Avoid E&O Claims From the Growing Number of Cosmetic Hail Damage Exclusions

Every year, homeowners policies come up for renewal. Nothing new, right? Well, yes, in fact, there is something relatively new. All agents, especially those in hail-prone areas of the country, should be aware of this trend: Carriers are adding cosmetic hail damage exclusions to homeowners policies—and not just for metal roofs.
Hail damage is a costly peril for personal lines carriers. Approximately $60 billion was paid for storm damage claims in 2023, according to Swiss Re Institute, and 34% of homeowners claims were caused by wind and hail, according to Policygenius. As a result, homeowners and farm owners premiums are increasing annually.
To keep premiums affordable, homeowners carriers are excluding coverage for what used to be standard covered perils. Cosmetic hail damage is one of those coverages that is increasingly becoming excluded. Some carriers exclude the coverage entirely, while others allow the customers the option to add coverage for cosmetic hail damage for an additional premium.
Being aware of this change is key to avoiding errors & omissions claims, especially when moving carriers or replacing a homeowner’s policy for your customer. Be careful when making “apples-to-apples representations” when replacing a policy or moving an existing policy to another carrier unless you are certain that representation is correct.
Moving a current customer or replacing a new customer’s policy with one that contains a cosmetic hail damage exclusion should be noted on the quote if the previous policy did not contain this exclusion. This can avoid an E&O claim in the future for alleged failure to notify the customer of the reduced coverage and any options to add the coverage to the policy.
At one agency, the agent had a customer who had a risk that fit the appetite of only a few carriers. When the homeowner’s policy came up for renewal, the customer requested that the agent shop the coverage because the customer did not wish to renew the current policy. The agent noted the customer’s request in the file.
The expiring policy did not contain a cosmetic hail damage metal roof exclusion. The agent obtained a quote from the only other carrier that would accept the customer’s risk. The insured advised the customer that the policy contained a cosmetic hail damage exclusion for all metal roofs. The customer acknowledged the exclusion verbally and signed the insurance application.
The policy was issued with the cosmetic hail damage metal roof exclusion.
Shortly after the new policy was issued, a hail storm damaged the metal roof. The carrier denied the claim based on the exclusion. Unfortunately, the agent had not documented the conversation regarding the disclosure of the exclusion during the policy review. The customer conveniently forgot the conversation during the coverage review and made a claim against the agent for allegedly failing to advise that the new policy contained an exclusion. The customer claims that they would not have changed carriers if this was disclosed.
To avoid this exposure, ask the customer to initial or acknowledge in writing that the replacement policy has an exclusion for cosmetic hail damage. This takes very little time to document and provides good evidence for those “forgetful” customers.
In another example, a carrier added a cosmetic hail damage exclusion for all exterior metal construction materials to its homeowner’s and farm owner’s policies. The new policy language was included in all new and renewal policies. The carrier sent out the required legal notice advising its renewal customers of this reduction in coverage at renewal. It also advised its customers of the options to add cosmetic hail damage coverage to the policy for an additional premium.
However, the agency was not notified by the carrier of this change to the policy language. After a hail storm, many customers were upset that the renewal policy contained this exclusion. Several customers filed E&O claims against the agency for failing to advise of this change in the renewal terms.
After investigation, the agency was found not to be responsible for advising its customers of a reduction or narrowing of coverage terms at renewal on direct bill policies. Also, the agency had not represented to its customers that the renewal terms were the same as the expiring term. The E&O carrier denied all the claims made against the agency, as the agency had no duty to contact all its customers at renewal and advise of the changes in coverage.
In that particular state, the notification duty is placed on the insurance carrier. In many states, the carrier is required to provide notice of changes in coverage at renewal directly to its customers. Agents should check their state’s requirements for the duty in their state.
Times are changing and carriers are getting creative to stay competitive. Cosmetic hail damage exclusions are one of the ways carriers are accomplishing this. One signal that should not be ignored by agencies is if the renewal premium is the same or lower than the prior year—or if a new quote is lower than an expiring policy. Make an effort to determine why. Pricing is usually a clue that there are exclusions that should be explored with the underwriter or by a review of the policy language.
Janice Blanton is an assistant vice president, claims specialist with Swiss Re Corporate Solutions. Insurance products underwritten by Swiss Re Corporate Solutions America Insurance Corporation and Swiss Re Corporate Solutions Capacity Insurance Corporation, Kansas City, Missouri, a member of Swiss Re.
This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re”) and/or its subsidiaries and/or management and/or shareholders.
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