Here is a pretty common situation. A roof begins to leak during a heavy rain storm and the property owner reports the claim to the homeowners insurer. An investigation reveals that the loss resulted from hail damage which likely occurred over a year ago. Is there coverage under the ISO HO-3 policy that was in force at the time of the hail storm? What if the insurer denies the claim and the insured files suit?
This question was raised in a series of emails I received during the spring and summer. One of the questions is, exactly what is the loss…the water damage from the leak, the hail damage to the roof, or both? That will raise the issue of when the occurrence took place and what policy then would respond if there is a significant time difference.
This is even further complicated when, as included in one of the emails I received, you have a policy condition like this:
Suit Against Us
…A claim for a loss resulting from the peril of windstorm or hail must be reported to us or our agent within 6 months of the loss event, and any suit arising there from must be brought within one year after the loss or damage occurs….
When hail damage is discovered only after a roof leak materializes many months or even years after the roof damage occurred, what is the damage and when did it occur? Did the damage occur at the time of the hail storm, did it occur gradually over the months or years between that event and the leaky roof?
Much has been written about coverage trigger theories involving third-party liability claims, but very little has been written about first-party property claims. The limited first-party trigger theory articles seem to suggest that the Manifestation Theory applies to first-party claims and coverage should be based on when the damage is discovered.
In other words, for a policy provision like that cited above, the time should begin to toll, not when the initial hail damage occurred, but rather when it was discovered. That seems to be the most equitable way to respond to claims where there may be a fairly long time delay between occurrence and damage discovery.
Some states have statutes or regulations governing the time a policyholder has to sue an insurer, but I’m not aware of any similar legal restrictions on reporting claims other than perhaps some body of case law. Presumably, in the absence of a statute, an insurance policy can establish contractual restrictions on this and the only short-term solution would be a lawsuit charging ambiguity and the only long-term solution would be legislative or perhaps regulatory.
Thirty years ago, ISO reflected this manifestation theory in their HO forms when a plumbing “repeated seepage and leakage” water damage exclusion was removed from the forms. Under current ISO forms, as long as water damage is hidden from sight, there is coverage as long as discovered damage is promptly reported. ISO forms now rely on the Neglect exclusion if prompt reporting doesn’t happen. Again, this appears to be the most equitable approach for unsophisticated property owners, though many (probably most) insurers using ISO HO forms include a “repeated seepage or leakage” type exclusionary endorsement.
So, what do you think? Should insurers deny claims for hail or windstorm damage if the damage is not discovered and reported within 6 months of the storm? Should insurers be able to prohibit lawsuits on this basis? Question for you attorneys…is such a contractual provision legally enforceable?
Bill Wilson
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I lean toward the manifestation interpretation in most cases. There are situations where the insured may not have even been home when the hail occurred and would have had no reason to expect hail damage. It seems that if there was a policy at the time the damage occurred, it should apply. However, if the insured purchased the home 2 years ago and they cannot pinpoint when the hail damage occurred, I don’t blame carriers for denying a claim. There should be reasonable evidence (weather reports, neighbor’s damage) to identify a date of loss within an insured policy period.
We were gone for 10 days and when we returned, several homes in an adjacent neighborhood were getting new roofs. Hail damage. As best as we can tell, we and others immediately around us were spared. My immediate neighbors didn’t recall hail in our section.
Bill: Thanks for your words on this “Dilemma”.
More later.
Bob Shipp
Another article that links to trigger theories:
https://insurancecommentary.com/the-180-day-acv-vs-rc-notice-myth/
From a subscriber:
A more common scenario is there is no roof leak so the insured doesn’t know their roof is damaged because nobody ever inspected the property after a storm. Another storm comes through the area and the roofer canvassing the neighborhood inspects it and that’s when they discover there’s damage but likely from a prior storm. The carrier currently on the risk denies the claim and the prior carrier’s policy has reporting requirement language that you’ve referred to which leaves the insured in a pickle.
Other than the one case below, I don’t know of any other specific case law on point but I believe the DOI reviews and approves the policy forms filed by carriers so other than being against public policy what argument could be argued?
Other than for reasons of prejudice I can’t see where a court would agree with a denial of coverage on the basis of late reporting. Further, in states such as Wyoming the policy of the DOI relative to roof damage is that in the absence of fraud by an insured, in the absence of the insured having already been compensated for the same damage, and based on the insurers right to inspect said premises prior to issuing insurance on said property, the insurer insuring the property at the time of the claim, is responsible for payment of that claim.
Agents and brokers really need to be watching for changes to the policies.