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Unmatched Property Damage Exclusion

Recently we learned that a nationwide property insurer has adopted an additional endorsement which becomes part of the association’s property insurance policy upon its renewal.

The endorsement states that the policy does not cover the cost to replace undamaged materials to have them match or otherwise be aesthetically compatible with the damaged materials.

What does this mean for an association with this endorsement on their property insurance? In a 2014 decision, the Minnesota Supreme Court determined that an insurer was contractually obligated to replace undamaged siding to ensure a color match at the property. It is possible that this endorsement was enacted in response to that decision. Its enactment would likely limit the 2014 decision to its facts, as that case was decided largely in part based on then existing policy provisions.

Another consequence of this endorsement for owners is that any type of association special assessment levied to repair or replace undamaged materials to match the new materials may be treated by HO6 insurers as an assessment for maintenance, and consequently may not be covered by the loss assessment provisions on owners’ HO6 policies.

The new endorsement further provides that in the event of a claim or dispute with an insured in which appraisal is demanded by one of the parties, the appraisers and umpires do not have authority to determine contract or coverage issues.

There is no cost to the insured for these endorsements and we have no information that it is possible to insure over this new endorsement.

If your association has questions regarding insurance coverage issues, or is facing a large property loss, association counsel should be consulted.

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