Pleasure Creek Townhomes Homeowners' Ass'n v. Am. Family Ins. Co.

Pleasure Creek Townhomes Homeowners' Association, Appellant, v. American Family Insurance Company, Respondent.

A19-0662

STATE OF MINNESOTA IN COURT OF APPEALS

November 25, 2019

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2018).

Affirmed

Smith, Tracy M., Judge

Anoka County District Court

File No. 02-CV-17-6025

Timothy D. Johnson, Alexander M. Jadin, Amanda K. Linden, Smith Jadin Johnson, PLLC, Bloomington, Minnesota (for appellant)

Dan Millea, Dennis C. Anderson, Zelle LLP, Minneapolis, Minnesota (for respondent)

Considered and decided by Florey, Presiding Judge; Reyes, Judge; and Smith, Tracy M., Judge.

UNPUBLISHED OPINION

SMITH, TRACY M., Judge

In this insurance-coverage dispute, appellant Pleasure Creek Townhomes Homeowner's Association (the Association) appeals the district court's grant of summary judgment to respondent American Family Insurance Company. The Association, the insured, argues that the district court erred by deciding that its all-risk businessowners policy does not cover the cost to replace undamaged, faded siding to match siding replaced due to hail damage. The Association argues that (1) the policy's matching exclusion is void as a matter of law because it violates the minimum coverage required by the Minnesota Standard Fire Insurance Policy, Minn. Stat. § 65A.01 (2018); (2) the matching exclusion does not apply to the facts of this case; (3) in the alternative, the matching exclusion is ambiguous and unenforceable; and (4) American Family's construction of its policy violates the reasonable expectations of the policyholder. We affirm.

FACTS

The Association purchased an insurance policy (the Policy) from American Family in October 2016. The Policy was an all-risk "Businessowners Policy" and covered the Association's 14 townhome buildings. In June 2017, a hail storm damaged siding on all 14 of the covered buildings. The Association filed a claim for the loss under the Policy.

The parties disagreed about aspects of the price and scope of the repairs, which led to an appraisal. The appraisal panel issued findings in June 2018. Its relevant finding for this appeal was that the material available to replace the damaged siding did not "reasonably match" the existing, undamaged siding on the townhome buildings, as the existing vinyl siding had faded in a way that made it difficult to match. The panel included the cost to replace the undamaged, faded siding in its appraisal award. American Family refused to pay this component—which was appraised at about $211,382—of the award, but complied in all other respects.¹ American Family withheld this payment based on itsview that the Policy explicitly excludes coverage for the replacement of undamaged, mismatched siding under what the parties refer to as the Policy's "matching exclusion."

The Policy covers "physical loss of or damage to Covered Property . . . caused by or resulting from any Covered Cause of Loss." The "Covered Causes of Loss" include all "[r]isks of direct physical loss," except those that the Policy excludes. The matching exclusion is included as an endorsement that modifies the Policy. The relevant portion appears as follows:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE

READ IT CAREFULLY.

UNMATCHED PROPERTY DAMAGE EXCLUSION

ENDORSEMENT AND APPRAISAL CHANGES

This endorsement modifies insurance provided under the following:

BUSINESSOWNERS COVERAGE FORM

A. The Following is Added to E. Property Loss Conditions:

9. Undamaged material

We will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material.

We do not cover the loss in value to any property due to mismatch between undamaged material and new material used to repair or replace damaged material.

After declining to pay for the undamaged, mismatched siding, American Family moved the district court for summary judgment on the Association's request for adeclaration of coverage for that part of the appraisal award.² The district court granted summary judgment for American Family, concluding that the Policy excludes this coverage.

This appeal follows.

DECISION

The issues on appeal require statutory interpretation, contract interpretation, and application of the insurance policy to the undisputed facts of the case. We review questions of statutory interpretation de novo. See Pepper v. State Farm Mut. Auto. Ins. Co., 813 N.W.2d 921, 925 (Minn. 2012). Likewise, "[i]nterpretation of an insurance policy, and whether a policy provides coverage in a particular situation, are questions of law that we review de novo." Depositors Ins. Co. v. Dollansky, 919 N.W.2d 684, 687 (Minn. 2018) (quoting Eng'g & Constr. Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695, 704 (Minn. 2013)). We apply this standard of review and analyze each of the issues in turn.

I. The Minnesota Standard Fire Insurance Policy, Minn. Stat. § 65A.01, does not apply to this dispute.

The Association argues that coverage is required by Minn. Stat. § 65A.01—the statute establishing and applying the Minnesota Standard Fire Insurance Policy. The Association contends that the Standard Fire Insurance Policy bars the matching exclusion here. We begin our analysis with whether the Standard Fire Insurance Policy applies.

The Standard Fire Insurance Policy contains minimum coverage provisions for loss caused by fire. Minn. Stat. § 65A.01. The statute was enacted "to protect insureds from unexpected limitations on coverage provided by fire insurance policies." Krueger v. State Farm Fire & Cas. Co., 510 N.W.2d 204, 208 (Minn. App. 1993). The statute must be broadly construed in light of its remedial purpose. Watson v. United Servs. Auto. Ass'n, 566 N.W.2d 683, 690 (Minn. 1997). In operation, the statute reforms an insurance policy when necessary to provide the minimum mandated coverage. Id. The Standard Fire Insurance Policy states in its "[d]esignation and scope" provision:

No policy or contract of fire insurance shall be made, issued or delivered by any insurer . . . unless it shall provide the specified coverage . . . . Any policy or contract . . . which includes either on an unspecified basis as to coverage or for a single premium, coverage against the peril of fire and coverage against other perils may be issued without incorporating the exact language of the Minnesota standard fire insurance policy, provided: such policy or contract shall, with respect to the peril of fire, afford the insured all the rights and benefits of the Minnesota standard fire insurance policy and such additional benefits as the policy provides.

Minn. Stat. § 65A.01, subd. 1.

The Association argues that the statute applies here, even though the damage was caused by hail, because it applies to any policy that provides "coverage against the peril of fire." The Policy covers multiple forms of loss, including fire. Thus, the Association argues, the Policy must afford the rights mandated under the Standard Fire Insurance Policy, which should not be applied "retroactively based on the type of loss that occurred," but rather "proactively," making the matching exclusion void. Under this construction, if American Family wanted to avoid application of the Standard Fire Insurance Policy, it hadto separate its coverage provisions by peril. American Family counters that the Association's argument is directly contradicted by the plain language of the statute and has been rejected by the Minnesota Supreme Court.

The statute states that, when a policy like this one includes, "on an unspecified basis," coverage against fire, the policy "shall, with respect to the peril of fire," afford the insured the rights they have under the Standard Fire Insurance Policy. Minn. Stat. § 65A.01, subd. 1. The meaning of the statute is plain—by including the phrase "with respect to the peril of fire," the statute limits the application of the Standard Fire Insurance Policy provisions to fire losses.

This was the conclusion of the Minnesota Supreme Court in Henning Nelson Constr. Co. v. Fireman's Fund Am. Life Ins. Co., 383 N.W.2d 645, 651 n.8 (Minn. 1986). In Henning, the Minnesota Supreme Court addressed, in a footnote, whether the Standard Fire Insurance Policy's requirements apply to losses other than fire losses under an all-risk insurance policy. Id. There, the insurer argued that the court should apply the two-year statute of limitations from the Standard Fire Insurance Policy to a "Builder's risk" policy in a dispute arising from the collapse of a foundational wall. Id. The supreme court rejected the argument, stating:

While an all-risk policy such as this one falls within the purview of the Standard Policy, the Standard Policy applies only to losses due to fire and not to casualty losses.

. . . .

[The statutory] language indicates the Standard Policy provisions were meant to apply only to fire losses, even though the policy in question may afford broader coverage. We hold,therefore, that the provisions of the Standard Fire Insurance Policy apply only to fire losses, and not nonfire losses, under an all-risk insurance policy.

Id. (citations omitted).

And, while not precedential, in Noonan v. Am. Family Mut. Ins. Co., the Eighth Circuit applied Henning to reject the same argument that the Association makes here. 924 F.3d 1026, 1029-30 (8th Cir. 1986). Analogously in Noonan, the homeowners' roof was damaged by a storm, no reasonably matching shingles were available, and American Family insured the home under an all-risk policy with a matching exclusion nearly identical to that here. Id. at 1027-28. The policyholders similarly argued that their policy ought to provide the statutory minimum coverage of the Standard Fire Insurance Policy because their policy insured against various perils, including fire. Id. at 1029. The Eighth Circuit held that "the Noonans' policy is not subject to reformation because their home was damaged by a thunderstorm, not fire," reasoning...