In Windridge of Naperville Condo Ass’n v. Philadelphia Indemnity Ins. Co., __ F.3d __,2019 WL 3720876 (7th Cir. 8/7/19), a condominium association sought replacement cost property coverage for a direct physical loss to its “buildings or structures” which included complete replacement of all building siding even though only one side of the building was damaged. In this case a storm had physically damaged the siding on the south and west sides of the condominium buildings. Although the insurer paid for that physical damage, the insurer refused to pay for additional costs to replace the siding on the building’s north and east sides. Matching siding was no longer available and, in order to return the buildings to their pre-damage condition, it was necessary to replace both the damaged and undamaged siding. In reaching its decision, the Court noted that the policy provided coverage for direct physical loss to covered property which was defined as buildings or structures. The Court found that the language was unclear because the unit of covered property to consider under the policy (each panel of siding vs. each side vs. the buildings as a whole) was ambiguous as applied to the facts. Therefore, applying Illinois law, the7th Circuit applied the interpretation that led to coverage. Favoring coverage, the Court determined that “covered property” in the policy referred to the buildings as a whole as opposed to a section of the buildings. In doing so, the Court rejected the insurance company’s argument that “the direct physical loss” provisions of the policy required only the damaged siding to be replaced. While the insurer’s position had some supporting case law, the Court determined that the insurer’s coverage position was less reasonable because the association would not be made whole, nor return to its pre-storm status, if the insurer replaced only some portions of the siding. The Court noted that if a minor section, i.e., a shingle of the building, were damaged, the insurer could pay the insured for the building’s minor decrease in value to make the insured whole again. However, by contrast, the decrease in value would be significant if a building were left with a zebra-striped siding situation. In the latter situation, the insured’s company would likely choose to pay to replace the siding rather than compensate the building owner for the reduction in value of the building.
