If you are a Public Adjuster or Roofing Contractor, you’ve no doubt been involved in a situation in which roofing shingles and/or building siding could not be color-matched. It is not uncommon for my colleagues and me to field questions like "whether (certain state) is a ‘matching state.’" According to a recent decision by the Minnesota Supreme Court, the answer should be a resounding "Yes" if the insurance policy provides for the replacement of “damaged property with other property . . . [o]f comparable material and quality.”1
During an October 2011 hail storm, all 20 of Cedar Bluff’s townhome buildings sustained damage. The roofs on all of the buildings needed to be replaced, and at least one siding panel on each building sustained damage. Each siding panel is 15 square feet. The building with the most hail damage had 10 damaged panels, and one building had only one damaged panel. At the time of the hail storm, the siding was approximately 11 years old, and the color of the panels had faded. Replacement panels were available from the same manufacturer with the same specifications, but the panels were not available in the same color. Cedar Bluff submitted a claim under its business owners’ policy to American Family for the hail damage to the property.
American Family did not dispute that the hail storm damaged at least one siding panel on all 20 buildings. A dispute arose, however, regarding the value of the loss for purposes of calculating the replacement cost. According to Cedar Bluff, all of the siding on each building had to be replaced because there would be a color mismatch with the existing panels if only the damaged siding panels were replaced. In other words, “comparable material and quality” required a color match between the damaged and undamaged siding panels. American Family disagreed, claiming that the policy only required replacement of the individual panels damaged by the hail storm. American Family also noted that an exact color match was not possible even if the replacement panels were available in the original color because the color of the original siding on the buildings had faded over time. American Family offered to pay for replacement panels either slightly darker or slightly lighter in color than the original panels.
Because Cedar Bluff and American Family could not agree on the amount of the loss, Cedar Bluff demanded an appraisal, as provided for in the policy. After holding a hearing, at which it received evidence and heard arguments, and after visiting the site of the 20 buildings, the appraisal panel found that the original siding on the buildings could be “ ‘matched’ in terms of the same siding being commercially available from the same manufacturer and with the same model name, . . . texture, size and installation methods,” but “could not be matched in terms of color.” Based on the color difference, the panel concluded that “there was not a reasonable match available for the existing siding materials.” The panel then issued an award for “a total replacement of the siding” in the amount of $361,108 for the replacement cost of property of comparable material and quality. In making its award, the appraisal panel acknowledged that American Family’s focus on the replacement cost value of the damaged siding panels “would be correct if the subject policy did not require such a color match,” but that a color mismatch was “not a repair or replacement with comparable materials of like kind and quality.” American Family refused to pay the appraisal award because it believed the award was based on the appraisal panel’s unauthorized coverage determinations. Cedar Bluff subsequently filed an action in district court seeking to confirm the appraisal award. American Family counterclaimed, seeking a declaratory judgment that the appraisal panel exceeded its authority.
Minnesota Supreme Court Ruling
After an analysis of the manner in which the court interprets insurance policies, the court ruled that the phrase “comparable material and quality” means "a reasonable color match between new and existing siding when replacing damaged siding."2
After defining "comparable material and quality," the court next turned to the question of
whether the appraisal panel interpreted “comparable material and quality” to require an exact color match or merely a reasonable color match. Upon weighing the evidence, the panel found that “there was not a reasonable match available for the existing siding materials but there is a reasonable match for the existing fascia material.” The panel also noted that noted that American Family’s $6,800 estimate for the replacement cost value “would be correct if the subject policy did not require such a color match.” Ultimately, the court found that the Appraisal Panel applied the correct legal standard:
[T]he question to be answered is whether the color mismatch constitutes “direct physical loss of or damage to Covered Property.”. . . . The term “direct physical loss of or damage” is not defined in the policy. According to American Family, the term “physical damage” means “a distinct, demonstrable, and physical alteration,” and “physical loss” means “those situations where external force has rendered the property unsafe or unusable, even though the property remains physically unchanged.” Because of the color mismatch resulting from the inability to replace the hail-damaged siding panels with siding of “comparable material and quality,” the covered property—Cedar Bluff’s “buildings”—has sustained a “distinct, demonstrable, and physical alteration.” Thus, we conclude that the covered property sustained a covered loss. As a result of the dispute between Cedar Bluff and American Family, the appraisal panel was selected to determine the amount of loss. Here, the appraisal panel held a hearing at which it considered all of the evidence, heard from witnesses, and examined the damaged property in person.
Accordingly, the court upheld the Appraisal Panel’s decision.
What Does This Mean For Me?
The Cedar Bluff opinion acknowledged that each storm-related property damage claim presents its own unique set of facts. The next time your policyholder client receives a claim denial based on "matching," you might be well-served to consult a legal professional to investigate how the Cedar Bluff opinion might help your policyholder receive all the benefits they deserve.
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