Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

One could think of this as the “you break it, you bought it” statute. Additionally, Florida Statute § 626.9744(2) requires a Florida homeowner’s property insurance to cover replacement of undamaged items that do not match the repairs made to covered damage. Specifically, subsection (2) of this statute (2011) reads:

When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.

This section could be applied to require an insurer to replace a peppershaker when only the saltshaker was destroyed in a fire, or to repaint an entire room when only one wall is damaged by a water leak. In a windstorm or hurricane example, it can require an insurer to replace an entire roof when it is only partly damaged if comparable roof tiles are not available.

While there are an infinite number of possible applications of this statute, there are only a few limitations. A recent federal trial court order in Ocean View Towers Ass'n, Inc. v. QBE Ins. Corp., 11-60447-CIV, 2011 WL 6754063, *9 (S.D. Fla. Dec. 22, 2011), ruled the statute only applies to Florida homeowners’ property insurance policies, not commercial policies. Additionally, the statute also states that an insurer must only make “reasonable” repairs when dealing with this undamaged property.

The Complaint alleged in part:

1.  The State of Minnesota, by its Attorney General, Make Hatch, brings this consumer protection lawsuit for declaratory and injunctive relief, restitution, civil penalties, costs and reasonable attorney fees. Defendant American Family Mutual Insurance Company, in advertising and selling its homeowners insurance policies to Minnesota consumers, represents that it will provide full insurance coverage to consumers in the event that their homes are damaged by accidental perils, including windstorm and hail. Contrary to such representations and the reasonable expectations of consumers, defendant has repeatedly failed to provide full replacement coverage to insured consumers whose homes are damaged by storms. Instead defendant reimburses such consumers only for work necessary to replace the portion of the consumer's home (for example, one wall of siding) that defendant maintains was directly damaged. Defendant;s practice forces many consumers to choose between having a home with mismatched siding of roofing or reaching into their own pockets to pay for the matched siding or roofing that was on their homes before the storm damages occurred.

The Order set out the relevant policy language:

5.  American Family's homeowners' policies provide for full replacement costs, without deduction for depreciation, and insure the policyholder's dwelling for all loss or damage unless the loss is excluded in the policy. Under the "Replacement Cost" section of American Family's policies, American Family undertakes the following obligation:

[W]e will pay the full cost to repair or replace the damaged building without deducting for depreciation, but not exceeding the smallest of...ii. the cost to replace the damaged building with like construction for similar use on the same premises; or iii. the amount actually and necessarily spent for repair or replacement of the damaged building.

Our Settlement Option. In the event of a covered loss, we have the option to: a. make a cash settlement for all or part of the damaged, destroyed or stolen property; or b) pay the cost to repair, rebuild or replace all or the necessary part(s) of the damaged, destroyed or stolen property with like property, as of the time of loss, less an allowance for depreciation when replacement cost coverage doesn't apply.

The Court then set out the facts which are virtually the same as in all matching cases:

7.  After the storm damage occurred in 1998, in many instances, materials of like kind and quality necessary to repair damages to the siding or roofing existing on consumers' homes were no longer manufactured or were otherwise unavailable; consequently, materials reasonably matching those on consumers' homes were not available. As a result, consumers have had to incur substantial out-of-pocket costs in order to obtain matching materials or live in mismatched homes.

The Court also noted that the insurer never gave the consumer the impression, in any other advertising or dealings with the consumer, that a matching structure would not be paid for:

9.  Nothing in American Family's policies limits the insurer's obligation, excludes coverage or otherwise supports American Family's practice of limiting payment under replacement value provisions of its policies to sums necessary to replace only the portion of the policyholder's dwelling that is directly damaged by a covered peril, including a hail or wind storm, where replacement materials that reasonably match (i.e., that are, under the policies' language, "of like construction for similar use" to) the existing materials on the dwelling are no longer manufactured or are otherwise not available.

10.  In advertising and selling its homeowners' insurance policies, American Family has not affirmatively disclosed or informed consumers of the material fact that Defendant, as a matter of practice, limits the amount it pays for storm damages to the cost of replacing only those portions of the consumer's home that American Family maintains are directly damaged even if its failure to do so would result in a mismatch.

11. Defendant does not disclose or inform consumers, prior to their purchase of homeowners' insurance policies from Defendant or at any time prior to the consumer's filing of a claim, that Defendant limits the amount that it pays for storm damages to the cost of replacing only those portions of the consumer's home that Defendant maintains are directly damaged, even if repairs result in a mismatch.

12.  As a matter of practice and policy, American Family routinely settles claims under its automobile insurance policies and Minnesota law with parts of "like kind and quality" that match or are painted to match the undamaged parts of the vehicle. At oral argument, American Family explained this discrepancy in its interpretation of "like kind and quality" between its homeowners and automobile insurance as one strictly of cost.

The Court's ruling is significant and should provide some guidance to others with these situations:

2.  In construing and interpreting the text of an insurance policy, the Court must consider the interaction of the policy clauses, the insured causes of loss and any limitations or exclusions on the insurer's liability for the consequences of an otherwise insured event. Witcher Construction Company v. St. Paul Fire & Insurance Co., 550 NW2d 1 (Minn. App. 1996), rev. denied (Minn. 1966). Pursuant to American Family's policies, hail damage to a dwelling is a covered loss with the amount of monetary loss subject to the limitations as set out in the replacement value provisions and the exclusions contained within the different policies.

3.  A court is not to read an ambiguity into the plain language of a policy to ensure coverage. Farkas v. Hartford Acc. & Indem., 173 NW2d 21, 24 (Minn.). Instead, the Court must give the terms in a policy their plain, ordinary and popular meaning, Columbia Heights Motors v. Allstate Insurance, 275 NW 2d 32, 34 (Minn. 1979) and construe the policy terms in conformance with applicable statutes. When policy language is ambiguous or confusing, it is public policy in Minnesota to extend coverage, rather than restrict it. Hennen v. St. Paul Mercury Insurance, 312 Minn. 131, 136, 250 NW2d 840, 844 (1977). The language in the Defendant's policy regarding replacement value for the repair of covered damages is not ambiguous and not subject to more than one interpretation. Estes v. State Farm & Casualty Co., 358 NW2d 123, 124 (Minn. App. 1984); Columbia Heights Motors v. Allstate Insurance, 275 NW2d 32 (Minn. 1979). In this case, any confusion as to the amount of a covered loss has resulted from Defendant's argument that their obligations under their policy provisions are met by only paying for new materials to replace the damaged areas of the home, without regard as to whether the new materials match in color, quality, texture or material the original siding or roofing on the home "at the time of the loss." At oral argument, Defendant conceded that pursuant to the same statutory language of "like kind and quality", Defendant repairs damaged automobiles with matching parts, both physically and "cosmetically." Defendant points out that the difference in their interpretation of their obligations under these two subdivisions of Minn. Stat. 72A.201 is based on the greater cost to Defendant to achieve a "matching" result on a damaged home. Compare Minn. Stat. 72A.201, Subd. 6 (2) and 72A.201 Subd. 5 (8).

4.  Generally, given the discrepancy in the bargaining positions of the insured and insurer, when the meaning of insurance policy language is in dispute, the matter is to be resolved in favor of the insured. State Farm Insurance v. Seefeld, 481 NW2d 62 (Minn. 1992). Here, Defendant was in a position to add an exclusion or limitation in its replacement coverage under its homeowners' policies for what should be the common and easily anticipated event that matching housing materials would no longer be available for repairs over the entire useful life of a dwelling. Defendant's policies contain no such exclusion or limitation. Further, the greater cost to Defendant to achieve a matching result on a home versus an automobile is not justification to interpret identical language in Minn. Stat. 72A.201 differently.

I came across this ruling in the FC&S Bulletins, where it was mentioned briefly. I thank our Knowledge Manager, Attorney Ruck DeMinico, for tracking down the state docket and obtaining the decision after having it copied from the Court archives. My understanding is that Lexis will now make it available as a published opinion. It is a significant decision, and I encourage other Departments of Insurance to take note of the need to prevent this practice by insurers-- it happens frequently.

Click here to read the entire Complaint.

Click here to read the entire Order.

Another comment also finished with a question for me:

If the argument is that aesthetics is part of the function of the item then it would be just as true for composition shingle roofs as for the copper roof panel example. The base color of shingles is always the same, black asphalt, the color comes from the granules; therefore granule loss is equal to color loss.

If color loss is equal to aesthetic loss then granule loss and the resulting color loss is a loss of function.

Or, am I reading this all wrong?

First, I applaud everybody that sends in a comment or asks a question. I encourage it. Sometimes, I respond privately and nothing gets posted. Still, it is important that comments to what we post are made so we can reflect and have dialogue.

Second, I want to encourage everybody to use the “SEARCH” function of our Blog. You will find it very useful to all kinds of coverage or insurance questions. Let me show you an example from the two questions above.

“Matching” is the topic of both questions. If I were to put the word “match” into our search function, the following 10 Posts would be the result:

1. Matching Coverage Disputes and Disagreements are Routine and Not Going Away--Don't Miss Our September 11 Seminar in Houston Which Covers This Topic
2. Provide the Right Proof so Your Insurer Will Pay Costs to Repair or Replace to Match Texture, Color and Likeness
3. Matching of Property Damage is Statutory in Florida
4. Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II
5. The Proposed Federal Charter Legislation Should be Named: "The Anti-Consumer Insurance Act of 2009"
6. "It's an Ill Wind that Blows No Good"
7. The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions
8. "Texas Hold 'Em": Merlin Law Group's Seminar for Texas Public Insurance Adjusters
9. Is The Saffir-Simpson Scale Still Relevant
10. New Insurance Companies Founded in Florida

Of those results, five posts seem to provide most of the answers to the two questions. Indeed, I invite anybody to ask me questions about roofs, matching, and indemnity in Texas after they have read the following posts:

• Matching Coverage Disputes and Disagreements are Routine and Not Going Away--Don't Miss Our September 11 Seminar in Houston Which Covers This Topic,
• Provide the Right Proof so Your Insurer Will Pay Costs to Repair or Replace to Match Texture, Color and Likeness,
• Matching of Property Damage is Statutory in Florida,
• Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II,
• The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions

I want readers to benefit from the work I have already done for them by using the search function and reading what I have previously written, so I don't have to do all the work twice. This seems fair.

I also need to warn to everybody. Unless you are an attorney, you are breaking a number of laws by advocating legal positions of coverage in letters or phone conversations with insurance adjusters or claims managers. You are practicing law. Do not do it. If you get turned into the Bar or the Department of Insurance, you are warned. And, insurance adjusters and insurance companies have an ethical obligation to turn you in if you practice law without a license. BEWARE.

I get questions all day long from people, public adjusters, contractors, and potential clients regarding insurance coverage questions that pertain to actual controversies. I can understand the need to ask me questions and obtain a better understanding of coverage issues. If you attend my seminars or others where I speak, I will teach you how to use what I write without practicing law. Go to our seminars.

If you are an adjuster, independent adjuster, or insurance claims managers, you do not have to put up with public adjusters, and especially contractors, practicing law. I have no patience with unlicensed people practicing law and acting as legal advocates. All professional public adjusters agree. I cannot speak for many of the insurance contractors and insurance restoration contractors because many seem to violate many laws regarding public adjusting and practicing law without regard to anything because nobody does anything about it.

If you are a policyholder trying to do this yourself, I remind you of the old saying that “he who represents himself has a fool for a client.”

And please understand that my advice as to what to advocate applies only when I get retained. If you attempt to do anything as a legal advocate or by giving advice of a legal nature with an insurer, you may be violating the law and harming the public, your client, or yourself. I am providing general legal principals so readers and others do not get harmed by insurance companies and so policyholders can get paid in full.

My first thought is that readers to my blog with questions should do a “keyword” search. If you were to put “matching” into the keyword search form, a number of posts would come up on the topic. One post, Provide the Right Proof so Your Insurer Will Pay Costs to Repair or Replace to Match Texture, Color and Likeness, had particular application to the question with cases—public adjusters should not be arguing case law because it is practicing law. Another post, Texas Hold 'Em": Merlin Law Group's Seminar for Texas Public Insurance Adjusters, indicated that we covered this topic at a previous seminar. Nobody falls asleep at my seminar, so the person writing the comment must not have been there.

Since this is a frequent question and Texas insurance adjusters seem to have a “we just aren’t gonna pay for matching” attitude, I will address in detail what you can do about it at the Hurricane Ike-What a Difference A Year Makes? Seminar on September 11 for public insurance adjusters.

For what it is worth, the FC&S Bulletins also noted that the topic of “matching” is a frequent coverage dispute. A question was posed to their editorial board:

I have an insured with a homeowners (3) policy who had a wind loss that took a few strips of aluminum siding off the front of his house and few from the back side of the chimney. The siding can not be matched color or grain and the carriers solution is to take a few strips off one of the lower sides of the house put those in where the damage is, where it will not be so noticeable and put the new ones back on the lower sides. What thoughts do you have on this claim?

The answer may be helpful to many with these issues:

The solution offered by the insurer is not in keeping with the HO 00 03 (such as the standard ISO form), which promises to pay "replacement cost of that part of the building damaged with material of like kind and quality and for like use; or the necessary amount actually spent to repair or replace the damaged building." By putting on old siding to replace old siding, the insurer is effectively providing an "actual cash value" settlement, which allows depreciation.

But that is not what the insured has been paying for. The replacement cost policies have traditionally been sold to give "new for old." Yes, this violates the principle of indemnification, but that is how the policies are marketed and that is what the insured pays additional premium for.

So, in this case, the insured had matching siding prior to the loss, and is entitled to new matching siding following the loss.

I am going to have a lot more about this at the seminar, and do not ask for the materials if you cannot go. Just be there.

For policyholders that read this, I hope it is useful. You should also get the feeling that only attorneys and public adjusters that subscribe to the on-line edition of the FC&S should represent you. Those people will go the extra mile for you because they know the value of investment in knowledge regarding a very specialized area of insurance.

For insurance company claims managers and their attorneys reading this, pay my clients while you have the chance!

Remember, every jurisdiction is different. Case law and regulations need to be checked. Read the policy to see if it has restrictions on matching because we are seeing more policies that exclude payment for costs associated with matching damaged portions of real or personal property. Coverage may be provided for "pairs" or "sets." Again, the policy is the first place to start any analysis of coverage.


The Suggestion:

Get as much proof from experts indicating that to fix the "damaged" property and not be worse off than before, you have to match the property. And, you must show that it is impossible to somehow "patch" the damaged area so it will match. Get experts to back you on the claim and many insurance adjusters will pay.



Two Good Case Examples

In Holloway v. Liberty Mut. Fire Ins. Co., 290 So. 2d 791, 793-794 (La.App. 1 Cir. 1974), the discussion helps show what type of proof is needed: 

Kenneth McKay, plaintiffs' interior decorator, was qualified as an expert in the field of interior design. He testified that, since the color and pattern of the carpeting originally used in plaintiffs' house had been discontinued, it was impossible to replace the damaged carpeting without replacing all of the carpeting in the bedroom wing of the house. Even if the same color and texture of carpeting could be obtained, to replace only the damaged portions of the carpet, would result in unsightly seams at the juncture point, according to Mr. McKay, and contrast between the old and the new carpeting would be readily apparent and would have an adverse effect on the overall market value of the house. Mr. McKay likened the replacement of the damaged carpet to the effect of replacing a sleeve in a suit with other than the same material with which the whole suit had been tailored originally. He also testified that it was the general practice in Baton Rouge in houses of the type of plaintiffs to use one kind of carpeting and one color in all of the bedrooms, and that to do otherwise would depreciate the value of the house. Mr. McKay testified further that he had been consulted by 50 - 100 homeowners in Baton Rouge who had sustained water damage to their carpeting, and that he always recommended replacement of the carpet in the entire bedroom wing, if the damage had been in any part of that area.

W. W. Wilkinson, a qualified realtor, also testified that if carpeting of the same texture and color is not used in the entire bedroom wing of houses such as the Holloways' house, it diminishes the value of the house by $1,000 to $2,000.

In the light of the testimony of the expert witnesses in this case we find no error in the judgment of the trial judge in awarding plaintiffs the cost of the replacement of the carpeting in the entire bedroom wing of their house." (emphasis added)

An Ohio case stands for the proposition that an insurer must not only match, but pay for undamaged covered property if it is necessarily damaged as a result of fixing the damage initially caused by an insured peril. In Mastin v. Sandy & Beaver Ins. Co., 10 Ohio Misc. 2d 22, 23 (Ohio County Ct. 1983) the court noted and found:

The floor was damaged when a hole was cut in it to gain access to the plumbing system in the house. Evidently, there is no basement or crawl space otherwise accessible. It was uncontroverted that plaintiff's home was in fact damaged by the storm and that it was truly necessary to go through the kitchen floor to repair the damage. Defendants, however, wish only to pay for the floor to be patched, and not replaced. The floor is of vinyl covering such as is purchased in a roll. It is not tile.

Plaintiff's insurance agreement states defendant company is obliged to repair or replace damaged property. The court finds that vinyl flooring cannot be said to be repaired if an obvious patch is left, and that the whole floor ought to have been replaced.

One Case to Learn From

A case which could be read for an insured being "unreasonable" without sufficient proof is St. Paul Fire & Marine Ins. Co. v. Darlak Motor Inns, Inc., 3:97-CV-1559-TIV, 1999 U.S. Dist. LEXIS 23283 (M.D. Pa. Mar. 9, 1999). The assertion by the policyholder was set out by the Court:

Darlak asserts that St. Paul must pay for redecorating the non-damaged rooms because it was necessary to replace the wallpaper and carpet in all of the rooms in order to maintain the continuous decor of the third floor of the hotel... "The rooms that did not suffer physical damage as a result of the fire are also considered damaged property under the policy since the undamaged rooms must look the same as the rest of the rooms on the floor." ...Darlak further contends that "failing to match constitutes successive damage and fails to place the insured in a pre-loss condition."

This situation is quite common in hotels and motels where there are requirements that the rooms have to match. In those situations, it is important to get the franchise inspector to testify about why this is an important aspect of hotel and motel management and leads to a devalued property. Many commercial insurers will pay for this. Obviously, St. Paul does not pay for matching.

The finding was based on a lack of evidence and better proof offered by St. Paul:

Here, Darlak has not provided any proof of loss to the undamaged rooms n7 other than the general assertion that it "would be in worse position subsequent to the loss if the premises looked different in one place than in the other." However, Darlak offers no evidence that it cannot match the damaged rooms to that of the undamaged rooms. Darlak's contention that a failure to redecorate the entire third floor would amount to the creation of an 'eyesore" ignores common sense. Logic dictates that the damaged rooms can be decorated to match the undamaged rooms.

n7 St. Paul persuasively notes that because of sophisticated paint matching' techniques and the widespread availability of carpeting, wallpaper and drapes, Darlak should be able to match the decor of the damaged and undamaged rooms.

We are currently representing a number of hotels and motels with similar issues. You can bet we will provide proof to back up our clients' claims, and I suggest you do the same. Sometimes, there are matching techniques which make the issue moot. However, some insurers will not pay the additional costs of those repair techniques since they claim they do not pay for matching or the "additional" cost of matching.

And, some wonder why we have to file lawsuits over insurance claims.

Florida has a statutory answer to many of these issues:

"§ 626.9744. Claim settlement practices relating to property insurance

Unless otherwise provided by the policy, when a homeowner's insurance policy provides for the adjustment and settlement of first-party losses based on repair or replacement cost, the following requirements apply:

(1) When a loss requires repair or replacement of an item or part, any physical damage incurred in making such repair or replacement which is covered and not otherwise excluded by the policy shall be included in the loss to the extent of any applicable limits. The insured may not be required to pay for betterment required by ordinance or code except for the applicable deductible, unless specifically excluded or limited by the policy.

(2) When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.

(3) This section shall not be construed to make the insurer a warrantor of the repairs made pursuant to this section.

(4) Nothing in this section shall be construed to authorize or preclude enforcement of policy provisions relating to settlement disputes." 

For Florida policyholders, if the policy calls for replacement cost and the loss occurred after October 1, 2005, it is important to know that Fla. Stat. § 627.7011 prevents an insurer from attempting to depreciate the undamaged portion of the structure that needs to be replaced due to matching:

 "(3) In the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs, the insurer shall pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured replaces or repairs the dwelling or property."

Very few states spell it out as clearly as Florida, where, because of these laws, disputes over matching rarely occur.