I have been involved in several commercial property claims where the insurer has agreed to pay the cost to remove and to replace roof shingles damaged by hail, but has refused to pay the cost to remove and to replace the decking, even though the condition of the decking is such that it no longer is in a suitable condition for application of the new shingles. The insurer’s reasons for refusing to pay for the costs of the decking removal and replacement are two-fold: (1) no coverage is afforded for the decking because it was not directly damaged by hail and (2) replacement of the decking is a code upgrade, and in my claims there was limited ordinance or law coverage. So, is the insurer right? Is replacing roof decking as part of replacing hail-damaged shingles a coverage or a scope issue? In my opinion, it is a scope of repair/replacement issue.
First, the “Coverage” grant in the ISO “Building and Personal Property Coverage Form”1 states that the insurer “will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” “Covered Cause of Loss” is defined in the ISO “Causes of Loss-Special Form”2 as direct physical loss, unless the loss is limited or excluded.
Hail is a covered cause of loss within the meaning of the ISO Causes of Loss-Special Form, as this peril is neither limited nor excluded. Moreover, in the context of hail damage, the Seventh Circuit Court of Appeals has concluded that the phrase “direct physical loss” encompasses all hail damage, including both damage that diminishes the functionality of a roof and damage that may only be cosmetic.3
Second, “Covered Property” is defined in the ISO “Building and Personal Property Coverage Form” to include “the building or structure described in the Declarations.” Accordingly, “Covered Property” within the meaning of the ISO Building and Personal Property Coverage Form is the building, and not individual components such as its roof shingles or roof decking.4
Based on the above analysis, the removal and replacement of roofing components is a scope of repair/replacement issue, and not a coverage issue. Coverage, within the meaning of the “Coverage” grant already exists because hail, a “Covered Causes of Loss,” physically damaged “Covered Property”—the building. As previously explained, the Coverage grant only requires direct physical loss or damage to the building caused by a Covered Cause of Loss, and not direct physical loss or damage to each individual building component.
Nor does the cost of removing and replacing roofing components fall within Ordinance or Law coverage. Instead, the costs are part of replacement cost. The term replacement cost is not defined in the ISO Building and Personal Property Coverage form. It has been defined as “the estimated cost to construct, at current prices, a building with utility equivalent to the building being appraised, using modern materials and current building standards, design, and layout.”5
Decking is a necessary component part of an overall roof assembly and must be considered when estimating the cost to replace a hail-damaged roof system. The National Roofing Contractors Association (“NRCA”) is the standard in the roofing industry for technical assistance. The NRCA Roofing Manual: Architectural Metal Flashing, Condensation Control and Reroofing – 2010, consists of three primary sections. Chapter Four of the Reroofing section, labelled “Roof Decks for Reroofing,” provides that a deck, as part of a roof assembly, needs to provide structural support and be the substrate for the roof assembly; a roofing contractor must ensure that a deck’s surface condition is suitable for application of new roofing materials, including shingles; before applying new roofing materials, the deck should be inspected to determine that it is smooth, straight, and free of irregularities, such as significant humps or depressions; and, if the deck is damaged such that it is unsuitable for application of new roofing materials, then it needs to be replaced before applying such new roofing materials. Thus, the cost of removing damaged or deteriorated decking and replacing with a suitable substrate for the application of new shingles is the current standard for reroofing, which replacement cost is measured by.
In Gutkowski v. Oklahoma Farmers Union Mutual Insurance Company,6 the roof was comprised of a top layer of asphalt shingles and an under layer of wood shingles that served as the nailable surface or decking to which the asphalt shingles were attached. Hail, a covered peril under the Farmers policy, damaged the roof. Farmers paid for the cost to replace the asphalt shingles, but refused to pay for the cost to remove and to replace the wood shingles with plywood decking, even though it acknowledged that the removal of the asphalt shingles would destroy the structural integrity of the wood shingles because they would become a non-nailable surface once the asphalt shingles were torn off. Farmers argued that the policy phrase “risks of direct physical loss” limited its liability for the insureds’ loss to the asphalt shingles only. Farmers reasoned that the wood shingles constituted a separate and divisible roof from the asphalt shingle roof. Farmers also argued that the wood roof was already in a deteriorated and inadequate condition prior to the hail storm and sustained no direct physical loss because of the hail storm.
The Oklahoma Court of Appeals rejected Farmers’ arguments. It concluded that “a roof is a unified product comprised of all its component parts and materials, including . . . sheathing (decking) . . . and shingles.”7 It reasoned that the wood shingles which served as the decking were an integral component of the roof and that the cost to replace the wood shingles was a covered loss. It also concluded that paying for the tear-off of the wood shingles and the redecking of the roof was required to properly indemnify the insureds—they had a nailable surface immediately prior to the hail storm and that nailable surface would be destroyed when the asphalt shingles were removed. The Gutkowski decision supports the position that an insurer’s contractual liability for a hail loss includes the cost of removing and replacing the existing decking if it is no longer a suitable substrate for the application of new shingles, as these costs are part of the scope of repairing/replacing the covered hail damage to a building’s roofing system.
1 ISO CP 00 10 10 12.
2 ISO CP 10 30 10 12.
3 Advance Cable Co., LLC v. Cincinnati Ins. Co., 788 F.3d 743 (7th Cir. 2015).
4 See Trout Brook South Condo. Ass’n v. Harleysville Worcester Ins. Co., 995 F.Supp.2d 1035 (D. Minn. 2014). See also Nat’l Presbyterian Church, Inc. v. GuideOne Mut. Ins. Co., 82 F.Supp.3d 55 (D.C. 2015) (policy ambiguous whether its coverage for damaged property refers to the smallest unit possible, an individual panel, a single shingle, a specific patch of flooring; or, to one larger, an entire façade, the whole roof, or a continuous stretch of flooring).
5 Dupre v. Allstate Ins. Co., 62 P.3d 1024, 1031 (Colo. App. 2002).
6 Gutkowski v. Oklahoma Farmers Union Mut. Ins. Co., 176 P.3d 1232 (Ok. Civ. App. 2008).
7 Gutkowski, 176 P.3d at 1235.