“The time to repair the roof is when the sun is shining.”
- John F. Kennedy
If you have business operations in the Hail Belt regions of the United States, pay close attention to the 5th Circuit’s decision earlier this month in Certain Underwriters at Lloyd’s of London v. Lowen Valley View, L.L.C. In that case, a hotel filed a lawsuit against its insurer in the U.S. District Court for the Northern District of Texas for refusing to cover hail-related roof damage under a commercial property insurance policy.
The District Court agreed with the insurer’s argument that: (1) several hail storms had struck the vicinity of the hotel in the years preceding its claim; (2) only one of those storms fell within the relevant coverage period; and (3) the record lacked reliable evidence permitting a jury to determine which of those storms, alone or in combination, damaged the hotel. The 5th Circuit affirmed the ruling, determining the hotel’s engineering report—opining that the subject storm was the “most likely” cause of the damage—was not sufficient.
So Where (or When) Do We Begin?
Many commercial property policies contain provisions that any lawsuit against an insurer must be filed within one year following the “inception of loss,” otherwise it is barred. In other words, the “inception of loss” date starts the one-year clock ticking. The question then becomes, when exactly is that date?
The Wisconsin Supreme Court hit this issue head-on in the case of Borgen v. Economy Preferred Ins. Co. In its 1993 opinion, the Court determined that the phrase “inception of loss” in the context of hail damage rules out an interpretation which could postpone the starting point to the time when the insured discovered or should have discovered the loss. In other words, “inception of loss” means “the date of the specific hail storm,” not “the date I discovered the hail damage.”
There are only a handful of federal and state cases addressing this issue, with the majority of them either Borgen or its Wisconsin progeny. See also Des Longchamps v. Allstate Prop. & Cas. Ins. Co. (“Des Longchamps does not (and, indeed, cannot) deny that the loss to his property began on June 29, 2012 when the derecho’s winds and rain hit Washington D.C. This means that his claimed October hurricane damages are irrelevant (contractually speaking) to the timeliness question.”).
Practical Effect of These Cases Read Together
Let’s say you operate a business in Plano, Texas, and have a commercial property policy with a January 1 renewal date. You’ve noticed some recent leaks over the last week in your eight-year-old roof. Based on this discovery, you enlist a roofing contractor to investigate further. You're advised the roof needs to be replaced due to the existence of hail damage, so you submit a claim to your insurance carrier. Now, consider Plano has had at least 14 significant hail strikes since your roof was installed:
Storm Date Min. Hail Size Range (Max)
4/6/2018 1.50” (up to 2.00”)
4/11/2016 1.50” (up to 2.50”)
3/23/2016 1.25” (up to 2.00”)
8/17/2012 1.00” (up to 1.50”)
6/13/2012 1.75” (up to 3.00”)
Based on Borgen, the relevant “inception of loss” date would be the most recent June 6, 2018 hail storm and each specific storm prior to that. This would mean any claims potentially implicating the April 21, 2017 and earlier events could be time-barred (assuming your prior year policies contain that pesky one-year filing limitation mentioned above). To make matters worse, given the number of equivalent hail strikes over the course of years, you will likely have an uphill battle under Lowen Valley View in attributing the recent 2018 storms to a loss under your current policy.
Even if it were somehow possible to assign each item of roof damage to a particular hailstorm—and further that statute of limitations issues would not limit recovery almost entirely—the number of storms create another problem. With 14 storms occurring over the life of your roof, the insurer could argue in favor of 14 separate occurrences, which in turn would mean having to go through 14 separate deductibles before you ever saw a single dollar of insurance proceeds. Depending on the amount of your deductible, this could mean you won't recover any insurance proceeds even if the claim was somehow covered in principle.
So Now What?
These rulings, read together, put the onus on business owners in the Hail Belt to conduct at least annual roof inspections to determine the existence of any roof damage potentially attributable to a particular insurance policy. It further puts the onus on business owners to understand the claim process, and to absolutely know the deadline for filing a lawsuit.
If you do have a claim and are running up on the deadline, seek an agreement from the insurer to toll (or extend) the deadline while trying to resolve the claim amicably. They shouldn’t have any problem with this, and make sure the agreement is documented (hint: now would be a good time to have discussed the claim and strategies with coverage counsel).
Long story short, be proactive with your property insurance as opposed to reactive. As always, we’re here to help.