Firm Client Plays Role In Important Court of Appeals Decision:
Significant Insurance Issue Hinged on Decision of Appraiser
Jeffrey C. O'Brien
Attorney at Law
Any homeowner who has experienced hail damage to their home knows well the difficulty in repairing the damage - or, more succinctly stated, the difficulty inherent in dealing with their homeowners insurance carrier to have the home restored to the condition in which it existed prior to the storm damage. Many Minnesotans can tell horror stories of having their adjuster order contractors to replace only the minimal amount of shingles and/or siding necessary to replace the damaged areas, with little or no regard as to the resulting aesthetic appearance to the home or even whether the materials used are the same as those existing.
A recent Minnesota Court of Appeals case, however, clarifies one of the most significant issues in the homeowner - insurer battle: what is the "replacement value" of a roof where the original shingles are no longer available.
The case of QBE Insurance Corporation v. Twin Homes of French Ridge Homeowners Association decided this question in favor of the homeowner, and the decision hinged in large part on the opinion of the appraiser, Galen Luedtke. Incidentally, Mr. Luedtke happens to be a co-owner of Great River Remodeling, LLC, a client of Mansfield Tanick & Cohen.
The QBE case starts with a storm causing hail damage to a townhome development in Plymouth, Minnesota in May 2007. The townhome association sought coverage under its insurance policy to repair the damage following the storm. When the association and insurer could not agree on the amount of the loss, the association's policy allowed the association to make a demand for appraisal of the loss and each party selected an appraiser. When the appraisers disagreed on the amount of the loss, Mr. Luedtke was selected as an umpire in the appraisal process and any agreement by two appraisers was to be binding.
The insurer initiated the appeal by claiming that the appraisal panel exceeded its authority by awarding total roof replacement due to the fact that the original shingles were no longer available and the amount of wear and tear on the shingles.
The pertinent coverage provisions obligated the insurer to:
pay for direct physical loss of or damage to "covered property" caused by or resulting from any COVERED CAUSE OF LOSS.... Coverage is also provided for "covered property" which is not damaged but which must be removed and replaced in order to repair "covered property" which is damaged by a COVERED CAUSE OF LOSS[.]
The coverage for the subject buildings included "valuation" of "guaranteed replacement cost,",which was subject to valuation limitations that stated:
[W]e will pay no more than the least of the following:
a. The cost to repair or replace the property at the same site, regardless if repaired or replaced at the same site or another, without deduction for depreciation:
(1) With comparable material;
(2) With property of the same height, floor area and style; and
(3) With property intended for the same purpose;
b. The amount actually and necessarily expended in repairing or replacing the property at the same site; or,
c. The limit of insurance.
Luedtke determined that it was not feasible, nor were the savings significant enough to do anything other than a full roof replacement and his replacement value thus represented a full roof replacement.
QBE subsequently initiated a declaratory action seeking a court determination that the appraisal panel exceeded its authority by making a determination as to the amount of coverage rather than simply a replacement cost valuation. The district court granted summary judgment in favor of the association and QBE subsequently appealed.
The Court of Appeals, in upholding the district court's determination, recognized that no Minnesota legal precedent existed to guide its decision and instead turned to decisions of other jurisdictions. Significant among the other decisions was a 1996 Texas Court of Appeals case, Johnson v. State Farm Lloyds, 204 S.W.3d 897, 903 (Texas App. 2006) which stated that "if the parties agree that there is coverage but disagree on the extent of the damage, the dispute concerns the 'amount of loss' and that issue is determined in accordance with the appraisal clause." In other words, in the present case, the appraisal panel's decision to determine the cost of replacement of the entire roof as the "replacement cost" was a valuation decision within the purview of the panel, rather than a coverage determination.
The QBE case provides legal precedent within Minnesota as to an issue which has been the source of much headache for contractors and homeowners for years, and it arrives just months before another Minnesota severe weather season!
Jeffrey C. O'Brien is a partner with Mansfield Tanick & Cohen, P.A. An MSBA Board Certified Real Property Specialist, he is a regular contributor to the Real Estate Radio Hour on WCCO 830 AM and is the author of a blog entitled "The Business Man's Laywer", found online at http://blog.jeffreyobrienesq.com. He can be reached at 612-341-1263 or via email at jobrien@mansfieldtanick.com.
