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St. Matthews Church of God and Christ (St. Matthews) is located in St. Paul, Minnesota, sued State Farm Fire and Casualty Company (State Farm) which insured St. Matthews. The insurance provided compensation cost coverage for damages to St. Matthew’s Buildings.
IN St. Matthews Church of God and Christ v. State Farm Fire and Casualty Company, No. A21-0240, Supreme Court of Minnesota (November 23, 2022) St. Matthews sought payment for damaged masonry when the covered risk only damaged plaster walls covering masonry that had cracked due to age.
In June 2017, a storm damaged St. Matthew’s property, including the plaster of the building. State Farm agreed to cover the cost of repairing the damaged property caused by the storm, including removal and replacement of the damaged drywall. When the damaged plaster wall was removed, cracks were discovered in the masonry. There is no doubt that the cracks in the masonry preceded the storm. But because the cracks in the masonry violated city building codes, the city of St. Paul (City) 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.
It is about the interpretation and application of Minn. State. § 65A.10, subsection 1 (2020) (“the Charter”). The law requires replacement cost insurance to cover the cost of repairing any “damaged property in accordance with the minimum code 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.”
St. Matthew’s policy provided replacement cost coverage, which meant that, in the event of a loss, the insurer agreed to compensate for the loss without taking into account diminution in value. State Farm’s typical policy does not require it to cover the cost of bringing property that is lost or damaged up to code. 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 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 only pay for the damaged part of the property. (my italics)
In December 2018, State Farm paid St. Matthews $107,053, an amount that included the cost of replacing and repairing the drywall.
St. Matthews had to get a building permit from the city to make the necessary repairs, including replacing drywall. The city was concerned about the defects in the existing masonry wall that made the wall out of code. St. Matthews subsequently requested that State Farm 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 the damage. The consultant concluded that the “cracked and out of joint condition . . . was a long-term condition unrelated to the storm….”
The district court granted judgment to State Farm on the cross motion for summary judgment.
The parties agree that the damaged property in question is a partial loss and that, before the drywall can be repaired, St. Paul city code that the masonry be repaired sufficiently to comply with the minimum code.
The statutory language “[i]n the case of a partial loss. . . this coverage applies only to the damaged portion of the property” is susceptible to only reasonable interpretation. In the case of partial damage, the insurer’s obligation is limited to codifying the “part of the property” that has been damaged.
The Supreme Court concluded that the statute means that, when a partial loss such as St. Matthew’s suffering occurs, State Farm’s obligation to bring the damaged portion of the property up to minimum code is limited to repairs necessary to bring that portion of the property up to code. property damaged in the insurance case. Because it was undisputed that only the plaster wall was damaged in the storm. It was also undisputed that the masonry had been damaged earlier as a result of another unknown cause. Accordingly, State Farm was not required to pay for repairs to bring the masonry into compliance with the Act.
In contrast to St. Matthews’ contention that the plaster wall and masonry were parts of a single damaged object: the wall; which includes both plaster and masonry, the masonry wall was independent of the masonry to which it was attached.
All parties agreed that the damage to the masonry was not caused or affected by the storm. Accordingly, the damage to the masonry was not independently covered by State Farm’s policy. Looking at the project from a drywall installer’s perspective, there was nothing in the condition of the masonry that prevented the installation of new plaster.
The Supreme Court concluded that on a plain reading of the statute in the case of a partial loss, the replacement cost coverage applies only to the damaged portion of the property covered by a cause of loss. Only the plaster wall was damaged due to the storm, but the masonry was not. Therefore, only the damaged drywall is subject to the code compliance provisions of the statute.
Under the statute, when a partial loss occurs, an insurer’s obligation to bring the damaged portion of the property up to minimum code is limited to repairs necessary to bring up to code only the portion of the property that was damaged in the insured event.
Insurance requires, by definition, to respond only to a contingent or unknown event. It cannot, and should not, respond to damage that occurred prior to the effective date of the policy due to causes not caused by a peril insured against. Because the only damage from the storm was to the drywall and because both parties agreed that the damage to the masonry was not caused by the storm damaging the drywall. Unfortunately for the church, it didn’t get code compliance and the statute it relied on wasn’t as broad as the church wanted.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com
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