I subscribe to a blog from a plaintiff’s attorney. I don’t always agree with the posts, but I find them to be interesting and generally fair. An exception was a blog post (and a response) made this weekend about a Missouri insurance department bulletin that was published then later withdrawn. I’ll give you a minute to read the blog entry….
The claim scenario deals with property like vinyl siding or asphalt roof shingles which is damaged by a covered peril such as hail. Only individual shingles or one side of a home actually has physical damage but, of course, the insured wants the entire roof or all siding on the house replaced because the result of just replacing the damaged property results in a downgrading of the cosmetic appearance of the home.
The apparent conclusion of the author and at least one responder was effectively that a bulletin mandating coverage for the entire loss, including the cosmetics, was later withdrawn because the insurance department is in the pocket of the insurance industry. So this was my response (at the time of this writing, my post on the other blog was awaiting approval and I’ve slightly edited my original response below):
Chip, what you and Shirley are saying is largely biased presumption and I say that with all due respect. My career in the P&C insurance industry spans 6 decades. Bulletins like the one described carry no force of law, though insurers often abide by them. I have no idea why the bulletin was withdrawn and I checked with someone who worked at the MO DOI at the time and he did not know. It is not a fact-based conclusion that somebody is in the pocket of the insurance industry and that explains why it was pulled. More likely, someone pointed out that most of the policies in the marketplace simply do not cover this type of “matching” loss.
Here is an article about this (no password needed…I got so many questions about this issue that I made the article public last year):
“Direct vs. Consequential Damage in the Homeowners Policy”
As the article points out, some states have statutory or case law that governs such consequential or indirect claims. The ISO homeowners forms (as do most non-ISO forms) clearly state that they only cover DIRECT damage. If I own a suit and the coat is physically damaged, but not the pants, I don’t get a complete new suit even under replacement cost coverage because only the coat suffered DIRECT damage. That may not sound “right,” but that’s precisely what the insurance contract says and means. HOWEVER, this is why the ISO homeowners policies have a “Pair or Set” clause that pays the difference between the value (on an ACV basis) before and after the loss, such that you get more than just the value of the pants.
I’ve personally and successfully used this clause when settling a tornado claim that damaged or destroyed 6 of 18 shutters on my home a few years ago. I invoked the Pair or Set clause (something my adjuster said no one had ever done for real property, though the clause does not say it’s limited to personal property). And the really good news? The insurer used the 1991 ISO HO-3 policy but had a broadening endorsement that provided replacement cost, not just ACV, recovery in the Pair or Set clause. Long story short, because the shutters were almost 30 years old, they couldn’t be matched, so I got 18 brand new shutters.
What is covered is/should be governed by what the insurance contract says. My experience over 47+ years is that claim denials are not most often based on the insurer trying to screw its customers. Most often denials are based on the FACT that the policy doesn’t cover the claim.
That being said, it is sometimes, perhaps even often, the case that the language is subject to more than one reasonable interpretation. If so, the insured usually wins. I’ve spent the past 28 years assisting independent insurance agents who are advocating FOR coverage for their customers in such cases.
There are other reasons for claim denials we could talk about (including the sad state of mandatory industry education today), but I truly and honestly believe that deliberately refusing to pay a known covered claim is a rare reason and more often due to either the FACT that the policy doesn’t cover the loss or that there is some measure of incompetence or misjudgment involved rather than malice.
February 1, 2017 Update:
Check out this excellent white paper on this subject:
“Matching” in Replacement Cost Homeowners Insurance Policies*
This report was prepared for United Policyholders by Jay Feinman, Distinguished Professor of Law at Rutgers Law School and Co-Director of the Rutgers Center for Risk and Responsibility; Nancy Talley, Librarian at Rutgers Law School; and Evan Kerstetter, Rutgers Law School—J.D. expected 2018. Contact Jay Feinman at feinman@law.rutgers.edu. This report is for informational purposes only and is not a substitute for legal advice.
Bill Wilson
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Interesting note on the “Pair or Set” clause. Curious if you have ever heard of any cases in Nebraska where this may have been invoked.
Also, I didn’t see a mention of it, but the Pair or Set clause states “In case of loss to a pair or set we MAY elect to:…”. As you have stated before, words do matter. When I interpret that language, it leaves the application of the Pair or Set clause completely at the will of the carrier. How could you legally challenge whether or not the clause applies to roofs and shingles when the clause can only be invoked at the carrier’s discretion?
Sean, I have no seen the Pair or Set clause adjudicated for real property other than my own claim. It’s quite possible it has been, but I’ve not looked for it. As for the use of “may” in the Pair or Set clause, ISO uses the word “may” 27 times in their current HO-3 form. If it was interpreted as “may or may not” in each instance then that would strip a lot of the coverage out of the form. “May” may (no pun intended) mean different things, depending on the context of its use. This is what the clause says:
As used here, “may” refers to either/or in that the insurer may either pay repair or replacement or the difference in ACV before and after loss.
Here is some Q&A from today that illustrates that this issue is not limited to homeowners insurance:
Q: “One front tire was damaged in a covered collision loss on an all wheel drive vehicle. The carrier is offering to pay for two tires with an allowance for betterment. The manufacturer and tire retailers say all four tires should be replaced at the same time on all wheel drive models. The insured believes the logic followed that allows the carrier to pay for two tires must be extended to all four tires on this vehicle. I agree with the insured. Is there a developed industry standard that supports replacing more than the damaged tire on all wheel drive vehicles?”
A: There is no “industry standard” that governs whether something is covered or not. The insurance contract rules. The carrier’s first mistake was probably agreeing to replace both tires rather than just the one damaged. Now they may have established a precedent that could extend to all four tires, depending on their rationale for replacing the second undamaged tire. What does the POLICY say? The ISO PAP says it covers “DIRECT” damage, not consequential damage in the form of replacing property not physically injured. A literal reading of the ISO PAP would lead most people to the conclusion that only the damaged tire is covered. There is no obligation in any auto policy I’ve seen to pay for claims involving compliance with manufacturer recommendations.
From FC&S:
Question: I have a claim in Illinois and the insured has an HO-0005. The public adjuster is stating since we can’t match the siding we owe for the whole re-siding of the home regardless of damage. They are referring to page 14 of 22 where it states:
D. Loss To A Pair Or Set
In case of loss to a pair or set we may elect to:
1. Repair or replace any part to restore the pair or set to its value before the loss; or
2. Pay the difference between actual cash value of the property before and after the loss.
Our interpretation in the past is this has to do with personal property and not siding, roofing, gutters, etc. I was wondering if you have a previous opinion on this or could give one for our future reference? Thank you for your help on this matter.
— Illinois Subscriber
Answer: Matching is one of the most discussed parts of homeowners coverage. Our opinion has always been that if the policy is replacement cost, the carrier owes to restore the insured to what he had pre-loss, and that is matching siding. Otherwise, the insured has not been property indemnified, which is the point of coverage. You are correct in that the pair or set clause refers to personal property and not parts of the dwelling itself. The siding is siding, and not a set that can be broken up and moved around.
http://www.propertycasualty360.com/2017/08/23/challenges-arise-with-matching-property-damage-rep
For what it’s worth, I’d tend to disagree with this conclusion on three counts:
1. The ISO HO policies cover “direct” damage to property. In this example, the part of the siding that would no longer match the replacement siding has not been directly damaged. That would be an indirect, consequential economic loss, not a direct loss as required by the insurance contract language. That being said, there are statutes and case law that may govern.
2. I would argue that the undefined term “set” could reasonably be interpreted to include sections of siding, such as this Webster’s definition: “a number of things of the same kind that belong or are used together.”
3. There is nothing in the ISO HO Pair or Set clause that limits its application to personal property…the provision simply refers to “the property.” When my own home was hit by a tornado, we lost 6 of 18 custom shutters. I successfully invoked the Pair or Set clause to get 18 new shutters. In addition, while the ISO clause has an ACV-based valuation, my insurer had a broadening endorsement that modified this to a replacement cost basis.
If the intent of the policy provision is to limit the Pair or Set clause to Coverage C, it should be moved to that section of the form or otherwise reworded to reflect that intent. The meaning of “set” should also be clarified so that it is not ambiguous and subject to multiple reasonable interpretations.
Here’s a blog post I made about matching problems that includes a link to a public VU article citing statutory and case law examples, as well as a link to a white paper on the subject:
https://insurancecommentary.com/ho-matching-problems-and-the-pair-or-set-clause/
The whole “matching” issue is a good example of an ambiguous, or at least confusing and debatable, policy provision where all parties would be best served by clarifying the intent.
Case law citation from the Merlin law group:
http://www.propertyinsurancecoveragelaw.com/2017/08/articles/court-opinion/an-insurers-obligation-to-match-comparable-materials-and-quality/
Also see my comment on their post.