Simon Glairy, a distinguished authority in property and casualty insurance with a deep focus on risk management and AI-driven assessment, joins us to discuss a pivotal legal shift in how windstorm deductibles are calculated. Following a high-stakes ruling by the Eleventh Circuit regarding Hurricane Irma and Florida East Coast Holdings Corporation, Glairy offers his perspective on how a single word in a policy can create a multi-million dollar swing in liability. Our conversation explores the intersection of proactive risk mitigation, the nuances of deductible triggers, and why the distinction between “preventing” and “reducing” a loss is a critical lesson for every property carrier and policyholder in today’s volatile climate.
When a windstorm deductible is tied specifically to the value of property at “damaged” locations, how does a successful mitigation strategy like the one used by the Florida railroad completely flip the financial math for insurers?
The math in this case provides a perfect example of why precision in policy drafting is absolutely everything in high-stakes insurance. The insurers, led by Lexington Insurance Company, initially calculated a 5% deductible based on the total value of 600 gate systems, which would have created a massive $10.95 million hurdle for the railroad to clear before seeing a penny. However, because the railroad proactively removed those aluminum gates to prevent Hurricane Irma from ripping them apart, none of those locations actually sustained physical “damage.” Since the policy language explicitly linked the 5% calculation to property values at “damaged” locations, the court found that 5% of zero is logically zero. Consequently, the $750,000 “floor” or minimum deductible was the only valid figure left, effectively erasing nearly $10 million in liability that the railroad would have otherwise been forced to absorb.
What are the broader implications for risk management when a policy’s “protection and preservation of property” provisions are invoked, especially considering the railroad’s choice to dismantle and store 600 crossing gates?
This was a brilliantly executed risk management play that ultimately became a double-edged sword for the railroad’s broader legal strategy. By pulling those gates and storing them safely, Florida East Coast spent a significant amount of money—calculated by Pyxis Group at $5,605,881—to ensure their infrastructure remained intact and trains could roll immediately after the storm passed. The Eleventh Circuit agreed that the “protection and preservation” clauses applied, as these are designed to cover necessary costs incurred to keep insured property from being destroyed. The irony is that by successfully protecting every single gate, the railroad bypassed the “damaged location” trigger for the higher deductible, showing how successful loss prevention can sometimes lead to a more favorable financial outcome for the insured. It highlights a strange paradox where the more successful you are at avoiding physical damage, the more likely you are to trigger lower, fixed-minimum deductibles rather than percentage-based ones that reflect the total value at risk.
The court rejected the argument that “expenses-to-reduce-loss” should cover preventative measures; why is the distinction between “reducing a loss” and “preventing a loss” so critical in property insurance law?
The legal distinction here is razor-thin but carries massive financial weight, as the railroad found out when their $5.6 million claim faced a significant uphill battle. The court reasoned that for a “sue-and-labor” or “loss reduction” clause to kick in, there actually has to be an existing loss that is being made smaller or mitigated through active intervention. In this specific scenario, since the railroad moved the gates before the wind actually hit, they were preventing a loss from ever occurring rather than shrinking one that was already in progress. To many, this feels like a semantic trap, but in property and casualty law, you simply cannot “reduce” a loss that equals zero. The railroad’s attempt to use business interruption and consequential loss clauses failed for the same reason: those coverages require a “direct physical loss” caused by a peril, and since the railroad caused the temporary downtime themselves to protect the gates, no covered peril actually touched the equipment.
How should carriers re-evaluate their percentage-based deductible clauses given that the court allowed a $11 million deductible to collapse to $750,000 based on the absence of damage?
Carriers need to look at this May 2026 ruling as a stern wake-up call to tighten their “Named Windstorm” definitions and deductible triggers immediately. If a carrier wants to ensure a 5% deductible applies regardless of the success of mitigation, the policy must be pegged to “insured values at risk” or “total values at locations involved” rather than specifically “damaged” locations. It is a harsh lesson for the syndicate of insurers—including Aspen Specialty, Houston Casualty, and Allied World—who watched a $10.95 million credit disappear because of the presence of a single adjective. Moving forward, I expect to see a rapid shift toward “all-location” deductible math to avoid scenarios where an insured’s proactive safety measures inadvertently strip the insurer of their percentage-based protections. It is about closing the loophole where “zero damage” leads to a “zero calculation” for the percentage deductible, leaving only the minimum floor in place.
What is your forecast for how policy language will evolve in the wake of this ruling?
I forecast a rapid move toward “Statement of Values” (SOV) based deductibles that remain static regardless of whether the property is actually struck or harmed by a peril. We will likely see insurers move away from language that rewards “undamaged” locations with lower minimum deductibles, as the industry cannot afford the volatility of seeing multi-million dollar deductibles evaporate. There will also be a push to clarify “sue-and-labor” clauses to explicitly define when prevention ends and reduction begins, likely adding caps to preservation-of-property payouts to prevent them from becoming a workaround for business interruption losses. Ultimately, the goal will be to align the insured’s incentive to protect property with the insurer’s need for predictable deductible thresholds, ensuring that a “win” for property safety doesn’t become a “loss” for the underlying underwriting math.
