Hail Damage – Cosmetic Exclusion

Hail damage claims are common and the wording of “Cosmetic Damage” exclusions that apply to these types of claims are important for an insurance attorney to understand.  This issue is discussed in a 2023 opinion from the Western District of Texas, San Antonio Division.  The opinion is styled, Charles Wall and Franze Wall v. Safeco Insurance Company Of Indiana.
This case is writing its opinion in response to Safeco’s motion for Summary Judgement.
Both sides agree that this case arises out of a May 2020 hailstorm.  The primary dispute is whether the damage from the storm is excluded from coverage by an exclusion for cosmetic damage.  As the summary judgment movant, Safeco bears the initial responsibility of informing the district court of the basis for its motion.  Safeco argues that “there is no competent summary judgment evidence that Safeco was unreason- able in handling the insureds’ claim.”  It contends that “this case concerns a bona fide dispute as to coverage.”  It later argues that “there is no evidence it breached the policy.”  As for Plaintiff’s bad faith and related claims, Safeco argues that Plaintiffs cannot show it acted unreasonably.  And Safeco further argues that there is no evidence  that it engaged in any conduct entitling Plaintiffs to treble or exemplary damages, mental anguish, emotional distress, or fraud.
The Court first considers the alleged breach of contract. Under Texas law, when “he disputed provision is an exclusion, the insurer bears the burden of establishing that the exclusion applies.  While the insured must carry the burden of persuasion to establish that any uncompensated (or under-compensated) damage was caused by a covered peril, the insureds here have carried that burden.  This case presents no question that the relevant insurance policy covers damage from the hailstorm.  The insureds have satisfied the rule that the insured must prove coverage under the policy.
If the insurer wishes to avoid liability by relying on a policy exclusion from coverage, it has the burden of persuasion to establish that the uncompensated or under-compensated damage is subject to an exclusion.  The burdens of persuasion never shift, but “what does shift—but only during the summary judgment stage—is the burden of production.  Thus, a defendant-insurer that moves for summary judgment must bear the burden of producing evidence to make out a ‘prima facie’ case that the cause of the uncompensated or under-compensated dam- age was excluded from coverage.”  Once the insurer carries that burden, “the burden shift[s] to the [insured] to present evidence demonstrating there remain[s] a material issue of fact.
In short, Safeco has the summary judgment burden to show that the damage is excluded. And it has failed to carry that burden.  It instead asserts a lack of evidence that it breached the policy.  Such assertion is insufficient when the summary judgment movant has the burden of production.  Safeco has not shown that the damage was merely cosmetic within the meaning of the exclusion.  Courts deny summary judgment when there is a genuine dispute of material fact as to whether the damage to the metal roof panels was cosmetic or non-cosmetic, and thus whether an insurer failed to perform under the contract.  Accordingly, the Court denies summary judgment on the claimed breach of contract.
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