Property owners often face a dilemma after a Texas hail storm: file a claim and have insurance rates go up, or put off repairs and risk further losses caused by hail damage. If you choose to file a claim, you may be surprised to discover that insurer won’t pay for the full replacement cost. Attorney Bill Voss explains how depreciation factors into a claim when hail damages your property.
How Roof Depreciation Affects Your Hail Damage Claim
When you purchase an insurance policy on your home, structure, or business, the insurer will assign a value to everything that is covered under the policy. Each year that goes by, all of the insured items will lose value due to time and use. This loss in value, known as depreciation, can significantly affect the amount that a policyholder is paid for a claim.
Calculating depreciation begins with two factors: the replacement cost of the roof, and the expected “lifetime” of the roof (for example, the average cost to replace a roof is $10,000, and asphalt roofs generally have a lifespan of 15 years). From here, the insurer subtracts the value of many additional factors to arrive at the final depreciation total.
The insurer will take into consideration how much your roof was worth at the time of loss based on:
- Age. The biggest factor in determining the depreciation on a roof is age. Unfortunately, unless the property owner built the structure from the ground up, it is not always easy to determine when the existing roof was installed. Insurers are often wary or the policyholder’s estimation of a roof’s age, since the age can greatly impact the amount of a claim. For example, if a policyholder claims that a roof is only five years old when it is actually ten years old, the insurer will subtract much less in depreciation. For this reason, insurers usually want proof of when the roof was installed.
- Wear and tear. Insurers are usually only required to restore a roof to “pre-loss” conditions, meaning they should provide coverage to restore your property to the condition that it was in before the storm. Essentially, if your roof was not brand new in the days before the hail storm hit, the insurer is not required to give you a brand-new roof. The insurer will carefully consider the previous condition of your roof, including whether you made prior claims, performed inadequate repairs, weathered other storms, or replaced parts of the roof as a result of upgrades (such as shingles around windows or skylights).
- Obsolescence. One factor that may be argued by policyholders is how obsolescence affects depreciation. For instance, if your roof included materials, designs, technology, or other items that have become outdated, you will likely have to pay more to replace these items with more current building methods.
Once the insurer has determined the amount of depreciation, they will subtract the depreciation from the replacement cost to arrive at the actual cash value (ACV). The policyholder is then given a check for the ACV, which is often thousands less than the amount that it will take to repair or replace the roof.
Will I Always Be Out-of-Pocket for Depreciation?
Some property insurance policies have a provision for recoverable depreciation, which allows the property owner to be reimbursed for the money lost in depreciation. In recoverable depreciation claims, the insurer issues a check for the ACV and waits for the insured to complete repairs. Once repairs are complete, the insurer sends a second payment for the amount of the depreciation.
However, if your policy only allows payment for the ACV of your losses, your depreciation is likely not recoverable—meaning you will have to make up the difference, as well as the deductible, on your own. If you are not sure how much your insurer owes you for hail-related property losses, fill out the form on this page today to contact the Voss Law Firm or order a free copy of our book, Commercial Property Owners Must Read This BEFORE Filing an Insurance Claim.
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