St. Matthews Church of God & Christ v. State Farm Fire & Cas. Co.

981 N.W.2d 760

ST. MATTHEWS CHURCH OF GOD AND CHRIST, Appellant,

v.STATE FARM FIRE AND CASUALTY COMPANY, Respondent.

A21-0240

Supreme Court of Minnesota.

Filed: November 23, 2022

Edward E. Beckmann, Beckmann Law Firm, LLC, Bloomington, Minnesota, for appellant.

Scott G. Williams, HAWS-KM, P.A., Saint Paul, Minnesota, for respondent.

Beth A. Jenson Prouty, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, Minnesota, for amicus curiae American Property Casualty Insurance Association.

Dale O. Thornsjo, Lance D. Meyer, O'Meara, Leer, Wagner & Kohl, P.A., Minneapolis, Minnesota, for amicus curiae The Insurance Federation of Minnesota.

Adina R. Bergstrom, Brenda M. Sauro, Sauro and Bergstrom, PLLC, Oakdale, Minnesota, for amicus curiae Minnesota Association of Public Insurance Adjusters, LLC.

Timothy D. Johnson, Karly A. Kauf, Anthony A. Remick, Smith Jadin Johnson, PLLC, Bloomington, Minnesota, for amicus curiae United Policyholders.

OPINION

THISSEN, Justice.

This case involves an insurance coverage dispute. Appellant St. Matthews Church of God and Christ (St. Matthews) is located in St. Paul. Respondent State Farm Fire and Casualty Company (State Farm) insured St. Matthews. The policy provided replacement cost coverage for damage to St. Matthews's buildings.

In June 2017, a storm damaged the property of St. Matthews, including the building's drywall. State Farm agreed to cover repair costs for the damaged property caused by the storm, including removal and replacement of the damaged drywall. When the damaged drywall was removed, cracks in the masonry were discovered. There is no dispute that the cracks in the masonry preexisted the storm. However, because the cracks in the masonry violated the city's building code, the City of St. Paul (City) would not allow St. Matthews to replace the drywall without also repairing the masonry. St. Matthews requested that State Farm reimburse it for the cost of repairing the masonry.

At issue is the interpretation and application of Minn. Stat. § 65A.10, subd. 1 (2020). Section 65A.10 generally requires replacement cost insurance to cover the cost of repairing any "damaged property in accordance with the minimum code as required by state or local authorities." In "the case of a partial loss," replacement cost insurance is required to cover only "the damaged portion of the property." Id. Here, St. Matthews and State Farm disagree about whether State Farm must cover the cost of repairing the masonry (which had preexisting, non-storm-related damage) merely because the City of St. Paul would not allow St. Matthews to replace the drywall without also repairing the masonry. We hold that State Farm is not required to cover repair costs to the masonry under either Minn. Stat. § 65A.10, subd. 1, or the State Farm policy.¹

FACTS

The relevant facts are not in dispute. St. Matthews purchased insurance from State Farm for damage to its property, which included church buildings. The policy provided coverage for accidental direct physical loss occurring between June 24, 2016, to June 24, 2017.

St. Matthews's policy provided replacement cost coverage, meaning that, in the event of a loss, "the insurer agrees to compensate for [that] loss without taking into account depreciation." Couch on Insurance § 175:96 (3d ed. 2018). Replacement cost coverage requires the insurer to pay for the cost of replacing the loss or damaged property at current prices rather than limiting payment to the actual cash or depreciated value of the loss or damaged property. See Robert H. Jerry & Douglas R. Richmond, Understanding Insurance Law 633 (5th ed. 2012).

State Farm's typical policy does not require it to cover the cost of bringing property that is lost or damaged up to code.² But the policy issued to St. Matthews included a Minnesota Endorsement, which states, in relevant part:

If this coverage is provided on a replacement cost basis we will pay the increased cost of replacing, rebuilding, repairing or demolishing any building in accordance with the minimum code in force at the time of loss as required by state or local authorities, when the loss or damage is caused by a Covered Cause Of Loss. In case of a partial loss to the covered property, we will pay only for the damaged portion of the property.

State Farm included this Minnesota Endorsement policy language because Minnesota law requires it to do so. See Minn. Stat. § 65A.10, subd. 1. By its terms, section 65A.10 provides the statutory minimum that an insurer must provide in cases of replacement cost coverage. It states:

Subject to any applicable policy limits, where an insurer offers replacement cost insurance: (i) the insurance must cover the cost of replacing, rebuilding, or repairing any loss or damaged property in accordance with the minimum code as required by state or local authorities .... In the case of a partial loss, unless more extensive coverage is otherwise specified in the policy, this coverage applies only to the damaged portion of the property.

Id.

On June 11, 2017, a wind and hailstorm damaged the property of St. Matthews. Among other things, the storm damaged the drywall in the church. Approximately 1 year later, St. Matthews reported the loss to State Farm. State Farm worked with St. Matthews to process the claim and agreed to cover the storm-related damage to its buildings, including the drywall. By December 2018, State Farm paid St. Matthews $107,053, an amount that included the cost of replacing and repairing the drywall.

St. Matthews was required to obtain a building permit from the City to make the necessary repairs, including replacing the drywall. During the process of obtaining the permit and removing the drywall, cracks in the masonry behind the damaged drywall were discovered. The cracks in the masonry created a hazardous condition, and consequently, the City required St. Matthews to bring the masonry into accordance with the City's building code requirements. The City was concerned about the defects in the existing masonry wall which rendered the wall out of code. St. Matthews subsequently requested State Farm to pay the cost of bringing the masonry up to code. In response, State Farm hired a consultant to evaluate the damaged masonry and determine the cause of damage. The consultant concluded that the "cracked and out-of-plumb condition ... was a long-term condition unrelated to the storm...." There is no evidence in the record that State Farm provided any insurance coverage to St. Matthews for the time period when the masonry damage occurred. State Farm sent St. Matthews a letter denying coverage because the damage to the masonry was "unrelated to the storm event."

Before receiving State Farm's denial letter, St. Matthews brought the lawsuit that is the subject of this appeal. In its complaint, St. Matthews sought, among other relief, to compel an appraisal of the storm damage. The district court ordered an appraisal. Following an in-person appraisal and inspection of the property, the appraisal panel determined that additional costs totaling $77,969 were necessary to address the code upgrades. The appraisal panel also confirmed that the "deteriorated conditions, cracks and out-of-plumb condition" of the masonry were not caused by the storm.

The matter returned to the district court where the parties agreed that they were bound by the appraisal panel's finding that the storm did not damage the masonry. On cross-motions for summary judgment, the district court granted summary judgment to State Farm. The district court determined that State Farm must provide the minimum coverage set forth in section 65A.10, subdivision 1. Further, the court determined that the "building code coverage would apply only if the June 11, 2017 storm produced actual damage that caused a building code violation." It ruled that, because the storm did not damage the masonry, which led to the code upgrade requirements, no coverage existed. Based on the undisputed facts, the court concluded that the "condition of the wall generating the building code violations was present before the storm ...."

St. Matthews appealed and the court of appeals affirmed. St. Matthews Church of God & Christ v. State Farm Fire & Cas. Co. , No. A21-0240, 2021 WL 4428919 (Minn. App. Sept. 27, 2021). We granted St. Matthews's petition for review.

ANALYSIS

The question we must answer is whether State Farm is required to cover the repairs to the masonry under either section 65A.10, subdivision 1, or State Farm's policy.

This question arises from an order on cross-motions for summary judgment. On appeal from summary judgment, we determine "whether there are any genuine issues of material fact" and whether the district court "erred in its application of the law." Vill. Lofts at St. Anthony Falls Ass'n v. Hous. Partners III-Lofts, LLC , 937 N.W.2d 430, 435 (Minn. 2020) (citation omitted) (internal quotation marks omitted). We review summary judgment rulings de novo. SCI Minn. Funeral Servs., Inc. v. Washburn-McReavy Funeral Corp. , 795 N.W.2d 855, 861 (Minn. 2011). Interpretation of statutes and interpretation of insurance contracts are also questions of law, which we review de novo. See Progressive Specialty Ins. Co. v. Widness ex rel. Widness , 635 N.W.2d 516, 518 (Minn. 2001).

The parties agree that there are no relevant disputed facts. Additionally, the parties agree that the damaged property at issue is a partial loss and that, before the drywall can be repaired, St. Paul's city code requires that the masonry be repaired sufficiently to bring it in accordance with minimum code.³

I.

We begin by analyzing whether State Farm is required to pay for repairs needed to bring the masonry up to code under section 65A.10, subdivision 1. Once again, that provision reads in relevant part:

Subject to any applicable policy limits, where an insurer offers replacement cost insurance: (i) the insurance must cover the cost of replacing, rebuilding, or repairing any loss or damaged property in accordance

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