Nicole Vinson | Property Insurance Coverage Law Blog | June 26, 2019
Chip Merlin posted about the Wear and Tear Exclusion just last month in Wear and Tear Exclusions Versus Depreciation For Resulting Damage To Worn and Torn Older Parts of a Structure. Explaining about wear and tear, Chip gave this example:
The judge made up his own example of ten old bolts giving way and then the rest of what the bolts failed to hold up, crashed and broke the rest of the old structure. The worn-out bolts may not be covered, but if you have the right ensuing loss provisions after the “wear and tear” clause, the rest of the loss is covered—even if the rest is old.
The older parts of the structure are the ensuing loss. They did not suffer a loss because they were worn out and broke. They suffered a loss because other parts of the structure broke from “wear and tear.” Those ensuing parts of the loss are depreciated on an actual cash value basis. If replaced, they are then valued at Replacement Cost.
This is such a hot topic because so many times we see the wear and tear policy language listed (often improperly) in a denial letter. If you are policyholder who receives a letter that says, here is a small payment or we are not paying your claim, it is not uncommon to see the wear and tear provision quoted in the list of “reasons.” Frequently this language is cut and paste from the insurance policy and looks very official. But does it really apply?
The distinction Chip pointed out above is very important, but carriers sometimes even list the wear and tear exclusion in cases where the cause of the damage was a peril like wind, fire, theft, or vehicle impact.
Javier Delgado of Merlin Law Group often reminds us to look at the policy language specifically written about the exclusions as will likely be language that says something similar to, “Exclusions… caused by:” and then a laundry list of reasons. The “caused by” requirement cannot be forgotten.
When a property with some age and bruises suffers any peril (we will use a hurricane as an example) the caused by language cannot be overlooked. That property invariably had some wear and tear to its roof before the hurricane winds impacted the property. This is very common.
Take a look around the building you are in and you will see signs of wear and tear. Look at your office and your own home. You will see the condition is likely not brand new. But this condition of the property did not cause the property to lose the roof in Hurricane Michael. The wind caused the damage to the roof.
When a sudden and accidental loss happens to your property that is not brand new, everything all together is not excluded because of a wear and tear exclusion in a policy.
And insurance companies contemplate that the property they are insuring is aged or will have some battle scars. Just look at the underwriting file. The premium may have been calculated, in part, based on the year of construction.
The condition of the property, and the wear and tear, is considered when the adjuster applies depreciation. Say it with me again. When wear and tear exists but is not the cause of the loss, wear and tear of the property is considered when depreciation is applied.
This analysis is taken further in Chip’s post about the ensuing loss and resulting loss issues.
The Insurance Coverage Law Center explained:
Wear and Tear was written into policies to let the insured know that the insurance is not for claiming things that reach their natural life span. Property insurance and a maintenance contract are very different. “The purpose of a wear and tear, marring and gradual deterioration is to exclude maintenance type loss that naturally occur over time… to eliminate insurance recovery in situations where claim is made on property, which has been damaged through normal use, abuse or has simple been ‘used up’.”
If you are a public adjuster, insurance agent or an insurance adjuster trying to wrestle with a hard to understand coverage provision and not make a wrong decision, Chip explained: Insurance is important. We defeat its purpose with over-broad use of exclusions.
So, to answer the question, why is this exclusion being used so often, it may very often be improperly cited as an exclusion. Remember to check the grant of coverage, the exceptions to the exclusions, and the ensuing loss and resulting loss coverage.
For more insight on why carriers may have listed the exclusion in your claim, take a look at the resources in FC&S Bulletins, their website, and Bill Wilson’s book, When Words Collide: Resolving Insurance Coverage and Claim Disputes.
And a quick note about the Insurance Coverage Law Center, (formerly FC&S Legal), it states that it,
[D]elivers the most comprehensive expert analysis of current legal and policy developments that insurance coverage attorneys rely on to provide daily actionable counsel to their clients.
The Insurance Coverage Law Center is part of the National Underwriter authoritative insurance portfolio developed more than 80 years ago. ICLC ensures attorneys practicing insurance coverage law, or business professionals wishing to keep apprised of the latest industry developments, have access to a single source of objective legal analysis, practical insights, and news for the insurance industry.
Today, our team of experts continues to provide objective insights and analysis, particularly in the area of policy interpretation, to meet the insurance law information needs of busy legal professionals working in private practice or in-house and representing either policyholders or insurance carriers.