Ohio Court Determines That Ohio Law Requires Matching

An Ohio federal judge recently ruled that a State Farm policy issued to an Ohio condominium will require the policy to be interpreted to provide costs for placing the damaged property “in a reasonably comparable appearance:” 1

The contractual term currently at issue is ‘comparable material’ and the Court finds Ohio Admin. Code § 3901-1-54 instructive. As the Parties are well aware, that Ohio regulation requires:

(1) If a fire and extended coverage insurance policy provides for the adjustment and settlement of first party losses based on replacement cost, the following shall apply:
…
(b) When an interior or exterior loss requires replacement of an item and the replaced item does not match the quality, color or size of the item suffering the loss, the insurer shall replace as much of the item as to result in a reasonably comparable appearance.

Ohio Admin. Code § 3901-1-54(I)(1)(b) (emphasis added). Section 3901-1-54 does not establish a private cause of action. Ohio Admin Code § 3901-1-54(A). Though, the regulation does set forth minimum industry standards for insurance companies doing business in Ohio. Id. As such, Ohio Admin. Code § 3901-1-54 may constitute ‘evidence of industry practice relevant to construing an insurer’s contractual obligations during the claims process.’ …

Here, the Court finds that the Policy does anticipate the replacement of as much of the Association’s damaged property as necessary to result in a reasonably comparable appearance. In Ohio, this is the minimum industry standard, per Ohio Admin. Code § 3901-1-54. While the Court could not entertain a cause of action for violation of Section 3901-1-54, the regulation certainly gives a common meaning to the Policy’s terms. Insureds such as the Association likely purchase insurance policies from insurers with the expectation that the insurer will comply with the State’s minimum industry standards. Given this minimum industry standard, the Court finds that the term ‘comparable material,’ as used in the Policy, plainly refers to the replacement of as much of the Association’s damaged roofs as is necessary to result in a reasonably comparable appearance.

Even if Section 3901-1-54 did not imbue the terms of the Policy with a plain meaning, failing to construe the terms of the Policy in accordance with minimum industry standards would lead to an absurd result. Under such a theory, insureds could no longer maintain a reasonable expectation that they have purchased a policy which complies with industry standards. As a result, basic mutual assent to the terms of a policy could be called into question in every insurance dispute.

Accordingly, the Policy in this action provides coverage for the replacement of as much of the Association’s property as is necessary to result in a reasonably comparable appearance.

However, the case is not over. In a prior ruling in this case, 2 the court stated:

As previously stated, the Court ordered that the appraisal:

[S]hould separately calculate and identify disputed costs—including damaged property as well as undamaged property whose replacement Plaintiff may claim if necessary for appearance purposes—so that the Court can either include or exclude them once it has determined whether the policy provides coverage for them.

The court is going to decide whether the property costs for appearance purposes should be allowed or not, apparently finding that “matching” in Ohio is a coverage issue for the courts.

Thought For The Day

A gentleman would be ashamed should his deeds not match his words.
—Confucius

1 Cinnamon Ridge Condominium Assoc. v. State Farm Fire & Cas. Co., No. 3:22-cv-118, 2024 WL 2214199 (S.D. Ohio May 16, 2024).
2 Cinnamon Ridge Condominium Assoc. v. State Farm Fire & Cas. Co., No. 3:22-cv-118 (S.D. Ohio Feb. 14, 2023).