Just before Thanksgiving, the Minnesota Supreme Court issued an opinion in St. Matthews Church of God & Christ v. State Farm Fire & Cas. Co.No. A21-0240, 2022 Minn. LEXIS 501 (Minn. Nov. 23, 2022), which, unfortunately for policyholders, concluded that State Farm was not obligated to pay for repairs to bring exterior masonry up to code after a loss.
The undisputed facts show that a June 2017 storm damaged St. Matthews, including the building’s plaster wall. State Farm agreed to cover the cost of removing and replacing the damaged drywall. When the damaged plaster wall was removed, cracks were discovered in the masonry. There was no doubt that the cracks in the masonry preceded the storm. City of St. Paul would not allow St. Matthews to replace the drywall without also repairing the masonry. In turn, St. Matthews a claim to State Farm for the cost of fixing the masonry. Trial ensued.
In a 6-3 decision, the Minnesota Supreme Court held that State Farm was not required to cover the repairs to the masonry under either section 65A.10 subdivision 1 or State Farm’s policy. In relevant part, section 65A.10 subdivision 1 gives:
Subject to any applicable policy limits, where an insurer offers replacement cost insurance: (i) the policy must cover the cost of replacing, rebuilding or repairing lost or damaged property in accordance with the minimum code required by state or local authorities… in the case of a partial damage, unless more extensive coverage is otherwise specified in the policy, this coverage applies only to the damaged portion of the property.
In its conclusion, the Minnesota Supreme Court concluded that the statutory language was unambiguous, and in the case of a partial loss, State Farm’s coverage liability does not extend to the entire insured property. In other words, when a partial injury occurs, as St. Matthews suffered, the insurer’s obligation to bring the damaged portion of the property up to minimum code is limited to repairs necessary to bring the portion of the property damaged to the insured. event, in this case the plaster wall, not the masonry.
In this decision, the Minnesota Supreme Court noted that to decide on section 65A.10 subdivision 1 requiring an insurer to cover the costs of remedying a particular code violation is a fact-intensive inquiry that leaves the door somewhat open to further arguments by the insureds that code-related items are related to a particular loss.
The Supreme Court also considered whether the State Farm policy, which included a Minnesota endorsement, provided coverage beyond the minimum required by section 65A.10 subdivision 1. In relevant part, the Minnesota approval provided:
If this coverage is provided on a replacement cost basis, we will pay the increased cost to replace, rebuild, repair or demolish a building in accordance with the minimum code in effect at the time of the loss as required by state or local authorities, when the loss or damage is caused of a covered cause of loss. In the event of a partial loss of the covered property, we will pay only for the damaged part of the property.
The Minnesota Supreme Court concluded that the Minnesota endorsement closely mirrored it section 65A.10 subdivision 1, which in the case of partial damage only obliged the insurer to cover the part of the property damaged in the covered event as a minimum code. The court went on to discuss that broader coverage may be provided, but in this case it was not offered, nor was such coverage purchased. As such, it concluded that the Minnesota approval did not provide broader coverage than the statute and therefore did not require State Farm to cover the repair costs of the masonry wall.
While each claim requires a fact-intensive analysis to determine whether section 65A.10 subdivision 1 will cover the costs of complying with the minimum codes, it is likely that insurers will use this decision as a basis for denying such claims. As such, Minnesota insureds (and all insureds, for that matter) should be sure to review their policies to ensure they have adequate coverage for code upgrades.