Cosmetic Damage is "Physical Damage" and Recoverable Under a Property Insurance Policy
Yesterday’s post, Physical Damage is Needed to Collect for Loss of Warranty, may lead some to think that property insurance policies require “structural” or a “functional” destruction before coverage is not afforded. This simply is not true. Alterations to the physical appearance of a structure or personal property are covered so long as the cause is a covered peril.
Indeed, this issue does not get raised just by insurance adjusters. My experience is that when insurance defense counsel hire engineers, the engineering report repeatedly notes the lack of “structural” damage to a building. A noted example of this is with roof claims. HAAG engineers often repeat in their reports and at seminars that there is no structural or functional damage to shingles or parts of the roof. The result is insurance company attorneys saying that they are not paying for anything unless there is proof of “structural damage.”
I am going to provide just one example to show how absurd this position is. The FC&S Bulletins discuss the issue and use the same example of vandalism that I usually provide. Interestingly, the question posed involved a roof with cosmetic damage, and I bet the insurance company had a roofing expert say there was no functional or structural damage to the roof:
Direct Physical Loss and Cosmetic Loss
Hail stones have created dents to a copper roof. The section of roofing is located over a second story bay window. It does not appear that the hail has compromised the life span of the roof's surface or otherwise affected or decreased its useful lifespan.
Our HO policy provides coverage for direct physical loss. If the roof's integrity was not compromised by the hail stone impact, has a physical loss occurred?
We believe that some carriers view this type of damage as cosmetic and do not provide coverage for replacement of the copper roof. Does FC & S have an opinion?
ANSWER
Whether or not the dents are cosmetic or affect the roof structure, they are still direct physical loss. The policy doesn’t define damage so standard practice is to go to a desk reference. Merriam Webster Online defines damage as loss or harm resulting from injury to property, person, or reputation. The roof now has dents where it didn't before; that's direct damage. The policy doesn't exclude cosmetic damage, so direct damage, even if it is cosmetic, is covered. It's the same as if vandals had painted the side of the house purple. While cosmetic, it's damage, and is covered. The principle of indemnity is to restore the insured to what they had before the loss, and this insured had a roof with no dents.
I am raising this issue in part because there are so many Hurricane Ike disputes where the insurers are not paying for roof damage. One of the arguments is that they do not pay for “cosmetic damage” which is wrong. The vandalism example made by the editors of the FC&S Bulletin clearly shows that the property policy covers for damages to the appearance of structure or property so long as it is by a covered peril.
What about matching of the roof tiles or shingles?
The new ones are always going to be different. But, the insurance companies are not paying for the entire roof.
In this case the purpose of insurance of "to put the insured in the same position they were before the loss" is not true as long as the insurance companies continue to pay part of the roof.
Your opinion, please.
Thank you
Not to mention the fact that the whole point of the policy is to indemnify the insured for their loss.
If the roof is left in a disfigured cosmetic condition, this will cause a loss of value to the property, thereby compromising the insured's financial position. A prospective buyer will most certainly want to pay less then market if they are faced with the prospect that they will have to replace the roof to make the property aesthetically pleasing.
The principle of indemnity to to return the insured to the same financial position they were in before the loss occurred.
This goes for mismatched roof tiles or shingles as well. Exactly the same concept. I've always been at a loss to understand why insurers routinely pay to match floor tile, but make a distinction when it comes to roof tile.
If the argument is that aesthetics is part of the function of the item then it would be just as true for composition shingle roofs as for the copper roof panel example. The base color of shingles is always the same, black asphalt, the color comes from the granules; therefore granule loss is equal to color loss.
If color loss is equal to aesthetic loss then granule loss and the resulting color loss is a loss of function.
Or, am I reading this all wrong?
Sounds right to me, Dr. Phelps. So much of it depends on who the carrier is as to who is going to have the "matching roof" on the block...sad but true (i.e., reality anyway).
Finally, I believe Messrs. Arencibia & Roth correctly point out that providing an insured with the SAME ROOF that existed pre-loss is the insurance company's duty in making its insured "whole" post-loss. They're not asking for a Picasso - just something as close as possible to what they had pre-loss.
SHIRLEY HEFLIN
Greg and Matt,
Read my September 15 Post. I think prior posts answer your questions.
Thanks for asking and sharing.
While this may be true in some instances, it is not true in others. It depends on the statute that is in effect.
For example, in the state of Florida, Statute 627.706 states: "Sinkhole loss" means structural damage to the building, including the foundation, caused by sinkhole activity . . .
This statute specifically refers to only "structural damage" resulting in a "loss", not mere physical damage. If there is no structural damage, a sinkhole loss did not occur, and coverage would not apply, unless the specific policy provides coverage for physical damage.
Recently, I read your article on Cosmetic Damage. You stated that cosmetic damage is a "Direct Physical Loss" and is covered by the property insurance policy. In my case, the Texas Windstorm Insurance Association Policy. Most often, the insurance adjuster will draw a 10' x 10' square to see how many hail marks or hits are visible within the square. When hail damage occurs on a composition roof, is it mandatory that hail marks be visible and can be counted within the square or can a composition roof be considered cosmetically damaged without the hail marks?