Authored by: Brendan L. Labbe, Esq., Sloane and Walsh, LLP
A string of recent court decisions across the nation have addressed the prominent issue of matching in first-party property insurance claims. In addition to discussing those recent court rulings, this article provides an overview of the principle of matching and a brief guide to matching in various jurisdictions across the nation.
In Massachusetts, the Honorable Judge Ames of Suffolk Superior Court issued a ruling on the issue of matching in the matter of Edelman v. Certain Underwriters at Lloyds, London, 2017-02471-F (Mass. Super. May 7, 2019). This is a case of first impression in the Commonwealth of Massachusetts, and it will have implications on countless claims throughout the jurisdiction. Specifically, the Court ruled that the subject commercial policy affords coverage for the matching of all four elevations and slopes of a property’s siding and roofing.
In Connecticut, the Superior Court clarified the application of the state’s matching regulation in the matter of Kamansky v. Liberty Mut. Ins. Co., CV-18-6094809 S (Conn. Super. Apr. 30, 2019). The Court ruled that the regulation only required the replacement of adjacent mismatched siding, not all of the siding on all elevations of a property.
In Illinois, the United States Court of Appeals for the Seventh Circuit, affirmed a ruling from the United States District Court for the Northern District of Illinois in the matter of Windridge of Naperville Condominium Ass’n v. Philadelphia Indem. Ins. Co., 932 F.3d 1035 (7th Cir. 2019). The Court ruled that the subject policy required the replacement of aluminum siding on all four elevations of the insured condominium buildings.
These decisions are addressed in greater detail below. But first, a brief discussion of the principle of matching and its handling across the nation follows.
What is Matching?
Matching is a principle that is generally unique to the insurance industry, yet it is a prominent consideration in almost all property claims. A matching issue arises when, following a loss, the repair or replacement of a damaged portion of property will result in a mismatched appearance with an undamaged portion of the same property. As a result of the mismatched appearance, the insured seeks payment for the replacement of the undamaged portion of the property.
Matching issues sometimes result from damage to flooring, roofing, siding, interior walls, cabinetry, windows, trim and other finishes. Mismatches potentially arise due to age, wear, color, size, shape, availability of materials or other visual qualities. However, matching issues can derive from a multitude of aspects of a claim. The principle generally only applies when the property had a uniform, matching appearance prior to the loss.
Is Matching Covered?
The principle of matching stems from replacement cost coverage. Proponents of matching argue that in order to properly replace the damaged property, the repairs must result in a uniform, matching appearance. Otherwise, proponents argue that an insured is not sufficiently made whole. However, most first-party property policies typically only provide coverage for “direct physical loss of or damage to” covered property. Thus, opponents to matching argue that the replacement of mismatched materials is not covered because that portion of the property did not sustain direct physical damage.
Properties are insured by policies containing a variety of terms and conditions. As a result, coverage for matching depends on the specific policy language, as well as the specific jurisdiction, as some jurisdictions have statutes, regulations or governing case law. In fact, some policies contain endorsements or specific provisions expressly granting or excluding coverage for matching.
Nonetheless, generally speaking, as it pertains to policy language, most first-party property policies typically only cover “direct physical loss of or damage to” covered property. The principle of matching seeks the replacement of undamaged portions of property in order to match replaced damaged portions. Thus, the question often arises, is coverage afforded for matching when the mismatched area did not in itself sustain direct physical loss or damage?
The question of coverage often requires an examination of Loss Settlement and Loss Payment provisions, which typically govern a carrier’s payment obligations in the event of a covered loss. Some policies contain language limiting payment for direct physical loss or damage to “that part” of damaged property or “the damaged part” of property. For example, a common Loss Settlement provision in an HO 03 may provide that the company will pay for the less of various options, typically the limit of liability, the necessary amount actually spent or “the replacement cost of that part of the building damaged with material of like kind and quality and for like use.” On the other hand, a Loss Payment provision in a CP 00 10 may often not include language referring to “part” of the damaged property. It is often debated whether policies containing such language preclude coverage for matching.
Some options contained in Loss Payment and Loss Settlement provisions provide for payment for replacement “with material of like kind and quality and for like use.” Others provide for payment for replacement with “other property of comparable material and quality.” Some options provide for payment for the replacement with “similar construction.” As a result, the specific payment provision—often elected at the choice of the carrier—is frequently a significant focal point in the debate over whether matching is covered.
Like all questions of coverage, one must closely examine the precise terms and conditions of the subject policy. Additionally, one must follow the laws of the jurisdiction, including but not limited to any statutes, regulations or case law.
Recent Decision: Massachusetts
A lower court in Massachusetts recently held that the terms and conditions of a commercial policy afforded coverage for the matching of all four elevations and all slopes of a property’s siding and roofing, respectively. See Edelman, supra. The Plaintiffs owned three properties in Allston, Massachusetts. The properties sustained damaged as a result of a hail storm that occurred in August of 2015. The carrier agreed to pay for the replacement of some siding and shingles on some of the elevations and slopes. The insured sought the replacement of all siding and shingles on all elevations and slopes on the grounds that only replacing a portion of the siding and roofing resulted in a mismatched appearance.
In reaching its decision, the Court analyzed the payment provisions contained within the policy’s Optional Coverage for Replacement Cost:
3. Replacement Cost
a. Replacement Cost (without deduction for depreciation) replaces Actual Cash Value in the Loss Condition, Valuation, of this Coverage Form.
. . .
a. We will not pay more for loss or damage on a replacement cost basis than the lease of (1), (2) or (3), subject to f. below:
(1) The Limit of Insurance applicable to the lost or damaged property;
(2) The cost to replace the lost or damaged
property with other property;
(a) Of comparable material and quality; and
(b) Used for the same purpose; or
(3) The amount actually spent that is necessary to
repair or replace the lost or damaged property.
In doing so, the Court concluded that “[o]f these three options, only Option (2) is applicable here because the loss does not exceed the Limit of Insurance and the amount plaintiffs intend to spend on repairs is equivalent to the cost to replace the lost or damaged property with other property ‘[o]f comparable material and quality  and used for the same purpose.’”
The Court was then tasked with interpreting the phrase “[o]f comparable material and quality.” The Court held the phrase to be ambiguous because it “. . . is not defined in the policy, no Massachusetts court has interpreted the phrase in this context, and the phrase is not susceptible to a common meaning.” The Court then held that a reasonable interpretation of the phrase would be that it affords coverage for matching. Furthermore, the Court stated, “[w]here there are no materials available on the market that match those that were undamaged, the only way for the insurer to fulfill its obligation to replace the damage with materials that are comparable and of the same quality is to also replace those portions of the building that have not been damaged.” The Court found its interpretation consistent with the purpose of the replacement cost policy. As a result, the Court concluded that “plaintiffs are entitled to the replacement of all siding on all the Properties and replacement of shingles on all the Properties’ slopes to the extent matching materials cannot be found.”
In reaching its decision, the Court distinguished this matter from matching rulings in other jurisdictions. In footnote 2, the Court stated, “[n]otably, the above policy does not contain the type of limiting language which other courts have relied upon to find that there was no matching coverage.” Therefore, this footnote potentially limits any far reaching implications of the ruling to other claims, in addition to the fact that it is a lower court ruling with persuasive, but not precedential, value. Stated differently, the Court declined to make a determination of whether a policy affords coverage for matching if it contains language such as “the damaged part” or “that part of.”
In footnote 3 of the decision, the Court rejected the carrier’s “direct physical loss of or damage to” argument. The Court did so in reliance on the doctrine of efficient proximate cause. Specifically, the Court noted that “any ‘matching loss’ continued directly and proximately from the hail, which is a covered cause of loss.”
Finally, the Court also made a critical ruling as it pertains to reference (the equivalent to appraisal in Massachusetts). The Court declined to compel the parties to reference and found that it would be premature to do so. In doing so, it reaffirmed that “[r]eference proceedings cannot be used to decide matters of coverage.” However, in footnote 5, the Court states, “[n]evertheless, to the extent defendant disputes the amount of matching loss (if any) now that the coverage dispute has been resolved, a reference proceeding may be appropriate.”
Recent Decision: Connecticut
A lower court in Connecticut recently issued a decision on the issue of matching, holding that the carrier only had to match the adjacent portion of the property. See Kamansky, supra. There, the insured’s property was hit on its front elevation by a vehicle. As discussed in more detail in a subsequent section of this article, Connecticut has a regulation providing, in part: “[w]hen a covered loss for real property requires the replacement of an item or items and the replacement item or items do not match adjacent items in quality, color or size, the insurer shall replace all such items with material of like kind and quality so as to conform to a reasonably uniform appearance.” Thus, as part of its investigation, the carrier sought to make a determination of “the availability and location of siding matching in color and texture to the current siding on the plaintiffs’ house.” The carrier was of the position that it could find a product that “is the same as the original color” of the siding. The insured was of the position that the replacement siding did not match due to the fading of color, and thus, the insured sought the replacement of all of the siding on all elevations.
The parties filed cross motions for summary judgment. The insured argued that, when there is a mismatch “the statute requires the insurer to replace all the items, adjacent and not, so as to create a uniform appearance.” The carrier read the language “‘all such items’ to include only the replacement and adjacent items.” In other words, the insured sought the replacement of siding on all elevations, and the carrier sought to replace the damaged siding and adjacent siding, and thus agreed to re-side the full front elevation.
The Court did not find an ambiguity in the statute; rather, it determined that the conflicting interpretations were merely opposing arguments. The Court determined that the statutory language, “all such items,” “refers only to those items previously identified in the sentence, specifically the replacement items and the adjacent items involved in the comparison.” The Court then reasoned that “[c]ontrary to the plain language of the statute, the plaintiffs’ interpretation that replacing all the siding is required, would involve replacing siding which is not adjacent to the damaged area.” As a result, the Court denied the insured’s motion and granted the carrier’s motion, thereby requiring only the replacement of siding on one elevation.
Recent Decision: U.S. Court of Appeals for the 7th Circuit (Applying Illinois Law)
The U.S. Court of Appeals for the 7th Circuit recently ruled that a policy affords coverage for the replacement of siding on all four elevations of a building. See Windridge, supra. There, the aluminum siding on the insured’s building sustained damage as a result of a hail and wind storm. Two elevations sustained damage, and the carrier agreed to pay to replace the two sides. The insured sought the replacement of the siding on all elevations due to the lack of availability of matching siding.
At the outset, it is critical to note that there are two underlying decisions from the United States District Court for the Northern District of Illinois. First, in 2017, the United States District Court ruled on a motion to compel appraisal. Windridge of Naperville Condominium Ass’n v. Philadelphia Indem. Ins. Co., 2017 WL 372308 (N.D. Ill. Jan. 26, 2017). The Court denied the motion as it pertains to the issue of matching siding on the grounds that it was a question of coverage not subject to appraisal. The parties then proceeded to appraisal on a valuation issue pertaining to the roof. Then, the insured moved for summary judgment on the issue of coverage, which the Court ruled on in 2018. Windridge of Naperville Condominium Ass’n v. Philadelphia Indem. Ins. Co., 2018 WL 1784140, (N.D. Ill. Apr. 13, 2018). The United States District Court found that the policy afforded coverage for the replacement of all four elevations if no matching siding was available. The Court noted that if the carrier “were to replace the siding on the damaged south and west elevations with siding that did not match that on the undamaged north and east elevations, it could not possibly be said that [the insured] had been made whole, for it would be left with a building suffering from a glaring and profound flaw.” The case was then appealed to the 7th Circuit.
On August 7, 2019, the 7th Circuit affirmed the lower court’s ruling. The Court found that the carrier “is required to replace or pay to replace covered property that suffered a ‘direct physical loss’—i.e., property that has been damaged.” The Court found that the term “direct” is meant to exclude situations in which “an intervening force plays some role in the damage,” and that the word “physical” “generally refers to tangible as opposed to intangible damage.” As a result, the Court reasoned that “while [the carrier’s] position that only the siding directly hit by the stormed is covered is not indefensible and has support in case law, the language of the policy is not so clear and in fact favors an interpretation that the unit of damaged property is the building as a whole—not solely each elevation or each panel of siding.” Therefore, the Court held that the carrier must pay to “return their building to their pre-storm status—i.e., with matching siding on all sides.” Thus, “[s]ince no matching replacement siding is available, [the carrier] must pay to replace all of the siding on [the insured’s] buildings.”
Matching Across the Nation
Despite the prominence of the principle of matching, only approximately twenty jurisdictions in the United States have addressed the issue. Approximately half of the jurisdictions have addressed the issue via statutes and regulations, with the other half addressing the issue by case law. Simply put, the question of whether a policy covers matching depends on the specific jurisdiction and the precise terms and conditions of the subject policy. Likewise, the standard of what constitutes a matching appearance varies by jurisdiction and policy.
Statutes and Regulations
Approximately ten jurisdictions have addressed the issue by enacting a regulation or statute. These jurisdictions typically require some degree of matching under certain circumstances and in accordance with a specific standard set forth in the respective regulation or statute. These jurisdictions include, but are not limited to: Alaska, California, Connecticut, Florida, Iowa, Kentucky, Nebraska, Ohio, Rhode Island and Utah.
Many of these statutes and regulations categorize matching issues as those pertaining to “quality, color or size,” and then apply the standard of “reasonably uniform appearance.” For instance, the Connecticut statute, C.G.S.A. § 38a-316e(a) provides:
When a covered loss for real property requires the replacement of an item or items and the replacement item or items do not match adjacent items in quality, color or size, the insurer shall replace all such items with material of like kind and quality so as to conform to a reasonably uniform appearance. This provision shall apply to interior and exterior covered losses.
California has a similar regulation instead of a statute. California Insurance Regulation § 2695.9(a)(2) nearly identically states:
When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance.
Florida applies a slightly similar standard, but it also provides factors for an insurer to consider when determining what constitutes reasonable repairs, such as cost and the useful life of the undamaged portion, and of course, uniformity. Florida Insurance Statute § 626.9744(2) provides:
When a loss requires replacement of items and the replaced items do not match in quality, color, or size, the insurer shall make reasonable repairs or replacement of items in adjoining areas. In determining the extent of the repairs or replacement of items in adjoining areas, the insurer may consider the cost of repairing or replacing the undamaged portions of the property, the degree of uniformity that can be achieved without such cost, the remaining useful life of the undamaged portion, and other relevant factors.
Rhode Island’s regulation highlights a critical distinction between replacement cost and actual cash value. Specifically, 230 R.I. Code R. 20-40-2.9 states:
A. Replacement Cost
1. When the insurance policy provides for the adjustment and settlement of first-party claimant losses based on replacement cost, the following shall apply
a. When a loss requires repair or replacement of an item or part, any consequential physical damage incurred in making such repair or replacement not otherwise excluded by the policy, shall be included in the loss. The first-party claimant shall not have to pay for betterment nor any other cost except for the applicable deductible.
b. When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all such items so as to conform to a reasonably uniform appearance. This applies to interior and exterior losses. The first-party claimant shall not bear any cost over the applicable deductible, if any.
B. Actual Cash Value
1. When the insurance policy provides for the adjustment and settlement of losses on an actual cash value basis on residential fire and extended coverage, the Insurer shall determine actual cash value as follows: replacement cost of property at time of loss less depreciation, if any. Upon the first-party claimant’s request, the insurer shall provide a copy of the claim file worksheet(s) detailing any and all deductions for depreciation.
2. In cases in which the first-party claimant’s interest is limited because the property has nominal or no economic value, or a value disproportionate to replacement cost less depreciation, the determination of actual cash value as set forth above is not required. In such cases, the insurer shall provide, upon the first-party claimant’s request, a written explanation of the basis for limiting the amount of recovery along the amount payable under the policy.
As one can see, the regulation mandates a specific matching standard when “a loss requires replacement of items and the replaced items do not match in quality, color or size.” (emphasis supplied). However, what if a policy only provides for loss settlement on an actual cash value basis? The regulation provides a separate section to address actual cash value policies. The section is devoid of any language regarding matching in quality, color or size. Thus, one could argue that an actual cash value policy in Rhode Island does not cover matching. One could also argue that this is consistent with an underlying reason pertinent to the principle of matching: whether a mismatched sufficiently constitutes a replacement. On the contrary, one could argue that in order to determine the actual cash value, one must first determine the replacement cost value and then apply depreciation. Thus, the application of the regulation to matching issues arising under actual cash value policies remains unclear.
Other jurisdictions have addressed the issue through court rulings. Some courts have ruled that specific policy language mandates matching, whereas other courts have ruled that specific policy language does not necessitate matching. These jurisdictions include, but are not limited to: Washington D.C., Illinois, Indiana, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, Pennsylvania and Tennessee. Jurisdictions with matching regulations have also addressed matching through the courts, typically in cases regarding the interpretation of said regulations, such as, for example: Alaska, Connecticut, Florida, Nebraska and Ohio.
The recent decisions in Massachusetts, Connecticut and the Seventh Circuit are discussed above. However, there are various other enlightening decisions previously issued in other jurisdictions.
Courts in some jurisdictions have found that certain first-party insurance policies provide coverage for matching. For instance, the United States District Court for the District of Columbia previously held that matching was required in National Presbyterian Church, Inc. v. GuideOne Mut. Ins. Co., 82 F. Supp. 3d. 55 (D.D.C. 2015). There, a church sustained damaged to its limestone exterior as a result of an earthquake. However, the replacement limestone panels did not match in color with the remainder of the limestone panels. The policy provided that the insurer “will repair, rebuild or replace the property with other property of like kind and quality.” The Court ruled that the insurer was required to provide coverage for matching limestone panels. In reaching its conclusion, the Court referenced the policy’s loss payment provision. The Court noted that each option provided to the insurer in the loss payment provision contained a term equivalent to “like kind and quality.” The Court found the language to be ambiguous, and thus determined that the carrier was required to provide coverage for full replacement of siding so that it matched in color.
Similarly, the Court of Appeals of Minnesota held that a policy covered matching siding and roofing in Cedar Bluff Townhome Condominium Ass’n, Inc. v. American Family Mut. Ins. Co., A13-0124, 2013 WL 6223454 (Minn. Ct. App. Dec. 2, 2013). There, the insured sought coverage for the replacement of all of a building’s siding to avoid a mismatch resulting from the replacement of only the damaged portion of the siding. The carrier sought to replace only the damaged siding and to do so with the “closest colors currently available from the manufacturer.” Whereas, the insured sought the replacement to assure an exact color match, which would thus require the replacement of all siding due to the lack of availability of a direct match. The subject commercial policy language required replacement property of “comparable material and quality.” The Court found that the insured’s interpretation of the policy to require replacement with uniformly colored siding was reasonable. Thus, the Court found the policy to be ambiguous, interpreted the policy in favor of the insured, and held that the policy provided coverage for matching.
On the other hand, courts in other jurisdictions have held that certain policies do not afford coverage for matching. For example, the Superior Court of Pennsylvania held that a policy did not mandate a carrier to pay for the replacement of an entire roof in Greene v. United Services Auto. Ass’n, 936 A.2d 1178 (Pa. Super. Nov. 20, 2007). There, a portion of the insured’s roof needed replacement due to a leak. However, the shingles that needed replacement were no longer manufactured, thereby creating a matching issue. The policy provided for the “replacement of that part of the building damage.” The insured argued that it interpreted the policy to mean that the entire roof constituted “part of the building damaged.” The Court found this interpretation to be “unreasonable and absurd.” Rather, the Court held that “[a]t most, the ‘part of the building damaged’ in this case was one slope of the [insured’s] multi-sloped roof.” Therefore, the carrier was only required to replace one slope of the roof, not the entire roof.
Is Matching Subject to Appraisal?
It is often a point of contention whether issues of matching are subject to determination by an appraisal (or reference) panel. Generally speaking, appraisal panels can only decide the amount of loss, whereas issues of coverage must be decided in court. However, depending on the jurisdiction, appraisal panels may have more authority than in other jurisdictions, often graying the line. For instance, in some jurisdictions, appraisal panels may be able to decide issues of causation or make preliminary determinations of coverage depending on the circumstances. Many questions are thus presented: can an appraisal panel decide an issue of matching? Can an appraisal panel decide whether matching is covered? Whether a mismatched appearance exists? Whether matching materials are available? What the amount of a matching loss is?
Some of the cases discussed herein have addressed the issue. For instance, in Edelman, supra, the Court denied plaintiff’s motion to compel reference (the equivalent of appraisal in Massachusetts), both affirming that issues of coverage cannot be decided by reference and also noting that reference in the particular circumstance would be premature. However, the Court also indicated that, “[n]evertheless, to the extent defendant disputes the amount of matching loss (if any) now that the coverage dispute has been resolved, a reference proceeding may be appropriate.”
Additionally, in Windridge, supra, the United States District Court for the Nortern District of Illinois denied the carrier’s motion to compel appraisal relative to the issue of matching on the grounds that it was an issue of coverage. Other courts have ruled similarly. In Kawa v. Nationwide Mut. Fire Ins. Co., 667 N.Y.S. 2d 430 (N.Y. Sup. Ct. 1997), the Court, while not deciding on the issue of coverage, determined that matching was a coverage issue not suitable for determination by appraisal. In Woods Apartments, LLC v. U.S. Fire Ins. Co., 2013 WL 3929706 (W.D. Ky. July 29, 2013), the Court made a ruling on the issue of coverage for matching, then specifically ordered that “in determining the value of the Plaintiffs’ loss, the appraisers and umpire shall consider only damage resulting directly from Hurricane Ike and must determine the cost to repair or replace the damaged area with material of comparable kind and quality to obtain an overall reasonably uniform appearance.”