Hail Damage In Colorado and Replacement Cost Insurance Policies
(Note: This Guest Blog is by Erin Kristofco, an attorney with Merlin Law Group in the Denver, Colorado, office).
Home and business property owners who suffered hail damage during Colorado’s hail storms must determine whether their property insurance policy requires the insurer to replace not only the hail damaged surface, but also any substrate, insulation or the structural deck.
If a commercial flat roof EPDM layer is damaged by hail and the insurer’s adjuster admits part or all of the EPDM must be replaced, the insurer will likely issue a check for coverage of the EPDM layer only. The insured must have an expert examine the board insulation and all layers down to the roof deck to determine if the roof system condition is adequate to satisfy the applicable building code and manufacturer’s specifications for placing new EPDM on top. If the insulation or roof deck are degraded or in an otherwise improper condition for placement of new EPDM on top, the insured’s replacement cost insurance policy may require the insurer to replace the insulation and/or decking as well.
The Colorado Court of Appeals confirmed this in Dupre v. Allstate Ins. Co., 62 P.3d 1024, 1031-32 (Colo. Ct. App. 2002). The policy in Dupre required replacement of portions of Plaintiff’s house with “equivalent construction for similar use” and “the plain meaning of the term ‘equivalent construction for similar use’ includes maintaining the property's prefire function.” Id. (Emphasis added).
The Court determined that replacing portions of the insured’s house to pre-fire functionality included replacing parts of the house that were not directly fire damaged but had to be brought up to code to allow for fire damaged items to be properly repaired or replaced.
[W]hile an actual cost policy is designed to avoid placing the insured in a better position than he or she was in before the fire, a replacement cost policy allows for such a possibility because it is intended to allow the insured to replace the damaged building.
Id. at 1030. (Emphasis added).
Prior to the fire, plaintiff's house was a habitable dwelling yielding rental income. Merely restoring it to its prefire condition [not in compliance with code] would have rendered it uninhabitable and thus unfit for any similar use. Such a result does not comport with the plain language of the limitation or the reasonable expectations of an insured purchasing a replacement cost policy.
Id. at 1031.
The same concept may apply to an insured’s hail damaged roof—especially if the roof is an older roof with substrate conditions that may no longer conform to code or manufacturer’s specifications. To simply restore a roof to its pre-hail damaged condition may render it unfit for similar use if the substrate or deck is deteriorated and insufficient to support a layer of new roof materials. Obsolescence and deterioration are insurable risks, and a property insurance policy may require the insurer to pay for either after hail or another covered cause of loss has damaged a policyholder’s roof.
In next week’s post, I’ll provide Tips For Ensuring Adequate Insurance Payments To Properly Replace A Policyholder’s Hail Damaged Roof.
In a hurricane claim where it was necessary to replace a roof, I've been successful in getting the carrier to replace rotten roof sheathing on an ACV claim as well. I based my arguments on articles in the FC&S Bulletins claiming the replacement of the sheathing was necessary to effect the repairs and there was no requirement that the insured maintain the building. FC&S refers to "rot" as being a "stand alone exclusion". In other words, you can't make claim for the rotten sheathing by itself. But once you have a covered loss, the necessary cost of repair is covered. The rot was considered an underwriting issue.