Property which simply wears out or is damaged by rot is never covered, right? That is what most insurance company adjusters and attorneys will say. Indeed, they will defiantly state something like: “This is a property insurance policy and not a maintenance contract.”

So, what happens if the damaged portion of the property cannot be repaired because the underlying property has pre-existing rot or is simply worn out?

Sit down. Mark the time. I am about to say something very nice about some executives in State Farm’s Home Office, and I cannot say why I know this.

Some of the smartest people that truly understand the claims ethics and way property insurance claims should be processed are at the Home Office of State Farm. I am not saying everybody, nor that these people are in power—but trust me, they are there.

Don’t get me wrong, I am not including those crafty State Farm outside counsel who are competitive and want to help their client win no matter what the claims ethics may be. Those outside counsel may even make arguments in court that State Farm concedes is wrong in its Operation Guidelines.

So, as proof that rotted, worn out, and pre-existing defective portions of a structure may be covered, this is a quote from a State Farm Operation Guideline:


Rot is specifically excluded. If the claim involves roof damage and the decking materials are rotted and/or deteriorated, coverage may be available. In order for coverage to apply to rotten decking, the condition of the decking must prohibit the installation of the new roof, or the repair of the existing roof. Coverage may be available for the lesser of the following amounts:

A. The cost involved in spot repairing the decking material sufficient to re-establish the integrity of the surface; or

B. The reasonable and necessary expense involved in removing the rotten decking material and replacing it with decking material that meets local ordinances.

Each claim should be handled on its individual merits. As such, an inspection of the decking should be made before a decision is made to extend coverage as outlined above. The repairs or replacement outlined above will only apply to the area of the roof that actually sustained the covered damage.

This position does not eliminate any exclusion relating to mold, wet or dry rot, etc. ‘J!:is is a repairability issue relating only to placing the policyholder in relatively the same po.sIllon they were in prior to the loss. Rotted decking, etc., in and of itself is not a compensable Item absent a repairability issue.

I imagine that roofing contractors and public adjusters reading this blog are copying this post as quickly as possible just to make certain the evidence never disappears. More than anybody, they know this is not usually the initial position of many insurance company or independent adjusters.

Do older State Farm Operation Guidelines say to depreciate the labor portion of a building item to arrive at Actual Cash Value? No.

Do State Farm’s outside counsel in 2020 cases tell trial and appellate judges that State Farm has always taken the position that labor should be depreciated, or concede that State Farm did not depreciate labor in the past? Of course they do not admit that. They would lose their case if they let that truth be told in public.

Internal and otherwise secret emails, memos, guidelines, and analysis of coverage and operations should always be part of an insurance case because it is evidence that what the outside attorneys argue is simply wrong compared to inside practices of many Insurance companies.

Merlin Law Group attorneys get an edge to help our clients win with this type of information. We gain this information because we actually litigate coverage and bad faith cases rather than settle them on the cheap, and have friends who are of the same ilk, and like us so much they share their collection of these types of things assembled over a period of time that is much longer than most attorneys have been practicing law.

The picture above is me and some of the Merlin Law Group attorneys in our Puerto Rico office on Monday night. They are fighting the good fight for Puerto Rico policyholders and helping make insurance companies following Hurricane Maria and the recent earthquakes, Pay Up!

You can order Pay Up! by clicking the link.

Thought For The Day

My job is to play quarterback, and I’m going to do that the best way I know how, because I owe that to my teammates regardless of who is out there on the field with me.
—Tom Brady