Does Travel Insurance Adequately Protect Tourists Who Visit The North Carolina Coast From Hurricane Related Losses?

Hurricanes create all sorts of insurance disputes here in the Tar Heel state.  I previously wrote about a number of these issues in the wake of Hurricane Irene last August, and a troubling article I recently stumbled upon in the Chicago Tribune shines a light on a yet another hurricane-related insurance issue: Does travel insurance cover losses incurred by a renter whose family vacation to the North Carolina coast has been interrupted by a hurricane?  In the case of Chicagoan Laura Miller, whose long-planned family vacation to Topsail Beach happened to coincide with Hurricane Irene, the answer to this question was surprising and disappointing ...

Last June, Ms. Miller, a lawyer with Chicago’s Equip for Equality, a group whose mission is to protect the civil rights of folks with physical or mental disabilities, planned a week-long vacation in Topsail Beach, North Carolina.  She was going to be joined by her husband, their two school-aged daughters, and Ms. Miller’s sister.  On June 30, Ms. Miller rented a house through Ward Realty Corp. for the week of August 24 – August 31, 2011.  Pursuant to the fine print on the back of the rental agreement, the renter would not automatically be entitled to a refund from the rental company if the vacation was interrupted by a mandatory evacuation brought on by a hurricane.  A renter could, however, obtain protection for such losses if she purchased travel insurance:

Mandatory Evacuation: If state or local authorities order a mandatory evacuation of an area that includes the Premises, Guest must comply with that order.  Guest shall not be entitled to any refunds if they did not purchase vacation investment insurance.  Guest that purchased insurance shall file a claim with that company for reimbursement. (¶ 29)

The rental agreement also indicated that Ward Realty could make travel insurance available to its customers through a separate company, CSA Travel Protection, which administers travel protection plans on behalf of Stonebridge Casualty Insurance Company, an AEGON Americas company.  Although Ward Realty did not provide this insurance itself, as the insurer’s agent it received a fee related to the insurance premium:

Vacation Rental Insurance: Travel insurance is offered through CSA Travel Protection, covering loss of rent payments made because of certain unforeseen circumstances, illnesses, and injuries.  It includes coverage for mandatory hurricane evacuations.  The cost of the insurance begins at 6.95% and is automatically added and due with the Guest’s advance rent payment.  Details outlining benefits, exclusions, and limitations are in the CSA brochure included with this Agreement as an Addendum.  If Guest does not want this coverage, you may decline the charge by initialing where indicated on the front of this Agreement.  Guest’s premium payment is distributed to the insurance company by [Ward Realty] in advance of the Guest check-in and is not refundable.  [Ward Realty] as agent for the insurance company, receives a fee for this insurance premium. (¶ 10)

Looking to protect the approximately $1,200 she paid in rent, taxes, fees, and other related charges, Ms. Miller agreed to pay $73.92 for the travel insurance offered by Ward Realty through CSA Travel Protection, on behalf of Stonebridge Casualty. 

Nearly two months later, on August 22, Ms. Miller, along with her sister, husband, and two daughters piled into the family’s station wagon to make the drive from Chicago to the North Carolina coast.  They intended to arrive on August 24 and to stay until August 31.  Unfortunately, Hurricane Irene planned a last-minute trip to the North Carolina coast that same week.  Here’s a look at Irene’s itinerary during the week of the Millers’ long-planned vacation:

• Early on August 22 (the day of the Millers’ departure from Chicago), Irene became a Category 1 hurricane; later that day, it grew into a Category 2.  Government officials warned the public of the danger presented by Hurricane Irene and urged extreme caution.  Topsail Beach announced a meeting of the Town Board of Commissioners to discuss Irene’s arrival and potential evacuation scenarios.
• On August 24, evacuations began along the North Carolina coast.  Irene flexed her muscle and grew to a Category 3 hurricane.  The Topsail Beach Town Board of Commissioners met to consider hurricane preparation, including evacuation possibilities.
• On August 25, leaders along part of North Carolina’s coast tell folks to leave before Irene arrives.  President Obama declared that North Carolina is in a state of emergency.  The Topsail Beach Town Board of Commissioners announced a voluntary evacuation effective at 10:00 a.m.
• On August 26, President Obama warns those in Irene’s path: “Don’t wait, don’t delay.”  Heeding his own advice, the leader of the free world cuts short his own vacation hundreds of miles north of Irene, in Martha’s Vineyard.
• On August 27, Irene makes landfall and grinds up the North Carolina coast.  Before the day is over, Irene kills seven people in North Carolina and Virginia.
• On August 28, Irene finally churns past North Carolina, leaving massive destruction in her wake.

So, how did the Millers enjoy their visit with Irene in Topsail Beach?  Wisely, the Millers took a rain check.  After spending the night of August 22 in Indianapolis, Ms. Miller and her family decided that it would be unsafe to continue on their way to Topsail Beach to arrive just in time to suffer through a massive hurricane.  Instead, they hung a right turn, pointed their wagon south, and headed to the Alabama coast, where they spent the rest of their vacation. 

Having witnessed Irene’s power first-hand from the relative safety of Raleigh, more than 100 miles from Topsail Beach, I can attest that the Millers made the right decision to avoid North Carolina.

 (Photo I took of a downed tree just up the road from my house in Raleigh

on August 27, 2011, as Irene churned through North Carolina.)

(Photo taken by Gerry Barrett from his front porch in

Atlantic, North Carolina during Hurricane Irene; used with permission)

However, the Millers' decision did not come without a cost, as they had already paid $1,200 to Ward Realty for the Topsail Beach rental.  Could they get that money back?  Having paid $73.27 for travel insurance, they thought they would and should be covered for their losses, so they submitted a claim for reimbursement to CSA Travel Protection, the administrator for Stonebridge Casualty Insurance. 

To their surprise, the claim was almost entirely rejected – with the exception of one day’s pro-rated rent, totaling $168.88.  When you subtract the policy premium from this amount, the Millers took home a grand total of $95.61 as reimbursement.  This meant that the Millers had to eat over $1,000 in rental fees and related charges as a result of Hurricane Irene, which doesn’t even take into account the extra expense created by their time in Alabama.

In a letter addressed to Ms. Miller dated September 28, 2011, a representative of CSA Travel Protection gave the following explanation for the refusal to pay for six of the seven days worth of rent that the Millers lost:

According to the information we have, there was a mandatory evacuation order issued on 8/26/11 and was lifted on 8/27/11.  The policy purchased provides coverage for trip cancellation/interruption due to a mandatory evacuation ordered by local authorities.  Unfortunately, there was no mandatory evacuation in place for the Topsail Beach area on [any other night].  As such, we are unable to provide benefits for your loss, as there was no mandatory evacuation in place for the remainder of the travel dates listed above.

This explanation would have been disappointing, but understandable – if only the policy had limited recovery in this manner.  Based on the plain language of the policy, however, one could argue that there is a hurricane-sized hole in the explanation provided by CSA Travel Protection.  

The explanation provided by CSA Travel Protection suggests that the policy provides coverage only when a public official has issued a mandatory evacuation order, when on its face the policy expressly provides much broader coverage to include even “public official evacuation advisements where there is no mandatory evacuation issued by local government authorities.” (Emphasis added.)  As noted in the timeline above, public officials urged caution as early as August 22, the first day of the Millers’ trip.  Moreover, the Topsail Beach Town Board of Commissioners began announcing plans to evaluate evacuation possibilities as early as August 23, and a meeting was held by the town on August 24.  A voluntary evacuation order was issued by Topsail Beach on August 25, followed by a mandatory evacuation order that included both August 26 and August 27. 

Nowhere in the policy does it say that insureds are entitled to recover rent only for those nights when a public official has ordered a mandatory evacuation.  Instead, the policy says that insureds are entitled to recover for losses “resulting from” either a “mandatory evacuation” or “public official evacuation advisements."  This last term - "public official evacuation advisements" - is defined nowhere in the policy, and is a term so vague and ambiguous as to arguably include any hint or suggestion of evacuation made by any person connected in any fashion to any government body.  Here, it is a fact that evacuation orders from Topsail Beach officials were in place on August 25 (voluntary), 26 (mandatory), and 27 (mandatory).  Therefore, based on the plain language of the policy, a strong argument could be made that the insurer owed the Millers at least three days rent (August 25 – 27).  It could even be argued, based on the vague policy language providing coverage for “public official evacuation advisements” (whatever that means), that the insurer should be on the hook for every other day when any Topsail Beach official considered or discussed evacuation options. 

As of today, it is my understanding that Ms. Miller continues to evaluate her possible next step against those responsible for her travel insurance policy and the handling of her claim.  She reports that CSA Travel Protection has offered her a check in the amount of a single night's rent for her Topsail Beach rental home, but that she has not cashed that check while she mulls her options.

30,000 Foot View

Stepping back from Ms. Miller's individual plight to look at the issue of travel insurance in a broader context, it is worth asking the question: What requirements should North Carolina have in place to make sure tourists in our state have strong insurance protection against rent lost as a result of hurricanes?  After all, tourism is a vital part of North Carolina's economy, and hurricanes subject tourism to risk every single year.  North Carolina should take all reasonable steps to protect this important section of the state's economy.

North Carolina does have a set of statutes called the Vacation Rental Act, N.C.G.S. Chapter 42A, which provides a certain amount of protection for both the landlord and the tenant in the event of mandatory evacuations.  Specifically, N.C.G.S. sec. 42A-36 entitles a vacationing tenant to recover rent from a landlord that has been lost as a result of a mandatory evacuation, unless the landlord or real estate broker has offered the tenant insurance prior to the tenant taking possession of the property.  This arrangement protects the tenant by entitling her to recover lost rent either (a) from the landlord, if the landlord or broker fails to offer the tenant the option of purchasing insurance, or (b) from a travel insurance company, provided the renter chooses to purchase such insurance.  The arrangement also protects the landlord in that it allows the landlord to keep all rent even when the tenant has not been able to occupy the property due to a mandatory evacuation.  And this mutually beneficial arrangement makes good sense, because the landlord should not have to bear the cost of rent lost due to a hurricane anymore than the tenant should.

While the Vacation Rental Act does provide landlords and tenants with some protection, it could be argued that it does not go far enough.  To see that this is the case, just try to put yourself in the Millers' shoes on the morning of August 23.  The previous day, you've driven the family station wagon from Chicago to Indianapolis, where you spent the night.  You've woken to news reports of Hurricane Irene grinding up the coast, threatening lives and property.  No public official has yet issued a mandatory evacuation for Topsail Beach, but Irene is scheduled to wash ashore in just a few days ... right in the middle of your family vacation.  If you are the Millers, what do you do?  Do you keep driving family wagon all the way to North Carolina just because there's been no "mandatory evacuation," or do you do what the Millers did and find somewhere else to spend your holiday?  If the reasonable answer to that question - indeed, the sane answer to that question - is to do what the Millers did and drive to an altogether different vacation destination, then why shouldn't their losses be covered by the travel insurance policy for which they paid good money?

Notably, while the Vacaton Rental Act limits a landlord's potential exposure to rent lost as a result of mandatory evacuations, nothing in the Act expressly allows an insurer to limit its payouts in this way.  North Carolina should amend N.C.G.S. sec. 42A-36 to require insurers to cover all reasonable expenses incurred by vacationers as a result of significant weather events.  Insurers should not be allowed to limit an insured's recovery to rent lost due to mandatory evacuations, because recovery limited in this way rarely provides the tourist with anything close to adequate protection against the normal, foreseeable losses that will inevitably be incurred when a weather event like Hurricane Irene interrupts the family vacation.