Cedar Bluff, the insured, submitted a claim. The insurer, American Family, did not dispute that the hail storm damaged the panels. A dispute did arise regarding the value of the loss. Cedar Bluff argued that all of the siding on each building had to be replaced because there would be a color mismatch with the existing panels if only the damaged siding panels were replaced. American Family offered to pay for replacement panels that were either slightly darker or slightly lighter in color than the original panels.

 The insured demanded an appraisal, and the appraisal panel found that the original siding of the buildings could be matched in terms of model name, texture, size, and installation, but could not be matched in terms of color. The panel determined the award for total replacement of the siding was $361,108. The insurer refused to pay the appraisal award. The insured sued and the trial court ruled in favor of the insurer. A court of appeals reversed and the dispute went to the Supreme Court of Minnesota.

 The Supreme Court granted review to determine if the appraisal panel properly concluded that American Family's obligation to replace damaged property with property of comparable material and quality required it to replace damaged and undamaged property to achieve a color match.

 The court noted that the policy required replacement cost to be determined based on the cost to replace lost or damaged property with other property of comparable material and quality. The insurer argued the comparable means similar, not identical and therefore it was not obligated to replace all of the siding panels simply because it was unable to replace the damaged siding panels with panels that were an identical color match to the originally installed panels. The insured countered that comparable requires a color match and since the insurer could not replace the damaged siding panels to provide a color match, it was obligated to replace all of the panels.

 The court said the dictionary defines "comparable" as "similar or equivalent, suitable for matching or coordinating." Thus, the plain meaning of the phrase "comparable material and quality" is material that is suitable for matching; in other words, a reasonable color match between new and existing siding is required. The court noted that the replacement siding panels could not be matched in terms of color, so the question then became: is the color mismatch direct physical loss of or damage to covered property?

 American Family said that the term "physical damage" means a distinct, demonstrable, and physical alteration. The court ruled that because of the color mismatch resulting from the inability to replace the hail-damaged siding panels with siding of comparable material and quality, the covered property (the buildings) had sustained a distinct, demonstrable, and physical alteration. The court concluded that Cedar Bluff had sustained a covered loss and the insured was entitled to have all of the siding panels on each of its buildings replaced. The appraisal panel's award was affirmed.

 Editor's Note: The Supreme Court of Minnesota ruled that the insurer's obligation to replace damaged property with property of comparable material and quality required it to replace damaged and undamaged siding panels to achieve a reasonable color match.