Examples of how carrier endorsements
can alter coverage under the radar
[I]t’s important we take the time to read and understand
what might be buried in special provisions endorsements …
as well as take the time to communicate potential pitfalls to our clients.
By Marc McNulty, CIC, CRM
It wasn’t too long ago when Homeowner Special Provisions endorsements were one or two pages long and could mostly be ignored. A couple of conditions might be clarified, a couple of coverages might be expanded, and perhaps an exclusion was modified.
However, those days are well behind us, as many carriers are now using these endorsements to significantly modify homeowners insurance policies by reducing or even eliminating coverage. Or, in other cases, they are keeping coverage in place but are significantly increasing deductibles.
The issue is further complicated when carrier representatives fail to draw attention to significant changes that are included in updated versions of these endorsements. (Yes, carrier emails might go out and note such changes, but agencies are inundated with emails, and it would be nice if more representatives would discuss important changes in coverage rather than focusing solely on quotes, sales, and loss ratios!)
Cosmetic damage exclusions
An increasing number of carriers—both for personal lines as well as commercial lines—are excluding coverage for cosmetic damage to roofing surfaces and components when the damage doesn’t affect the functionality of the roof.
Here’s an example of language that is included in an eight-page Ohio special provisions endorsement from a national homeowners insurance carrier:
The following is added to existing BUILDING PROPERTY LOSSES WE DO NOT COVER:
Cosmetic Loss Or Damage, meaning any loss that alters the physical appearance of exterior surface materials and related components, including, but not limited to dents, spatter marks, marring, pitting, scuffing, scratching, discoloration, inherent defect, or oil canning. This exclusion applies so long as the exterior surface materials and related components maintains its function as the intended barrier protecting against exposure to the elements and leaking of water through the exterior surface materials. We will not pay for cosmetic loss or damage to exterior surface materials and related components including but not limited to the items below. For purposes of this provision, “exterior surface materials and related components” means:
- all metal materials that are exposed to the elements, including, but not limited to:
(1) vents, vent caps, turbines, flashing, chimney caps, awnings, or piping;
(2) HVAC unit covers, mailboxes, covered parking structures, skylights; and
(3) siding, walls, windows or doors, fascia, gutters, shutters, downspouts; and their components; and
- all metal and non-metal materials that are installed when repairing or replacing metal exterior building surfaces, including, but not limited to, metal shingles, tiles, cladding, synthetic or metal sheeting, sheathing, decking, or flashing.
If you’re new to the industry or aren’t familiar with this carrier’s policies, you could be in for some tough client conversations should a hailstorm hit your area and cause enough damage to dent some of these items yet not cause enough damage to warrant complete roof replacements.
Claims reporting conditions
Speaking of hail, here’s an example from a three-page special provisions endorsement from another national homeowners insurance carrier:
PROPERTY – CONDITIONS
- Duties After Loss paragraph
- is replaced by the following:
Duties After Loss.
- Give us prompt notice. With respect to a loss caused by the peril of windstorm or hail, that notice must occur no later than six months after the date of loss.
For those of us who live in storm-prone areas and have been in the industry for a while, we’ve seen plenty of examples of roofers going door-to-door in neighborhoods months after storm events. Typically, they try to work homes located on the outer edges of where the storm damage either started or stopped and will say something to the effect of “we found that your neighbor had damage to their roof, so would you like us to inspect yours to see if you have damage, too?”
In this carrier’s defense, it’s completely understandable why they’ve put a six-month notification limitation in place; it’s to cut back on shenanigans like this. Again, if you’re new to the industry or don’t know this carrier’s forms well, this could also lead to difficult situations when a client calls you eight months after a storm and lets you know that a roofer told them they have wind damage to their roof.
Increased deductibles
Our agency is located in an area that isn’t big on home-sharing rental services such as Airbnb or VRBO, but there are plenty of locations throughout the country where these types of rental homes are plentiful. That’s why homeowner special provisions language such as the following (from yet a different national carrier) could cause great concern:
The Occupancy deductible is deleted and replaced by the “Home-Sharing Rental Activities” deductible:
If during the policy period “your” residence or other structures is being used for “Home-sharing rental activities” and “we” were not notified, then “we” will apply the greater of the deductible amount shown in the Declarations or:
(1) 5% of the Coverage A Dwelling limit shown in the Declarations for a dwelling where the loss occurs;
(2) 5% of the Coverage C Personal Property limit shown in the Declarations where the loss occurs; or
(3) 5% of the Coverage B Other Structures limit shown in the Declarations for an other structure where the loss occurs.
This deductible applies to “your” residence, other structures, personal property and Additional Coverages.
This deductible does not apply if “we” give “our” prior written consent.
I’ve spoken to plenty of agents who’ve had tough times explaining 1% wind/hail deductibles to clients and prospects. Can you imagine how tough it will be to explain a 5% deductible after a loss?
But wait, it gets better. This isn’t the only 5% deductible that is buried in this seven-page endorsement. We also have this:
If at any time during the policy period “you” are:
(1) Newly constructing “your” residence or other structures; or
(2) Constructing additions or making renovations to “your” residence or other structures that equal or are in excess of $75,000;
“We” will apply the greater of the deductible amount shown in the Declarations or:
(a) 5% of the Coverage A Dwelling limit shown in the Declarations for a dwelling where the loss occurs;
(b) 5% of the Coverage C Personal Property limit shown in the Declarations where the loss occurs; or
(c) 5% of the Coverage B Other Structures limit for an other structure where the loss occurs.
This construction deductible applies to “your” residence, other structures, personal property and Additional Coverages.
This construction deductible does not apply if “we” give “our” prior written consent.
I’m sure you noticed that in both cases the 5% deductibles won’t apply if the carrier gives prior consent, so it’s imperative that you advise your clients to keep you updated of any changes to their homeowners exposures. To this carrier’s credit, the very first page in their homeowners policy packet advises the insured to contact their agent about events that could affect their coverage, including roof replacement, home renovations, renting out the insured home, installing protective enhancements, etc.
You don’t have the be in the industry long to realize that most insureds do not read their policies. Rather, they rely on insurance professionals like us to advise them and provide coverage applicable to their exposures. That’s why it’s important we take the time to read and understand what might be buried in special provisions endorsements such as these … as well as take the time to communicate potential pitfalls to our clients.
The author
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com.
