrier’s ability to investigate the loss, the late notice may act to bar the insureds from recovering under the policy.[3]

Second, if an insured delays in providing notice to its insurer, it runs the risk of a noncovered peril contributing to the damage. Texas courts recognize the doctrine of concurrent causes, so that when "covered and noncovered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril(s).”[4] Further, the insured has the burden to allocate its loss between covered and noncovered damage.[5] Failure to do so can be fatal to an insured’s ability to recover on its claim.[6]

One recent example of when this doctrine has come into play is Hamilton Properties v. American Insurance Co.[7] In that case, the insured provided notice to its insurer 19 months after the damage occurred. At trial, the insured was unable to segregate allegedly covered damage from a storm during the policy period from noncovered preexisting damage and/or damage occurring after the policy expired. As a result, the inability to segregate covered damage from noncovered damage was “fatal” to the insured’s claim.[8]

When evaluating whether multiple deductibles apply to claimed damage, the determining factor is the extent to which independent damage can be attributed to each event causing loss. This can often be a fact intensive effort. However, at the end of the day, an insurance policy is a contract between an insured and an insurance carrier whereby each has agreed to assume a portion of risk. When multiple events cause damage to a particular property, each party (the insured and the insurer) is responsible for its contractual share of damage associated with each loss. Prompt notice of claims is critical in ensuring deductibles are applied as the policy intended, with each party assuming their share of the loss based on the number of contributing events.

—By David Winter, Zelle LLP

David Winter is counsel in Zelle's Dallas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Texas courts use a “cause” analysis to determine whether a set of facts involves one or more “occurrences.”  All Metals, Inc. v. Liberty Mut. Fire Ins. Co., No. 3-09-CV-0846, (N.D. Tex. July 29, 2010).

[2] Penthouse Owners Ass’n, Inc. v. Certain Underwriters at Lloyds, London, 612 F.3d 383, 387 (5th Cir. 2010) (citing 12 Couch on Ins.3d § 178:1 (“A provision commonly found in automobile collision policies is the so-called ‘deductible clause,’ whereby a stated sum is deductible from the amount for which the insurer would otherwise be liable.”); Webster's Third New International Dictionary 589 (1993) (defining a “deductible” as “a clause in an insurance policy relieving the insurer of responsibility for an initial specified small loss of the kind insured against.”))

[3] See, e.g., Hamilton Props. v. Am. Ins. Co., No. 15-10382 (5th Cir. Apr 14, 2016) (noting prejudice can arise when the failure to timely notify results in the insurer’s “inability to investigate the circumstances of an occurrence to prepare adequately to adjust or defend any claims.”) (quoting Blanton v. Vesta Lloyds Ins. Co., 185 S.W.3d 607, 615 (Tex. App.—Dallas 2006, no pet.)); Alaniz v. Sirius Int’l Ins. Corp., 626 Fed.Appx. 73, 76 (5th Cir. 2015).

[4] Nat’l Union Fire Ins. of Pittsburgh, Pa. v. Puget Plastics Corp., 735 F. Supp. 2d 650, 669 (S.D. Tex. 2010) (quoting Wallis v. United  Servs. Auto Ass’n, 2 S.W.3d 300, 302–03 (Tex. App.—San Antonio 1999, review denied)).

[5] Wallis, 2 S.W.3d at 303.

[6] Puget Plastics Corp., 735 F. Supp. 2d at 669.

[7] No. 15-10382 (5th Cir. Apr 14, 2016).

[8] Id. slip op. at 8.