Broad Form, Wind-Damaged Roof, and a Pre-Existing Skylight
A 20,000-square-foot warehouse is insured on a Broad Form causes of loss policy with a $10,000 deductible. A severe windstorm with 60 mph gusts damages the roof, opening a 20-foot section. The same storm produces heavy rain. Rain enters through the wind-damaged roof and damages $80,000 of stored goods and $40,000 of tenant improvements. The insured also claims $15,000 to replace a skylight that was already cracked before the storm; rain entered through that crack and caused an additional $12,000 of damage to goods stored below it. The insurer's inspector confirms the skylight crack had existed for several months and was not caused by the wind. The roof repair itself costs $50,000. The insured argues that because wind is a covered peril under the Broad Form and rain followed the wind, all of the water damage should be paid. The adjuster must separate the loss by opening and by cause.
1. Explain whether the rain damage from the wind-damaged roof is covered under the Broad Form, and whether the rain damage from the cracked skylight is covered. Cite the relevant coverage logic.
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Under the Broad Form, windstorm is a named peril. Rain is also a named peril, but it is covered only if the roof or walls are damaged by a covered peril. The wind-damaged roof satisfies that condition: wind is covered, the roof opening was caused by wind, and the rain damage that followed is therefore covered. The insured's stored goods ($80,000) and tenant improvements ($40,000) that were damaged through the wind-created opening are payable, subject to the deductible. The cracked skylight is different. The crack existed for months and was not caused by the wind, so the rain entered through an opening that was not created by a covered peril. The rain peril's condition is not met for that opening. In addition, the pre-existing crack may fall under the wear and tear or deterioration exclusion. The $12,000 of goods damage below the skylight should be denied, and the $15,000 skylight replacement is not covered because the damage preceded the storm. If the wind had broken the skylight, the analysis would change.
2. How should the adjuster handle the $50,000 roof repair and the deductible? What if the policy had been Special Form instead of Broad Form?
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The $50,000 roof repair is direct damage from the covered windstorm and is payable, subject to the $10,000 deductible. The deductible applies once to the entire loss, not separately to each item, so the adjuster should total the covered amounts and subtract $10,000. Covered amounts are $80,000 + $40,000 + $50,000 = $170,000; less $10,000 = $160,000. The $12,000 skylight-related goods damage and the $15,000 skylight replacement are excluded. Under a Special Form, the analysis changes because the policy covers risks of direct physical loss unless excluded. Rain damage would not need the Broad Form's roof-opening condition; the wind-damaged roof loss and the rain damage would still be covered. However, the pre-existing cracked skylight would still be analyzed under the wear and tear/deterioration exclusion, and the $12,000 damage caused by rain entering through that old crack would likely remain excluded. The Special Form does not convert a pre-existing defect into a covered loss. The roof repair and wind-created opening damage would be covered in either form.