In J&S Welding, Inc. v. Liberty Mutual Insurance Company, the U.S. Court of Appeals reviewed a summary judgment ruling in favor of co-defendant West American Insurance Company (“West American”), issued by the U.S. District Court for the Western District of Tennessee. The 6th Circuit held that the property policy’s cosmetic damage exclusion applied to bar coverage because the insured, J&S Welding, Inc. (“Insured”), failed to disclose or produce any expert evidence to rebut the conclusions of the West American’s three experts, who determined the roof’s damage was merely cosmetic.
Background
In November 2019, West American[1] issued an insurance policy providing coverage for the Insured’s commercial shop buildings. In 2021, the Insured, through its public adjuster, filed a claim under the property policy, alleging that a May 2020 hailstorm caused significant damage to the roofs of two buildings. West American retained an independent adjuster to inspect the loss. Subsequently, West American issued payment for the damages it deemed to be covered and non-cosmetic. Despite accepting and cashing the payments, the Insured claimed West American’s initial coverage determination was inadequate, arguing that the insurer “’severely undervalued the claim’ and ‘refused to pay the true amount of the loss…’”
In response, West American retained an engineer to further inspect the alleged damage from the hailstorm. This engineer concluded that the roofs only sustained minor dents, which were “cosmetic in nature.” He stated that the roofs’ functionality and longevity were not affected by the storm. Based on this inspection, West American advised the Insured that the policy would provide no further coverage based on the application of the Roof Surfacing Cosmetic Loss Exclusion. A lawsuit ensued, wherein the Insured alleged that West American breached the contract by failing to pay full value for the claim.
After the lawsuit commenced, West American retained two additional experts to reevaluate whether the property sustained non-cosmetic damage. Although the structural engineer retained by West American found indentations on the roofs, he concluded that they did not impact the functionality or longevity of the roofs’ materials. The second expert also determined that the roofs only sustained minor damage, which would not impact their functionality.
Despite arguing otherwise, the Insured did not produce any expert evidence regarding the cost to repair or replace the roof or the tools and electrical equipment that the Insured claimed were also damaged. Instead, the only evidence produced by the Insured was the testimony of the Insureds’ owner and public adjuster.
Analysis
The parties disagreed on whether the wind and hail damage to the roofs fell within the policy’s cosmetic-damage exclusion. The Insured argued that the damage was structural and therefore covered under the policy. The Insured also claimed that the cosmetic exclusion was ambiguous. In response, West American argued that the damage was merely cosmetic in nature and fell under the cosmetic-damage exclusion of the insurance policy, which excludes coverage for superficial damage that does not affect the roof’s functionality as a barrier to the elements.
Applying Tennessee law, the court found that the cosmetic damage exclusion in the insurance policy was unambiguous and excluded coverage for “any loss or damage (1) consisting of marring, pitting, or other superficial damage, (2) caused by wind and/or hail, (3) that alters the physical appearance of the roof, (4) but without preventing the roof from continuing to function as a barrier to the elements to the extent that it did before the loss or damage occurred.”
In reaffirming the district court’s decision, the court concluded that the Insured failed to provide any expert evidence to rebut the conclusions reached by the three experts retained by West American, all of whom determined that the damage to the roof was purely cosmetic.
The court further held that the testimony provided by the Insured’s owner and public adjuster did not qualify as expert testimony and was therefore insufficient to establish the existence of non-cosmetic damage. The court emphasized that expert testimony is crucial in disputes involving technical matters like roof damage, especially when an insurance policy exclusion is at issue. Without such evidence, the insured party cannot effectively challenge the insurer’s application of a policy exclusion.
Conclusion
In affirming summary judgment in favor of West American, the court reinforced the principle that expert evidence is required to defeat summary judgment in cases like this where an insurer is relying upon expert opinion on a highly technical matter to enforce an exclusion. Without it, the plaintiff-insured has no admissible evidence from which a reasonable jury could reject the defendant-insurer’s expert opinion and the court must grant summary judgment in favor of the insurer.
[1] The parties agreed that Liberty Mutual took no part in the issuance of the policy and, therefore, the District Court determined that Liberty Mutual was not a proper party to this action.
