In last month’s column, I made the case for carefully reviewing policy deliverables in order to identify exclusionary forms and, if possible, remove or replace them with less onerous endorsements. That column focused on examples of ISO Commercial General Liability (CGL) forms.
This month, let’s examine some ISO Commercial Property (CP) forms. Unlike ISO’s CGL forms, ISO’s CP forms really don’t have a specific form number category for exclusionary forms, so identifying problem endorsements is a little tougher.
Let’s start with the CP 10 36 – Limitations on Coverage For Roof Surfacing. This form was introduced in ISO’s 2012 countrywide filing, so agents should be very familiar with it, along with many other insurer variations on the theme.
This form, governed by CLM Division 5, Rule 28, is used to alter coverage on roofs in one or both of the following ways (the cosmetic exclusion, in particular, isn’t approved in every state because of conflicting state laws).
The schedule can change the valuation basis of roof surfacing from replacement cost to actual cash value as of the time of loss or damage for any covered cause of loss and exclude cosmetic damage to roof surfacing caused by wind or hail. “Cosmetic damage” refers to visual changes in roof surfacing appearance that arguably do not result in functional degradation in keeping the elements out of the house.
Needless to say, with predicted severity increases in storm damage, roof surfacing, which has a limited functional life and, thus, replacement cost valuation, is prone to increased exposure to damage. For ACV valuation,
the potential issue is not coverage but loss valuation. What constitutes cosmetic damage is likely a more debatable issue, especially given that it may be months before a deterioration in function becomes apparent.
A related exposure often involving roof surfacing has to do with “matching” issues where only part of the roof has direct physical damage, but replacing somewhat worn or weathered damaged shingles with new ones results
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in a mismatch with the rest of the roof that impacts market value. If there is an interest in this issue, perhaps we’ll devote an entire column to that in the near future. Even more so than cosmetic damage, a number of states have laws impacting matching issues.
Another endorsement of concern is the CP 12 32 – Limitation On Loss Settlement – Blanket Insurance (Margin Clause). Print space does not allow for a detailed discussion of the issues surrounding this form, so I’ll refer you to a Big “I” article that also links to an article by the late, great Don Malecki, CPCU, ARM. Simply do an online search for “Margin Clauses and Blanket I
nsurance” by Mike Edwards and it should pop up early in the list of hits. Margin clauses effectively reduce the value of blanket coverage by essentially reinstating per structure caps on coverage. If a margin clause cannot be removed, it’s important that the insured understand this and not communicate to business partners that full blanket coverage is available when certifying coverage.
