Coinsurance, Depreciation, and the Siding Match
A Minnesota dwelling policy covers a 1928 duplex with a $300,000 building limit, $2,500 deductible, and replacement cost coverage. The policy contains an 80% coinsurance clause but no ordinance-or-law coverage. The insurer's replacement cost estimate for the building is $500,000. A June hailstorm damaged the roof and the aluminum siding on the north elevation. The contractor estimates $120,000 to replace the roof and all siding so the elevations match; the adjuster agrees the roof and three squares of siding were directly damaged. The contractor's replacement cost breakdown is $80,000 for the roof and $40,000 for all siding. Depreciation is $50,000 on the roof and $22,000 on the siding. The insured has not repaired anything and demands the full $120,000. The city code requires tear-off of the existing roof and new underlayment, adding $9,000 that the policy does not specifically address. The insured argues that partial siding repair will look patchy and reduce value.
1. Calculate the coinsurance penalty and the initial payment. Explain whether the $9,000 code upgrade is covered.
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Coinsurance is tested before depreciation. The required amount is 80% × $500,000 = $400,000. The policy carried $300,000, so the coinsurance ratio is $300,000 / $400,000 = 0.75. The city code tear-off is an ordinance-or-law exposure; because the policy has no ordinance-or-law coverage, the $9,000 should be excluded from the covered loss. The covered replacement-cost loss is $120,000 − $9,000 = $111,000. The coinsurance-adjusted loss is $111,000 × 0.75 = $83,250. Subtract the $2,500 deductible: $80,750. If the policy pays replacement cost only after repair, the initial payment is based on ACV. Depreciation is $72,000, so ACV of the covered loss is $111,000 − $72,000 = $39,000. Apply the same ratio: $39,000 × 0.75 = $29,250; less $2,500 = $26,750. The withheld depreciation can be claimed after repair, subject to the coinsurance calculation and policy limits. Paying the full $120,000 would ignore both the coinsurance clause and the code exclusion.
2. How should the adjuster handle the matching argument for the siding?
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Matching is a policy-language issue, not an automatic right. The policy insures direct physical loss; it does not promise cosmetic uniformity unless it contains a matching endorsement. The adjuster should determine whether the three damaged squares can be repaired to a reasonably uniform appearance using available siding. If the siding is discontinued or cannot be matched, the insured may argue that repair to pre-loss condition requires more than three squares. The adjuster should obtain a contractor's written opinion, photographs, and a sample match; consider whether the undamaged siding was already weathered or whether replacement would create a visible patch. If the policy has no matching provision and the law does not require it, pay for the direct damage and explain the limitation. If matching is necessary to restore the damaged elevation to its pre-loss condition, some policies cover it; document the basis. Do not pay for all elevations merely because the insured prefers a uniform look.
3. If the insured repairs only the roof and then demands full replacement cost, how should the adjuster respond?
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The adjuster should first verify that the roof was repaired and that the cost was actually incurred. Replacement-cost coverage is typically paid after repair; until then, the claim is settled on an ACV basis. The coinsurance ratio still applies to the loss, and the deductible is applied once. The insured can submit the contractor's invoice and proof of payment to recover withheld depreciation, but not more than the amount actually spent and not more than the policy limit. The $9,000 code upgrade remains excluded absent ordinance-or-law coverage. If the insured never repairs the siding, no replacement-cost payment is owed for it. The adjuster should issue a written explanation of the ACV payment, the depreciation withheld, and the conditions for recovering it.