Court rules vague provision requires insurer to pay for matching siding

Two policy provisions were relevant to the case, referred to by the court as the “coverage provision” and the “payment provision.” The “coverage provision” provided that Owners Insurance would cover “direct physical loss of or damage to Covered Property,” where “Covered Property” meant the “buildings and structures at the premises” owned by Summer Pines. Owners Insurance argued the “coverage provision” only encompassed property that suffered actual physical damage, not undamaged property. Therefore, no matching coverage was available for Summer Pines.

The court took a different perspective. The policy definition of “covered property” referred to the “buildings and structures at the premises” (emphasis added). The relevant “unit of analysis,” according to the judge, was a whole “building or structure.” Dividing the buildings into “damaged” and “undamaged” portions didn’t make sense. Since the policy indicated that the Summer Pines buildings were to be treated as a whole, damage to a part constituted damage to the whole. Therefore, “coverage [was] triggered for the entire building or structure” where damaged siding could be found.

The “payment provision,” on the other hand, gave Owners Insurance four ways it could provide coverage, one of which was to “repair, rebuild or replace the property with other property of like kind and quality.” In no event, however, would any payment issued exceed the lesser of replacing the damaged property “with other property…of comparable material and quality; and…used for the same purpose”; or the amount spent by the insured “that is necessary to repair or replace the lost or damaged property.”

According to Owners Insurance, the payment provision also precluded matching coverage due to the clause limiting payment to the lesser of replacing the damaged property with comparable materials “used for the same purpose” or however much was spent repairing or replacing the property.

The question for the court again came down to how the policy measured “damaged property.” Though Owners Insurance’s interpretation of the term as referencing only the damaged portions of the siding, the opposite contention–that damaged property meant the siding as a whole–was equally valid. Stepping into the shoes of a reasonable insured, the judge stated that matching would be required “because no reasonable person in the position of the insured would consider mismatched siding to be of ‘comparable material and quality’ to matched siding.”

When a policy provision is open to more than one reasonable interpretation, it is deemed ambiguous. It is a bedrock principle of insurance law that an ambiguous policy is interpreted in favor of the insured. Therefore, the court determined that the policy would cover matching.

The judge, however, stated that finding the policy covered matching did not equate to a full siding replacement for Summer Pines. The facts on the record were insufficient to determine whether full siding replacement was necessary. That would be a question for appraisal.

Appraisal obligation

The lawsuit asserted that Owners Insurance had committed breach when it refused to submit the matter to appraisal per the policy. Owners Insurance claimed, however, that appraisal was only appropriate when there was a disagreement about the value of a loss, and its disagreement with Summer Pines centered on coverage.

The court had to decide whether the parties were disputing coverage or the amount of the loss. No precedent was available from the Wisconsin Supreme Court, so the judge analyzed two earlier cases, Novak v. State Farm Fire and Casualty Company, 687 F. Supp. 3d 820 (E.D. Wis. 2023) and Windsor v. State Farm Fire & Cas. Co., 2023 U.S. Dist. LEXIS 110300 (E.D. Wis. 2023), that had also faced the question of whether an appraisal was warranted.

The Novak case revolved around an insured’s claim that his roof had suffered hail damage, while his insurer claimed the damage was the product of normal wear and tear. The court determined appraisal was an inappropriate means of resolution because the insured and the insurer were arguing over whether the claim itself was a covered loss, not how much the loss was worth.

In Windsor, an exterior wall of the insureds’ dwelling suffered damage from “blasting at neighboring property.” The Windsors claimed “the entire home needed to be razed and rebuilt” because the damaged wall was a hazard for the whole dwelling. The insurer argued it was possible to replace the damaged wall in a safe, secure manner “without compromising the entire structure.” Unlike the insurer in Novak, the insurer in Windsor agreed coverage was available for the insureds, but maintained it was possible to rectify the damages without starting from scratch. Since the question focused on the extent of coverage, not its availability, the question was ripe for appraisal.

The dispute between Summer Pines and Owners Insurance bore a stronger resemblance to Windsor. Owners Insurance had already issued Summer Pines a payment for more than $850,000, which showed that the insurer agreed the claim was covered. The only issue left was whether that coverage extended to guarantee the buildings owned by Summer Pines all had matching siding. Since the dispute concerned how much coverage was owed, rather than whether it was owed at all, the court determined that appraisal was an appropriate method to resolve the conflict.

Conclusion

Since the court had already determined that matching was indeed covered, it only remained to see how much money was needed to make the siding match. That amount was to be set by appraisal. Owners Insurance’s motion for judgment on the pleadings was denied, and the judge ruled in favor of Summer Pines.

Editor’s Note: The goal of insurance payments is to put the insured in the same position he or she would have been if it weren’t for the loss, sometimes referred to as making the insured “whole.” Owners Insurance agreed with Summer Pines that a covered loss had occurred, as evidenced by the $850,000 claim payment. When Summer Pines requested matching coverage, it was not under a different policy or even a different type of coverage on the same policy. Summer Pines wanted more coverage for the same claim. Though all of the physical damages had been covered, Summer Pines argued it still had not been “made whole” because the siding on the buildings, which had matched prior to the hailstorm, no longer had a uniform appearance.

This article was originally published by FC&S Expert Coverage Interpretation and may not be reprinted.

Related:

• Hurricane losses could rise by 50% in coming years
• Flight cancellations surge after New York struck by storm
• Texas disaster adds to U.S. flood costs that exceed $200 billion