June 13, 2016
Summary: ISO recently created two endorsements: Cosmetic Damage Exclusion – Windstorm Or Hail, HO 06 43 04 16; and Roof Surfacing Cosmetic Damage Exclusion – Windstorm Or Hail, HO 06 44 04 16. Being cosmetic, the surfaces are still intact and do not put other property in peril. This article reviews the forms and the background behind them.
Property damage insurance generally assumes that the damaged property, especially coverage A, affects the functioning of the property. A fire makes at least part, if not all, of the home uninhabitable; damage to windows lets in the elements; and water losses damage flooring, carpets, and anything on the floor.
A lot of roof damage affects the functioning of the property; for example, a roof damaged by a tree or lightning no longer prevents water and other elements from entering the property. Likewise, damage to the siding can let rain inside the dwelling. Hail or windstorm can be a different scenario. Small hail can often cause only cosmetic damage that does not affect the functioning of the roof or the siding. Windstorms can blow debris across a roof that scratches it but does not affect the functioning. Replacing the roof or siding for cosmetic damage is costly and time consuming for both carriers and insureds, especially when the original structures still function as designed.
In the past some carriers have balked at providing coverage since there is no reduction of functioning, just appearance. Insureds have understandably filed suit, seeing as the value of a home with pockmarks on the roof is less than one without such marks, even though the functioning may be the same. In Advance Cable Co., LLC v. Cincinnati Ins. Co., 788 F.3d 743 (7th Cir. 2015), the insured suffered damage to his metal roof from hail ranging from barely discernible to one inch in diameter; the hail left visible indentations in the roof, but caused no loss of functioning. The carrier refused to pay for the damage to the roof, and the insured filed suit for breach of contract. The court found for the insured, granting summary judgment, and the carrier appealed. Under the appeal the court held that the word "loss" applied to both functional and cosmetic damage, and that the insurer's denial was not in bad faith. Under Wisconsin law the word "physical" applies to hail damage to the surface of a roof as the hail changes the characteristics of the roof, even though functionality may not be changed.
Another case had similar results. In Great Plains Ventures, Inc. v. Liberty Mut. Fire Ins. Co., No. 14-CV-1136-JAR, 2016 WL 590207 (D. Kan. Feb. 11, 2016), the scenario was the same: hail damage to metal seam roofs. The court held that "physical damage or loss" within the insuring agreements pays for hail indentations on metal seam roofs and that the insuring agreement unambiguously allowed for coverage of cosmetic hail indentations. Other cases seem to agree.
However, the new endorsements that exclude coverage for cosmetic damage allow an insured to reduce his premium for a potential loss that does not affect the integrity of the roof, siding, or windows. Currently, HO 06 44, Roof Surfacing Cosmetic Damage Exclusion – Windstorm or Hail, is available in only some states; other states may adopt it later. The states in which the form is available are Arizona, Colorado, Idaho, Illinois, Iowa Kansas, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Nevada, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Utah, and Wisconsin. HO 06 43, Cosmetic Damage Exclusion – Windstorm or Hail, is available in all the same states except for Kansas.
Definitions-HO 06 44 Roof Surfacing Cosmetic Damage Exclusion – Windstorm or Hail
With respect to the provisions of this endorsement, the following definition is added:
"Roof surfacing" means the:
1.Shingles or tiles;
2.Cladding;
3.Metal or synthetic sheeting or similar materials covering the roof; and
4.Roof flashing.
This includes all materials used in securing the roof surface and all materials applied to or under the roof surface for moisture protection.
Analysis
So that the insured and the carrier are on the same page, the endorsement first defines "roofing surface." This includes shingles or tiles, cladding—which is simply something that overlays, specifically a metal coating bonded to a metal core—and metal or synthetic sheeting or similar materials and roof flashing. Included in roof surfacing is all materials used in securing the roof to the structure and all materials applied to or under the roof for moisture protection. Note that this does not refer to a vegetated roof; such roofs are unique structures and do not suffer hail damage such as dents and marring the way that solid roofs do.
Definitions-HO 06 43 Cosmetic Damage Exclusion – Windstorm or Hail
With respect to the provisions of this endorsement, the following definitions are added:
1."Exterior surfacing" means the material(s) used to surface the exterior of a building to protect against exposure to the elements. "Exterior surfacing" includes but is not limited to:
a."Roof surfacing";
b.Siding;
c.Doors; and
d.Windows.
2."Roof surfacing" means the:
a.Shingles or tiles;
b.Cladding;
c.Metal or synthetic sheeting or similar materials covering the roof; and
d.Roof flashing.
This includes all materials used in securing the roof surface and all materials applied to or under the roof surface for moisture protection.
Analysis
This definition mirrors the one for the roof damage exclusion except that it identifies not just the roof, but the siding, doors, and windows. "Exterior surfacing" is defined as materials used to surface the exterior of a building; this can be siding, doors, windows, and the roof as well. The purpose is to protect against the elements. The screen on an outdoor porch is not exterior surfacing since it does not prevent rain or snow from entering the porch. It may prevent bugs, but it does not prevent the weather the way siding, doors, or windows do. Hail is as apt to damage siding and windows as it is the roof, and with siding matching can be an enormous issue. See The Matching Game and Pre-Loss Conditions. It is not unusual for one side of a home to be damaged only to find that siding that matches can no longer be found; then the issue arises as to whether or not all the siding needs to be replaced. With this exclusion, if the damage is only cosmetic, the siding will not be replaced in exchange for a reduction in premium.
Section I – Exclusions HO 06 44 Roof Surfacing Cosmetic Damage Exclusion – Windstorm or Hail
The following exclusion is added:
Cosmetic Damage
Cosmetic damage means:
1.Marring;
2.Pitting; or
3.Other superficial damage;
that alters the appearance of the "roof surfacing" on buildings covered under Coverage A or B caused by the peril of windstorm or hail, but such damage does not prevent the "roof surfacing" from continuing to function as a barrier to entrance of the elements to the same extent as it did before the cosmetic damage occurred.
All other provisions of this Policy apply.
Analysis
The exclusion is straightforward. "Cosmetic damage" is defined as marring, pitting, or other superficial damage. This would include any sort of mild hail damage or scratching caused by branches blown about in a windstorm, as long as the damage does not affect the functioning of the roof. If the roof no longer prevents water from entering the premises, that is beyond cosmetic damage and would be covered.
Section I – Exclusions HO 06 43 Cosmetic Damage Exclusion – Windstorm or Hail
The following exclusion is added:
Cosmetic Damage
Cosmetic damage means:
1.Marring;
2.Pitting; or
3.Other superficial damage;
that alters the appearance of the "exterior surfacing" on buildings covered under Coverage A or B caused by the peril of windstorm or hail, but such damage does not prevent the "exterior surfacing" from continuing to function as a barrier to entrance of the elements to the same extent as it did before the cosmetic damage occurred.
All other provisions of this Policy apply.
Analysis
The exclusion is virtually identical to the one for roof surfacing. Cosmetic damage that does not affect the ability of the property to bar the elements is excluded. Remember that the insured receives a reduction in premium and that this exclusion is optional.
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