The Match Game

In over 30 years of assisting agents and others in resolving insurance claims, some issues just keep coming up over, and over, again.

One such dilemma involves “matching” issues, especially in homeowners insurance claims where hail or windstorm cause damage to asphalt roofing or vinyl siding.

When some, but not all, shingles or vinyl siding panels are damaged by hail or windstorm, the insured of course wants the entire roofing or siding replaced. The reason for this is that replacing older, somewhat worn shingles or siding with new material reduces the overall value of the entire premises because of the resulting degraded aesthetic or cosmetic appearance.

And, after all, the general purpose of insurance is to financially restore the insured to the same position enjoyed immediately prior to the loss.

However, the problem is the actual language in most property insurance contracts. For example, the current ISO HO 00 03 form says, “We insure against direct physical loss to property…” [emphasis added]. Property losses can be direct or indirect. Direct losses are those involving property that is directly damaged. Indirect, or consequential, losses are economic losses to property not directly damaged that arise, in this case, because of direct damage to other property.

In other words, for our claim scenario, a literal reading of the contract language results in coverage only for the shingles or siding that are actually physically damaged by the covered peril. The economic loss to the entire building because of a mismatch of new material with older material or material no longer available is not covered.

However, there may be one exception to this in ISO and most other homeowners forms. I’ll come back to this momentarily. In addition, there are two other considerations.

First, many insurers address this issue with proprietary forms or endorsements and the variations in coverage are widespread. Some forms say, in no uncertain terms, that this type of consequential damage is not covered. Other forms provide coverage for damage beyond that which is “cosmetic” or superficial. Still other forms explicitly cover such losses on an optional basis, perhaps with a replacement cost offset for depreciation with regard to the consequential damage.

Second, regardless of the contract language, some states have statutes or case law that govern claims of this type. At the end of this article, I’ll provide two links to other articles that dig deeper into the “matching” issue and include listings of state statutes, regulations, and case law. Given that case law often governs the interpretation of insurance policy language under equivalent circumstances — and that statutes usually override insurance contract provisions — knowing what the law is in a state is critical to properly resolving these claims.

A third possibility referenced above exists in existing ISO and most non-ISO policy forms, and that is the Pair or Set clause. This is the wording in the current ISO HO 00 03 form:

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.

I’ve seen the first option exercised when some shingles on the front of the house were damaged and they were replaced with undamaged shingles from the back of the house to maintain a consistent appearance from the street, though the appearance from the back yard isn’t so hot with those new shingles that replaced the relocated shingles.

The second option is to pay the difference in value of the entire “set” of shingles or siding before and after loss. The problem with this is that this valuation is subjective and it’s based on actual cash value (ACV), not replacement cost.

In 2013, my residence was hit by a tornado. Fortunately, it was “only” an EF0 tornado so my total property damage was less than $50,000 and a good part of that was the debris removal expense of the 19 trees I lost (some covered and some not covered, but that’s a subject for a future article). The biggest loss to the dwelling itself was to about a third of the shutters that were gone or damaged beyond repair.

In my case, my homeowners insurer used the 1991 edition of ISO’s HO 00 03 form but added a broadening endorsement. One of the broadenings was applying the Pair or Set clause on a replacement cost, not ACV, basis. To make a long story short, I received all new shutters because of this added coverage. It didn’t hurt that my state also has an insurance regulation and case law that requires the repair or replacement to conform to a “reasonably uniform appearance.”

As mentioned earlier, I recommend that you read two excellent white papers, both including listings of state statutes, regulations, and case law, and file them away for future reference. Those are:

• “‘Matching’ in Replacement Cost Homeowners Insurance Policies” (https://tinyurl.com/Matching01)
• “Matching Regulations’ and Laws Affecting Homeowners’ Property Claims in All 50 States” (https://tinyurl.com/Matching02)

Do you have a coverage issue you’d like to see addressed in this column? If so, email Bill@InsuranceCommentary.com and I’ll consider it for a future column. Otherwise, if there is an existing article on the subject, I’ll direct you to that.