The Minnesota Supreme Court Guts Code Coverage for Policyholders

The Minnesota Supreme Court published its decision in St. Matthews v. State Farm.  The case involved whether an insurance company owes for code compliant repairs arising out of covered damage.  In this case, a storm caused a leak which caused water damage to drywall.  The drywall was affixed to a masonry wall which was not up to code.  The city ordered repair of the masonry section of the wall as a condition to replacing the water-damaged drywall.  Thus, the question is whether the policy also covers the necessary masonry repairs.

The Supreme Court, in a 4-3 decision, held that the insurance carrier was only required to pay for the water-damaged drywall, but not the masonry repair even though it was required.  This decision is absolutely devastating to individual insureds who depend on their insurance companies to restore their homes after a loss.  Minnesota code changes every 6 years, meaning everyone who owns property older than that is susceptible to additional code required repairs in the event of a covered loss.  Hopefully, all policyholders will elect to purchase additional insurance to cover that risk going forward, but many will not know until it’s too late.

SJJ submitted an amicus brief to the Minnesota Supreme Court on behalf of the non-profit United Policyholders group in this case, urging the Court to consider the negative ramifications of accepting the insurance company’s position. The dissenting justices agreed, but were outnumbered.  Their analysis sums up the danger for policyholders going forward:

“the majority draws no lines and places no limits on the imagination of an insurer to justify denying coverage for a code upgrade under section 65A.10, except for an individual, discrete, storm-damaged part of a structural element of a building where that specific storm-damaged part generated the code violation. The majority’s rule will lead to unforeseen and unmanageable costs for Minnesota property owners with replacement cost coverage whose property suffers storm damage and other covered losses…”

At least the decision is limited to the facts of this case, but you can expect that insurance carriers will use this to deny code required repairs whenever they can.  Let’s hope the Minnesota legislature is watching and takes action to correct this mistake.