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post (and a response) made this weekend about a Missouri insurance department bulletin that was published then later withdrawn.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responder was effectively that a bulletin mandating coverage for the entire loss, including the cosmetics, was later withdrawn because the insurance department is in the pocket of the insurance industry.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 I have no idea why the bulletin was withdrawn and I checked with someone who worked at the MO DOI at the time and he did not know.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.

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information