Cosmetic Damage is Physical Damage

Chip Merlin | Property Insurance Coverage Law | October 22, 2014

Property insurance policies cover physical damage to property. Cosmetic damage has traditionally been paid if the damage is greater than the deductible. Lately, some ingenious insurance company lawyers are wrongfully arguing that their stingy insurance company claims managers are correctly not paying for cosmetic damage.

Yours truly filed an amicus brief on behalf of United Policyholders regarding the issue of cosmetic damage being physical damage covered under an insurance policy. In my brief, I noted a fairly recent (December 2011) FC&S Bulletin confirming that cosmetic damage is physical damage covered under the policy:

Question: Hail stones have created dents to a copper roof. The section of roofing is located over a second story bay window. It does not appear that the hail has compromised the life span of the roof’s surface or otherwise affected or decreased its useful lifespan.

Our HO policy provides coverage for direct physical loss. If the roof’s integrity was not compromised by the hail stone impact, has a physical loss occurred?

We believe that some carriers view this type of damage as cosmetic and do not provide coverage for replacement of copper roof. Does FC & S have an opinion?

[Answer:] Whether or not the dents are cosmetic or affect the roof structure, they are still direct physical loss. The policy doesn’t define damage so standard practice is to go to a desk reference. Merriam Webster online defines damage as loss or harm resulting from injury to property, person, or reputation. The roof now has dents where it didn’t before; that’s direct damage. The policy doesn’t exclude cosmetic damage, so direct damage, even if it is cosmetic, is covered. It’s the same as if vandals had painted the side of the house purple. While cosmetic, it’s damage, and is covered. The principle of indemnity is to restore the insured to what they had before the loss, and this insured had a roof with no dents.

I previously noted this in Cosmetic Damage is Physical Damage and Recoverable Under a Property Insurance Policy.

One very recent case discusses at length that cosmetic damage is physical damage finding that in a hail damage case, it is “axiomatic that a dented roof is worth incrementally less than an undented roof.” Lead GHR Enterprises, Inc. v. American States Ins. Co., Case No. 12-5056-JLV, op, at 3 (D.S.D. Sept. 30, 2014).

Before a hearing in Houston on Monday, I was discussing this issue of cosmetic damage with Phillip Sanov. I was strolling along the parking garage and said, “Can you imagine trying to argue that if a kid spray painted urban art on this wall that such cosmetic alteration is not physical damage? And, could you imagine trying to argue that a BMW dented on its hood by hail was not physical damage because the hood still functioned?” His reply was: “Only insurance company lawyers getting paid by the hour to hide their client’s conduct would not be embarrassed by that.”

Those ingenious insurers and insurance company lawyers. What will they come up with next?

via Cosmetic Damage is Physical Damage : Property Insurance Coverage Law Blog.

Recent Florida Appellate Court Case Involving Waiver Of Appraisal

Shaun Marker | Property Insurance Coverage Law Blog | October 27, 2014

Recently Florida’s Fifth District Court of Appeal (“5th DCA”) issued a ruling related to whether a policyholder had waived the right to participate in the appraisal process.1 The right to participate in appraisal under the policy can be waived if actions are taken that are inconsistent with that right.

The facts are fairly straightforward. In April 2010, the policyholders had a homeowner’s insurance policy with HomeWise Preferred Insurance Company. Their home sustained suspected sinkhole damage, but HomeWise denied their claim. In February 2011, they sued HomeWise for breach of contract. HomeWise answered, denying that a sinkhole loss had occurred, and denying that any covered loss had occurred. In September 2011, the case was stayed due to HomeWise’s insolvency. In June 2012, after FIGA was activated, the policyholders amended their complaint to substitute FIGA for HomeWise. The amended complaint did not mention appraisal.

In August 2012, FIGA filed its answer. FIGA admitted that it agreed to pay for their “covered claim for sinkhole loss” within certain limits. On October 11, 2012, the policyholders filed a motion to compel mediation in which they noted that “the parties originally disagreed as to whether the home has been damaged by sinkhole activity. However, FIGA has apparently conditionally accepted liability for the loss, but has put unreasonable conditions on payment of benefits.” That same day, they also moved to compel responses to previously-filed interrogatories. In January 2013, the policyholders moved for partial summary judgment as to FIGA’s liability, and a week later they noticed the case for trial. In July, FIGA again conceded that they had “a covered claim and there is no dispute over whether sinkhole activity exists at the subject property.” FIGA only contested the amount due. In September, the trial court granted the policyholders’ motion for partial summary judgment. On October 7, the policyholders demanded appraisal in a letter to FIGA. Shortly thereafter, they filed a motion to compel appraisal, which the trial court granted. FIGA appealed that order and argued that the policyholders had waived their right to appraisal.

The 5th DCA noted that FIGA acknowledged that the policyholders sustained a covered loss in August 2012. Appraisal became appropriate at that time. However, they waited a little over a year after FIGA’s admission of coverage before demanding appraisal. During that time, they moved to compel responses to discovery requests, sought and obtained a partial summary judgment, and noticed the case for trial.

The appellate court noted that “the long delay, combined with the significant litigation activities pursued by the Reynoldses after coverage was conceded, distinguishes this case from Branco. Taken together, these undisputed facts demonstrate that the Reynoldses acted inconsistently with, and waived, their rights to appraisal.”

The appellate court noted that the policyholders urged it to hold that the coverage dispute was not resolved until the trial court entered partial summary judgment in September 2013. The appellate court pointed out that the policyholders conceded below that FIGA had already accepted liability for the loss in October 2012. So the 5th DCA rejected that argument by the policyholders and concluded the trial court’s finding they did not waive their rights to appraisal was error, and reversed.

If appraisal is a remedy that a policyholder seeks to avail itself of, appropriate actions should be taken so the insurance carrier cannot argue that they waived the right to appraisal. While each set of factual circumstances is different, always consult with experienced representatives to determine if appropriate steps are being followed to ultimately get the claim to appraisal if that is the route the policyholder wishes to follow.

1 FIGA v. Reynolds, No. 5D13-4510, 2014 WL 5285001 (Fla. 5th DCA October 17, 2014).

via Recent Florida Appellate Court Case Involving Waiver Of Appraisal : Property Insurance Coverage Law Blog.

Dispute Resolution Boards as an Alternative to Arbitration

Matthew J. Eandi, Esq. | Ervin Cohen & Jessup LLP | October 10, 2014

Disputes are inevitable in the construction context where numerous professionals are engaged in the development of highly complex building projects, often over several years, with many of these sophisticated parties represented by attorneys from the get-go. The stakes are high in this setting with increased pressure to cut costs at every step, including the dispute resolution process. In seeking to avoid the cost and entanglement of litigation through the congested court system, arbitration is often perceived as the default for alternative dispute resolution.[1] Consequently, arbitration provisions are commonly incorporated into construction contracts as the norm.

“[A]rbitration has the potential to achieve quicker and less expensive binding results than court-based legal systems. But recently arbitration has acceded to the desire of litigators for expensive adversarial discovery and motion practice, including e-discovery issues. Because of this expense, standard one-size-fits-all arbitration, based on well-known rules of procedure, has started to fall out of favor with respected critics in the United States[.]”[2] The practical reality is that in multi-party construction litigation, it is not necessarily less expensive or more efficient to utilize arbitration as a means of dispute resolution over litigation through the court system. This has given rise to “. . . the contractual designation by the parties of Dispute Resolution Boards (DRBs) particularly for projects of significant size, complexity, cost and duration[.]”[3]

DRBs, as contractual creations, are highly customizable by the parties to meet the particularized needs of individual construction projects and its organizational structure. “[T]he emphasis in the DRB process is placed on resolving the dispute at the earliest time, and at the lowest level of organizational interaction, before oppositional attitudes have had a chance to develop and harden.”[4] Thus, DRB procedures may be implemented at the earliest stages of conflict, by way of example, in cases of conflicting opinions between professionals on discrete building or design issues. Resolving these common discrepancies early via third neutral parties often avoids minor conflicts spiraling into full-blown litigation over time. A DRB typically consists of a panel – usually three – neutral third party construction industry experts selected by the parties. Depending on their contractual mandates, DRB decisions may be nonbinding in nature or final and binding – commonly considered admissible evidence as conclusive precursory third party findings and recommendations in any subsequent litigation.[5] The contract may specify the manner in which disputes are submitted to the DRB, in addition to the time and manner in which the DRB renders its decision and recommendations. There may also be provisions for judicial intervention and review in the event an aggrieved party disagrees with the DRB’s ruling. However, Court’s will generally uphold a DRB process that emphasizes fast, efficient and neutral resolution when the contractual language clearly mandates it.[6]

Parties must consider implementing DRBs at the inception of projects when agreements are drafted. The practical benefits of implementing DRBs in construction contracts provides an early and cost-effective means of resolving disputes before resorting to litigation. DRBs allow parties the flexibility to control the DRB process, which is highly customizable to the type of project and its organizational structure. The ability to control the binding nature of DRB decisions and admissibility of DRB findings, conclusions and recommendations in subsequent litigation may further prove to be cost-effective in reducing litigation costs should the dispute rise to that level.

Attorneys in Ervin Cohen & Jessup’s Construction & Environmental Law practice group are prepared to assist their clients with the incorporation of DRB provisions into construction contracts, in addition to the subsequent implementation and oversight of DRB procedures during the course of a construction project.


[1] In the past three fiscal years, the Los Angeles County Superior Court absorbed a recurring budget shortfall of $187 million.  As of March 2014, 25% of courthouse staff has been cut since 2008. (, September 15, 2014)

[2] Paul M. Lurie, Using the Guided Choice Process to Reduce the Cost of Resolving Disputes, September 2014, NL 1

[3] Thomas S. Marcey, Enforcing ADR—The Experience With Contractually-Mandated Dispute Resolution Boards, Construction Briefings, September 2014, NL 1

[4] Id.

[5] Los Angeles Cnty. Metro. Transp. Auth. v. Shea-Kiewit-Kenny, (1997) 59 Cal. App. 4th 676, 686, as modified (Dec. 9, 1997)

[6] Id.; Sehulster Tunnels/Pre-Con v. Traylor Bros./Obayashi Corp., 111 Cal. App. 4th 1328, 1342 (2003)

via Dispute Resolution Boards as an Alternative to Arbitration « Ervin Cohen & Jessup LLP « It’s not a common practice..

Florida Appellate Court Opinion Regarding the Extent or Scope of Appraisal

Shaun Marker |  Property Insurance Coverage Law Blog | October 13, 2014

This is part two of my earlier post, Florida Appellate Court Defines The Meaning Of The Term “Disinterested” As It Relates To Appraisal Provision, concerning the recent opinion in FIGA v. Branco.1 The 5th DCA opinion discussed the scope of appraisal. This is often a common issue that policyholders and insurance carriers have when a claim proceeds to appraisal – does the dispute concern coverage or amount of loss? Often the insurance carrier will assert that the dispute involves a question of coverage which is not appropriate for appraisal. Appraisal deals with an amount of loss question. Well the Branco case has a good discussion and analysis on this topic.

FIGA argued that the trial court was wrong in ordering the parties to appraisal because their dispute was over the “method of repair” rather than the “amount of loss.” The Florida Court considered the question:

[W]hether the method or extent of necessary repairs is within the scope of an ‘amount of loss’ appraisal policy provision.

The Court cited to an opinion from the Eastern District of Pennsylvania in support of its holding that:

FIGA’s interpretation of the appraisal clause in the policy would render the appraisal meaningless. Although FIGA may characterize the dispute over the necessary repairs as a coverage issue, in reality, it is an ‘amount of loss’ issue. There is no dispute that Homewise insured the Branco’s home at the relevant time for sinkhole losses, and FIGA has now admitted that the Brancos have sustained a covered loss. The logical disagreement between an insured and the insurer after a covered loss would be, as the court in Williamson stated, ‘disagreement as to whether the covered occurrence actually caused a certain portion of the putative damage, as well as disagreements about the scope and method of necessary repairs.’ The extent and cost of the necessary repairs to the Branco’s property will determine, in large part, the amount FIGA owes. To accomplish their task, the appraisers will have to consider the necessary method and scope of required repairs to evaluate the amount of the Brancos’ loss.

The 5th DCA held that the appraisal panel can determine the method or scope of the necessary repairs when determining the amount of loss. This opinion that looks at the issue with common sense. Appraisal is a contractual alternative dispute resolution process. When coverage is admitted for a loss, the appraisers should not be prohibited from deciding all issues other than the price for the scope of repairs the insurance carrier paid in its estimate. If the appraisal panel is so limited, it would essentially strike the appraisal provision from the contract, render it meaningless, and congest the court system with litigation over the disputes – the exact thing the appraisal provision is meant to avoid by contractual agreement.

1 Florida Insurance Guaranty Association v. Branco, 5D13-2929, 2014 WL 4648208 (Fla. 5th DCA Sept. 19, 2014).

via Florida Appellate Court Opinion Regarding the Extent or Scope of Appraisal : Property Insurance Coverage Law Blog.