If you own or manage any type of commercial buildings, especially apartment buildings, you are likely asked questions about the roofs on your buildings when it comes time to place insurance coverage for your asset.
…What is the age & condition of the roofs?
…Have you performed any updates or major maintenance to the roofs?
Old and warn out roofs can lead to unnecessary damages to your building and interior units not to mention a possible call from upset renters asking for immediate attention to the matter. General issues from neglected roof replacement or repairs can lead to:
- Minor to Severe damages from leaks during a rain storm
- Increased energy bills
- Animals and pests getting inside and causing damage
- Increased repair costs and ultimately decreased property values!
For these reasons underwriters can be very particular when it comes to asking about the age and condition of your roofs.
Regarding your policy coverage, many insurance companies will apply special policy restrictions or exclusions (often in form of an endorsement) that change how the roof is covered in the event of a claim.
One of the most common policy restrictions is an Actual Cash Value (ACV) endorsement applied to roof coverings over 10 years old. Considering most policies provide Replacement Cost (RC) coverage, this type of coverage reduction can make a substantial impact on the amount of your claim settlement your policy would then provide for damages to your roofs.
RC = “cost to replace the damaged property with materials of like kind and quality, without any deduction for depreciation”
ACV = “the cost to repair or replace the damaged property, minus depreciation”
If your roofs are covered for ACV and the claims adjuster deducts depreciation from your settlement, this could be significantly less than what it takes to fully repair or replace your damaged roofs, meaning you are coming out of pocket to make up the rest, not to mention your property damage deductible which will also be applied.
There was a rain storm and now your staff and maintenance crew are getting calls from tenants saying they have water leaking into their unit. After investigation you discover quite a bit of damage to your ceilings and interior units but also your renters’ personal belongings. After you file a claim with your agent or insurance company you find out you aren’t covered? What happened? You thought you had great coverage with a great company?
Most insurance companies have an exclusion built into their policy coverage form that states they will exclude damage resulting from:
- “Wear and tear”
- “Rust or other corrosion, decay, deterioration, hidden or latent defect, or any quality in property that causes it to damage or destroy itself”
In a nutshell, your policy should cover damage resulting from wind & hail. If your roofs did not sustain damage from wind or hail yet are leaking water to the interior of the units, the insurance company will likely decline your claim, stating that the leaks were caused by “wear and tear” or “deterioration” of the roof coverings, which is not an insurable event.
What you can do
Always document and keep track of any and all repairs and capital improvements done at your property, especially in regard to your roofs.
- Create a well-organized record keeping system
- If purchasing a new property ask the prior owner and/or property manager for copies of all repair invoices and a summary of all capital improvements
- Create a plan and budget for roof repairs and replacements
- Hire a qualified roofing contractor to fully inspect your roofs, do not rely solely on information from your pre-purchase appraisal or inspection report as these typically are limited in scope and detail