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Where a reasonable color match is not possible, insurers may be required to replace damaged and undamaged siding when buildings sustain covered losses.

Cedar Bluff Townhome Condominium Association (Cedar Bluff) managed twenty multi-residential townhome buildings in Minnesota. The property Cedar Bluff managed was insured by American Family Mutual Insurance (American Family). In October 2011, a hailstorm damaged each of the twenty buildings on the property. Each building sustained damage to at least one of its 15-square-foot siding panels. The siding panels were approximately eleven years old at the time of the storm and the color had faded. After Cedar Bluff filed a claim for the hail damage, American Family elected to pay for the cost of replacing the damaged property in order to remedy Cedar Bluff's covered loss. It was then discovered that it was not possible to replace the damaged panels with otherwise-identical panels of the same color as the original panels. A dispute arose between Cedar Bluff and American Family about whether this situation required the insurer to pay for all of the siding panels-damaged and undamaged-to be replaced.

As a result of the dispute, Cedar Bluff demanded an appraisal. Subsequently, the appraisal panel held a hearing wherein it received evidence and heard arguments and later visited the site. The appraisal ultimately found that the original siding could be matched in every aspect but color, and thus concluded that no reasonable match was available for the existing siding. It then issued an award for a total replacement of the siding. Cedar Bluff then filed an action in district court to confirm the appraisal award, but the court granted summary judgment to American Family, finding that the appraisal panel exceeded its authority. Cedar Bluff appealed the district court's ruling and won, with the court of appeals reversing the previous decision. American Family appealed the appellate court's decision.

On appeal, the Supreme Court of Minnesota first addressed whether the appraisal panel properly concluded that American Family's obligation to replace the damaged property with property of "comparable material and quality" required it to replace damaged and undamaged property to achieve a color match. The court looked to the plain meaning of the word comparable and found that the policy thus required a reasonable color match for a material to be comparable. Next, the court analyzed whether the appraisal panel applied this correct legal standard, and it found that the panel did. The court then moved to the issue of what property must be replaced, stating that the question to be answered was whether the color mismatch constituted "direct physical damage to the Covered Property." As the policy did not define the term, the court looked to American Family's own definition of physical damage as "a distinct, demonstrable, and physical alteration." Because of the color mismatch resulting from the inability to replace the damaged siding, the court held the property had sustained such alteration, and the covered property (including all of the siding) had sustained a covered loss. Therefore, the supreme court affirmed the appraisal panel's award and the appellate court's decision to confirm the award. [The court of appeals decision in this case was previously summarized in the Spring 2014 issue.]

Cedar Bluff Townhome

Condominium Association v.

American Family Mutual Insurance Co.

Supreme Court of Minnesota

December 17, 2014

857 N.W.2d 290

by Alan M. Weinberger, JD, and Megan Murphy, JD

Alan M. Weinberger, JD, has been a professor at Saint Louis University School of Law since 1987. Previously, he practiced for twelve years with law firms in Detroit and Washington, DC, where he specialized in real estate transfer, finance, and development. Weinberger graduated magna cum laude from the University of Michigan Law School. He has published articles and chapters in the fields of real estate finance, partnership, and property law. He Is coauthor of Property Law Cases, Materials and Problems, 3rd ed., published by West Group. His most recent article, "Tools of Ignorance: An Appraisal of Deficiency Judgments," was published in the Spring 2015 issue of the Washington and Lee Law Review. Contact:

Megan Murphy, JD, is an attorney in the Denver law firm of Hackstaff & Snow, LLC. She graduated magna cum laude from Saint Louis University School of Law where she was the Mel Friedman Fellow in Real Estate Law.
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Title Annotation:Recent Court Decisions
Publication:Appraisal Journal
Date:Mar 22, 2015
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