By Anthony Alt

With the approaching one-year mark of the Minnesota Supreme Court's decision in Cedar Bluff Townhome Condominium Association v. American Family Mutual Insurance Co., 857 N.W.2d 290 (Minn. 2014), it is worth considering what has and has not occurred, and what remains to be seen. Cedar Bluff has been hailed as a victory for policyholders who claim damage to property and want full replacement of property where there is an aesthetic mismatch between replacement materials (such as shingles or siding) and non-damaged materials.

In Cedar Bluff, at least one siding panel on 20 townhome buildings sustained hail damage. The color had faded on the 11-year-old siding. Replacement panels were available in all respects except color, which were slightly darker or lighter. The insurer elected the payment option of paying "the cost of repairing or replacing the lost or damaged property." The policy specified that replacement cost was to be determined based on the cost to replace "the lost or damaged property with other property ... [o]f comparable material and quality."

The insured demanded an appraisal because of the disagreement on the extent of the loss. The appraisers concluded that there was "not a reasonable [color] match available for the existing siding materials." The Minnesota Supreme Court concluded that the phrase "comparable material and quality" "requires something less than an identical color match, but a reasonable color match nonetheless." The court noted that it was required to give deference to the appraisal panel's factual determination regarding the "particular color mismatch," and that as a result of the panel's factual determination and the policy language, the insured was entitled to have all the panels on the 20 buildings replaced.

The court ended its opinion, however, by noting that "[o]f course, all storm-related property damage claims present their own facts," acknowledging that different circumstances might lead to a different application of the principles outlined in the opinion.

Even after nearly a year has passed since the Cedar Bluff decision, its scope has not been tested in different fact scenarios. But the decision has led to an increased importance on two things when replacement cost coverage is at issue: (1) whether there is a covered cause of loss in the first place (e.g., whether there is any hail damage); and (2) the importance of whether there is a "reasonable" color match. The color-match issue lends itself to an increase in demand for appraisal to answer that question. It remains to be seen whether insurers doing business in Minnesota will attempt to change policy language to address loss or damage associated with color matching. It is likely that insurers offering replacement cost coverage on buildings with materials more than just a few years old will substantially increase their premiums in light of Cedar Bluff.