This post focuses on wording choices used in hail reports to describe hail effects. Part two will focus on proper hail inspection protocol, damage criteria, and so forth. This post was written by two Haag engineers and by a Haag Education Co. instructor, the latter of whom has been an adjuster and provided adjuster training for years prior to joining Haag Education. To be clear, it is this instructor who addresses policy provisions in this post, and it is the responsibility of the adjuster to know and apply each policy.
For those of us who have been assessing hail-caused damage to roofs for some time, the terms “functional damage” and “cosmetic damage” have been tossed around quite commonly over the years. But as insurance policies and case law have evolved, so too should your vernacular when it comes to hail damage assessment.
Some of you may have read a 2018 Haag blog on hail and metal roofing (https://haageducation.com/august-2018-blog-post/) or a read a CLM article on the same subject (http://clmmag.theclm.org/home/article/Testing-Your-Mettle). A recent court ruling in Indiana has shed light yet again on the subject of hail damage with respect to insurance claims (https://www.plrb.org/courtopinions/090419north.pdf).
The court in this decision, denied an insurance company’s motion for summary judgment to dismiss an accusation of bad faith. The ruling cited the definition of hail damage applied by an engineer (not a Haag file, by the way) retained by the insurance company to evaluate “shingle” roofing. Per the plaintiff’s allegation, the engineer defined hail damage as “functional damage” while the policy covered “cosmetic shingle damage”. While the case itself has yet to be decided, the issue of cosmetic versus functional damage is one worth addressing.
Casual use of the term “damage” – either cosmetic or functional – by an expert can have major implications depending on a particular insurance policy. It is not the role of the engineer or roof consultant to interpret an insurance policy or make coverage decisions. Those tasks are solely the role of the insurance adjuster. Instead, the expert should clearly state what the hail did and did not do. Some basic examples follow.
If a client tasks an expert with answering a specific question, however, then the expert should answer that question as best as he or she can. For example, if the question is, “Did hail functionally damage the roof?”, then the client should advise the expert if there is a specific definition of “functional damage” the carrier is using that needs to be applied. If there is no governing definition, the expert will be left to state their own definition. [A longstanding definition of functional damage used by Haag is a reduction in the water-shedding capability or expected service life of the roofing material.] If the question is, “Was hail damage to roof cosmetic or functional?”, then questions arise as to the definitions of both functional and cosmetic damage.
Otherwise, the expert could consider referring to dents in metal, insignificant granule loss, or other such hail effects that did not shorten the service life or reduce the water-shedding capability of the roof or appurtenances as “cosmetic effects” or “cosmetic conditions”. By clearly stating what hail did and did not do to the roof and by avoiding the term “damage”, the inspector enables the insurance adjuster to perform his or her role of applying the policy and making coverage decisions.
Several courts in various states have addressed the issue of what constitutes “direct physical damage” under an insurance policy. In almost all cases thus far, courts have ruled that cosmetic changes in roofing materials caused by wind or hail are “damage” under the insurance policy. That, however, does not mean that the cosmetic changes are covered damage. Whether those conditions are covered will depend on the policy wording. Even if there is a cosmetic damage exclusion or similar endorsement on the policy, coverage will vary depending on the specific policy wording and occasionally on the state in which the loss occurs if a court in that jurisdiction has made a ruling that sets a precedent.
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