Kentucky Clarifies Matching Law While Florida Insurers Get Limits on Replacement

Matching requirements for roofs and interior furnishings have been a tough issue in the property insurance industry for years. Recent developments show how insurers and regulators in different Southeast states are managing the mandates.

In Kentucky last week, the state Department of Insurance posted an advisory opinion, attempting to clarify the intent of the state’s matching statute. On the one hand, Kentucky law does not permit a “line of sight” rule for roofs: “If the shingles on one slant of a residential roof must be replaced due to damage covered by an applicable property insurance policy, and absent the availability of matching shingles that would render the slant in question reasonably uniform to the remainder of the roof, then an entirely new roof must be installed,” state Insurance Commissioner Sharon Clark wrote in her Oct. 17 bulletin.

On the other hand, though, as long as replacement shingles are of the same make and model, even if the color won’t quite match the older shingles due to age and fading, a full roof replacement is not necessary, Clark noted.

“In situations where the existing roof shingles are still in production and available, use of the same shingles will satisfy the regulation, despite any discoloration due to regular aging or wear from use,” the opinion reads.

It gives insurers a little more wiggle room: “If the same shingles are not available, the Department would review the quality, color, and size of replacement shingles to determine whether a reasonable match has been met.”

But the commissioner noted that any insurers not following the procedures or using incorrect forms should amend their filings by September 2024. These include insurers who utilize endorsements that place sublimits on matching undamaged areas of a home.

They opinion was issued after Kentucky saw a large number of roof claims and complaints in the last two years, but it may not resolve matters and has met with criticism from some insurers.

“Our members do have some concerns about the advisory opinion concerning matching, and we believe that it has the potential to increase claims costs, not reduce them,” said Mark Treesh, director of the Insurance Institute of Kentucky. The institute will continue working with the DOI to develop a workable solution.

In Florida, where insurers have blamed a cottage industry of roof scams for helping to implode the insurance industry, several carriers are now relying on newly accepted endorsements to limit what they will pay to match non-damaged materials.

The Florida Office of Insurance Regulation in recent months has approved policy forms filed by no fewer than eight property insurers, which limit the amount the carriers will pay to replace undamaged materials to create a matching, uniform appearance after repairs, state records show.

The matching requirement has been a hot-button issue in Florida’s property market, where two-thirds of the premium for homeowners policies that cover wind damage is paid to Citizens Property Insurance Corp., the state’s carrier of last resort, according to market share data. Olympus Insurance Co. filed suit against OIR in 2021 after regulators disapproved a policy form that would have limited payouts for matching materials.

Since then, OIR has approved policy forms submitted by Monarch National Insurance Co., Universal North America Insurance Co., Florida Peninsula Insurance Co., Century National Insurance Co., Edison Insurance Co., Kin Insurance Network, Spinnaker Insurance Co. and American Integrity Insurance Co. of Florida. All of them cap the amount the carriers will pay to match materials to 1% of the limit of the policy to replacement of the primary structure. American Integrity was among the first carriers to win approval, getting OIR’s nod on Dec. 6, 2022.

This endorsement approved for Century National Insurance Co. is typical: “The total limit of liability for Coverage A is 1% of the Coverage A limit of liability for repairs or replacements of any undamaged part of the building or its components solely to match repairs made to damage as a result of a covered loss.”

Florida statute 626.9744 states that property insurers “unless otherwise provided in the policy” must make “reasonable repairs” or replace undamaged items in adjoining areas if replaced items “do not match in quality, color, or size.”

Policyholder advocates say the law protects homeowners by ensuring their property is restored to its previous, and presumably matching, condition. Insurers, on the other hand, say the matching requirement is also used by unscrupulous contractors to drive up costs.

The language in the statute implies that insurers can bypass the matching requirement by writing alternative language in their policies. Olympus tried to accomplish exactly that in 2021 when it filed a policy form to limit the amount spent on matching materials, but OIR refused to approve the form.

Olympus withdrew the lawsuit in early 2022 and made no public comment about it. OIR, however, on April 1, 2022 approved a policy form submitted by Olympus that includes the wording “matching limitations” in the search function for OIR’s database. The form is marked as a “trade secret” and is not available for public viewing.

Other insurers used a different tactic to limit payments for matching repairs in form filings that were approved in 2022. Citizens, for example, requires policyholders to pay out of their own pockets for matching repairs and then file a claim seeking reimbursement.

GenRe first noted the new limits in a blog post last week. Claims executives Jonathan Nieman and Nick Ciabattoni noted that the Florida Third District Court of Appeal ruled in 2019 that matching repairs are not direct physical loss and are only required to be reimbursed by a carrier once the work is performed.

Nieman and Ciabattoni said Citizens’ filed its form restricting payments for matching expenses after the court ruled.

“With the broader introduction of the endorsements into Florida homeowners’ policies, litigation and new damage theories are likely,” the blog post states. “In the interim, we suggest that if a matching endorsement is being added to your policy packets, best practices and estimating guidelines should be reviewed and updated to comply with these newly established policy terms and conditions.”

The Florida Legislature in 2022 made it easier for insurers to repair roof sections, rather than replace entire roofs. Senate Bill 4D, approved in a special session, modified the state’s building code, which had long required full replacement if just 25% of a roof area was damaged.

Part of this article first ran in Claims Journal.