Don’t Get Fooled By Cosmetic Damage Exclusions

As the threat of massive hail storms increases, so does the amount of cosmetic damage exclusions in insurance policies. Exclusions are one way insurance carriers limit coverage and reduce claim payout. Cosmetic damage exclusions usually apply to metal roofs but also siding, windows, and other exterior components. If the insurance carrier determines the damage is cosmetic, they don’t have to cover the repair costs. Unfortunately, this leaves the policyholder to pay out of pocket for repairs. 

Cosmetic damage exclusions have been around for almost a decade. Yet, most homeowners have no idea they exist or how it could impact claim payout. Insurance carriers often hide or bury these exclusions so deep that the average person is unaware it exists. Policyholders take advantage of the premium discounts for this “optional” coverage only to find out they don’t have coverage for hail damage.

Related: Allstate forced to pay $1.5 million after failing to disclose cosmetic damage exclusion. 

Despite causing a massive gap in coverage, policies with metal roof and hail damage exclusions are classified as “replacement cost value” coverage. This distinction is important as the insurer assumes the total cost of repairs. Mortgage lenders, banks, and other organizations require this type of coverage to get a home loan. Yet when the exclusions are applied, policyholders are left with below standard coverage. 

Do Policies With Cosmetic Damage Exclusions Meet RCV Standards?

Most policies define cosmetic damage as marring, scratching, pitting, denting, or discoloration to a structure that affects its appearance but does not impact its ability to protect from outside elements. Thus, if a metal roof sustains physical damage from a hail storm but is not leaking, the cosmetic damage exclusion would apply, and the claim would be denied for coverage. 

Cosmetic damage exclusions are problematic for several reasons:

• Even without leaks, physical hail damage can lower the value of a home or building.
• HOA bylaws may require repair to metal roofs with hail damage regardless of their structural ability.
• Dents, dings from hail damage may not immediately cause leaks. However, the physical damage could weaken the roof system and result in severe damage over time. 

Policies with cosmetic damage exclusions do not factor in these additional costs to policyholders. Furthermore, hail is one of the most common causes of damage homeowners will experience, yet coverage for it is almost entirely excluded. 

Why Don’t Homeowners Know About Cosmetic Damage Exclusions? 

On the surface, policies with cosmetic damage exclusions don’t appear much different than those without. That’s because the exclusions are often buried deep in the policy, most of which is never read by policyholders. A recent case study on cosmetic damage exclusions highlights the challenges consumers face when getting property damage insurance: 

A Colorado homeowner had property damage insurance through Safeco. The insurance agent was aware this homeowner had a metal roof. After several rounds of hailstorms, the policyholder filed a claim to repair the damage. Safeco denied the homeowner’s claim due to a cosmetic exclusion for hail damage. 

Before filing the claim, the policyholder was unaware of the cosmetic damage exclusion. After review, it was listed on page 44 of the policy. Furthermore, the agent who sold the policy knew about the metal roof but failed to advise the client of adequate coverage options. The price difference between this homeowners policy and one without a cosmetic damage exclusion was $40. The cost to replace the metal roof was over $25,000. 

While insurance agents and brokers must have proper licenses, most states don’t require that they determine coverages needs, inform owners of all available options, or recommend specific amounts of insurance. Simply put, agents are order takers. Therefore, unless the policyholder specifically requests coverage or information, they may end up similar to the Colorado homeowner mentioned above. 

The best way policyholders can ensure they have proper coverage is to read their insurance policy, ask for any possible exclusions upfront or get professional help. 

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