In Cedar Bluff Townhome Condo. Ass’n v. American Family Mutual Insurance Company, 2014 Minn. LEXIS 661 (Minn. Dec. 17, 2014), the Minnesota Supreme Court held that a property insurer was on the hook for replacing all the siding of certain apartment buildings, whether damaged or undamaged, when matching replacement siding for the damaged portions could not be found due to the faded coloration of the existing siding.
American Family Mutual Insurance Company (AFMIC) insured 20 multi-unit residential buildings owned by Cedar Bluff Townhome Condominium Associate (Cedar Bluff). After a hailstorm in October 2011, all 20 of these buildings suffered damage to at least one siding panel. Because the original panels were 11 years old, the color of the panels had faded. Though replacement panels were available, they were not available in a color that matched the faded, undamaged panels. Accordingly, Cedar Bluff and AFMIC disputed whether the AMFIC property insurance policy required replacement of only the damaged panels, or all of the siding, even if undamaged, in order to provide a color match.
After the parties were unable to agree on the scope of coverage, Cedar Bluff demanded an appraisal as permitted by the insurance policy. The appraisal panel determined that because the original siding could not be matched in color, total replacement of the siding was required. AMFIC filed a declaratory judgment action arguing against that determination. The trial court sided with the insurer, holding that it was only required to replace damaged panels under the insurance policy. However, the case went up on appeal, and worked its way up to the Minnesota Supreme Court.
The Minnesota Supreme Court agreed with the appraisal panel. It noted that the resulting color mismatch would constitute “direct physical loss of or damage” as defined by the AMFIC policy – i.e. “a distinct, demonstrable, and physical alteration” to the subject property. Accordingly, it determined that the appraisal panel had properly determined that Cedar Bluff was entitled to full replacement of the siding – damaged and undamaged – in order to rectify the property damage that would result from mismatched siding.