Judges should be aware of the extreme and aberrant arguments being made by a few insurance company lawyers about physical damage requiring damage to be “functional” damage. These lawyers argue that property insurance policies contemplate this “functional damage” requirement.

This first American flag above looks great and is beautiful. Suppose a hail storm comes by and it looks like this the next day:

Pressed to the extreme, some insurance companies would allow their attorneys to argue that the second depicted American flag is not covered damage. So, under their argument, what you see is not covered damage under your all risk property insurance policy. These lawyers argue that the flag is not “functionally” damaged and that your property has to have “functional damage” to have the type of physical damage which is covered under standard property insurance policies. What do you think about that? (A previous property insurance adjuster who is now an insurance claim expert sent me the American Flags to prove this obvious point.)

Seriously, the same insurance defense Colorado law firm with its very smart, clever and capable lawyers which advertise pretty significant bonuses to judicial law clerks as noted in my post, Policyholder Law Firms Should Ethically Be Hiring More Judicial Clerks, is making similar “functional damage” arguments on behalf of their insurance company clients. So, this novel and aberrant insurance concept continues to be raised by those who are paid handsomely to get them out of whatever perceived trouble they are getting into.

Maybe policyholders should stop purchasing policies from these insurance companies and from their agents to avoid these coverage denial problems? Would you like a list of the insurance companies arguing this?

Mike Duffy, Christina Phillips, Ed Eshoo, & Chip Merlin

I was in our Chicago office yesterday. Merlin Law group attorney Ed Eshoo was talking about the issue of functional damage and reminded me of his recent post, Does An Insurer Act In “Bad Faith” If It Denies Coverage For A Hail Loss Based On Its Retained Engineer Defining Hail Damage As Functional Damage?

Ed also mentioned that if the insurance companies ever intended for purely cosmetic damage to not be covered, why do they issue an endorsement that excluded cosmetic damage and charge a diminished premium for such policies?

I invite any insurance company defense attorney to write a guest blog that explains why they think their clients intended to cover only “functional damage.” I am still not certain what that term means since it was made up by HAAG engineering.1 In my opinion, this issue shows how desperate some insurers will act to avoid paying for what they clearly owe. That does not seem very American or ethical to me.

If you are a policyholder, public adjuster, contractor or policyholder attorney facing these wrongful functional damage denials, please call us. We can help.

Thought For The Day

I was a lawyer for 10 years – a short time, but it molded me into who I am. My clients were little people fighting big corporations, so it was a natural thing to not only represent the little guy but also to pull for him – it’s the American way.
—John Grisham
1 Cosmetic and Functional Damage – An Academic Discussion by Neil Hall.

  • Bruce Holmes

    Remember this? Great read. It seems we have “lawyers” now arguing about how many angels can be on the head of a pin in an effort to distract us from logic.


  • Stephen Hadhazi

    Would it do any good for a prospective policyholder to email their agent and ask if their policy covers “Cosmetic Damage”? I cannot imagine any agent ever stating that it doesn’t (unless there is an endorsement that said as much).

  • David Stewart

    The policy pays for direct, PHYSICAL loss, but does not define physical.

    Merriam-Webster Dictionary:

    : having material existence : perceptible especially through the senses and subject to the laws of nature

    2. relating to things perceived through the senses as opposed to the mind

    By definition, a “physical” loss is any loss that is perceptible to the senses. There are 5 senses, one of which is sight. The appearance of something is perceptible by sight. Therefore, it seems that all policies that pay for direct “physical” loss pay for a uniform appearance if one existed before.

    I am of the same opinion as above. If policies did not pay to match, there would be no need for any cosmetic exclusion.