Property insurance policies cover physical damage to property. Cosmetic damage has traditionally been paid if the damage is greater than the deductible. Lately, some ingenious insurance company lawyers are wrongfully arguing that their stingy insurance company claims managers are correctly not paying for cosmetic damage.

Yours truly filed an amicus brief on behalf of United Policyholders regarding the issue of cosmetic damage being physical damage covered under an insurance policy. In my brief, I noted a fairly recent (December 2011) FC&S Bulletin confirming that cosmetic damage is physical damage covered under the policy:

Question: 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 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 previously noted this in Cosmetic Damage is Physical Damage and Recoverable Under a Property Insurance Policy.

One very recent case discusses at length that cosmetic damage is physical damage finding that in a hail damage case, it is “axiomatic that a dented roof is worth incrementally less than an undented roof.” Lead GHR Enterprises, Inc. v. American States Ins. Co., Case No. 12-5056-JLV, op, at 3 (D.S.D. Sept. 30, 2014).

Before a hearing in Houston on Monday, I was discussing this issue of cosmetic damage with Phillip Sanov. I was strolling along the parking garage and said, "Can you imagine trying to argue that if a kid spray painted urban art on this wall that such cosmetic alteration is not physical damage? And, could you imagine trying to argue that a BMW dented on its hood by hail was not physical damage because the hood still functioned?" His reply was: "Only insurance company lawyers getting paid by the hour to hide their client’s conduct would not be embarrassed by that."

Those ingenious insurers and insurance company lawyers. What will they come up with next?

  • SHIRLEY HEFLIN

    Dear Chip:

    It’s ashamed that the very basic premise of insurance law has to be pointed out to whomever is denying a claim. Specifically, you emphasized the following:

    “…The principle of indemnity is to restore the
    insured to what they had before the loss..”

    Seems like such a common sense statement and it is until

    Respectfully,
    Shirley Heflin
    Tampa, Fla.