Roof Insurance Claims: Top 5 Problems

Insurance is supposed to be there when disaster strikes. That's why you pay your premiums every month. Unfortunately, as you’ve likely already experienced in some form, sometimes they leave you holding the bag. Nowhere is this more evident than in roofing, where scant payouts and claim disputes are far more common than they should be. 

At GIDEON, we've been working with roof insurance claims for over two decades, so we have a deep knowledge of the space - the good, the bad, and the ugly. In this article, we'll discuss the 5 most common problems you may run into when it's time to file a claim - and what you can do to avoid them.

Table of Contents

• Underinsurance
• RCV vs ACV Policy
• Failure to Update Policy After Improvements or Renovations
• Changes in Building Codes or Regulations
• Coinsurance Penalties
• Cosmetic Damage
• Not Filing Soon Enough
• Unfair Claim Denial
• The Benefit of a Good Agent or Broker

1. Underinsurance

Underinsurance is a term covering any situation in which the cost of your repair or replacement exceeds your insurance payout. Underinsurance can occur because you deliberately chose inferior coverage to lower your premiums, but it often happens because building owners aren’t fully edcuated…and frankly, insurance contracts can be intentionally obscure at times. Many building owners and facilities managers have only a general idea of what their insurance covers.

RCV Policies vs. ACV Policies

Having an ACV policy is one of the most common causes of underinsurance. 

A roof's replacement cost value (RCV) is the amount it costs to replace it with like and kind materials at current prices. In contrast, the actual cash value (ACV) is the replacement cost after depreciation is considered.

Suppose, for example, that the replacement cost value of your roof is $400,000 and your roof's accepted life cycle is 20 years. Now suppose you suffer significant hail damage in year 10 and have an ACV policy. In this case, insurance will only pay 50% of the RCV, leaving you to cover the other $200,000. 

You may ask, why would anyone get an ACV policy? An insurance company will typically offer you an ACV policy if your roof is over 15 years old, as they'll deem it too risky to cover the entire replacement cost. In other cases, an inexperienced agent will sign you up for one because you said you wanted to keep your premiums low.

In the vast majority of cases, an RCV policy is worth more than the savings in premiums offered by an ACV policy, and we highly recommend you discuss an RCV policy with your agent or broker. If your roof is too old to qualify for an RCV policy, a roof restoration may be the best solution, as it will halt the roof's aging process, extend its life by up to 20 years, get you a brand-new warranty, and (in most cases) qualify you for an RCV policy - all for a fraction of the cost of a new roof.

Failure to Update Policy After Improvements or Renovations

You may lack the necessary coverage if you make substantial improvements or additions to your roof but don't update your insurance policy to reflect these changes. Let's say you do a roof restoration. If you don't inform your insurance company, you'll leave your roof without protection. You'll probably also miss out on a better policy with lower premiums.

Changes in Building Codes or Regulations

Over time, your local municipality may change building codes and regulations, requiring specific additions, more expensive materials, or unique construction methods for repairs or replacements. If these changes aren't factored into the policy's coverage amount, you'll most likely pay out of pocket for them. 

It is worth discussing "Ordinance & Law" or "Building Code Upgrade" coverage with your agent or broker. This coverage ensures that the insurance company will cover the additional cost required to comply with new building codes should it be required. Ordinance or Law Coverage is usually not included in standard commercial building insurance policies and must be added as an endorsement.

2. Coinsurance Penalties

Coinsurance is a clause found in many commercial property insurance policies. This clause encourages policyholders to purchase a certain amount of insurance (usually around 80-90% of the property's actual value). Having uniformity in the percentage of coverage across policies helps insurance underwriters set premiums appropriately. 

If you choose not to comply with the coinsurance requirement, you will pay a penalty determined by the coinsurance formula, which equals: 

(Amount of insurance carried / amount of insurance required) x Amount of loss  - Deductible = Claim payout

The "Amount of insurance required" is typically determined by the coinsurance percentage (80% or 90%, for example) multiplied by the property's value.

Let's say your building is worth $1,000,000, your policy has an 80% coinsurance clause, and you have a $5,000 deductible. In this case, you must have at least $800,000 (80% of $1,000,000) in coverage. If you elected only to have $500,000 in coverage and file a claim for $100,000, the insurance company would apply the coinsurance penalty formula: ($500,000 / $800,000) x $100,000 - $5,000 = $57,500.

Instead of receiving the full $100,000 for the claim, you'll only receive $57,500. The remaining $42,500 comes directly out of your pocket. 

It's important to note that coinsurance applies even if the loss is less than the policy limit. In the example above, for instance, the policy limit is $500,000, but because you didn't meet the coinsurance requirement, you didn't receive the full amount of your $100,000 claim.

Unfortunately, many policyholders are unaware of coinsurance requirements and simply purchase a lower coverage amount to save on premiums. As discussed throughout this article, a great agent or broker is critical to getting a good insurance policy. Make sure to bring coinsurance requirements up with them if you haven't already.

3. Cosmetic Damage

Numerous kinds of damage are excluded from your average commercial property insurance policy, such as normal wear and tear, damage caused by neglect, faulty workmanship, and acts of terrorism. But one particular exclusion of which you may not be aware - and which is becoming increasingly common - is an exclusion for cosmetic damage. 

Cosmetic damage refers to damage that impacts the appearance of your roof but not its functionality. This might include minor dents, scratches, or blemishes caused by hail or wind. The rationale behind this exclusion is that the damage does not impact the roof's ability to perform its intended function – to protect the building and its contents from the elements.

Exclusions for cosmetic damage are especially common on metal roofs. 

But dents and scratches are not always purely cosmetic. When hail strikes a metal roof, for instance, it can damage the clear coat that protects the metal from water. Over time, water will collect in the dent, rust the metal, and create leaks. This is a particular concern on flat roofs, which do not shed water, as well as steep slope roofs. 

A good agent can help you understand whether your policy includes a cosmetic damage exclusion, how your insurance company defines cosmetic damage, and what your options are for coverage.

4. Not Filing Soon Enough

Most insurance companies require you to file an insurance claim within one year of the date of damage. But this varies from policy to policy and company to company, and some jurisdictions require that policyholders be given a certain minimum amount of time to file, so it's important to discuss this with your agent or broker. If you miss the filing deadline, your insurance company may either deny the claim outright or approve only a partial payout. 

In order to avoid missing the claim filing deadline, it's very important to get an inspection of your roof immediately following a major storm, particularly one involving hail. The effects of storm damage can take months or even years to manifest, and the last thing you want is to spend hundreds of thousands on something that could've been covered by your insurance had you filed when the damage initially occurred.

5. Unfair Claim Denial

Unfortunately, It is not uncommon for companies to attempt to deny your claim unfairly. Commercial property insurance policies are complex legal contracts, and insurance providers may try to argue that your claim does not fall within the limits of your coverage. 

In some cases, insurance may argue that the damage was not caused by a covered peril, like hail, wind, or the weight of snow or ice. The adjuster may decide it is just normal wear and tear or that the damage was caused by improper maintenance or neglect. They may also unfairly attempt to invoke an exclusion, such as cosmetic damage.

In the case where your insurer agrees your policy covers the damage, they may disagree about its extent. For example, they may only approve a small repair when, in fact, your entire roof needs to be replaced.

In rarer cases, the insurance company may even deny that any damage has occurred at all.

When it comes to unfair claim denial, there are 4 things to keep in mind:

#1 You Can Appeal The Decision

Most insurance companies have an internal appeals process that you can use to dispute a claim denial. An experienced contractor can be invaluable during this process.

#2 An Experienced Contractor is Invaluable

A qualified contractor with experience in roof claims will understand what storm damage looks like, as well as how the insurance company defines it and requires it to be documented.

They will be able to provide the following:

Documentation of Damage: A roofing contractor can thoroughly inspect the damaged roof and provide written documentation, photographs, and other evidence that can help support your claim.

Expert Opinion: A qualified roofing contractor's opinion about the cause of the damage, the necessary repairs or replacement, and the estimated cost can be persuasive when dealing with the insurance company. They can offer an expert, third-party perspective that can help dispute the insurance company's assessment if it seems unfair.

Assistance with the Claims Process: Some roofing contractors are experienced in dealing with insurance claims and can help you navigate the process. They can help you understand the terminology and procedures involved, which can be particularly helpful if you're not familiar with the insurance industry.

Supplementing the Claim: If, during the repair process, the contractor discovers additional damage that wasn't initially included in the claim, they can help you file a supplement to the original insurance claim. This additional claim would cover the cost of the newly discovered damage.

#3 You Can Hire Your Own Adjuster

If the insurance company denies your appeal, it may be time to hire a public adjuster. 
The adjuster hired by the insurance company works on their behalf, not yours. His focus is to minimize the insurance payout or help the company deny the claim altogether. 

A public adjuster works for you. He'll advocate for your needs and do everything possible to get the claim approved. Public adjusters have a deep understanding of the nuances of insurance policies, the criteria for insurable damage, and the insurance laws of each state. A good public adjuster can not only help you overturn a claim denial but even get you a significantly larger payout than the insurance company would've originally approved.

#4 You Can Consult an Attorney

If the claim is for a significant amount of money and you're unable to resolve the dispute through other means, you might consider consulting with an attorney who specializes in insurance law. They can provide advice about your rights and options and might be able to help you file a lawsuit against the insurance company if necessary.

The Benefit of a Good Agent or Broker

One thing many building owners fail to take into account is that not all insurance companies specialize in the same risks. This is why working with a broker can be so helpful. A broker can find unique insurance companies whose specialties align with the activities and needs of your particular business, getting you the best coverage and the best insurance company possible.

Vetting your agent is also important. How experienced are they? Some agents specialize in homeowners' policies while doing some commercial work on the side. These agents may not have enough expertise to provide you with the best solution. If your agent isn't asking you very specific questions about your business and goals but is just walking you through a generic sign-up process, you may not be getting a very good policy.

The Upshot

Receiving a claim denial or an insufficient payout from insurance is frustrating at best, disastrous at worst. This is especially true when it affects something basic and critical to your business operations, like keeping the water out of your building. Fortunately, with the right information, a little foresight, and the right professional help, you can avoid this situation. Now that you've learned how to make sure this doesn't happen to you, hop on a call with us. In a free 30-minute call, our nationally recognized experts can assess your roofing situation and provide you with unique, customized guidance.