Advise & Consult, Inc. | September 3, 2015
Cosmetic damage (small dents) occurred to a metal roof resulting from a hail storm. The insurer filed a claim with its carrier, Cincinnati Ins. Co., and an insurance adjuster inspected the roof and other than the dents, there was little other evidence of damage. The estimate of loss was $1,894.74 and a check for that amount was sent to the insured. That is not the end of this story…
After considering selling the building where the metal roof damage had occurred, a potential buyer inspected the roof and found the hail damage. The insurer again requested that the roof be inspected, only to find the same small 1 inch in diameter dents to be found. The inspector noted that the dents would not affect the performance of the roof panels, nor would they detract from the life expectancy for the panels.
At this point the insured sued Cincinnati for breach of contract and bad faith. During summary judgement cross-motions, the district court ruled that the policy covered the hail damage but that Cincinnati had not acted in bad faith in refusing to acknowledge this. The Seventh Court supported the lower court as the policy promised to pay for “direct physical ‘loss’ to Covered Property.” This is where the dispute comes in and makes this case interesting beyond those directly involved in the case.
The dispute revolved around the definition of “physical,” which was not defined in the policy. Cincinnati argued that “physical” meant “material.” The insured claimed that the hail had caused visible indentations that changed the physical characteristics of the roof and thus satisfied the language of the policy.
To further the dispute, the court was to determine was “loss” meant as the policy covered loss or damage. The policy left open the possibility that was still “damage” even without measurable “loss” in value or function, thus giving “damage” a different meaning than “loss.” Cincinnati’s stance was that “loss or damage” meant “harm.” The insurer then assumed that these dents did not harm the function or value of the roof. The policy didn’t contain an exception to this definition for cosmetic damage, or any other kind of specific damage. If this kind of exception was wanted in the policy, Cincinnati should have included it, and therefore, granting summary judgement to the insured for breach of contract was correct.
The Seventh Court also upheld the summary judgement on the bad faith claim. Even if Cincinnati erred in reading the policy, it was not an unreasonable conclusion. They did refuse to pay further on the insured’s claim because of how they defined “loss and damage” which was the basis for the dispute, but they were sincere in making multiple trips to the property and tried to work with the insured – even if the payment was less than what the insured believe was owed them.