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by Bryan Lee

In New Oil Christian Center v. GuideOne Mutual Insurance Co., 2025 WL 642914 (D. Minn. Feb. 27, 2025), the court held that a commercial property policy provision limiting recovery for roof surfacing to actual cash value (ACV) did not bar recovery for code-compliance costs, even when compliance required full roof replacement. The decision extends the reasoning in Great Northwest Insurance Co. v. Campbell, 24 N.W.3d 256 (Minn. 2025), which held that when hail-damaged shingles cannot be replaced without first installing new sheathing to comply with the applicable building code, Minnesota Statute section 65A.10 requires an insurer to cover the cost of replacing undamaged sheathing.

In New Oil, the insured’s property sustained wind and hail damage between August 10 and 14, 2020. After the insurer denied roof coverage based on preexisting damage, the insured demanded appraisal and eventually filed suit on August 10, 2022. The court compelled appraisal on February 28, 2023. The appraisal panel calculated ACV and replacement costs after considering code-compliance issues, but did not specify in the award whether it included code-compliance costs. The insured moved for summary judgment, seeking confirmation of the award and payment of the code-compliance costs.

The court held the roof-surfacing provision conflicted, under the circumstances, with section 65A.10, which sets the “statutory minimum that an insurer must provide in a replacement cost coverage policy.” The statute requires that, when an insurer “offers replacement cost insurance,” the policy 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[.]” Minn. Stat. § 65A.10, subdiv. 1. The court therefore concluded that an ACV limitation on an item that must be replaced to meet code requirements does not comply with the statute’s requirement to provide code-compliant replacement coverage.

Notably, the court did not address a significant distinction between the policy at issue and the one in Campbell. In New Oil, the policy covered damage to roof surfacing at ACV, whereas the policy in Campbell covered damage to the outermost layer of roofing material on a replacement cost basis. This unaddressed distinction raises questions about whether section 65A.10 – which governs replacement cost insurance - was triggered in New Oil.

Separately, the New Oil court used a “reasonableness” framework to determine whether the policy’s two-year time limit for recovering code-compliance costs should be equitably estopped. This approach departs from the traditional equitable estoppel framework, which requires the insured to prove that the insurer made a promise or inducement upon which they reasonably relied before a time limit can be estopped. See Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 919 (Minn. 1990). The traditional framework has served as a safeguard against insureds attempting to use equitable theories to circumvent policy time limits.

The New Oil court held the time limit equitably estopped because the insurer was “at fault for much of the delay” in the case, having denied coverage for more than a year and agreeing to appraisal only after repeated requests. The court found that assertion of the time limit would be “unjust,” without analyzing whether the insurer made any promise, whether the insured relied on such a promise, or whether the insured would suffer harm absent estoppel. Id. In effect, the court bypassed the traditional elements of equitable estoppel entirely.

New Oil suggests that Minnesota federal courts may apply section 65A.10 broadly and require insurers to pay code-compliance costs even when the policy otherwise limits recovery to ACV. While it is critical that insurance professionals handling Minnesota property claims understand the implications of Campbell and New Oil, it is important to recognize these cases were decided under Minnesota’s statutory scheme for fire insurance (i.e., Minnesota Statute section 65A). Their import fade outside of Minnesota where state legislatures have passed different statutory schemes and courts have interpreted an insurer’s replacement cost obligations in partial losses differently. 

The New Oil decision also signals a willingness to equitably estop policy time limits based on allegations of “unreasonableness,” rather than the traditional elements of equitable estoppel. Insurers should therefore recognize that delays attributed to their conduct may increase the likelihood that courts will decline to enforce policy time limits on repairs or replacement.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

This article was originally published in The Zelle LLP Midwest Monitor: Heartland Insurance Review