Only insurance company claims managers and their paid for lawyers could argue that a hail dented roof is not a covered loss under a property insurance policy which specifically covers hail damage. A federal appellate court decision issued last week1 helps put an end to these crazy attempts by insurance company lawyers that argue virtually anything to get out of the contractual promise.

The analysis below is key:

The heart of the dispute between the parties concerns the meaning of the term “direct physical loss” in the policy. In the end, however, we find the coverage question to be fairly straightforward. Neither Advance nor Cincinnati disputes the meaning of the term “direct” in the policy. Although the policy does not elaborate on that word, common sense suggests that it is meant to exclude situations in which an intervening force plays some role in the damage. No such force was present here: to the extent the roof was damaged at all, everyone agrees that the hailstorm was the culprit.

The parties devote more discussion to the word “physical,” which like “direct” is not defined in the policy. Cincinnati contends that “physical” for purposes of the policy means “material,” although it unhelpfully does not suggest a definition of “material.” We can think of several possibilities:

it might be a synonym for “physical,” as in “formed or consisting of matter ”; or it might connote “pertinent,” or “central,” or “essential.” Cincinnati advocates the latter meaning and supports its position with a single district court decision, Crestview Country Club, Inc. v. St. Paul Guardian Ins. Co., 321 F. Supp. 2d 260 (D. Mass. 2004). We do not find Crestview to be especially helpful. It concerned whether an insurance policy covered damage from a severe wind storm to a golf course. The storm destroyed a notable ash known as the “Poltergeist Tree,” which loomed above the thirteenth hole. No one disputed that the policy covered replacement of the tree. But the plaintiff wanted more: it argued that the insurance company also had to pay for the redesign of the thirteenth hole, because the loss of the Poltergeist Tree had ineffably altered the hole’s character, even though the hole itself was not damaged. The district court held that intangible changes to the hole’s character did not count as “direct physical loss or damage to the golf course grounds” and thus did not trigger coverage of changes to the hole… We fail to see the resemblance between Crestview and this case. Advance is not asking for coverage of intangible damage. Rather, it is claiming that hail caused visible indentations to the surface of its roof. This denting changes the physical characteristics of the roof and thus satisfies that language of the policy.

(emphasis added)

The next part of the decision dismissed Cincinnati’s novel argument that cosmetic damage is not covered unless it results in a decrease of value or functionality:

The next question is what the term “loss” means here. The policy (at last) offers an answer: it defines “loss” as “accidental loss or damage.” The district court, in deciding that this concept encompasses all hail denting—both dents that diminish the functionality of the roof and dents that may be only cosmetic—emphasized the disjunctive nature of the definition. The policy covers loss or damage. This indicated to the district court that even without a measurable “loss” in value or in function, “the policy expressly contemplates the possibility that there may still be ‘damage,’ presumably giving it a different meaning than the word ‘loss.’” This was a sensible conclusion, and Cincinnati has given us no reason to believe that inclusion of the phrase “or damage” in the definition of loss was superfluous. In fact, it has offered no ex‐ planation for the inclusion of both words, despite, we assume, having written the policy.

Instead, Cincinnati urges us to define “loss or damage” to mean “harm.” It then makes the assumption that the dents caused by the hail did not harm the roof enough to diminish its function or value. No harm, no foul, it says: if this is the case, then it believes that the policy does not re‐ quire it to pay to replace the roof. The problem with this analysis is that it bears no relation to the language of the policy. There is no exception to the definition of “loss” for cosmetic damage, or any other kind of particular damage. Had Cincinnati wished to exclude cosmetic damage from coverage, it should have written the policy that way.

The cost to fix cosmetic damage to a structure has always been part of the modern day replacement cost policy. If the cosmetic damage is slight, the cost to repair is usually less than the deductible. Still, customers buy a property policy to repair or replace the cosmetically damaged property new after any damage is greater than the deductible. That is how the product is marketed by the insurer. The cost to return property to how it was is a loss.

I previously noted this case in Cosmetic Damage is Physical Damage. I filed an amicus brief for United Policyholders in this case and received a very kind remark from the policyholder’s attorney, Anthony Murdock:

We had oral arguments in the Advance Cable case last week. We felt that it went very well for us as the Court was not buying Cincinnati’s coverage position at all. The Court specifically noted the Amici’s arguments regarding paint to building and was very complimentary of your position.

As I indicated in yesterday’s post, Steve Badger Stricken as Biased Appraiser, the claims departments of the insurance industry seemingly have declared war on their customers who have suffered hail damage. This is just one battle of that war.

Positive Thought For the Day

"You cannot have a positive life and a negative mind."
         —Joyce Meyer

1 Advance Cable Company v. Cincinnati Ins. Co., No. 14-2748, 2015 WL 3630699 (7th Cir. June 11, 2015).


  • Insurance Veteran

    Even though I have represented carriers for over forty years I’m amazed at the brain trust that would argue dents are not damage. The only caveat I would see as applicable if there was prior damage paid for previously that was not repaired. I have seen lame arguments made and I have received instructions from carriers negating my recommendations to which I always reply” we are acting in accordance with your instructions which are contrary to our appreciation of correct policy application” This has ensured we are not unduly dragged in to litigation.

  • ISO now excludes “cosmetic” damage to commercial buildings:

    CP 10 36 10 12 – Limitations On Coverage For Roof Surfacing

    Roof surfacing is particularly subject to deterioration over time and must be replaced in the normal course of building maintenance. Insurers are at times confronted with repairing or replacing a roof that was in poor condition prior to loss. The CP 10 36 Limitations on Coverage for Roof Surfacing endorsement is being introduced to provide options for covering roof surfacing at actual cash value and for excluding cosmetic damage to roof surfacing. The ACV option applies the buildings that are otherwise subject to replacement cost loss settlement and pertain to loss by any covered peril. The cosmetic exclusion option applies only to the perils of wind and hail and can be written with regard to the underlying valuation clause. Both options can be written to apply to the same building. This is a new coverage option.

    MANY insurers already exclude cosmetic damage under their homeowners policies, along with applying ACV rather than RC coverage otherwise. The reasons for this include both increased weather-related loss experience, coupled with the reticence of state DOIs to grant rate increases. When you can’t provide a coverage profitably, the usual option is to reduce or eliminate the coverage so that your current pricing structure as adequate to avoid adverse loss experience.

  • Insurance Veteran

    Exclusions and limitations added by endorsement make a lot of sense in areas prone to this type of event. Obviously correct application of the policy terms and conditions is paramount. Problem lies in trying to short change the policy holder for legitimate covered losses. Now defining “cosmetic” that’s another issue!!

  • Steve Patrick

    I will not work for carriers that force their adjusters to argue that cosmetic damage is not damage – what’s the second word in the phrase ‘cosmetic damage?’, it is absurd. If a policy excludes cosmetic damage, very well. But if not, then it is included. That’s why their are cosmetic damage exclusion endorsements that provide discounts for cosmetic damage. How can you say that we are not covering cosmetic damage to roofs out of one side of your mount, then out of the other side offering discounts with such endorsements? There are some adjusters out there that won’t blush no matter WHAT the carriers requires them to say. I have to sleep at night. Perhaps your analysis of “the insurance industry seemingly have declared war on their customers” is not that far fetched.

  • And a fine brief it was…

  • Cindy N

    We recently had a hail storm in our town with baseball size hail. I had an adjuster come and got the insurance claim today. I have old asphalt siding on my house. I know you can’t buy it anymore. Several pieces were damaged from the hail on the SF side of the house. They want to replace the damaged pieces with overlapping hardboard. That is going to look ridiculous! Is this right??