Missouri Court: “Equivalent” Requires that Replacement Siding be Both Equal in Value and Virtually Identical

In December, we published a post about a Minnesota Supreme Court case that held that under a replacement cost policy, the phrase “comparable material and quality” meant that all of the siding on 20 buildings had to be replaced to avoid a color mismatch, even though less than 2% had actually been damaged by hail.  According to the court, that was necessary to ensure a “reasonable” color match.  Last week, a unanimous panel of Missouri’s intermediate level appellate court reached a similar conclusion under a replacement cost contract of insurance that required replacement “for equivalent construction and use.”  In Alessi v. Mid-Century Ins. Co., 2015 WL 3874799, 2015 Mo.App. LEXIS 679 (Mo.App., Jun. 23, 2015), the judges held that the word “equivalent” requires that replacement be both “equal in value” and “virtually identical.”

shutterstock_74756989The policyholder owned a home in St. Charles that sustained siding damage in a hailstorm in April 2012.  The damage was confined to the home’s northern side, and the carrier paid the actual cash value for replacement of all of the siding on that portion of the building.  Because the original siding was no longer manufactured, however, the insured contended that she was entitled to recover for replacing the siding on the entire structure, and she brought suit after the insurer refused.

The policy insured against “accidental direct physical loss.”  It was also written on a replacement cost basis, and one of the replacement cost settlement options was payment of “the replacement cost of that part of the building damaged for equivalent construction and use on the same premises.”  The insurer argued:  (1) that the words “that part of the building damaged” meant that was it only required to pay to replace the northern side; and (2) that the other three sides of the structure had not suffered any direct physical loss in any event.  The trial court agreed, and it granted the insurer’s motion for summary judgment.

On appeal, the Mississippi Court of Appeals disagreed, and it reversed and remanded the matter.  Judge Gary Gaertner began by noting that the key term “equivalent” was not defined in the contract of insurance and that Missouri law dictated that “the standard English dictionary definition will govern” in such a situation.  The court then looked to Blacks Law Dictionary, which defined “equivalent” as “1.  Equal in value, force, amount, effect or significance; 2.  Corresponding in effect or function; nearly equal; virtually identical.”  In Judge Gaertner’s view, that meant that the replacement had to be both “equal in value” and “virtually identical.”

In words of the opinion,

Our replacement cost policies generally charge higher premiums in exchange for agreeing to repair or replace with material of like kind and quality, and it is irrelevant that the homeowner may be in a better position after a loss than before.  . . . Certainly, it is likely that the value of Alessi’s property would be reduced by obviously mismatched siding.  If Mid-Century’s proposed replacement is not “equal in value,” then Mid-Century has not fulfilled its contractual obligations to provide a loss settlement of the replacement cost for equivalent construction and use, regardless of whether only the northern elevation was damaged.

The court also rejected the argument that all of the direct physical loss was confined to the northern side, holding that if repair of the siding on the other three sides of the structure was needed to ensure equivalence, then that constituted physical damage that “continued directly and proximately” from the covered hail damage to the fourth side.

The panel remanded the matter because there was no evidence of record concerning whether there was in fact another type of siding on the market that was “nearly identical” to the existing siding.  As the decision explained:

Under the facts before this Court following the trial court’s entry of summary judgment, we cannot answer the questions of whether the replacement siding is virtually identical or if a house with mismatched siding is equal in value to a house with matching siding.  These are questions of fact for a jury to decide.

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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