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Church loses insurance claim

Storm damage policy doesn’t cover cracks behind the drywall

A hail and wind storm has left a St. Paul church between a rock and a drywall.

When St. Matthews Church of God and Christ, including its drywall, was damaged by the storm in 2017, it had replacement cost coverage with State Farm Fire and Casualty Company. The insurer agreed to remove and replace the drywall.

The problem was the cracks in the masonry that were revealed when the drywall was removed. The city would not issue a building permit unless the masonry was brought up to code. Setting the permit issue aside, the court noted that the masonry did not have to be changed in order to repair the drywall.

State Farm denied coverage for the masonry, and the District Court and the Court of Appeals agreed. In St. Matthews Church of God and Christ v. State Farm Fire and Casualty Company, a 4-3 Supreme Court affirmed. Justice Paul Thissen wrote the majority opinion and Justice Natalie Hudson dissented, joined by Justices Margaret Chutich and Anne McKeig.

Damaged portion of property

State Farm’s policy included a Minnesota endorsement required by Minn. Stat. § 65A.10, subd. 1. (See sidebar.) The company paid $107,053, which covered the drywall.

The parties agreed that the damaged property is a partial loss and, before the drywall can be repaired, the masonry must be brought up to code, in order to obtain a building permit.

The court turned first to the subdivision one language that stated, “In the case of a partial loss, unless more extensive coverage is otherwise specified in the policy, this coverage applies only to the damaged portion of the property.”

The majority found that the language is susceptible of only one reasonable interpretation.

First, “this coverage” refers to the general replacement cost coverage framework which means that only damaged property be brought up to code, the court said.

Second, the statute makes it clear that if only part of the property is damaged by an insured event, coverage does not extend to the entire property, it continued.

Third, the word portion refers to a part separated from a whole, and fourth, “only” means that there is no obligation to bring property up to code that was not damaged in the covered event.

The court then discussed an alternative, broader interpretation of section 65A.10, subdivision 1, proffered by St. Matthews. It claimed that fixing the masonry is a precondition to repairing the rest of the wall. “In other words, St. Matthews contends that insurance coverage is triggered by code enforcement alone, not whether the damage that caused the code violation was the result of an insured event,” Thissen wrote. St. Matthews further argued that coverage is required coverage only when there is a “direct connection” between the repairs required by the code and any diminution in value caused by the insured event. But that test was not part of the statute, the court said.

Thissen continued, “We can perceive no limits on the obligation of an insurer to fix every code violation the City required to be fixed before issuing a permit if we were to accept St. Matthews’s direct connection test for insurance coverage under section 65A.10, subdivision 1.”

The court also rejected the church’s argument that the drywall and masonry are parts of a single damaged item, the wall.

It further observed that except for the permit requirement, the drywall could have been repaired without touching the masonry. This was critical to the opinion, the court revealed in a footnote. “Our opinion is limited to this particular context in which the drywall itself could be completely replaced in compliance with the municipal code without making any additional changes to other parts of the property.”


Hudson agreed with the plaintiff that the drywall could not be separated from the rest of the wall. “In short, St. Matthews argues that a wall is a wall. I agree, and for that reason, I respectfully dissent,” she wrote.

Hudson said that the coverage provisions could reasonably be construed broadly.

“Here, public policy considerations underlying the code-compliance provision and the consequences of different interpretations of section 65A.10 both support the result that State Farm should pay to repair the wall,” the dissent said.

Hudson warned that the majority’s rule may encourage insurers to adopt an infinitely narrow view of the damaged portion of the property under section 65A.10 and seek to divide a single structural element of a building into increasingly smaller parts and subparts and sub-subparts.

She added, “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.”

Minnesota Statute § 65A.10, subd. 1

Minnesota endorsement

If this coverage is provided on a replacement cost basis we will pay the increased cost of replacing, rebuilding, repairing or demolishing any building in accordance with the minimum code in force at the time of loss as required by state or local authorities, when the loss or damage is caused by a Covered Cause Of Loss. In case of a partial loss to the covered property, we will pay only for the damaged portion of the property.

Statutory minimum

Subject to any applicable policy limits, where an insurer offers replacement cost insurance: (i) the insurance must cover the cost of replacing, rebuilding, or repairing any loss or damaged property in accordance with the minimum code as required by state or local authorities . . . . In the case of a partial loss, unless more extensive coverage is otherwise specified in the policy, this coverage applies only to the damaged portion of the property.

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