On July 30, 2025, the Minnesota Supreme Court issued Great Northwest Insurance Company v. Campbell, A23-0519 (Minn. July 30, 2025) and reinforced its past precedent on application of ordinance and law coverage to a partial loss. The Court also enforced an exclusion for overhead and profit.
Minnesota's Ordinance and Law Coverage is governed by Minnesota Statute § 65A.10, subd. 1, which provides:
Subject to any applicable policy limits, where an insurer offers replacement cost insurance: (i) the insurance must cover the cost of replacing, rebuilding, or repairing any loss or damaged property in accordance with the minimum code as required by state or local authorities;…. In the case of a partial loss, unless more extensive coverage is otherwise specified in the policy, this coverage applies only to the damaged portion of the property. (Emphasis added.)
In St. Matthews v. State Farm (Minn. 2022) (see update here) the Court laid the framework of what ordinance and law coverage is required in the case of a partial loss. It concluded that in the case of a partial loss, “an insurer’s obligation to bring the damaged portion of the property up to minimum code is limited to repairs necessary to bring up to code only that part of the property that was damaged in the insured event.” The statute does not require the insurer to bring up to code every item that is discovered to be out of compliance with code during the process of repairing or replacing the damaged property, even if a municipality requires those other items to be brought up to code before it will issue a permit for repairing or replacing the item that was damaged as a result of the insured event.
Determining the “damaged portion of the property” is key to determining required code coverage. In St. Matthews, a three-member dissent read the phrase “damaged portion of the property” broadly to include all walls, and not just the damaged sheetrock wall. Great Northwest is unanimous and instructs that the phrase is not broad. The Court defined the “damaged portion” to be shingles – and not the shingles and all other layers of the roofing altogether.
St. Matthews involved damage to a masonry wall. The City would not issue a building permit to repair the drywall unless St. Matthews first fixed a cracked masonry wall that was inside of the drywall. Nothing in the building code that governed repair of the drywall required repair of the masonry wall. Therefore, the Court concluded that § 65A.10, subd. 1, did not require coverage for the cost to repair the masonry wall.
Great Northwest involved damage to shingles. The case never went to appraisal. After a hailstorm, Great Northwest paid to replace the shingles on a residential roof. When the contractor removed the shingles, it discovered the roof’s decking had gaps larger than the one-eighth of an inch maximum allowed under state code governing the installation of the replacement shingles. In lieu of new decking, and to comply with the code, the contractor installed a layer of sheathing on top of the decking and affixed the new shingles to the new sheathing.
Great Northwest denied coverage for the sheathing cost, citing the exclusion in the Campbells’ policy for “tear off, repair, removal or replacement of any layer of roofing material, including ‘decking’, beneath the outermost layer.”
The Court concluded that the exclusion as applied to the facts of the case was not enforceable because it precluded statutory minimum ordinance and law coverage for replacement of the shingles. The Court reasoned: (1) the damaged portion of the property was the shingles alone—not the decking; (2) it was undisputed that the state building code governing shingle installation (which incorporated the instructions set forth by the shingle manufacturer), set a minimum gap of one-eighth inch for the roofing layer under the shingles; (3) because the code governing the shingles required installation of new sheathing, § 65A.10, subd. 1, required coverage for the sheathing. The Court distinguished these facts from St. Matthews where the code governing repair of the drywall did not require repair of the masonry wall.
In reaching its holding in Great Northwest, the Court unanimously rejected application of a “but-for” or “direct connection” test to apply ordinance and law coverage. For example, it was argued to the Court that if there is damage to the siding, and that upon removal of the siding it is discovered that there are problems with the frame foundation, plywood layer, insulation, or the water-resistant barrier, repair or replacement of any and all of these layers should be covered as part of the ordinance and law coverage required by Minn. Stat. § 65A.10, subd. 1. The Court’s holding in Great Northwest unanimously affirms St. Matthews and rejects this broad “but-for” test.
The Court enforces an exclusion for overhead and profit: The Campbells’ policy also excluded coverage for:
Overhead and Profit
c. Overhead and profit all materials and labor associated with roofing or the roofing system will not be covered under this policy unless the damage to the roof or roof system is the result of fire or lightning.
The Campbells’ contractor’s estimate included 35-line items detailing reroofing work to be done. The contractor’s profit on work to remove and/or replace each item is customarily built into the cost estimate for removal and replacement. The O&P column added an additional flat 20% charge to the estimated cost, charging $2,641.11 for overhead and $2,641.11 for profit.
An appraisal panel is often asked to determine if O&P should be awarded. Given the exclusion in the Campbells’ policy, Great Northwest denied coverage for these O&P charges as a matter of contract.
The Campbells challenged the denial, arguing that the exclusion for O&P precluded ordinance and law coverage mandated by Minn. Stat. § 65A.10, subd. 1. But the Campbells identified no ordinance or law that required an insurer to pay O&P.
The Court enforced the exclusion for O&P. It concluded that the Campbells “failed to demonstrate that coverage for overhead and profit is required under the statute.” “Section 65A.10, subdivision 1, requires insurers to provide coverage only for costs that are necessary to conduct repairs in accordance with code requirements, and Campbell does not provide any authority requiring the use of a general contractor, and their accompanying overhead and profit costs, for these repairs.”
By way of background, O&P line items on an estimate are intended to reimburse the general contractor for project management work and expenses on projects involving multiple trades that are otherwise not accounted for by subcontractors doing the work. In other words, some projects can be performed by a single contractor whose O&P is customarily built into charges for labor and materials. Projects that involve multiple trades (carpentry, masonry, plumbing, electrical, etc.) typically require a general contractor who retains subcontractors, and sequences, schedules and supervises their work. A general contractor’s separate O&P line items cover the overhead and profit for that work.
The O&P line items are generally not part of the cost to reroof because roofing work does not require multiple trades. While some roofing contractors (such as the contractor that the Campbells’ hired) may subcontract out the job, that is a business decision. It is not a necessary cost of doing reroofing work. More generally, contractors on single trade projects may also try to add additional line items for O&P to their estimates and invoices to further increase their profit margin. Often this creates a dispute as to whether or to what extent O&P may be appropriate – and this dispute is presented to an appraisal panel to determine if O&P line items are a cost of the repairs. Alternatively, after Great Northwest, insurers may want to consider adding O&P exclusions.
In conclusion, Great Northwest applies the directives announced in St. Matthews on application of ordinance and law coverage to a partial loss.
The fact scenario also highlights a trend in Minnesota appraisals. If the insured or their representatives are not happy with an award, representatives for the insured are actively seeking opinions from city building officials that code requires sweeping upgrades. It is then alleged these amounts must be paid without question. Great Northwest leaves for another day questions such as who determines the “minimum code” requirement (it was not disputed in Great Northwest) and whether appraisal panels or the courts determine the scope and cost to comply. What should be clear from precedent is that an insured is only entitled to a single appraisal and cannot reopen an appraisal after an award so as to attempt a second bite at the apple on an alleged ordinance and law claim.
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Beth Jenson Prouty submitted an Amicus Brief on this case for amicus curiae American Property Casualty Insurance Association (APCIA).
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Appraisal law in Minnesota is nuanced. The members of Arthur Chapman’s Insurance Coverage Group are ready to walk you through these emerging issues.
