District Court Finds Policy Required Matching Color for Replacement Panels That Were Damaged

Jurisdictions are split on the question of whether commercial general liability policies require matching of damaged physical property beyond the repair of the damaged property. Compare, e.g., Cedar Bluff Townhome Condo. Ass’n, Inc. v. American Family Mut. Ins. Co., 2013 WL 6223454 at *4 (Minn. Ct. App., Dec. 2, 2013) (finding ambiguity where a “reasonable person could understand that ‘compatible material’ means material that is the same color as the damaged property”), with, e.g., Woods Apartments, LLC v. U.S. Fire Ins. Co., 2013 WL 3929706 at *2 (W.D. Ky., July 29, 2013) (“Plaintiff’s interpretation, that they are entitled to replacement of the roof and siding of all the apartment buildings to achieve cosmetic matching, would be unduly burdensome on Defendants and would essentially result in a windfall to Plaintiffs”).

Recently, the United States District Court for the District of Columbia considered the matching issue in National Presbyterian Church, Inc. v. GuideOne Mut. Ins. Co., 2015 WL 571655 (D.C., Feb. 11, 2015). In this case the National Presbyterian Church was damaged by an earthquake that struck Washington D.C. The Church’s exterior façade was comprised of hundreds of limestone panels, some of which were cracked or otherwise damaged by the earthquake. The Church filed an insurance claim to have the damage repaired. However, fearing that merely replacing the damaged panels would diminish the aesthetic qualities of the façade, because the new unweathered panels would have noticeably different coloration than the remaining panels, the Church believed that the insurer was required to pay for repairs that not only fixed the structural damage, but also create a matching façade.

The GuideOne policy provided that GuideOne would “pay for direct physical loss of or damage to covered property at the premises described in the declarations caused by or resulting from any covered cause of loss.” The loss payment provision of the policy explained that in the event of loss or damage covered by the policy at the insurance company’s option, it would either pay for the value of the loss of damaged property, pay the cost of repairing or replacing the lost or damaged property, take all or any part of the property at an agreed or appraised value, or repair, rebuild or replace the property with other property of like kind and quality. The policy’s valuation condition section indicated that GuideOne would not pay more for loss or damage on a replacement cost basis than the least of three options: (1) the limit of insurance applicable to the loss; (2) the cost to replace the lost or damaged property with other property . . . of comparable material and quality and . . . used for the same purpose, or (3) the amount actually spent that is necessary to repair or replace the lost or damaged property. Both parties offered the Court competing interpretations of the foregoing provisions of the policy.

The issue before the District of Columba District Court was whether the language of the GuideOne policy unambiguously provided for or against matching, or whether an ambiguity existed in the policy. The Court began its analysis by agreeing with the parties that there was a dearth of controlling authority and what little controlling authority existed was split on the matching issue. The crux of the issue, according to the Court, was whether the policy’s coverage of damaged property referred to the smallest unit possible (an individual panel, a single shingle, a specific patch of roofing) or to one larger (the entire façade, the whole roof, a continuous stretch of flooring). The policy defined “covered property” broadly, as a “building,” inclusive of fixtures, floor coverings and appliances. However, the Court found that the loss payment provision could be read differently—perhaps more narrowly—referring only to “lost or damaged property,” or to “property” generically, without further description.

The Court also noted that the loss payment provision of the policy offered four different modes of coverage, between which GuideOne was free to choose. Of the four modes of coverage, two referred to “lost or damaged property,” and two to “property” alone. GuideOne acknowledged under the loss payment provision, the insured “property” could be “repaired, rebuilt or replaced with other property of like kind and quality” and admitted that such property was a broader designation. The Court acknowledged that the provision could be read either way. On the one hand it could mean that GuideOne was obligated to repair a single shingle or replace the roof, one of like kind and therefore matching. The same loss payment provision offered an option whereby GuideOne could take all or any part of the property at any agreed or appraised value. In that context, the Court noted that it would be absurd to suggest that the “property” for which the insurance company could take a “part” was apparently an indivisible limestone panel.

GuideOne argued that there was a meaningful distinction between the four different modes of coverage. According to GuideOne, if one were to read “property” broadly, then one must read “lost or damaged property” to mean something less comprehensive. The Court was dismissive of this argument by stating that GuideOne’s analysis might be correct, but it was a subtle point. Referring to GuideOne’s argument, the Court noted that it was unclear that the qualification must designate a smaller scope. Any insured reading the policy might well surmise that there would be no meaningful difference between the insurer’s choice to undertake repairs itself (“property”), rather than reimbursing the insured for repairs (“lost or damaged property”). The Court stated that it was hard to see how or why the repairs themselves would differ so dramatically depending on who paid. If the four options really did vary dramatically in scope, then the two referencing “property” would be meaningless for no insurer would choose to pay more than necessary. The Court found that such surpluses presented a reading far more difficult to reconcile than one that could not fully account for the words “lost or damaged,” therein lied an ambiguity.

In reaching its determination requiring matching, the Court noted that a term equivalent to “like kind and quality” was referenced in each of the loss payment provision options (incorporating the valuation condition)—those that qualify as “property” and those that did not—and that the phrase could, itself, be read to require matching. Similarly, “other property of like kind and quality” could be read to mandate property that looks the same. The Court provided the following exemplar scenario:

Imagine that an insurance company pays for repairs to one wall of an insured’s dining room. The room’s paint color—a light blue—is no longer manufactured. If the insurance company were to insist on a bright red or even dark blue paint—of the same quality and manufacture—just for that single wall, no one would feel that the insured had been made whole; only repainting the whole room would do that. Unless, that is, the policy had put forth an exclusion to that effect—which GuideOne certainly knows how to do . . . but declined to do here.

After working through the policy language, the Court found that the policy was ambiguous and, as a result, the Court was required under its own interpretive rule to construe the ambiguity in favor of the insured with the result being that matching was required.