Policyholders purchase property insurance and pay lofty premiums with the intention of their insured property being restored to where it was prior to a loss. But what happens when the loss affects only a portion of the siding or has destroyed only a handful of discontinued roofing tiles? Is the policyholder forced to accept mismatching materials? The trial court in Hamlet Condominium Association v. American Family Mutual Insurance Company, recently entered an order1 which discussed an insurer’s obligation under a replacement cost value policy to provide a reasonable match between the replacement and existing materials.

Located in northern Colorado, Hamlet Condominium complex was hit hard by a June 2014 hail and wind storm causing damage to the stucco-like Exterior Insulation Finish System (EIFS2) of several buildings. While American Family agreed to patch repair the EIFS, Hamlet argued that American Family was required to cover the cost of skim-coating to achieve visual matching of the siding as the policy language provided for the repair or replacement of damaged property with other property “of comparable materials and quality.”

When American Family denied the claim, Hamlet invoked the policy’s appraisal provision. An engineer was hired by the umpire and concluded that skimming of the entire wall was required to achieve a uniform appearance. After reviewing the report, the panel agreed to an appraisal award which included costs to skim-coat all buildings to achieve the same color as the repairs. American Family paid the amounts in the appraisal award except for the EIFS skim-coating, which it concluded was not covered by the policy. Hamlet eventually filed suit for breach of contract and statutory bad faith.

In support of its argument for coverage of the EIFS skim-coating, Hamlet relied upon the conclusions drawn in Cedar Bluff v. American Family Mutual Insurance Company,3 a 2014 Minnesota Supreme Court matching case which held that “comparable materials and quality required something less than an identical color match, but a reasonable color match nonetheless.” Hamlet also relied upon recent decisions in Missouri4 and the District of Columbia,5 which similarly concluded that an insurer’s obligation to pay based on “comparable,” “similar,” “like kind,” or “equivalent” quality required a reasonable match between the replacement and existing materials. The trial court ultimately agreed with the cases offered by Hamlet, finding that American Family’s breached its contract as the Hamlet policy covered the cost of obtaining reasonable matching.

This recent decision suggests that, at least in Larimer County, courts will likely agree to a matching standard of reasonable uniform appearance under a replacement cost value policy. It also demonstrates the importance of carefully choosing whether to avoid appraisal and enter straight into litigation, as the issue of whether a reasonable uniform appearance can be achieved is a question of fact for the jury or the appraisal panel to determine. This decision stresses the importance of closely reviewing the policy to confirm that the carrier is providing everything due under the coverage purchased.
1 Hamlet Condominium Association v. American Family Mut. Ins. Co., 2016 cv 30594 (Colo. Dist. Ct. April 12, 2017).
2 EIFS is a form of exterior siding with the appearance of stucco but is made of modern composite materials. It consists of insulation board attached adhesively and/or mechanically to the exterior of a building, a base coat reinforced with fiberglass mesh, and a tinted finish coat.
3 Cedar Bluff v. American Family Mut. Ins. Co., 857 N.W.2d 290, 2014 WL 7156914 (Minn. Sup. Ct. 2014).
4 Alessi v. Mid-Century Ins. Co., Inc., 464 S.W.3d 529 (Mo. App. 2015).
5 Nat’l Presbyterian Church, Inc. v. Guideone Mut. Ins. Co., 82 F.Supp.3d 55 (D.D.C. 2015).

  • “…the policy language provided for the repair or replacement of damaged property with other property ‘of comparable materials and quality.'”

    If the controlling language was repair or replacement of DAMAGED property, one could argue that the area not impacted by hail was economically damaged and “matching” was called for by the policy.

    Where it’s most often excluded, though, is when the insuring agreement also indicates that coverage is limited to DIRECT damage. In that case, the argument is that there is no coverage for repair of property not directly damaged by the hail.

    • Mark Stewart, CIP, CAIB

      I would challenge your argument that “there is no coverage for repair….” considering the doctrine of “proximate cause” (original cause of loss of an unbroken chain of events) suggests that the “direct damage” actually does include the undamaged portion of the roof resulting in an economic loss suffered by a mismatching roof due to the wind (or other insured loss)

      • Kent G. Robinson

        Economic loss is not direct physical loss.

  • Mathew Mulholland

    Does Like Kind and Quality assume a current production material, or can it be extended to materials that are discontinued but still available in some capacity? If the material that is damaged is itself a discontinued material without any similar products still in production, can the insurer force the insured to use a source of the discontinued materials even if not from an authorized supplier or if the material’s original source or form of storage cannot be known?

    Followup question: Does an RCV policy pay only for replacement with NEW or current production materials?