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Insurance Coverage Update in Minnesota: Minnesota Courts’ Interpretation of the Am. Fam. Case
Skjold ▪ Barthel, P.A., receives numerous inquiries from home and business owners who have had an insurance company deny or limit coverage where roofing and siding materials were damaged due to of hail and wind.
Insurance carriers, rather than fully replacing the damaged roof or siding, are attempting to deny claims based upon the argument that their policies permit them to only repair the damaged roofing or siding with different materials that may not match the existing "non-damage" roofing or siding because the existing materials are no longer available. This has caused significant concern to property owners worried about their ability to protect their investments and obtain insurance coverage for storm damage. It also leaves property owners with non-matching materials and potential warranty issues in the event of future damage to the repairs.
In October 2000, a Hennepin County Judge issued an order requiring that American Family Mutual Insurance Company (“American Family”) pay for a full replacement of its policyholders’ storm-damaged siding with materials of like kind and quality. The Judge was not satisfied with American Family’s argument that under its policy and Minnesota law, it was only required to replace those materials that were physically damaged by a storm, even though the replacement materials would not match the non-damaged existing materials. Contrary to American Family’s argument, the Judge concluded that American Family’s policyholders are entitled to a full replacement of its siding under its policy and Minnesota law. Although this case was settled following the Judge’s order and has never had any precedent-setting value, it has been commonly known throughout the insurance restoration industry as the Am. Fam. Case, and has been used by insurance adjusters and others as grounds for determining that a full roof or siding replacement is appropriate when a policyholder’s roofing or siding was damaged by a storm and contained materials that were no longer available for repair.
From October 2000 until the Summer of 2007, insurance companies repeatedly followed the Judge’s reasoning in the Am. Fam. Case, and awarded full roof or siding replacement to a policyholder even though only a portion of the roof or siding was damaged by a storm, because the existing roofing or siding materials were no longer available for repair. In the Summer of 2007, however, insurance companies began to take a stand against the reasoning of the Am. Fam. Case, and refused to award full replacement to policyholders who had roofing or siding materials no longer available for repairs, even if, pursuant to the insurance policy, an appraisal panel determined that a full replacement is necessary.
In 2008, another Hennepin County Judge was faced with a similar issue involving the reasoning of the Am. Fam. Case. In that case, the policyholder demanded an appraisal of the amount of damage caused to its roofs as a result of a hail storm, as provided for in its policy of insurance. The appraisal panel convened and determined that due to the unavailability of the existing shingles, a full roof replacement was necessary. The insurance company disputed the determination and challenged the appraisal panel’s award in Court. After hearing arguments from both sides, the Judge concluded that the appraisal panel acted within the scope of its authority when it followed the reasoning from the Am. Fam. Case and awarded a full roof replacement. As such, the Judge affirmed the appraisal panel’s award of a full roof replacement do to the unavailability of the existing shingles. In doing so, the Judge affirmed the reasoning of the Am. Fam. Case by stating that the appraisal panel “stayed within the scope of [its] authority” when it used “the discontinuation of the specific shingle” as a factor in determining that full roof replacement was necessary. This ruling is currently under appeal at the Minnesota Court of Appeals, which if affirmed, could be step in the direction of solidifying the Am. Fam. Case into enforceable law in Minnesota. Skjold ▪ Barthel continues this fight into the court of appeals for the policy holder.
Insurance companies continue to challenge the reasoning of the Am. Fam. Case through various means including challenges to policy-mandated appraisal awards, interference with the appraisal process or refusing to participate in the appraisal process required by the policy of insurance. The American Family Case is important to all owners of real property who have purchased insurance. Consequently, owners and investors in real estate should review their coverage and be prepared for a fight in the event of the denial or wrongful limitation of insurance coverage.