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Insurance companies and "cosmetic damage" in Wisconsin

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Insurance companies often deny a claim based on an argument that their policies do not cover  “cosmetic damage”.  Recent developments in Wisconsin law make it tougher for insurance companies to make that argument.  Property owners should know the law on “cosmetic” damage when making an insurance claim.

A property owner ought to take the following steps when faced with an insurer that argues damage is “cosmetic”:

  1. Order a certified copy of the insurance policy;
  2. Read the coverage section and applicable exclusions and endorsements;
  3. Determine if the severity of the damage by assessing whether it diminishes the value of the property, by either loss of function or aesthetic;
  4. Apply the language of the policy to the observed damage; and
  5. Write the insurer why the damage is covered.

The first thing a property owner should do when faced with the “cosmetic” damage argument is to make a written demand for a certified copy of its policy.  With certification the insurance company attests, under penalty of perjury, that it has delivered the true copy of the policy with all amendments and endorsements.  Upon receipt, a property owner should review the coverage section of the policy.  That section, which is usually at the beginning of a policy, will describe what it is covered.

There is a good chance the coverage section will provide coverage of “loss or damage”.  These three words are not insignificant.  A “loss” is not the same thing as “damage”, because if they were the same thing the words would be redundant.  This year the Seventh Circuit Court of Appeals, in interpreting a Wisconsin insurance policy, recognized the significance of a “loss” as opposed to “damage”.  The case is entitled Advanced Cable Co., LLC v. Cincinnati Ins. Co., LLC, 788 F.3d 743 (7th Cir. 2015).  The Court held a “loss” has to be something other than “damage” and went on to separately define both words.  

In the Advanced Cable case, the insurer argued hail dents were too small to even be damage.  Yet the Court rejected this argument because the hail caused visible indentations to the surface of the roof, and thus was indeed “damage” under the policy. The Seventh Circuit also addressed what is a “loss” under the policy.  A “loss” is something less than actual “damage”, or a physical alteration of the roof.  The insurer argued a “loss” must diminish the roof’s function or value.  The Court rejected this argument.  The Court held that if the insurance company wanted to exclude cosmetic loss than “it should have written the policy that way.”  When the Court made this statement it relied on longstanding Wisconsin law that every insured property owner should remember:  ambiguity in an insurance policy is resolved against the insurance company.  An insurance company must have very specific policy language that excludes coverage of cosmetic damage to have any chance of denying a claim. 

With an understanding of the policy, the property owner should assess the damage to determine the extent it is visible.  If the damage is clearly visible, and the policy reads like the one in Advanced Cable, it should be covered.  Any damage of an item – such as shingles or siding – that is “pertinent”, “central” or “essential” should not be called “cosmetic.”

If there is any kind of diminution in value of a property owner’s policy, be it functional or simply aesthetic, there ought to be coverage.  Such damage is a “loss” and covered in the policy, just as it was under the policy in Advanced Cable

Even if damage appears to be simply aesthetic (or cosmetic) the insurance policy should be closely reviewed to see if in fact aesthetic damage is excluded.  Wisconsin property insurance policies are approved by the Wisconsin Department of Insurance.  The Department of Insurance has promulgated rules with form language for certain clauses within a policy.  Insurers often follow this form language for rapid approval of their insurance policies.  This form language includes a “loss” and not just direct physical damage to property.  Therefore, insurers will likely have a policy that covers a “loss” just like the policy in Advanced Cable.  Insurers will therefore need very specific endorsements or amendments to successfully exclude “cosmetic” damage.  If the form language mandated by the Department of Insurance is left as-is it should cover “cosmetic” damage.

The Advanced Cable case is helpful in several ways.  To recap, the case allows property owners and their advocates the following arguments:

  1. What the insurance company calls cosmetic damage may not in fact be cosmetic under the policy;
  2. Insurance policies generally cover “loss” and “damage”, two separate things, both of which must be covered by the insurer;
  3. Cosmetic damage is covered unless there is a specific exclusion to the contrary; and
  4. Any ambiguity in an insurance policy regarding cosmetic and non-cosmetic language is resolved against the insurance company.

Insured property owners should use Advanced Cable and the law found therein to advance their position with insurers.