Chip Merlin | Property Insurance Coverage Law Blog | September 18, 2019
Judges should be aware of the extreme and aberrant arguments being made by a few insurance company lawyers about physical damage requiring damage to be “functional” damage. These lawyers argue that property insurance policies contemplate this “functional damage” requirement.
This first American flag above looks great and is beautiful. Suppose a hail storm comes by and it looks like this the next day:
Pressed to the extreme, some insurance companies would allow their attorneys to argue that the second depicted American flag is not covered damage. So, under their argument, what you see is not covered damage under your all risk property insurance policy. These lawyers argue that the flag is not “functionally” damaged and that your property has to have “functional damage” to have the type of physical damage which is covered under standard property insurance policies. What do you think about that? (A previous property insurance adjuster who is now an insurance claim expert sent me the American Flags to prove this obvious point.)
Seriously, the same insurance defense Colorado law firm with its very smart, clever and capable lawyers which advertise pretty significant bonuses to judicial law clerks as noted in my post, Policyholder Law Firms Should Ethically Be Hiring More Judicial Clerks, is making similar “functional damage” arguments on behalf of their insurance company clients. So, this novel and aberrant insurance concept continues to be raised by those who are paid handsomely to get them out of whatever perceived trouble they are getting into.
Maybe policyholders should stop purchasing policies from these insurance companies and from their agents to avoid these coverage denial problems? Would you like a list of the insurance companies arguing this?
Mike Duffy, Christina Phillips, Ed Eshoo, & Chip Merlin
I was in our Chicago office yesterday. Merlin Law group attorney Ed Eshoo was talking about the issue of functional damage and reminded me of his recent post, Does An Insurer Act In “Bad Faith” If It Denies Coverage For A Hail Loss Based On Its Retained Engineer Defining Hail Damage As Functional Damage?
Ed also mentioned that if the insurance companies ever intended for purely cosmetic damage to not be covered, why do they issue an endorsement that excluded cosmetic damage and charge a diminished premium for such policies?
I invite any insurance company defense attorney to write a guest blog that explains why they think their clients intended to cover only “functional damage.” I am still not certain what that term means since it was made up by HAAG engineering.1 In my opinion, this issue shows how desperate some insurers will act to avoid paying for what they clearly owe. That does not seem very American or ethical to me.
If you are a policyholder, public adjuster, contractor or policyholder attorney facing these wrongful functional damage denials, please call us. We can help.
1Cosmetic and Functional Damage – An Academic Discussion by Neil Hall.