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Functional Damage vs. Cosmetic Damage and Why You Need to Know the Difference

By February 26, 2024No Comments

Navigating the intricacies of property insurance can feel like deciphering a foreign language. Terms like “replacement cost”, “functional damage”, and “cosmetic damage” can leave you wondering: what exactly am I covered for? Will it truly protect my investments when disaster strikes?

Let’s shed some light on these crucial concepts so you can feel empowered to get the most out of your coverage.

Functional Damage vs Cosmetic Damage: Understanding the Difference and Why It Matters

First, What is Replacement Cost?

Replacement cost (also referred to as “replacement cost value” or “RCV”) reflects the true cost of restoring your property to its pre-damage condition. In other words, this is the amount it will cost to get you back to the way things were before the loss ever happened.

Imagine a hail storm damages your roof, requiring complete replacement. The replacement cost would encompass the price of identical high-quality materials, expert installation, and any necessary permits.

So What is Functional Damage?

Functional damage refers to an item no longer being able to function as desired. By way of easy example, you have wind damage to your roof where a windstorm blows off a number of shingles from your roof and allows water to get in. Your roof is no longer functioning as designed and everyone would agree, this is functional damage to your roof.

What About Cosmetic Damage?

While functional damage focuses on the inherent function of the building material, cosmetic damage focuses on the appearance. An example of functional damage often argued by insurance companies would be hail dents to a downspout. First, there are times when dents to exterior metals (downspouts, gutters, metal roofing, etc.) can be considered functional damage. Furthermore, the appearance of items is a function of the item as well. But without getting into the weeds with those arguments, we will use this as an example of cosmetic damage.

Most policies issued DO NOT distinguish between functional and cosmetic damage. Damage is damage is damage. In other words, unless the policy specifically contains a cosmetic exclusion, this issue of cosmetic vs. functional damage should never even come up. If you have a covered loss with cosmetic damage, you should be covered. If you have a covered loss with functional damage, you should be covered.

Lets look to another example of damage that nearly every carrier would cover, a broken water pipe. A supply line to your second floor bathroom breaks causing water staining on your ceiling and wall below it. Now the water is dried out, but now you have a big water stain that needs to be repaired. In my experience, all carriers would cover the replacement of the drywall and the repaint the room. Is this functional or cosmetic damage? It could be argued either way. It is cosmetic because the wall still does its job as a wall. Or you could argue that the paints job, its function, is to look good and uniform, so its functional damage.

So where does it stop then? Doesn’t all finished construction include some aspect of functional appearance? Isn’t one of the functions of my roof to provide a uniform appearance across the slopes, just like the paint of a room?

Digging Deeper: A Recent Case from Wheeler, DiUlio, & Barnabei

The type of coverage you receive depends on your specific policy. Some policies offer full replacement cost coverage, ensuring your property is restored to its previous glory. Others provide functional replacement – a more budget-conscious option that prioritizes functionality.

Sometimes, it can be hard to tell whether damage to an item or property is functional or cosmetic and whether your policy will cover it or not. Take one of our recent cases for example: we were working with a client whose home had hail damage to their roof.

The roof had shingles that were hit by hail. The hail knocked off granules on some shingles, actually bruised or cracked the shingle on others, and even broke some edges off ridge and starter shingles. The policy had a cosmetic damage exclusion to for the roof. So what damage is functional vs. cosmetic?

The court came back and said it was all functional damage. Even granule loss was deemed functional damage because the hail damage exposed the shingle mat to the elements, shortening the life span of the shingle, and took away the uniform appearance which was a function of the roof.

By understanding the terms and definitions within your policy, you can avoid surprises when you file a claim. It also gives you the power to compare different policies, know your options, and choose the one that best suits your needs and gives you the most coverage.

Key Takeaways

  1. Replacement cost is the amount of money it would take to replace or repair a damaged item with a new one of the same kind.
  2. Functional damage and cosmetic damage are both covered unless the policy has specific exclusions for cosmetic damage.
  3. Just because an insurance company calls it cosmetic damage, doesn’t mean it doesn’t also effect the functionality of the product.

Don’t let confusing terminology jeopardize your peace of mind. At Wheeler, DiUlio, & Barnabei, we offer comprehensive legal representation and insightful guidance on property insurance matters. Contact us today for a free consultation and let us help you navigate the complexities of coverage.