Cosmetic Exclusion: When Beauty is a Beast

The recent hail storms in Dallas, Fort Worth, Wylie, Richardson and Lewisville have brought to light a little known endorsement in many Texas property insurance policies – the cosmetic exclusion.

The endorsement usually reads:

COSMETIC ROOF DAMAGE.

We do not cover cosmetic loss or damage caused by or resulting from hail to metal, slate or tile roofs. Cosmetic loss or damage means only damage that alters the physical appearance of the roof or any of its components but does not result in damage that allows the penetration of water through the roof covering or otherwise result in the failure of the roof covering to perform its intended function of keeping out the elements over an extended period of time.

Another endorsement might read:

“Cosmetic loss or damage” means only that damage that alters the physical appearance of the “metal roof covering” but does not allow the penetration of water or moisture through the “metal roof covering” or does not result in the failure of the “metal roof covering” to perform its intended function to keep out water and moisture for the remainder of its anticipated useful service life.

To be polite, this is a bull$%*! exclusion.

First, the definition of functionality is vague. A hail strike that does not currently cause a penetration may very well compromise the long term functionality of the roof. For example, damage to a seam on a metal roof may lead to an inability to shed water in a very short period of time. In any event, it may be necessary to find an engineer to analyze the issue of functionality.

Second, the endorsement puts the property owner with a hail damaged roof in an impossible situation regarding future claims. For example, if a claim is denied based on the cosmetic exclusion, what happens when the property owner makes a claim a few years later? Will that claim be denied on a wear and tear or prior damage exclusion?

Third, this endorsement will bring agents into the fray. Many agents aren’t aware that these endorsements have crept into the policy and even when they are aware they have not adequately explained the issue to their customer. This could lead to an E/O claim against the agent.

If you are running into issues with a cosmetic endorsement you should:

1. Hire a public adjuster to conduct a thorough inspection of the property. If your public adjuster fails to inspect the property based on the cosmetic exclusion, you have hired the wrong public adjuster.
2. Hire a roofing contractor that deals with metal, tile or slate roofs. This can be a highly specialized area and your contractor needs to know what they are doing.
3. Seek legal advice.

— by Tim Hoch, attorney