November How many of your clients have vinyl siding? Great stuff keeps us from having to paint might get sick of the color but...

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1 TECH TALK Interesting Property Claim Covered or Not? The Benefit of Open Peril Coverage By Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA, CPIW Vice President of Technical Affairs November 2010 Have your clients ever asked what's the benefit of this more expensive "all risk" policy? Do they REALLY want the "cheapest" policy? I think not I think they want the best policy at the best price. Open peril policies are wonderful... commercial lines or personal lines (Though personal lines special form is a tad more "special" than commercial lines one should always go special!) How many of your clients have vinyl siding? Great stuff keeps us from having to paint might get sick of the color but... Now... having vinyl siding where the buildings are CLOSE together is a bit more "interesting" than in my neighborhood where individual housing lots and commercial lots are 1 or more acres large. See the following pictures The vinyl siding was destroyed by excessive heat and I DON'T mean because the building next door was on fire. What caused enough heat to do this to the vinyl siding, you ask? One cause..."low E" windows The vinyl siding was destroyed by neighbors with "Low E" glass windows. People are putting "Low E" (Low Emittance) windows in because they are energy efficient and can even be required by some building codes. Many states now have energy codes that require builders to install windows that have a U-factor and a solar heat gain coefficient of.4 or less. Builders almost always use Low E windows to meet this requirement in the code. These windows can also warp inward and act like a magnifying glass, concentrating too much heat on nearby homes or business buildings. This is not something that is just happening "somewhere else." This has happened to homeowners in Massachusetts at LEAST one in Watertown and another in Worcester. Take a look at this website: Massachusetts Association of Insurance Agents 91 Cedar Street Milford, MA TECH HOTLINE (Fax)

2 TECH TALK PAGE 2 November 2010 The energy efficient windows -- called "Low E" or "Low Emittance" windows -- warp or bow inward, creating a concave shape, which focuses the sun's rays like a magnifying glass, reaching temperatures of over 200 degrees Fahrenheit in some cases and melting the siding. When the sun s energy strikes Low E windows and skylights, it can re-radiate heat and cause significant melting. (The amount of energy from the sun that strikes a surface can be 250 to 300 btu s per square foot per hour.) Low E glass commonly reflects 70% of the sun s heat. This sunlight reflection can easily melt vinyl siding when the distance between houses/buildings is 15 to 20 feet. Another cause of melting vinyl siding... neighboring roofs This phenomenon can occur simply due to the heat of dark roofs re-radiating and deforming adjacent siding. The sun s energy strikes the roof and the heat is re-radiated and absorbed by the siding causing it to warp. This might happen when you have a sloping, dark-colored roof that intersects a vertical wall close to a window. In effect, the building could melt itself - or a close neighboring premises. Yes, there IS a "Vinyl Siding Institute" (VSI) which: issued a warning about such distortion over 8 years ago. The Institute reported that a number of other variables can contribute to siding distortion: outdoor temperature and wind speed how close other heat sources are, such as air conditioning compressors color and solar absorption of the vinyl siding (darker colors absorb more heat) the heat distortion temperature of the vinyl siding (cheap siding has a low distortion temp) architectural designs that block wind and trap heat angle of the sun and orientation of the glass relative to the vinyl siding distance of the window to the vinyl siding Insured loss or not? If one only has a "named peril policy" then it would not be covered. "Fire" has been defined in court over time to require a "combustion" or other oxidation that is manifested in a flame or a glow. Melting or buckling does not constitute a fire. But open perils special form... there is no exclusion. Under the HO or DP special form for building exclusions, "fire" is not mentioned, so there is no limitation for situations where no "flame" or "combustion" occurs! The Special Form covers melting, blistering, scorching, buckling, etc., That is why insurance carriers want wood stoves installed by people that KNOW what they are doing!!! A wood stove too close to paneling can cause melting and scorching. Fire is not the only loss that insurance carriers pay when wood stoves are installed improperly! Wear and tear, marring or deterioration This is NOT "wear and tear, marring or deterioration". This exclusion implies LONG term maintenance types of situations. This vinyl warping is happening to very new siding. Lucky for many insurance companies it has happened WITHIN the warranty of the siding. (However, some siding warranties are now excluding heat distortion how nice!) Inherent vice or latent defect HO and DP special forms exclude: Mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it damage or destroy itself;

3 TECH TALK PAGE 3 November 2010 The melting or buckling of vinyl siding due to an exterior heat source is NOT "inherent vice" or "latent defect." FCS bulletins had such a question... The neighbor of our insured had new windows installed within the last few years that have Low E glass. The insured recently noticed that a section of the vinyl siding on the rear of his home was buckled. We had an engineer go out for an inspection to determine the cause of the damage to the siding. He determined that the reflection of the sun off the Low E glass had temperatures as high as 180 degrees reflecting on this section of the siding where there is no shade. This ultimately caused the damage. Could we deny this claim based on the wear and tear or inherent vice exclusion? We write the HO3 (4/91) edition. FCS answered: No, this is not "wear and tear" or "inherent vice." This loss can be directly attributed to an outside agency; i.e., the heat from the windows. The siding didn't wear out over time, which would be excluded. Inherent vice means that there would be a characteristic within the siding that caused it to deteriorate or fail, but the outside force of the windows' heat production was what led to the buckling. No other exclusion applies, so the loss is covered. The IIABA Virtual University had such a question and responded the same. In an open peril policy there IS no exclusion for this type of loss Is the distortion all "one claim" or many claims? Are we trying to impose multiple deductibles? The HO policy as well as CP and BOP discusses "occurrence" and not "accident". Occurrence includes essentially the same circumstances happening over time which could include melting/buckling of vinyl siding in a summer. 8. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in: a. "Bodily injury"; or b. "Property damage." And even if you did look at various spots as separate "occurrences" in many situations it still involves the SAME SIDE. And with a property policy that repairs or replaces one has to make sure that it is still aesthetically pleasing and holding the same value after the repair or replacement! Unless this vinyl siding is ABSOLUTELY brand new how can you "patch" it... and have provided "replacement". One would HAVE to reside the ENTIRE side... and depending on how the building is designed... possibly multiple sides! Both FCS bulletins and the Virtual University agree that more than the "bad spots" have to be replaced. The concept of "replacement cost" necessitates that the insured be made whole and if the siding matched BEFORE the loss the insured has a RIGHT to matching siding AFTER the loss is repaired! Various court cases have required the matching of sides not just patching of pieces: Mastin v. Sand & Beaver Ins. Co. 461 N.E.2d 322 (Ohio, 1983) hole cut into insured s floor to get a storm damaged pipe. Court ruled that in an obvious patch in the middle of the vinyl floor did not meet the policy s promise to repair or replace and so the whole floor had to be replaced. Holloway v. Liberty Mutual 290 So. 2d 791 (La. 1974) Water damage to carpet in one bedroom. Carpet uniform throughout house. Company only wanted to carpet one room. Court awarded the

4 TECH TALK PAGE 4 November 2010 insured the entire cost of replacing all of the carpet. It based its decision on the testimony of an interior decorator who testified that the contrast between the old and the new carpet would have an adverse effect on the overall market value of the home. The responsibility of the company to make the insured whole under a replacement cost policy is based on the theory of reasonable expectation and/or diminishment of value. What about the CP or BOP? Again with the Open Peril Causes of Loss there is no exclusion for melting/buckling as in the personal lines policies. And, for loss settlement replacement theory works the same or should. What if the neighboring home/building is the "culprit" If the neighboring business or homeowner was sued, would their policies respond? Why not? At the least, the policy must certainly defend. Under the HO policy and/or DP liability the definition of "property damage" is: "Property damage" means physical injury to, destruction of, or loss of use of tangible property. The 2006 BOP defines property damage as: "Property damage" means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it. For the purposes of this insurance, electronic data is not tangible property. The 2007 CGL defines property damage as: 17. "Property damage" means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it. For the purposes of this insurance, electronic data is not tangible property. As used in this definition, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment. The building with melted/buckled vinyl siding certainly is "tangible" property and has suffered some "physical injury." I am NOT saying this neighboring premises is "negligent" or "guilty" what I am saying is if they get sued they SHOULD BE defended... So.. the policies would have to defend but is the neighboring premises REALLY negligent? Should this be a products liability claim? Are their multiple factors involved beyond just the Low E windows?

5 TECH TALK PAGE 5 November 2010 What I think is interesting is that the Vinyl Siding Institute has known about this for YEARS what has the CONSUMER been told when vinyl siding is used in areas where buildings are in close proximity??? * * * * Good luck. If I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs at or me at imorrill@massagent.com. This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permissions of the author is not permitted.