Associations normally have by-laws that require the maintenance of a uniform appearance. Repairs usually have to follow this rule so the property does not lose value and lose the cosmetic appeal which community owners desire after a loss. Agents should not sell policies to Associations which require a uniform appearance.
In a recent Minnesota case,1 American Family issued a policy to an Association with the following endorsement:
A. The Following is Added to E. Property Loss Conditions:
9. Undamaged material We will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material. We do not cover the loss in value to any property due to mismatch between undamaged material and new material used to repair or replace damaged material.
Unlike prior Minnesota cases forbidding the mismatch of repairs, the court relied on the endorsement and held:
The Association’s argument, however, does not account for the fact that the insurance policy in Cedar Bluff had no matching exclusion. As explained above, the natural interpretation of the matching exclusion here is to exclude the obligation to replace undamaged, mismatched material—an obligation that, under Cedar Bluff, would otherwise follow from the general policy provision regarding “comparable material and quality.” The Association does not offer any binding authority suggesting that Cedar Bluff limited the parties’ ability to include the matching exclusion in the Policy, nor does it persuasively explain why “undamaged” is ambiguous in the context of the matching exclusion. The language of the matching exclusion is unambiguous. Under its ordinary meaning, the exclusion applies to the facts of this case.2
Exclusions allowing insurance companies to pay for eyesore repairs or force policyholders to pay out of pocket to match undamaged parts of a structure are harmful to policyholders. This is especially so with Associations that have to repair to a uniform and matching appearance.
Association boards, property managers of associations, and insurance agents selling to associations should not purchase the type of insurance product found in the American Family policy.
1 Pleasure Creek Townhomes Homeowners’ Association v. American Family Ins. Co., 2019 WL 6284263, *2 (Minn. App. Nov. 25, 2019).
2 Id. at *5.