RICHARD H. KYLE, District Judge.
This insurance-coverage action arises out of hail damage sustained by a townhome development, Plaintiff Trout Brook South Condominium Association ("Trout Brook"), in 2010. Trout Brook alleges that its insurer, Defendant Harleysville Worcester Insurance Company ("Harleysville"), failed to pay all of the damages it is entitled to recover under its policy. Presently before the Court is Harleysville's Motion for Summary Judgment. For the
Most of the relevant facts are undisputed; where disputed, they are recited below in the light most favorable to Trout Brook.
Trout Brook comprises eighteen buildings, each containing between four and eight townhomes, in Elk River, Minnesota. At all relevant times, the buildings were insured under a Harleysville policy (the "Policy") providing (in pertinent part) coverage for "direct physical loss" to "covered property." In the event of a loss to covered property, the Policy obligated Harleysville to pay for its "replacement cost," defined as the lesser of (1) "the cost of repair or replacement with similar materials for the same use and purpose, on the same site" or (2) "the cost to repair, replace, or rebuild the property with material of like kind and quality to the extent practicable."
In July 2009, a hail storm struck the Elk River area, causing damage to Trout Brook's buildings. It submitted a claim to Harleysville, which determined there was damage to the flashings, vents, and valleys on the buildings' roofs, but not to the roofs' shingles. Believing there was shingle damage, Trout Brook asked Harleysville for reexamination; Harleysville hired an engineering firm, Haag Engineering ("Haag"), to do so. Haag reinspected the roofs on June 25, 2010, but that same day, another hail storm struck the area and caused further damage. Trout Brook then submitted a second claim to Harleysville. Haag once again inspected the roofs, this time determining (among other things) that there had been some, but not "significant," damage to the roof shingles. It estimated total repair costs of approximately $270,000, of which $21,000 was allocated for roof repairs. Harleysville promptly paid this amount to Trout Brook.
Trout Brook did not agree with Harleysville's assessment and hired its own expert, First Rate Construction ("First Rate"), to evaluate the roofs and prepare a repair estimate. First Rate noted "large hail impacts" that had substantially damaged the roofs' vents, flashings, and shingles, and accordingly it proposed replacing the roofs in their entirety, at a cost of more than $800,000. Harleysville disagreed with this assessment, and the parties could not reach an accord on the scope of damage and the resulting repair costs. Trout Brook then demanded an "appraisal" under the Policy.
After examining the buildings, the appraisal panel unanimously determined on July 21, 2011, that Trout Brook was entitled to an additional $81,765.50 in damages. The panel's award was extremely cursory and neither itemized the damaged property nor addressed precisely how the award was calculated. Nor did the award specify whether the additional damages were predicated on replacement of the roofs in their entirety, or rather only upon replacement of damaged shingles.
Following the appraisal, Trout Brook hired First Rate to complete the needed repairs. But when it attempted to purchase the same shingles previously used on the roofs — Certain Teed XT-25 shingles in "weathered wood" color — it learned that they were no longer being manufactured. Instead, Certain Teed had changed the shingles' "color blend" in January 2010, and it recommended that newly manufactured "weathered wood" shingles (now called XT-30) not be mixed with old ones in significant quantities due to the color difference. Nevertheless, Trout Brook purchased several XT-30 shingles in "weathered wood" color to determine how they appeared next to the old shingles, but it concluded the colors were not a match. It then contacted Harleysville to advise it of the situation, contending that the unavailability of color-matching shingles entitled it to complete roof replacement. Harleysville responded by requesting more information, and Trout Brook forwarded a letter from Certain Teed advising of the color change and indicating that it had "no inventory of the old color product and [did] not know of any inventory in the field of the old color product in the XT series."
By letter dated March 26, 2012, Harleysville informed Trout Brook that it had "complied with all requirements of the appraisal process" and it would not "give further consideration to the issue" of color matching. Trout Brook then retained counsel, who wrote Harleysville on April 11, 2012, asserting that "the problem of non-matching shingles was not considered by the `appraisers' and, therefore, was not part of the loss valuation." Counsel further noted that the Policy required the use of material "of like kind and quality" or "similar materials on the same site," and non-matching shingles would not meet these terms.
Harleysville responded on June 8, 2012, asserting that under the Policy's "clear and unambiguous" language, it was required only to pay for property that had sustained "direct physical loss." Thus, it asserted it could not be required to pay for the replacement of undamaged roof shingles — even if they did not match the replacement shingles then available. Despite this assertion, however, it indicated it was "willing to conduct an inspection of the non-damaged shingles and any additional information [Trout Brook] may provide in support of [its] position." And because the Policy's "two (2) year suit limitation provision" was set to expire on June 25, 2012 — two years after the date of the second hailstorm — and in "light of [Trout Brook's] supplemental claim for additional damages, and Harleysville's request for further information and inspection," Harleysville agreed to extend the suit limitation period for 90 days, that is, to September 25, 2012.
Meanwhile, on June 27, 2012, another roof inspection took place. Jennae Majerus, Trout Brook's property manager, was present, along with Harleysville's claims adjuster (Christopher Bennett), Harleysville's appraiser (Brad Langerman), and Trout Brook's appraiser (Paul Norcia). Majerus brought new XT-30 shingles with her, and she overlaid them on one building's roof for color comparison. Unsurprisingly, the parties differed in their assessments — Langerman and Bennett believed the new shingles were "a good match" and "looked okay," while Majerus and Norcia believed that the new shingles simply did not match the color of those on the roof.
In August 2012, Harleysville offered to submit the "matching" issue to the appraisal panel that had rendered the prior
Trout Brook again demurred. On October 1, 2012, its counsel informed Harleysville that it would "not agree to the same appraisal `panel,'" because the panel "did [not do] a very good job" and had "failed to submit any documentation as to how [it] reached [its] decision and what was considered in the decision making process."
A short time later, Trout Brook commenced this action in the Sherburne County, Minnesota District Court, seeking a declaration of coverage under the Policy for full roof replacement, as well as damages for Harleysville's (alleged) breach of contract. Harleysville later removed the action to this Court on diversity-jurisdiction grounds.
While undertaking discovery, one of Harleysville's expert witnesses, John Pederson, located and obtained a supply of XT-25 shingles in "weathered wood" color that had been manufactured in 2009 — that is, before Certain Teed's color change. He offered the opinion that the shingles were essentially identical to the existing ones on the Trout Brook's roofs and could be used for repairs. Trout Brook, however, harbored concerns about using four-year-old shingles for repairs. Accordingly, it purchased one bundle of the shingles (26 total) from Pederson in order to examine them.
Majerus inspected the shingles and was immediately troubled by their appearance — they had an "odd discoloration" making them appear "wet" in spots, and the discolored portions were "smoother than the rest of the shingle." Sue Broberg, Trout Brook's President, thought the shingles "look[ed] awful" and using them "would be like having an orange and a green next to each other." Norcia, who Trout Brook had retained as an expert in this case, also was concerned by the shingles. While he agreed with Pederson that they were the same composition, type, size, dimensions, and thickness as those on the roofs, he, too, believed they appeared "wet" and were not a color match. He also believed they were too brittle and needed additional testing to confirm they were suitable for repairs.
Summary judgment is proper if, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Ricci v. DeStefano, 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009). The moving party bears the burden of showing that the material facts in the case are undisputed. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir.2011) (en banc); Whisenhunt v. Sw. Bell Tel., 573 F.3d 565, 568 (8th Cir.2009). The Court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. Beard v. Banks, 548 U.S. 521, 529-30, 126 S.Ct. 2572, 165 L.Ed.2d 697 (2006); Weitz Co., LLC v. Lloyd's of London, 574 F.3d 885, 892 (8th Cir.2009). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue of material fact for trial. Fed.R.Civ.P. 56(c)(1)(A); Wood v. SatCom Mktg., LLC, 705 F.3d 823, 828 (8th Cir.2013).
Citing the Minnesota Uniform Arbitration Act (MUAA), Minn.Stat. § 572B.22, Harleysville tees off its argument by asserting that Trout Brook did not challenge the appraisal award within 90 days and, accordingly, is barred from doing so now. (See Def. Mem. at 12-15.) It further argues that absent a timely motion to modify or vacate, the Court "must" confirm the appraisal award. (Id.) But this argument is simply a red herring, as the appraisal award does not affect the disposition of the claims currently before the Court.
A review of the Complaint lays bare the problem with Harleysville's argument. While that pleading discusses the appraisal process and the underlying award when reciting the factual background in this case, it does not challenge or otherwise seek to overturn the award. Rather, in Count 1 Trout Brook seeks a declaration that Harleysville is required to pay for full roof replacement due to the "matching" issue (see Compl. ¶¶ 36, 45), and in Count 2 it asserts that Harleysville breached the Policy by failing to do so (id. ¶¶ 50-51). Furthermore, Harleysville nowhere asserted in its Answer (or through a counterclaim) that the award must be confirmed by the Court.
The reason for this is obvious. The appraisal panel only determined the cost of repairing Trout Brook's roofs — the "matching" issue was not before it, as it is undisputed Trout Brook did not learn Certain Teed had changed the color of XT-25 "weathered wood" shingles until after the appraisal award was rendered.
Bolstering the Court's conclusion is the fact that in Minnesota,
In any event, even if a 90-day limitation period were potentially applicable, the Court would conclude on the present record that there exists a genuine issue whether Harleysville is estopped from relying upon it. The record does not indicate that Trout Brook slept on its rights, but rather promptly brought the "matching" issue to Harleysville in September 2011, shortly after it was discovered. (See Deutsch Decl. Ex. 5.) In response, Harleysville did not invoke the (supposed) 90-day limitation period, but rather requested additional information, engaged in discussions with Trout Brook's counsel, reinspected the roofs, and most importantly, twice extended the limitation period for Trout Brook to sue. Such conduct, in the Court's view, would at least be sufficient to create a genuine issue whether Harleysville had "lull[ed] [Trout Brook] into inactivity." L & H Transp., Inc. v. Drew Agency, Inc., 403 N.W.2d 223, 227 (Minn. 1987); see also Brenner v. Nordby, 306 N.W.2d 126, 127 (Minn.1981) (reversing summary judgment for defendant on statute-of-limitations grounds where plaintiff asserted that during negotiations, defendant never denied liability, told plaintiff he was investigating her claim, and represented that the investigation might lead to a settlement). Indeed, the Court strongly suspects that had Trout Brook sued to vacate the appraisal award before giving Harleysville an opportunity to address the matching issue, the insurer would have argued the suit was premature.
In sum, because the appraisal panel did not have before it the "matching" issue now at play in this lawsuit, and because questions of coverage are for the Court and not the appraisers, the award — and Trout Brook's failure to challenge it within 90 days — simply does not bar Trout Brook's causes of action.
As noted above, state law governs the interpretation of insurance policies.
The relevant Policy language here provides coverage for "direct physical loss" to "covered property." In the event of a loss to covered property, Harleysville is obligated to pay for the property's "replacement cost," defined as the lesser of (1) "the cost of repair or replacement with similar materials for the same use and purpose, on the same site" or (2) "the cost to repair, replace, or rebuild the property with material of like kind and quality to the extent practicable." According to Harleysville, these provisions unambiguously do not require replacement of Trout Brook's roofs. The Court disagrees.
Seizing on the Policy language requiring "direct physical loss" to "covered property," Harleysville first argues that there cannot be coverage for undamaged shingles on Trout Brook's roofs — even if they do not match replacement shingles used for repairs. (See Def. Mem. at 17 ("Applying the plain language of the policy, the undamaged parts of the roof[s] did not sustain `direct physical loss.'").) While superficially appealing, there at least are two problems with this argument.
First, it is predicated on an unsupported definition of the term "covered property." By Harleysville's logic, each individual roof shingle on Trout Brook's buildings constitutes "covered property," undermining any obligation to pay for shingles not damaged by hail. But in the Court's view, this reads the term "covered property" too narrowly. Harleysville points to no Policy definition supporting its argument, and in fact the Policy's "Property Covered" section indicates coverage extends to "buildings and structures." (Doc. No. 24 at 105 (emphasis added).) Moreover, the Policy's "location schedule," which defines the extent of Trout Brook's "property coverage," simply lists the association's eighteen buildings. (Id. at 32-34.) Accordingly, the Policy suggests that "covered property" is each of Trout Brook's buildings, and not individual items (such as shingles or siding) attached or appurtenant to them. And it is undisputed that each building sustained "direct physical loss" from the 2010 hail storm.
Second, recent Minnesota case law undermines Harleysville's argument. Just two months ago, the Minnesota Court of Appeals, in a case with strikingly similar facts to this one, held that an insurer was required to replace all of the siding on twenty townhome buildings, even though only a small portion was actually damaged in a hail storm, because the original siding was no longer manufactured in the same color. See Cedar Bluff Townhome Condo. Ass'n, Inc. v. Am. Family Mut. Ins. Co., No. A13-0124, 2013 WL 6223454, at *3-4 (Minn.Ct.App. Dec. 2, 2013). And there, as here, the policy required the insurer to pay only for "direct physical loss or damage to covered property." Id. at *1.
Harleysville retorts that Cedar Bluff erred and this Court should not propagate
Harleysville also argues that Cedar Bluff embodies bad public policy, because requiring roof replacement under these circumstances would "dramatically drive up premiums for the state's insureds." (Def. Mem. at 28; accord, e.g., Reply Mem. at 12-13.) But it is not this Court's role to decide what should, or should not, be the public policy of Minnesota. See, e.g., Twin Cities Galleries, LLC v. Media Arts Grp., Inc., 476 F.3d 598, 600-01 (8th Cir.2007) (federal courts look to state statutes, rules, and court decisions to determine state public policy). And while Harleysville cites several out-of-state cases to bolster its argument (see Def. Mem. at 19 (collecting cases holding that "insurers are [not] obligated to replace undamaged materials simply to assure precise aesthetic matches")), this is far from a settled area of the law, and courts in different states weigh the policy considerations differently. See, e.g., Collins v. Allstate Ins. Co., No. 2:09-cv-01824, 2009 WL 4729901, at *6 n. 4 (E.D.Pa. Dec. 10, 2009) ("[C]ases in other jurisdictions on the subject of `matching' undamaged areas of a property to damaged areas are mixed."). This is all the more reason why this federal Court cannot simply ignore Cedar Bluff (and Seamon) based on its own notions of what is "best" for Minnesota insureds.
Harleysville next notes that the Policy obligates it to pay Trout Brook only for the cost of repairing the roofs with "similar materials" or those of "like kind and quality" as already on the buildings. (Def. Mem. at 24-30.) And it argues that under this "unambiguous" language, it need not "pay the cost to replace all of the roofs on all of the buildings," because "like kind" and "similar" mean shingles "made of a similar substance and ... similar in nature to [those] being replaced," which are "concept[s] completely divorced from color." (Id. at 26 (emphases in original) (asserting that color "impacts neither the physical makeup (i.e., the composition) nor the quality or essential character of the shingles").) Yet, "like" is commonly defined as "similar to," American Heritage Dictionary 731 (2d ed. 1985), and "similar" means
Furthermore, the Minnesota Court of Appeals noted in Seamon that a policy provision requiring the use of "like" materials necessitated a determination whether repairs using unmatched shingles "would provide an acceptable aesthetic result." 2011 WL 6015355, at *4 (emphasis added). Similarly, the policy in Cedar Bluff required the use of materials "of like kind and quality," language the insurer argued would be "unreasonable to interpret ... to require replacement of both damaged and undamaged siding in order to achieve an exact color match." 2013 WL 6223454, at *4. But the court noted the policy did not define the phrase "of like kind and quality," and the insured's interpretation — "requir[ing] that the buildings have uniformly colored siding" — was no less reasonable. Id. Because there were multiple reasonable interpretations, the policy was ambiguous and could not be resolved as a matter of law in the insurer's favor. Id.
This Court perceives no principled reason to deviate from these holdings. The terms "similar materials" and "material of like kind and quality" simply cannot be defined, as a matter of law, to preclude consideration of color. Rather, a jury must determine whether these terms obligate Harleysville to pay for matching shingles on Trout Brook's property. See Seamon, 2011 WL 6015355, at *4-5.
Harleysville also argues that even if color matching is required, it has "fulfilled all of its obligations" under the Policy because it "located replacement shingles that are identical to the existing [ones]." (Def. Mem. at 23.) Putting aside that the record does not reveal whether Pederson obtained a sufficient number of shingles to complete all necessary repairs, it is far from clear that the shingles are "identical" to those on Trout Brook's roofs. To be sure, they are the same "weathered wood" Certain Teed X-25 model as those on the roofs, but several witnesses testified in their depositions that the shingles located by Pederson — whether due to time, fading, exposure to water, or some other unknown reason — simply do not match the existing ones. Moreover, the parties have submitted pictures of the newly located shingles overlaid on a Trout Brook roof, and in the Court's view a reasonable jury could conclude that the colors are not "similar." And, although testing of a small sample showed that the newly obtained shingles adhered adequately, several of Trout Brook's witnesses testified that the shingles are brittle and crack easily. Under these facts, whether Pederson's replacement shingles are of "like kind and quality" is a disputed fact that cannot be resolved at summary judgment.
Based on the foregoing, and all the files, records, and proceedings herein,
