Cosmetic Damage Exclusion Stirs Controversy

ADJUSTERSINTERNATIONAL.COM intended, no coverage applies. Initially, the ISO endorsement applies only to commercial property policies.

AAIS has introduced three endorsements 3 which, in addition to roofs, encompass exterior wall surfacing and exterior doors and windows. The endorsements apply to homeowners policies, not commercial property. One endorsement excludes cosmetic damage to exterior wall surfacing, roof surfacing, and exterior door and window surfacing. The other two endorsements provide actual cash value coverage for roof damage — one applying only to damage by wind or hail, with the other applying to other perils as well.

The AAIS cosmetic damage endorsement defines cosmetic damage to mean physical damage such as marring, scratching, denting, pitting, discoloration, or other condition that affects the appearance of property but does not impair the property’s ability to keep weather-related or other elements from entering to the same extent that it did before the marring, scratching, etc., occurred.

Thus, if the appearance of the roof is affected by hail damage, say from dents or scratches on the roof surface, but no leakage occurs, coverage would not apply. The roof still functions for its intended purpose. This is a significant departure from current claim handling practices where in such cases the roof likely would be insured on a replacement cost basis and replaced, provided the insured meets the 80 percent insurance to value requirement and damage was sufficiently widespread to warrant replacement.

These endorsements are available on an optional basis from the standpoint of the insurer. It is unclear whether insurers will use these endorsements extensively or just in states with a high frequency of hail losses.

Agents and insureds need to be aware of and understand the limitations if these endorsements are attached to their policies. Additionally, insurers have a responsibility to inform their insureds in clear, understandable language how these endorsements limit their coverage.

…this is a reaction by insurers to deal with the increasing volatility of weather events which are causing havoc with insurers’ loss ratios.