On home property damage, Minnesota Supreme Court equates “comparable material and quality” to mean a “reasonable match” with regard to color.
Does property damage covered by a homeowner’s policy deserve an exact replacement? As in all insurance-related questions, the policy is king. In Cedar Bluff Townhome Condo. Ass’n, Inc. v. Am. Family Mut. Ins. Co., A13-0124, (Minn. Dec. 17, 2014), a recent decision by the Minnesota Supreme Court, the policy in question contained the phrase “comparable material and quality,” which the Court read to mean a “reasonable match” with regard to color. What does this case mean for insurers and insureds?
In this case, a series of condominiums suffered hail damage to roofs and siding. The siding of all the condos in the Association suffered at least one panel’s worth of hail damage. The policy terms in effect contained options for payment by the insurer in the event of “direct physical loss of or damage to Covered Property.” These options included paying costs of repair or performing repair. American Family elected to “pay the cost of repairing or replacing,” which in turn gave rise to the obligation to pay “replacement cost.” Replacement cost was defined as “the cost to replace ‘the lost or damaged property with other property… [o]f comparable material and quality.’”
American Family, after reviewing the damage, offered to pay the replacement value of only those panels that were actually damaged by the hail to the tune of approximately $6,800. The Association protested and insisted on an appraisal panel. The panel, after reviewing evidence submitted, determined that the value to the “replacement cost” would encompass the cost to replace all of the siding on each of the affected condominiums to the tune of $361,108. American Family refused to pay that sum and the Association filed an action in district court to affirm the appraisal panel. American Family counterclaimed for the purpose of obtaining a declaratory judgment that the appraisal panel exceeded its authority, which the district court obliged. This was the basis for the subsequent appeals.
The Minnesota Court of Appeals reversed the district court on the basis that the appraisal panel was well within its authority. Furthermore, the intermediate court declared the coverage issue as being properly before it by virtue of theQuade decision issued by the Court in 2013, which stated that “an appraiser’s liability determinations are not final and conclusive…the decision of the appraisers will be subject to review.” 814 N.W.2d at 707-08. The court of appeals held that “comparable material and quality” could be understood by a reasonable person to mean “the same color as the damaged property.” 2013 WL 6223454 at *4. As a result, the coverage dispute was appealed to the Minnesota Supreme Court.
The Court first reviewed the power of appraisal panels. Such panels, while they “may not construe [insurance] policy or decide whether an insurer should pay,” certainly can resolve “questions of law or fact, which are involved as mere incidents to a determination of the amount of loss of damage.” As such, the appraisal panel in this case read the language of “comparable material and quality” to include a “reasonable match” with regard to color. The Court, in reviewing the plain language of the contract, and giving deference to the panel, agreed with the appraisal panel in its reading of the contract in its plain meaning.
At the heart of the contest, however, was the issue of whether “reasonable match” required replacement of all siding on the condominiums. The issue, as identified by the court, was “whether the color mismatch constitutes ‘direct physical loss of or damage to Covered Property.’” According to American Family, “physical damage” was defined as a “distinct, demonstrable, and physical alteration” to the siding. Therefore, the Court resolved the question by concluding that a color mismatch, which would otherwise occur if only some of the panels were replaced, gave rise to physical damage and thus triggered the obligation by American Family to replace all of the siding.
This decision is highly fact specific. According to Justice Page, “all storm-related property damage claims present their own facts.” The Court effectively cautions that the ingredients in its decision included the damage, the panel assessment, and the particular policy language. To that extent, this opinion reminds insurers that the burden is on them to adhere to policy language and the properly issued decision by an appraisal panel. As for insureds, it marries the term “comparable” with “reasonable” and suggests more favorable outcomes where the matching of materials is concerned under the same language.
If you have any questions about coverage disputes and appeals please feel free to call or e-mail any one of our many experienced attorneys – www.hansendordell.com / 651-482-8900.