A client purchased a commercial building five years ago and is insured with ISO BOP form BP 00 03 07 13. The building has a metal roof, and the policy does not have a cosmetic damage exclusion on it, as most insureds do in Oklahoma. The prior owner may have collected for hail damage and didn't replace the roof. 

However, there was a hail storm a couple of years ago and the new owner filed a claim. The claim was denied because she couldn't provide documents from the prior owner that the roof was replaced, so the carrier considered it old damage. We recently had another massive hail storm, which caused even more damage to the roof.

Q: Was the carrier right to deny coverage for new damage because old damage hadn't been repaired?

Response 1: Barring any endorsements or agreements to the contrary, the new damage is certainly covered. The problem is determining the amount. If the claim is otherwise qualified for replacement basis, then the insurance company is obligated to replace the roof. There's no provision in the policy for deducting for prior damage, just as there is no justification for deducting ordinary wear and tear or weathering. 

Replacement coverage is just that—it pays for new stuff with no deduction for the fact that it's old. That won't sit well with the insurance company, of course, but that's tough. 

If the coverage is actual cash value (ACV), however, it's a whole different deal. The insurance company is entitled to deduct for "betterment." In this situation, there will be a hefty deduction for the prior damage. 

Response 2: Many policies contain specific language that excludes coverage for pre-existing damage that has not been repaired. 

When your client purchased the building, was there an inspection and conditions report showing the damage as existing or a repaired roof? Was the prior damage purely cosmetic? Or has it been problematic for the past five years? Is it purely cosmetic now? Or is there leaking or other evidence that the new damage is not merely cosmetic? I'm thinking that this comes down to questions of fact, documentation and negotiation.

Response 3: If the owner hasn't replaced or repaired the roof from the prior damage, provided the roof required replacement, then she would not have a loss from this storm since the roof was already a total loss. If the prior losses were only cosmetic in nature, and the roof was still structurally intact prior to the most recent storm, and the current storm rendered the roof so severely damaged that it needed replacement, then the insured might be able to make a successful claim for replacement. 

There may be case law in Oklahoma to address this issue, or the insurance department may have issued an advisory for insurers. I would recommend that you check both case law and the regulator's website. 

Response 4: Ideally, a purchase of a building should be accompanied by extensive photographic documentation of conditions in the property at, or just prior to, the closing of the purchase. A building inspector retained by the potential buyer in advance of the purchase might have those photographs. In a hail area, and with a metal roof, such photographs should be at the top of the buyer's checklist.

The first hail storm after purchase might be water under the bridge at this point. Unless there is a way to determine the age of dents to the roof from hail, it may be a disputed issue with no simple path to resolution. Pictures of a pristine roof at the time of purchase, with appropriate landmarks to verify that the pictures are of this particular building, might have helped.

The issue may have resolved itself with the more recent, more intense hail storm. I'll assume at this point you do have pictures of the roof taken around the time that the new owner's claim for hail damage was made that has been denied so far. The difference in damage should be visible and apparent after the massive hail storm, and fresh comparison photographs should make the case.

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