RTFP – Read the Full Policy

Failure to Read the Full Policy Costs an HOA over $200,000

Pleasure Creek Townhomes Homeowner’s Association (the Association) appealed the district court’s grant of summary judgment to respondent American Family Insurance Company. The Association, the insured, argued that the district court erred by deciding that its all-risk businessowners policy does not cover the cost to replace undamaged, faded siding to match siding replaced due to hail damage. The Association argued that (1) the policy’s matching exclusion is void as a matter of law because it violates the minimum coverage required by the Minnesota Standard Fire Insurance Policy; (2) the matching exclusion does not apply to the facts of this case; (3) in the alternative, the matching exclusion is ambiguous and unenforceable; and (4) American Family’s construction of its policy violates the reasonable expectations of the policyholder.

In Pleasure Creek Townhomes Homeowners’ Association v. American Family Insurance Company, A19-0662, State of Minnesota in Court of Appeals (November 25, 2019) an exclusion added to the end of a policy defeated a claim for a full amount of the loss incurred by the Association, that was resolved by a summary judgment ruled by the trial court.

It is important, when presenting a claim, to make sure that the policy provides coverage for the claim being made. When presenting a claim it is important to carefully read and understand endorsements since they modify the standard language of the base policy.


The Association purchased an insurance policy (the Policy) from American Family in October 2016. The Policy was an all-risk “Businessowners Policy” and covered the Association’s 14 townhome buildings. In June 2017, a hail storm damaged siding on all 14 of the covered buildings. The Association filed a claim for the loss under the Policy.

The parties disagreed about aspects of the price and scope of the repairs, which led to an appraisal. The appraisal panel issued findings including that the material available to replace the damaged siding did not “reasonably match” the existing, undamaged siding on the townhome buildings, as the existing vinyl siding had faded in a way that made it difficult to match. The panel included the cost to replace the undamaged, faded siding in its appraisal award.

American Family refused to pay this component—which was appraised at about $211,382—of the award, but complied in all other respects. American Family withheld this payment based on its view that the Policy explicitly excluded coverage for the replacement of undamaged, mismatched siding under what the parties refer to as the Policy’s “matching exclusion.”

The matching exclusion is included as an endorsement that modifies the Policy. The relevant portion conditions as follows: “We will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material. We do not cover the loss in value to any property due to mismatch between undamaged material and new material used to repair or replace damaged material.”


The Minnesota Standard Fire Insurance Policy, Does not Apply 

The Association argued that coverage is required by the statute establishing and applying the Minnesota Standard Fire Insurance Policy. While an all-risk policy such as the one acquired by the Association fell within the purview of the Standard Policy, the Standard Policy applies only to losses due to fire and not to casualty losses. In sum, under the plain language of the statute and governing Minnesota case law, the Standard Fire Insurance Policy does not apply to the Association’s loss.

The Matching Exclusion Applies to the Facts of this Case

The Association also argued that the “damaged material” here is all of the siding, not just the siding struck by hail. By this reading, the matching exclusion only excludes coverage for matching between one type of damaged material with another type of undamaged material. The Association argued its claim involved only siding and all of the siding is damaged under the Association’s theory and, therefore, the exclusion should not apply.

The district court held that the exclusion’s language was unambiguous. Its interpretation of the exclusion for “undamaged material” was, according to the court of appeal, was appropriate and the natural interpretation of the exclusion.  The language of the matching exclusion is unambiguous. Under its ordinary meaning, the exclusion applies.

The Matching Exclusion Is Unambiguous and Enforceable

The courts’ objective in interpreting the terms of an insurance policy is to give effect to the intent of the parties. Where the language of an insurance policy is clear and unambiguous, courts effectuate the intent of the parties by interpreting the policy according to plain, ordinary sense. Insurance policies should not be construed in way that leads to an absurd result.

The natural reading of payment for “damage to buildings” is payment for the actual damage, which typically occurs only to parts of a building. The Association essentially argued for an interpretation that voids the matching exclusion. Courts will not adopt a construction of an insurance policy which entirely neutralizes one provision if the contract is susceptible of another construction which gives effect to all its provisions and is consistent with the general intent.

The Policy’s Endorsements and Exclusions Are Not Irreconcilable

The Association contends that the matching exclusion, labeled an “Exclusion Endorsement,” confusingly purports to modify the “Property Loss Conditions” section of the base Policy rather than the “Exclusions” section. The matching exclusion is included as an endorsement to the “Property Loss Conditions” section of the Policy, which includes the “comparable material and quality” language.

The matching exclusion may indeed, as the Association suggested, fit more neatly in the “Exclusions” section, but that fact does not create an ambiguity about its meaning. The effect of the endorsement on the coverage provided remains clear.

American Family’s Construction of the Policy Does Not Violate the Reasonable Expectations of the Policyholder

The doctrine of reasonable expectations can operate to protect the reasonable expectations of the policyholder even where a painstaking study of the policy provisions would have negated those expectations. The Association does not explain how the matching exclusion here was “hidden,” except to say that “the placement of this major exclusion in the ‘Property Loss Conditions’ section, rather than in ‘Exclusions’ where it belongs is obviously misleading.”

The reasonable expectations doctrine, though, does not absolve the policy holder of their duty to read the policy. The Association has not shown that this is one of the “extreme situations” that warrants correction of the policy.


The Court of Appeal did, what the Association did not, it read the full policy. The exclusion added by endorsement limited coverage to property damaged and specifically, clearly and unambiguously excluded coverage for non-damaged property that simply did not match the replaced damaged property. Had the Association read the full policy – with a warning to read it because it limited coverage, made in all capital letters and bold print – they could have asked to have the endorsement removed and pay the additional premium. Post loss “reasonable expectations” were, and should be, unconvincing.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.




About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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