"Hail, hail, the hail's all here!"
And thus began my June, 1999 column, concerning a reader's question on hail damage to siding.
History is said to repeat itself, and herewith the proof. Recently, an e-mail wended its way to my inbox from alert reader Gary Malat of Rochester, Minn. Ostensibly, the legendary Lake Woebegon exists near Gary's neck of the north woods. The children may all be above average, but the insurance claims settlement procedures remain depressingly mediocre:
Hail damage to roofs. The HO policy pays to replace or repair the damaged shingles. Company A takes policy interpretation very literally and will proudly pay (a depreciated amount until the work is completed) for the damaged shingles, even if it's every other one. Company B takes a quick look and writes a check for the full cost of replacement. Company C measures a 10 x 10 representative section of the roof and determines compensation by the number of hail strikes within the section. The problem is not all companies use the same criteria--some require five strikes to replace the roof; others 10 or 15.
Neighboritis is not a friend of the insurance agent. It is very challenging for an agent to explain to the insured that the threshold for the payment varies from one company to another.
Insurance company claim departments have a history of paying for iffy claims. Why should a roof be so difficult to adjust?
OK, let's see if I have this straight. Insurance carriers handle the exact same claims in totally different fashion. Insureds who expected predictability and consistency are now confused and possibly angry. Friendly local agents trying to be helpful end up caught in the crossfire. So what else is new?
Ah, grasshopper, where to begin? As always, first we look to the policy. Since no one disputes that hail damage is a covered peril, the discrepancies must arise from loss settlement provisions. Here is the applicable language of the ISO standard homeowners loss settlement clause pertaining to building claims:
2. Buildings covered under Coverage A or B at replacement cost without deduction for depreciation, subject to the following:
a. If, at the time of loss, the amount of insurance in this policy on the damaged building is 80 percent or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of any deductible and without deduction for depreciation, but not more than the least of the following amounts:
(1) The limit of liability under this policy that applies to the building; (2) The replacement cost of that part of the building damaged with material of like kind and quality and for like use; or (3) The necessary amount actually spent to repair or replace the damaged building.
So where does this leave our hail claims for shingles?
Assuming sufficient coverage limits, which appears reasonable as no carrier raised that issue, the key appears to lie in (2)--the carrier is only obligated to repair or replace those shingles directly damaged by the hail. So Company A wins the "Technically Correct Award" for policy analysis.
Company B, however, may win the award for "Most Popular." When it comes to clauses, Company B prefers Santa to settlement.
Company C is clearly living on its own planet. Worse yet, it's confusing both the insured and agent with the purpose of the measurement. Note in the policy provision there is no mention of determining compensation for a loss by the number of hail strikes. There is a definite cost to pay, and that's either the "replacement cost of that part of the building" or "the necessary amount actually spent to repair or replace." The only real purpose in counting hail strikes is to determine whether a given shingle was actually damaged by a covered peril, or the insured is just trying to get a free roof out of an otherwise non-damaging summer thunderstorm.
So while Carriers A and B are trying to decide how much to pay for a loss they've already accepted, Carrier C is still trying determine whether (and/or how much of) a loss actually occurred. Once it finishes its calculations--hey, take your time--we don't know if it will join Carrier A or B in its payment approach, although I'd bet the farm on A.
So it appears we have a clear coverage form answer. And I can tell you the conclusion in the 1999 article was the same. Why, then, the continuing settlement confusion over such claims, with the inevitable resulting anger and angst directed at agents?
Simple. No one likes the answer.
Short of a completely new roof, the majority of insureds are not going to be happy. If only some shingles are replaced, the new won't match the old and we get an ugly roof. And in any kind of housing market, especially one as tough as today, anything that makes a house less attractive is going to result in real financial loss. To an insured, a financial loss is a loss, and if the roof doesn't look as good as new it's a pure rip-off--especially when due to some "fine-print insurance policy technicality." Yet while I empathize with their position, that doesn't mean "diminution of value" coverage is included in a homeowners policy.
Agents don't like it for two primary reasons. One, because they side with the insured's opinion above; or two, they hate getting caught in the middle of disputes involving coverage technicalities.
Carriers don't like it because if they do the technically correct thing, they're the bad guys to far too many agents and insureds. If they don't do the right thing, they're lambasted by fellow carriers for "caving in" or "making us all look bad." And Lord forbid, insurance regulators will step in to accuse them of bad faith or worse.
In the past, many agents have sent me state laws, regulations or even court cases where the state claims to have stepped in and "resolved" the issue of hail claims in favor of their local voters. Unfortunately, I've yet to find one that is anything more than a suggestion or recommendation--useful for grandstanding against carriers, but useless in providing real guidance.
For example, in one case reported in the press, the judge ordered a carrier to step up and pay disputed hail claims involving "cosmetic damage as well as physical damage" to some homes. Sounds pretty dramatic. Yet a summary of the verdict said:
"When materials used to replace physically damaged materials on a house do not reasonably match the existing materials, the company must also pay to replace the existing materials so there is a reasonable match. The judge, however, specifically states that when there is a mismatch between new and old materials on a house because of the natural weathering of existing materials, the company is not obligated to provide complete replacement of existing materials on the house."
Since "natural weathering of existing materials" is exactly the reason most new shingles won't match old, the judgment's effect is absolutely zilch. Not so dramatic after all.
In another example, a state statute cited as means of resolving the issue in favor of insureds includes the following paragraph:
(2) When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.
"Reasonable." "Consider." "Degree of uniformity." "Other relevant factors." If there were any more weasel words, I'd think it was a campaign speech.
Although agents have offered many other suggestions, the net result is we once again find ourselves in a fairly common loss situation, where an industry built upon the promise of future guarantees ultimately has none to offer that are true to the forms language and acceptable to all parties.
May I humbly suggest a possible solution? In the past, I've pointed out that a great many of such disputes arise from the conflict between expectations on the part of the public and express provisions on the part of the forms. Why not meet both needs by creating choices in forms settlement provisions?
Briefly, why not have a homeowners equivalent to the old Sears "good, better, best" approach? At the good level, we patch the roof--used shingles, plywood, or blue tarp for all the insured cares, so long as the rain stays out. At the better level, we replace all damaged shingles with new, period. With best, they get a completely new roof, no questions asked. Variations could include what percentage of overall damage triggers a complete replacement, whether the portion of a roof facing the street is replaced while the back half can be left to partial repair, etc.
My point is that any or all options are acceptable as long as:
(1) they are clear to the insured as to the promise being made;
(2) the insured is free, subject to underwriting based on the current condition of the shingles, to choose whatever options they prefer; and
(3) pricing varies appropriately to reflect the choice made.
Gosh, a world where everyone is on the same page, insureds are given some control over their fate, and carriers can be more consistent in their settlements among all the neighbors, making agents less likely to be caught in the crossfire. Could this be heaven?
Nah. Minnesota.
Chris Amrhein is an insurance educator and chief fun officer of www.insuranceisfun.com, where his newest CD, "Roadmap to the Generations: Plotting Your Path Through the Millennial Minefields," is now available. Readers may contact Chris at chris@insuranceisfun.com.
And thus began my June, 1999 column, concerning a reader's question on hail damage to siding.
History is said to repeat itself, and herewith the proof. Recently, an e-mail wended its way to my inbox from alert reader Gary Malat of Rochester, Minn. Ostensibly, the legendary Lake Woebegon exists near Gary's neck of the north woods. The children may all be above average, but the insurance claims settlement procedures remain depressingly mediocre:
Hail damage to roofs. The HO policy pays to replace or repair the damaged shingles. Company A takes policy interpretation very literally and will proudly pay (a depreciated amount until the work is completed) for the damaged shingles, even if it's every other one. Company B takes a quick look and writes a check for the full cost of replacement. Company C measures a 10 x 10 representative section of the roof and determines compensation by the number of hail strikes within the section. The problem is not all companies use the same criteria--some require five strikes to replace the roof; others 10 or 15.
Neighboritis is not a friend of the insurance agent. It is very challenging for an agent to explain to the insured that the threshold for the payment varies from one company to another.
Insurance company claim departments have a history of paying for iffy claims. Why should a roof be so difficult to adjust?
OK, let's see if I have this straight. Insurance carriers handle the exact same claims in totally different fashion. Insureds who expected predictability and consistency are now confused and possibly angry. Friendly local agents trying to be helpful end up caught in the crossfire. So what else is new?
Ah, grasshopper, where to begin? As always, first we look to the policy. Since no one disputes that hail damage is a covered peril, the discrepancies must arise from loss settlement provisions. Here is the applicable language of the ISO standard homeowners loss settlement clause pertaining to building claims:
2. Buildings covered under Coverage A or B at replacement cost without deduction for depreciation, subject to the following:
a. If, at the time of loss, the amount of insurance in this policy on the damaged building is 80 percent or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of any deductible and without deduction for depreciation, but not more than the least of the following amounts:
(1) The limit of liability under this policy that applies to the building; (2) The replacement cost of that part of the building damaged with material of like kind and quality and for like use; or (3) The necessary amount actually spent to repair or replace the damaged building.
So where does this leave our hail claims for shingles?
Assuming sufficient coverage limits, which appears reasonable as no carrier raised that issue, the key appears to lie in (2)--the carrier is only obligated to repair or replace those shingles directly damaged by the hail. So Company A wins the "Technically Correct Award" for policy analysis.
Company B, however, may win the award for "Most Popular." When it comes to clauses, Company B prefers Santa to settlement.
Company C is clearly living on its own planet. Worse yet, it's confusing both the insured and agent with the purpose of the measurement. Note in the policy provision there is no mention of determining compensation for a loss by the number of hail strikes. There is a definite cost to pay, and that's either the "replacement cost of that part of the building" or "the necessary amount actually spent to repair or replace." The only real purpose in counting hail strikes is to determine whether a given shingle was actually damaged by a covered peril, or the insured is just trying to get a free roof out of an otherwise non-damaging summer thunderstorm.
So while Carriers A and B are trying to decide how much to pay for a loss they've already accepted, Carrier C is still trying determine whether (and/or how much of) a loss actually occurred. Once it finishes its calculations--hey, take your time--we don't know if it will join Carrier A or B in its payment approach, although I'd bet the farm on A.
So it appears we have a clear coverage form answer. And I can tell you the conclusion in the 1999 article was the same. Why, then, the continuing settlement confusion over such claims, with the inevitable resulting anger and angst directed at agents?
Simple. No one likes the answer.
Short of a completely new roof, the majority of insureds are not going to be happy. If only some shingles are replaced, the new won't match the old and we get an ugly roof. And in any kind of housing market, especially one as tough as today, anything that makes a house less attractive is going to result in real financial loss. To an insured, a financial loss is a loss, and if the roof doesn't look as good as new it's a pure rip-off--especially when due to some "fine-print insurance policy technicality." Yet while I empathize with their position, that doesn't mean "diminution of value" coverage is included in a homeowners policy.
Agents don't like it for two primary reasons. One, because they side with the insured's opinion above; or two, they hate getting caught in the middle of disputes involving coverage technicalities.
Carriers don't like it because if they do the technically correct thing, they're the bad guys to far too many agents and insureds. If they don't do the right thing, they're lambasted by fellow carriers for "caving in" or "making us all look bad." And Lord forbid, insurance regulators will step in to accuse them of bad faith or worse.
In the past, many agents have sent me state laws, regulations or even court cases where the state claims to have stepped in and "resolved" the issue of hail claims in favor of their local voters. Unfortunately, I've yet to find one that is anything more than a suggestion or recommendation--useful for grandstanding against carriers, but useless in providing real guidance.
For example, in one case reported in the press, the judge ordered a carrier to step up and pay disputed hail claims involving "cosmetic damage as well as physical damage" to some homes. Sounds pretty dramatic. Yet a summary of the verdict said:
"When materials used to replace physically damaged materials on a house do not reasonably match the existing materials, the company must also pay to replace the existing materials so there is a reasonable match. The judge, however, specifically states that when there is a mismatch between new and old materials on a house because of the natural weathering of existing materials, the company is not obligated to provide complete replacement of existing materials on the house."
Since "natural weathering of existing materials" is exactly the reason most new shingles won't match old, the judgment's effect is absolutely zilch. Not so dramatic after all.
In another example, a state statute cited as means of resolving the issue in favor of insureds includes the following paragraph:
(2) When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.
"Reasonable." "Consider." "Degree of uniformity." "Other relevant factors." If there were any more weasel words, I'd think it was a campaign speech.
Although agents have offered many other suggestions, the net result is we once again find ourselves in a fairly common loss situation, where an industry built upon the promise of future guarantees ultimately has none to offer that are true to the forms language and acceptable to all parties.
May I humbly suggest a possible solution? In the past, I've pointed out that a great many of such disputes arise from the conflict between expectations on the part of the public and express provisions on the part of the forms. Why not meet both needs by creating choices in forms settlement provisions?
Briefly, why not have a homeowners equivalent to the old Sears "good, better, best" approach? At the good level, we patch the roof--used shingles, plywood, or blue tarp for all the insured cares, so long as the rain stays out. At the better level, we replace all damaged shingles with new, period. With best, they get a completely new roof, no questions asked. Variations could include what percentage of overall damage triggers a complete replacement, whether the portion of a roof facing the street is replaced while the back half can be left to partial repair, etc.
My point is that any or all options are acceptable as long as:
(1) they are clear to the insured as to the promise being made;
(2) the insured is free, subject to underwriting based on the current condition of the shingles, to choose whatever options they prefer; and
(3) pricing varies appropriately to reflect the choice made.
Gosh, a world where everyone is on the same page, insureds are given some control over their fate, and carriers can be more consistent in their settlements among all the neighbors, making agents less likely to be caught in the crossfire. Could this be heaven?
Nah. Minnesota.
Chris Amrhein is an insurance educator and chief fun officer of www.insuranceisfun.com, where his newest CD, "Roadmap to the Generations: Plotting Your Path Through the Millennial Minefields," is now available. Readers may contact Chris at chris@insuranceisfun.com.
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