Does a Patch Need to Match?

Property insurance policies typically require repair and replacement of damaged property to be made with “like kind and construction” as the original. Occasionally, a policy will include another phrase that is similar to “like kind and construction,” such as “like kind and quality” or “like construction and use.” How to interpret such phrases, including how far an insurer must go to maintain the design and aesthetics of the pre-loss property, is an important issue in the claims process.

A particular and recurring problem is what do when only part of a building or property is damaged. For example, if a home has matching wall'to-wall carpeting in the living room, front hall and stairs, and fire damages only the front hall, is the homeowner entitled to have all the matching carpeting replaced if the new carpet does not match the old? If one kitchen cabinet is damaged, and the replacement does not match the others, must the insurer replace all the cabinets? Where the original materials are no longer available, a limitation of liability of an insurer to an amount needed to repair or replace with materials of like kind and construction does not preclude a reasonable substitution of other materials. See e.g., Metz v. Travelers Fire Ins. Co., 355 Pa. 342, 49 A.2d 711 (1946) (“If part of the building destroyed cannot be replaced with material of like kind and quality, then it should be substantially duplicated within the meaning of the policy.”). The extent to which an insurer is obligated to pay the cost to match the damaged property to the original construction, however, is frequently a point of contention during loss adjustment. There are, however, few cases on point to guide adjusters and practitioners.

The most recent case addressing this issue is Greene v. United Services Auto. Ass'n, 2007 Pa. Super. 344, 336 A.2d 1178 (2007). While Greene provides a thorough discussion of the issue, the factual predicate of the case gave the court a basis for a very result-oriented decision. Therefore, while Greene is of interest, the case should not overturn common practice and common-sense guidelines for handling insurance claims or resolving insurance disputes, including the principles that a claimant should never overreach and insurers should not act unreasonably.

The Greene Case

In Greene, appellants allegedly sustained damage in November 1998 to their home's 18-year-old roof and bathroom as a result of water leaking through cracks in the flashing around a skylight. A contractor for the insureds informed the adjuster for United Services Automobile Association (“USAA”) that there was evidence of wear and tear and possible storm damage in the form of three missing roof shingles. Due to a question about the coverage for the exterior damage, a field adjuster for USAA inspected the bathroom and roof. The adjuster testified at trial that, after his inspection, he advised the insureds that USAA would not provide coverage for wear and tear. Thereafter, USAA issued a payment for repairs to the bathroom and for only minimal repairs to the roof.

Only a few months later, in March and April of 1999, the insureds submitted a second claim for damage to the bathroom and roof as a result of a tree falling on the roof. This new damage occurred around the time that USAA informed the insureds that it would not cover the wear and tear to the roof. In its opinion, the court commented that despite being assigned to a claims representative and despite previous communications with a claims adjuster for USAA, the insureds sent correspondence relating to this second claim generically addressed to “Dear USAA.” In their second claim, the insureds asserted that the entire roof needed to be replaced because the type of shingles used on the roof were no longer manufactured. USAA did not receive the insureds' estimate for replacement of the entire roof until April 8, 1999, despite the fact that the estimate was dated a month and a half earlier, Feb. 23, 1999.

In April 1999, when USAA's adjuster inspected the house to observe the damage from the second loss, the adjuster discovered that the insureds had already replaced the entire roof. After the inspection, USAA advised the insureds that the only covered portion of their claim was the front slope of the roof.

The insureds filed suit, claiming, inter alia, that USAA was obligated to replace the entire roof because matching shingles were not available on the market. In their complaint, the insureds noted that their homeowners' insurance policy required USAA to pay the replacement cost of the part of the building which was damaged, not to exceed that which would be necessary for like construction and use as the original building material. They argued that because the damaged shingles on their home were no longer in production, “like construction” meant an entirely new roof, not a roof with mismatched shingles, especially because they had a roof of uniform color and texture before the loss. The discontinued production of the unique shingles prevented a uniform roof absent total replacement of the roof. Therefore, the insureds claimed that they were entitled to an entire new roof. They so claimed even though the damage from both incidents was limited to only one slope of the 12 slopes of their roof.

The pertinent provision of the policy read as follows:

If, at the time of the loss, the amount of the insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of the deductible and without deduction for depreciation, but not more than the least of the following amounts:

(1) the limit of liability under this policy that applies to the building;

(2) the replacement cost of that part of the building damaged; or

(3) the necessary amount actually spent to repair or replace the damaged building.

The insureds argued that the “part of the building damaged” was the roof in its entirety. USAA argued that given the age of the roof, replacement of the entire roof would be unreasonable and would lead to absurd results. The roof was approximately 18-years-old. It was at the end of its useful life and was discolored by mold and weathering. Even if the original style of shingles had been available for replacement of the damaged shingles, the new shingles would not match. USAA noted that under the insureds' position, USAA would be required to replace any roof in its entirety, even if only a small portion was damaged by direct physical loss, because it would never be possible to obtain an exact match when replacing the damaged portion with materials of like kind and construction and which would permit a uniform appearance once the damaged part of the building was repaired.

The Appellate Court's Decision

After the trial court found for the insureds for only several thousand dollars, much less than they had sought for the cost of replacing the entire roof, the appeal followed.

The Pennsylvania Superior Court disagreed with the insureds' interpretation of the scope of the damage covered by the policy, holding:

The policy clearly and unambiguously requires USAA to pay the replacement cost of the part of the building damaged. As noted above, Appellants contend that this policy language requires USAA to pay for the cost of replacing their entire roof because the roof was the “part of the building damaged.” We find this interpretation of the policy language to be unreasonable and absurd. At most, the “part of the building damaged” in this case was one slope of Appellants' multi-sloped roof. The trial court succinctly highlighted the absurdity of Appellants' argument when the court stated, “To utilize [Appellants'] logic would necessitate replacing all siding when one piece of siding is damaged, or an entire door when a door knob is damaged. It defies common sense.” '

The Superior Court also disagreed with the insureds' interpretation of “like construction,” holding:

Appellants' argument regarding the policy's “like construction” language equally is unavailing. Although the exact shingles that were damaged as a result of the two incidents were no longer available, testimony at trial revealed that shingles of similar color and texture were available and that these shingles could have been used to repair the damaged slope of Appellants' roof ' The policy clearly and unambiguously provides for “like construction,” not replacement with the identical item damaged. We are satisfied that the repair of the damaged slope of Appellants' roof with shingles similar to the damaged shingles in function, color, and shape meets the parameters of “like construction” as called for by the policy language.

The insureds' overreaching, which is apparent from a detailed review of the briefs and the Superior Court opinion, should marginalize the utility of Greene for many situations. The laundry list of facts unfavorable to the insureds, which were highlighted by the Superior Court in its opinion, is not short. The Greene appellants sustained damage to only one slope of the 12 slopes of their roof. In the first loss, this damage consisted of only three missing shingles. The roof itself was 18-years-old and weathered. Following the second loss, appellants replaced the roof before USAA's inspector could examine the alleged damage. USAA received the estimate for the roof replacement one and a half months after the insureds' contractor provided the estimate. The Superior Court commented that evidence at trial showed that appellants began construction on the replacement roof before USAA received the estimate for repairing the damage. This was the second loss to the same roof in only a few months. Finally, the insureds directed the second claim generically to USAA, instead of to the individuals at USAA with whom they had been communicating on the first claim. Had the insureds been more conservative in their claim or had the damage been more severe, it is not certain that the trial court and the Superior Court would have ruled as they did. The Superior Court's opinion carefully spells out the fact pattern that favored the insurer. While the holding may be noteworthy and receive the most attention, the facts are more memorable and very telling.

A Survey of Cases

A survey of cases from other jurisdictions that address the matching of building materials shows that some courts requiring the insurer to pay for matched materials, while others do not. Both parties in Greene cited a Nebraska case, Eledge v. Farmers Mut. Home Ins. Co. of Hooper, 6 Neb.App. 140, 571 N.W.2d 105 (1997), in their briefs to support their respective positions. In Eledge, owners of a residence appealed from the trial court's decision that to repair hail damage to their roof using “like construction,” the insurer needed to repair only part of the roof. The appellate court affirmed the trial court's ruling and held that “like construction and use” meant that the insurer needed to return the structure “as nearly as possible to its predamage condition.” Depending on the extent of damage, this might mean replacement of some or all of a roof damaged by hail. The appellate court held that a “plain reading of the provision does not require the replacement of the whole when it is factually shown that the whole can be satisfactorily repaired by replacement of a part; so long as the building is returned to 'like construction and use' as a result.” The court commented that it would be an unreasonable interpretation to require replacement of an entire roof where only “a single square of shingles is damaged and matching replacements can be found, and where the repair can be made without damage to the remainder of the roof.”

In Holloway v. Liberty Mut. Fire Ins. Co., 290 So.2d 791 (La. Ct. App. 1st Cir. 1974), the court required complete replacement of both damaged and undamaged carpeting where replacement of only the damaged area would have resulted in significant visual problems at the junctures of new and old carpeting. There, the Louisiana Court of Appeals affirmed a lower court judgment awarding plaintiffs the cost of replacing the carpeting in the entire bedroom wing of their house after a leaking drain pipe caused water damage to only part of the carpeting. The carpet was six-years-old, and its style had been discontinued. The insureds' decorator, who testified as an expert in the field of interior design, stated that even if the same color and texture of the carpeting could be obtained, replacement of only the damaged portions of the carpet would result in unsightly seams at the juncture points. He also testified that the contrast between old and the new sections of carpet would be readily apparent. Furthermore, the interior decorator and a realtor both testified that the market value of the house would diminish if the carpeting of the house's entire bedroom wing would not have the same texture and color.

Similarly, in Mastin v. Sandy & Beaver Ins. Co., 10 Ohio Misc.2d 22, 461 N.E.2d 332 (1983), plaintiff's plumbing under his kitchen floor was damaged as a result of a storm. The carrier agreed this was a covered loss, but refused to pay for the replacement of the vinyl kitchen floor, which was damaged when a hole was cut into it to gain access to the plumbing. Instead, the carrier asserted that it should only be required to pay for a patch in the vinyl covering of the floor. The Ohio court rejected the carrier's position, observing that vinyl covering is different than tile and can only be purchased in a roll. The court found that “vinyl flooring cannot be said to be repaired if an obvious patch is left, and that the whole floor ought to have been replaced.”

In Thomas v. American Family Mut. Ins. Co., 233 Kan. 775, 666 P.2d 676 (1983), the Supreme Court of Kansas found no error with the trial court's instructions to the jury related to the replacement of two slopes of a roof where only one slope of the roof had been damaged by a falling tree. The insurance company sought to have the lower court decision in favor of the policyholder overturned because the insurer had wanted a jury instruction stating that the insurance policy allowed for substitution of different roof materials than had been used in the original construction of the roof, if the original materials were not readily available. The Supreme Court of Kansas held that this language was not in the policy, and it suggested that the insurer's claim of error was actually an attempt to re-argue the reasonableness of replacing an undamaged slope of roof that was adjacent to the damaged slope. The court stated that the insurer had been given ample opportunity to argue this issue before the trial court. The Kansas court noted that the trim and molding on the damaged slope of roof that needed to be replaced did not match the adjacent, undamaged, slope of the roof, and the replacement of only one slope would have resulted in the other slope being two- to three-inches thicker, with the two sides not coming together properly at the peak.

In Burton v. Republic Ins. Co., 845 A.2d 889 (Pa. Super. Ct. 2004), the Pennsylvania Superior Court commented that “insurance policies are based on principles of indemnity rather than enrichment” and “claimants should not be permitted to exploit their losses and use them as an opportunity to remodel their homes at the insurer's expense.” In Burton, a class of insureds sued an insurance company, claiming they were denied the full benefit of their property insurance coverage for repairs and replacements to residential structures. One of the class members wanted, at the insurer's expense, to remove an existing wall to enlarge her bedroom, and another sought to obtain reimbursement from the insurer to install carpet over what was originally finished hardwood floors. The Pennsylvania court held that the phrase “like construction” meant that the insurer had to return the structures as closely as possible to how they existed immediately prior to the loss. This language did not, however, require the insurer to pay for modifications or improvements.

In McCorkle v. State Farm Ins. Co., 221 Cal.App.3d 610, 270 Cal. Rptr. 492 (Cal. App. 1st Dist. 1990), the garage attached to the insureds' residence was completely destroyed by fire. The policy provided that, if property was destroyed, the insurer would pay “the replacement cost of that part of the building damaged for equivalent construction and use on the same premises.” The garage had been built with a wooden floor, but changes in the California building code required garages with cement floors, which are considerably more expensive to build. The insureds wanted to have the insurer pay for a garage with cement floors. On appeal, the appellate court upheld the trial court's decision that the policy did not require the insurer to provide a “structurally more valuable building than was destroyed,” even if the improved structure was required by the code. Thus, the court held that the insurer was obligated to only pay the cost to replace the garage with a wooden floor.

The More-Reasonable Position

Since one would expect matching to be a common issue in litigation, it is somewhat surprising that there are so few cases on this topic, and they may seem contradictive. One way to make sense of these opinions is to focus on which party's position was more reasonable. In some of the opinions, the insurer seemed to take an unreasonable position. For instance, in Holloway, the insurer insisted on mismatching carpet with differences in appearance at juncture points that would have lowered the policyholder's property value. In Mastin, the insurer sought to repair damage to vinyl flooring with a patch that the court stated would have been “obvious.” On the other hand, in Greene, Burton, and McCorkle, the policyholders seemed to overreach for modifications or improvements that would have resulted in a significant improvement when compared with pre-loss conditions. In Greene, the policyholder sought replacement of an entire roof where the storm related damage was constrained to only a small portion of the 18-year-old roof that was also worn and weathered from age. In Burton, one policyholder insisted on knocking out a bedroom wall to enlarge her bedroom and another sought to replace a hardwood floor with carpeting. In McCorkle, the policyholder claimed the replacement value for a cement floor in a garage where the original floor was wooden. In all of the cases, the persuasiveness of a particular interpretation of policy language to the court may have been tempered or enhanced by the corresponding degree of reasonableness or unreasonableness of each party's position.

Obvious Flaws in Appearance

Another way of looking at the decisions is that the scope of the replacement/repair required by the courts tended to extend only so far as there were definitive breaks in the structure. For instance, in Holloway and Mastin, anything less than replacing all of the carpet and all of the vinyl flooring, respectively, would have resulted in an obvious break in the appearance. In contrast, limiting replacement of roof material to only the damaged slope, as in Greene, would appear reasonable, unless, as in Thomas, replacing only one slope would have resulted in obvious flaws in appearance, such as the peak of the adjacent roof slope reaching several inches higher than the one replaced.

These cases may also provide guidance for both insurers and policyholders in the adjustment process. If the insured can demonstrate that the need to match is not purely cosmetic, but involves an element of functionality, the insurer should be required to pay. If, however, the “matching” issue is purely a cosmetic one, the old adjuster's “line of sight” rule should be used by both sides. For example, if the damage to one roof slope can be repaired without affecting the aesthetics or function of the others, the repairs should be limited to the one slope. If, however, patching the one slope will be unsightly, the entire slope should be replaced. Inside a building, if carpet is damaged, and the room provides a good break point, the insurer should have to replace only the one room, not all connecting rooms. Using this simple guideline, all the cases can be reconciled and loss adjustment can proceed more smoothly. While the “line of sight” rule will not prevent all disputes, it provides a basis for a negotiated, equitable resolution of the loss.

A Rule of Reason

If, however, the insurer is miserly, or the policyholder tries to collect a windfall, it appears that courts will apply a rule of reason and reach a fair result, one which indemnifies the insured for his actual loss, without providing a windfall to the insured, or allowing the insurer to escape its full contractual allegations.

Jay M. Levin is a member of Reed Smith's Insurance Recovery Group resident in the firm's Philadelphia office. Steven T. Voigt is a member of Reed Smith's Commercial Litigation Practice Group resident in the same office.

Property insurance policies typically require repair and replacement of damaged property to be made with “like kind and construction” as the original. Occasionally, a policy will include another phrase that is similar to “like kind and construction,” such as “like kind and quality” or “like construction and use.” How to interpret such phrases, including how far an insurer must go to maintain the design and aesthetics of the pre-loss property, is an important issue in the claims process.

A particular and recurring problem is what do when only part of a building or property is damaged. For example, if a home has matching wall'to-wall carpeting in the living room, front hall and stairs, and fire damages only the front hall, is the homeowner entitled to have all the matching carpeting replaced if the new carpet does not match the old? If one kitchen cabinet is damaged, and the replacement does not match the others, must the insurer replace all the cabinets? Where the original materials are no longer available, a limitation of liability of an insurer to an amount needed to repair or replace with materials of like kind and construction does not preclude a reasonable substitution of other materials. See e.g., Metz v. Travelers Fire Ins. Co., 355 Pa. 342, 49 A.2d 711 (1946) (“If part of the building destroyed cannot be replaced with material of like kind and quality, then it should be substantially duplicated within the meaning of the policy.”). The extent to which an insurer is obligated to pay the cost to match the damaged property to the original construction, however, is frequently a point of contention during loss adjustment. There are, however, few cases on point to guide adjusters and practitioners.

The most recent case addressing this issue is Greene v. United Services Auto. Ass'n, 2007 Pa. Super. 344, 336 A.2d 1178 (2007). While Greene provides a thorough discussion of the issue, the factual predicate of the case gave the court a basis for a very result-oriented decision. Therefore, while Greene is of interest, the case should not overturn common practice and common-sense guidelines for handling insurance claims or resolving insurance disputes, including the principles that a claimant should never overreach and insurers should not act unreasonably.

The Greene Case

In Greene, appellants allegedly sustained damage in November 1998 to their home's 18-year-old roof and bathroom as a result of water leaking through cracks in the flashing around a skylight. A contractor for the insureds informed the adjuster for United Services Automobile Association (“USAA”) that there was evidence of wear and tear and possible storm damage in the form of three missing roof shingles. Due to a question about the coverage for the exterior damage, a field adjuster for USAA inspected the bathroom and roof. The adjuster testified at trial that, after his inspection, he advised the insureds that USAA would not provide coverage for wear and tear. Thereafter, USAA issued a payment for repairs to the bathroom and for only minimal repairs to the roof.

Only a few months later, in March and April of 1999, the insureds submitted a second claim for damage to the bathroom and roof as a result of a tree falling on the roof. This new damage occurred around the time that USAA informed the insureds that it would not cover the wear and tear to the roof. In its opinion, the court commented that despite being assigned to a claims representative and despite previous communications with a claims adjuster for USAA, the insureds sent correspondence relating to this second claim generically addressed to “Dear USAA.” In their second claim, the insureds asserted that the entire roof needed to be replaced because the type of shingles used on the roof were no longer manufactured. USAA did not receive the insureds' estimate for replacement of the entire roof until April 8, 1999, despite the fact that the estimate was dated a month and a half earlier, Feb. 23, 1999.

In April 1999, when USAA's adjuster inspected the house to observe the damage from the second loss, the adjuster discovered that the insureds had already replaced the entire roof. After the inspection, USAA advised the insureds that the only covered portion of their claim was the front slope of the roof.

The insureds filed suit, claiming, inter alia, that USAA was obligated to replace the entire roof because matching shingles were not available on the market. In their complaint, the insureds noted that their homeowners' insurance policy required USAA to pay the replacement cost of the part of the building which was damaged, not to exceed that which would be necessary for like construction and use as the original building material. They argued that because the damaged shingles on their home were no longer in production, “like construction” meant an entirely new roof, not a roof with mismatched shingles, especially because they had a roof of uniform color and texture before the loss. The discontinued production of the unique shingles prevented a uniform roof absent total replacement of the roof. Therefore, the insureds claimed that they were entitled to an entire new roof. They so claimed even though the damage from both incidents was limited to only one slope of the 12 slopes of their roof.

The pertinent provision of the policy read as follows:

If, at the time of the loss, the amount of the insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of the deductible and without deduction for depreciation, but not more than the least of the following amounts:

(1) the limit of liability under this policy that applies to the building;

(2) the replacement cost of that part of the building damaged; or

(3) the necessary amount actually spent to repair or replace the damaged building.

The insureds argued that the “part of the building damaged” was the roof in its entirety. USAA argued that given the age of the roof, replacement of the entire roof would be unreasonable and would lead to absurd results. The roof was approximately 18-years-old. It was at the end of its useful life and was discolored by mold and weathering. Even if the original style of shingles had been available for replacement of the damaged shingles, the new shingles would not match. USAA noted that under the insureds' position, USAA would be required to replace any roof in its entirety, even if only a small portion was damaged by direct physical loss, because it would never be possible to obtain an exact match when replacing the damaged portion with materials of like kind and construction and which would permit a uniform appearance once the damaged part of the building was repaired.

The Appellate Court's Decision

After the trial court found for the insureds for only several thousand dollars, much less than they had sought for the cost of replacing the entire roof, the appeal followed.

The Pennsylvania Superior Court disagreed with the insureds' interpretation of the scope of the damage covered by the policy, holding:

The policy clearly and unambiguously requires USAA to pay the replacement cost of the part of the building damaged. As noted above, Appellants contend that this policy language requires USAA to pay for the cost of replacing their entire roof because the roof was the “part of the building damaged.” We find this interpretation of the policy language to be unreasonable and absurd. At most, the “part of the building damaged” in this case was one slope of Appellants' multi-sloped roof. The trial court succinctly highlighted the absurdity of Appellants' argument when the court stated, “To utilize [Appellants'] logic would necessitate replacing all siding when one piece of siding is damaged, or an entire door when a door knob is damaged. It defies common sense.” '

The Superior Court also disagreed with the insureds' interpretation of “like construction,” holding:

Appellants' argument regarding the policy's “like construction” language equally is unavailing. Although the exact shingles that were damaged as a result of the two incidents were no longer available, testimony at trial revealed that shingles of similar color and texture were available and that these shingles could have been used to repair the damaged slope of Appellants' roof ' The policy clearly and unambiguously provides for “like construction,” not replacement with the identical item damaged. We are satisfied that the repair of the damaged slope of Appellants' roof with shingles similar to the damaged shingles in function, color, and shape meets the parameters of “like construction” as called for by the policy language.

The insureds' overreaching, which is apparent from a detailed review of the briefs and the Superior Court opinion, should marginalize the utility of Greene for many situations. The laundry list of facts unfavorable to the insureds, which were highlighted by the Superior Court in its opinion, is not short. The Greene appellants sustained damage to only one slope of the 12 slopes of their roof. In the first loss, this damage consisted of only three missing shingles. The roof itself was 18-years-old and weathered. Following the second loss, appellants replaced the roof before USAA's inspector could examine the alleged damage. USAA received the estimate for the roof replacement one and a half months after the insureds' contractor provided the estimate. The Superior Court commented that evidence at trial showed that appellants began construction on the replacement roof before USAA received the estimate for repairing the damage. This was the second loss to the same roof in only a few months. Finally, the insureds directed the second claim generically to USAA, instead of to the individuals at USAA with whom they had been communicating on the first claim. Had the insureds been more conservative in their claim or had the damage been more severe, it is not certain that the trial court and the Superior Court would have ruled as they did. The Superior Court's opinion carefully spells out the fact pattern that favored the insurer. While the holding may be noteworthy and receive the most attention, the facts are more memorable and very telling.

A Survey of Cases

A survey of cases from other jurisdictions that address the matching of building materials shows that some courts requiring the insurer to pay for matched materials, while others do not. Both parties in Greene cited a Nebraska case, Eledge v. Farmers Mut. Home Ins. Co. of Hooper , 6 Neb.App. 140, 571 N.W.2d 105 (1997), in their briefs to support their respective positions. In Eledge, owners of a residence appealed from the trial court's decision that to repair hail damage to their roof using “like construction,” the insurer needed to repair only part of the roof. The appellate court affirmed the trial court's ruling and held that “like construction and use” meant that the insurer needed to return the structure “as nearly as possible to its predamage condition.” Depending on the extent of damage, this might mean replacement of some or all of a roof damaged by hail. The appellate court held that a “plain reading of the provision does not require the replacement of the whole when it is factually shown that the whole can be satisfactorily repaired by replacement of a part; so long as the building is returned to 'like construction and use' as a result.” The court commented that it would be an unreasonable interpretation to require replacement of an entire roof where only “a single square of shingles is damaged and matching replacements can be found, and where the repair can be made without damage to the remainder of the roof.”

In Holloway v. Liberty Mut. Fire Ins. Co. , 290 So.2d 791 (La. Ct. App. 1st Cir. 1974), the court required complete replacement of both damaged and undamaged carpeting where replacement of only the damaged area would have resulted in significant visual problems at the junctures of new and old carpeting. There, the Louisiana Court of Appeals affirmed a lower court judgment awarding plaintiffs the cost of replacing the carpeting in the entire bedroom wing of their house after a leaking drain pipe caused water damage to only part of the carpeting. The carpet was six-years-old, and its style had been discontinued. The insureds' decorator, who testified as an expert in the field of interior design, stated that even if the same color and texture of the carpeting could be obtained, replacement of only the damaged portions of the carpet would result in unsightly seams at the juncture points. He also testified that the contrast between old and the new sections of carpet would be readily apparent. Furthermore, the interior decorator and a realtor both testified that the market value of the house would diminish if the carpeting of the house's entire bedroom wing would not have the same texture and color.

Similarly, in Mastin v. Sandy & Beaver Ins. Co. , 10 Ohio Misc.2d 22, 461 N.E.2d 332 (1983), plaintiff's plumbing under his kitchen floor was damaged as a result of a storm. The carrier agreed this was a covered loss, but refused to pay for the replacement of the vinyl kitchen floor, which was damaged when a hole was cut into it to gain access to the plumbing. Instead, the carrier asserted that it should only be required to pay for a patch in the vinyl covering of the floor. The Ohio court rejected the carrier's position, observing that vinyl covering is different than tile and can only be purchased in a roll. The court found that “vinyl flooring cannot be said to be repaired if an obvious patch is left, and that the whole floor ought to have been replaced.”

In Thomas v. American Family Mut. Ins. Co. , 233 Kan. 775, 666 P.2d 676 (1983), the Supreme Court of Kansas found no error with the trial court's instructions to the jury related to the replacement of two slopes of a roof where only one slope of the roof had been damaged by a falling tree. The insurance company sought to have the lower court decision in favor of the policyholder overturned because the insurer had wanted a jury instruction stating that the insurance policy allowed for substitution of different roof materials than had been used in the original construction of the roof, if the original materials were not readily available. The Supreme Court of Kansas held that this language was not in the policy, and it suggested that the insurer's claim of error was actually an attempt to re-argue the reasonableness of replacing an undamaged slope of roof that was adjacent to the damaged slope. The court stated that the insurer had been given ample opportunity to argue this issue before the trial court. The Kansas court noted that the trim and molding on the damaged slope of roof that needed to be replaced did not match the adjacent, undamaged, slope of the roof, and the replacement of only one slope would have resulted in the other slope being two- to three-inches thicker, with the two sides not coming together properly at the peak.

In Burton v. Republic Ins. Co. , 845 A.2d 889 (Pa. Super. Ct. 2004), the Pennsylvania Superior Court commented that “insurance policies are based on principles of indemnity rather than enrichment” and “claimants should not be permitted to exploit their losses and use them as an opportunity to remodel their homes at the insurer's expense.” In Burton, a class of insureds sued an insurance company, claiming they were denied the full benefit of their property insurance coverage for repairs and replacements to residential structures. One of the class members wanted, at the insurer's expense, to remove an existing wall to enlarge her bedroom, and another sought to obtain reimbursement from the insurer to install carpet over what was originally finished hardwood floors. The Pennsylvania court held that the phrase “like construction” meant that the insurer had to return the structures as closely as possible to how they existed immediately prior to the loss. This language did not, however, require the insurer to pay for modifications or improvements.

In McCorkle v. State Farm Ins. Co. , 221 Cal.App.3d 610, 270 Cal. Rptr. 492 (Cal. App. 1st Dist. 1990), the garage attached to the insureds' residence was completely destroyed by fire. The policy provided that, if property was destroyed, the insurer would pay “the replacement cost of that part of the building damaged for equivalent construction and use on the same premises.” The garage had been built with a wooden floor, but changes in the California building code required garages with cement floors, which are considerably more expensive to build. The insureds wanted to have the insurer pay for a garage with cement floors. On appeal, the appellate court upheld the trial court's decision that the policy did not require the insurer to provide a “structurally more valuable building than was destroyed,” even if the improved structure was required by the code. Thus, the court held that the insurer was obligated to only pay the cost to replace the garage with a wooden floor.

The More-Reasonable Position

Since one would expect matching to be a common issue in litigation, it is somewhat surprising that there are so few cases on this topic, and they may seem contradictive. One way to make sense of these opinions is to focus on which party's position was more reasonable. In some of the opinions, the insurer seemed to take an unreasonable position. For instance, in Holloway, the insurer insisted on mismatching carpet with differences in appearance at juncture points that would have lowered the policyholder's property value. In Mastin, the insurer sought to repair damage to vinyl flooring with a patch that the court stated would have been “obvious.” On the other hand, in Greene, Burton, and McCorkle, the policyholders seemed to overreach for modifications or improvements that would have resulted in a significant improvement when compared with pre-loss conditions. In Greene, the policyholder sought replacement of an entire roof where the storm related damage was constrained to only a small portion of the 18-year-old roof that was also worn and weathered from age. In Burton, one policyholder insisted on knocking out a bedroom wall to enlarge her bedroom and another sought to replace a hardwood floor with carpeting. In McCorkle, the policyholder claimed the replacement value for a cement floor in a garage where the original floor was wooden. In all of the cases, the persuasiveness of a particular interpretation of policy language to the court may have been tempered or enhanced by the corresponding degree of reasonableness or unreasonableness of each party's position.

Obvious Flaws in Appearance

Another way of looking at the decisions is that the scope of the replacement/repair required by the courts tended to extend only so far as there were definitive breaks in the structure. For instance, in Holloway and Mastin, anything less than replacing all of the carpet and all of the vinyl flooring, respectively, would have resulted in an obvious break in the appearance. In contrast, limiting replacement of roof material to only the damaged slope, as in Greene, would appear reasonable, unless, as in Thomas, replacing only one slope would have resulted in obvious flaws in appearance, such as the peak of the adjacent roof slope reaching several inches higher than the one replaced.

These cases may also provide guidance for both insurers and policyholders in the adjustment process. If the insured can demonstrate that the need to match is not purely cosmetic, but involves an element of functionality, the insurer should be required to pay. If, however, the “matching” issue is purely a cosmetic one, the old adjuster's “line of sight” rule should be used by both sides. For example, if the damage to one roof slope can be repaired without affecting the aesthetics or function of the others, the repairs should be limited to the one slope. If, however, patching the one slope will be unsightly, the entire slope should be replaced. Inside a building, if carpet is damaged, and the room provides a good break point, the insurer should have to replace only the one room, not all connecting rooms. Using this simple guideline, all the cases can be reconciled and loss adjustment can proceed more smoothly. While the “line of sight” rule will not prevent all disputes, it provides a basis for a negotiated, equitable resolution of the loss.

A Rule of Reason

If, however, the insurer is miserly, or the policyholder tries to collect a windfall, it appears that courts will apply a rule of reason and reach a fair result, one which indemnifies the insured for his actual loss, without providing a windfall to the insured, or allowing the insurer to escape its full contractual allegations.

Jay M. Levin is a member of Reed Smith's Insurance Recovery Group resident in the firm's Philadelphia office. Steven T. Voigt is a member of Reed Smith's Commercial Litigation Practice Group resident in the same office.