Great Nw. Ins. Co. v. Campbell

1

Great Northwest Insurance Company, Appellant, v. Hector A. Campbell, Respondent, Betty L. Campbell, Defendant.

No. A23-0519

Court of Appeals of Minnesota

February 5, 2024

Ramsey County District Court File No. 62-CV-22-6321

Christopher A. Wills, Rajkowski Hansmeier LTD, St. Cloud Minnesota (for appellant/cross-respondent)

Edward E. Beckmann, Beckmann Law Firm, LLC, Bloomington, Minnesota and Thomas J. Okoneski, Okoneski Law Firm, LLC, North St Paul, Minnesota (for respondent/cross-appellant)

Considered and decided by Gaitas, Presiding Judge; Segal, Chief Judge; and Cleary, Judge. ^[*]

SYLLABUS

Minnesota Statutes section 65A.10, subdivision 1 (2022), requires replacement cost insurance to cover the cost of repairing any loss or damaged property in accordance with the minimum state or local codes, which, "[i]n the case of a partial loss," includes only "the damaged portion of the property." When an insurance policy covers the cost of replacing damaged roof shingles, but the shingles cannot be replaced according to code unless repairs are made to roof decking that was not damaged by the insured event, section 65A.10, subdivision 1, requires the insurer to also cover the cost of repairing the roof decking.

OPINION

GAITAS, Judge

This appeal arises from a dispute regarding insurance coverage for roof repairs following a hailstorm. Respondent and cross-appellant Hector A. Campbell owned a home in St. Paul. Appellant and cross-respondent Great Northwest Insurance Company insured Campbell's home. The insurance policy covered direct physical loss or damage to "the outer most layer of roof material." During a May 2022 storm, hail damaged the shingles on Campbell's roof. Campbell reported the damage to Great Northwest. An adjuster confirmed the damage, and Great Northwest approved removal and replacement of the shingles.

When Campbell's contractor removed the damaged shingles, the contractor discovered that the roof decking-the wooden boards to which shingles are affixed-had gaps exceeding one-fourth of an inch in some places. To comply with the shingle manufacturer's instructions and the state building code, the contractor was required to repair the gaps before installing the shingles. The contractor placed oriented-strand-board sheathing over the existing roof decking and installed the shingles on top of the sheathing.

Then, the contractor invoiced Great Northwest for the roof repairs, including charges for the sheathing and the contractor's overhead and profit.

Citing to the insurance policy, Great Northwest disclaimed coverage for the sheathing and the contractor's overhead and profit, and it ultimately brought a declaratory-judgment action concerning its coverage obligations. The district court determined that Minnesota Statutes section 65A.10, subdivision 1, required Great Northwest to cover the cost of the sheathing but not the contractor's overhead or profit.

We conclude that, under section 65A.10, subdivision 1, when a replacement-cost policy covers damage to shingles, and the shingles can only be replaced according to code if repairs are made to roof decking that was not damaged by the insured event, the insurer must also cover repairs to the roof decking. However, Campbell has not shown that the insurance policy violates the statute by excluding coverage for overhead and profit. We therefore affirm.

FACTS

The facts here are undisputed. Great Northwest issued a homeowners' insurance policy to Campbell, which was in effect at the time of the hailstorm.^[1] The policy included a "Roof Damage Limitation Endorsement," which states:

With respect to the roof of [the home] "we" will only pay for direct physical loss or damage to the outer most layer of roof material ....

There is no coverage for and "we" will not pay for tear off, repair, removal, or replacement of any layer of roofing material, including "decking," beneath the outermost layer. This limitation applies even if the tear off, repair, removal, or replacement of any layer of roofing material beneath the outermost layer or "decking" is necessary to repair, remove, or replace the outermost layer of roofing material. This limitation also applies even if the tear off, repair, removal, or replacement of any layer of roof material, including "decking," other than the outermost layer, is required by any law or ordinance, including any building code.

"We" do pay for direct physical loss to "decking" below all layers of roof material ....

....

Any part of the policy in conflict with this endorsement has no effect, and shall not apply to any loss or damage to a roof of [the home].

"Decking" is defined in the endorsement as "the wood, plywood, wood fiber, or other material applied to the structure of a building or other structure and to which a roof assembly is attached" and "does not include shingles of any type or other roof surfacing material."

Following the May 2022 hailstorm, an independent insurance adjuster retained by Great Northwest inspected Campbell's home and concluded that hail had damaged the shingles on the roof. The roof decking of Campbell's home was not damaged during the hailstorm.

Great Northwest paid Campbell $9,599.22-the actual cash value of the loss minus Campbell's $1,000 deductible. The policy required Great Northwest to pay Campbell an additional amount for the replacement cost value of the loss once the repairs were complete. Great Northwest warned Campbell that, if his contractor's estimate for repairing the damage was higher than Great Northwest's estimate, Campbell would be required to resolve the difference with the claims adjuster before beginning any repairs.

There is no dispute that Campbell's contractor could not install new shingles without first repairing the decking. The state building code^[2] requires contractors to follow the instructions of the shingle manufacturer when installing new shingles. See Int'l Res. Code § R905.1 ("Roof coverings shall be applied in accordance with the applicable provisions of this section and the manufacturer's installation instructions.").^[3] And the shingle manufacturer instructed that the shingles could not be installed on decking with gaps exceeding one-eighth of an inch.^[4] As noted, there were gaps measuring one-fourth of an inch in Campbell's existing decking.^[5]

By placing sheathing over the existing decking, the contractor was able to install the shingles according to the manufacturer's instructions and in compliance with the state building code. Campbell did not seek Great Northwest's preapproval for the installation of the sheathing.

After the contractor submitted its invoice to Great Northwest, which included charges for installing the sheathing and for overhead and profit, Great Northwest emailed the contractor, disclaiming coverage for these items. Great Northwest pointed out that the Roof Damage Limitation Endorsement excluded coverage for "repair . . . or replacement of any layer of roofing material, including 'decking,'" that was not directly damaged. And Great Northwest referenced another policy provision-an exclusion for overhead-and-profit coverage-as the basis for disclaiming coverage for the contractor's overhead and profit charges. That exclusion provides: "Overhead and profit on the materials and labor associated with roofing or the roofing system will not be covered under this policy unless the damage to the roof or roof system is a result of fire or lightning."

After Great Northwest disclaimed coverage, Campbell sent Great Northwest a letter asserting that the roof-damage endorsement and the overhead-and-profit exclusion violate Minnesota Statutes section 65A.10, subdivision 1. Great Northwest brought a declaratory-judgment action against Campbell to determine its coverage obligations, and then moved for summary judgment. The district court denied the motion in part, determining that the roof endorsement violated the statute. And the district court granted the motion in part, determining that the overhead-and-profit exclusion did not implicate the statute.

Great Northwest appeals, challenging the district court's partial denial of its motion for summary judgment. Campbell filed a notice of related appeal challenging the partial grant of summary judgment to Great Northwest.

ISSUES

I. Does Minnesota Statutes section 65A.10, subdivision 1, mandate coverage for repairs to roof decking that are required by the state building code before damaged shingles can be replaced?

II. Does the overhead-and-profit exclusion in Campbell's homeowners' insurance policy violate Minnesota Statutes section 65A.10, subdivision 1?

ANALYSIS

Appellate courts "review the grant of summary judgment de novo to determine whether there are genuine issues of material fact and whether the district court erred in its application of the law." Montemayor v. Sebright Prods., Inc. 898 N.W.2d 623, 628 (Minn. 2017) (quotation omitted). Reviewing courts "view the evidence in the light most favorable to the party against whom summary judgment was granted." STAR Ctrs., Inc. v. Faegre &Benson, L.L.P., 644 N.W.2d 72, 76-77 (Minn. 2002).

I. Under Minnesota Statutes section 65A.10, subdivision 1, Great Northwest must cover the cost of bringing the roof decking into compliance with the state building code.

Great Northwest argues that the Roof Damage Limitation Endorsement in Campbell's homeowners' insurance policy clearly excludes coverage for repairing the decking by installing sheathing. It further contends that the district court erred in interpreting Minnesota Statutes section 65A.10, subdivision 1, to require coverage of the sheathing notwithstanding the roof-damage endorsement.

A. The Roof Damage Limitation Endorsement in Campbell's insurance policy plainly...