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by Lindsey Davis and Alex Buri

Minnesota Statute section 65A.10, subdivision 1 requires replacement cost insurance to cover, in the case of a partial loss, the “cost of replacing, rebuilding or repairing” the damaged part of the property “in accordance with the minimum code as required by state or local authorities.” Earlier this summer, the Minnesota Supreme Court held that when hail-damaged shingles cannot be replaced without first installing new sheathing to comply with the applicable building code, section 65A.10 requires an insurer to cover the cost of replacing undamaged sheathing. Great Northwest Ins. Co. v. Campbell, 24 N.W.3d 256 (Minn. 2025). In so holding, the court invalidated the policy’s “Roof Damage Limitation” Endorsement which provided coverage only for “direct physical loss” and not for “any layer of roofing material … beneath the outermost layer.” The court also held that section 65A.10 does not require the insurer to pay for overhead and profit costs unless the insured shows that those costs are part of 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 Campbell, the insurer approved the removal and replacement of its insureds’ hail-damaged shingles. While replacing the damaged shingles, the contractor discovered that the roof’s decking, which was not damaged, had gaps that were larger than permissible under the applicable state building code governing the installation of replacement shingles. The contractor installed sheathing over the existing decking and affixed the new shingles to the new sheathing.

The insurer denied coverage for installation of the new sheathing and the contractor’s overhead and profit. The insurer brought a declaratory judgment action and argued that the Policy’s “Roof Damage Limitation” and “Overhead and Profit” Endorsements explicitly bar coverage for these costs.

The “Roof Damage Limitation Endorsement” provided:

There is no coverage for and “we” will not pay for tear off, repair, removal, or replacement of any layer of roofing material, including “decking”, beneath the outermost layer. This limitation applies even if the tear off, repair, removal, or replacement of any layer of roofing material beneath the outermost layer or “decking” is necessary to repair, remove, or replace the outermost layer of roofing material. This limitation also applies even if the tear off, repair, removal, or replacement of any layer of roof material, including “decking”, other than the outermost layer, is required by any law or ordinance, including any building code.

“We” do pay for direct physical loss to “decking” below all layers of roof material, if a covered peril causes the direct physical loss to the “decking” and the loss is not subject to any exclusions in the policy.

(Emphasis added).

The Endorsement defined “decking” as “the wood, plywood, wood fiber, or other material applied to the structure of a building or other structure and to which a roof assembly is attached.” Because the gaps in the decking were not caused directly by the hailstorm, the insurer argued this Endorsement excluded coverage for installation of the new sheathing.

The “Overhead and Profit” Endorsement excluded coverage for “[o]verhead and profit on the materials and labor associated with roofing or the roofing system” unless the damage was caused by fire or lightning. Because the damage to the shingles was not due to fire or lightning, the insurer argued it did not have to provide coverage for the contractor’s overhead and profit.

The insureds argued that both Endorsements were invalid because they conflicted with section 65A.10, subdivision 1, which states:

Subject to any applicable policy limits, where an insurer offers replacement cost insurance ... 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 invalidating the policy’s “Roof Damage Limitation” Endorsement and holding that an insurer’s obligation under section 65A.10, subdivision 1 in the event of a partial loss “is limited to ‘bringing up to code that “portion of the property” that was damaged,’” the court revisited its 2022 decision in St. Matthews Church of God & Christ v. State Farm Fire & Cas. Co., 981 N.W.2d 760 (Minn. 2022). In that case, the insurer approved the repair and replacement of the church’s hail-damaged drywall. When the damaged drywall was removed, cracks in the masonry behind the damaged drywall were discovered. The building official would not issue a building permit for the repair and replacement of the damaged drywall until the cracked masonry was repaired. The insurer denied coverage for the masonry repair because those issues were “unrelated to the storm event.” The insured argued that the masonry repairs were a covered cost of repairing the “damaged portion of the property” under section 65A.10.

The court in St. Matthews agreed with the insurer and held that because the masonry was not “the damaged portion of the property,” section 65A.10, subdivision 1 did not require coverage. As the court in St. Matthews explained, there was “no dispute that [the insurer] fully covered the cost of replacing the drywall consistent with any municipal codes related to the drywall,” and “there is nothing in the record to suggest that [the insured] could not have installed the drywall without any additional repairs to the masonry.” So repairs to the masonry were not covered under section 65A.10.

The court in Campbell concluded that the damaged part of the property was the shingles alone—not the decking. But critically, the state building code governing shingle installation incorporated the instructions set forth by the shingle manufacturer, which stated that the replacement shingles could be installed only on a roofing layer with gaps smaller than those on the home’s current decking. Because the code governing the damaged property (i.e., the shingles) required the installation of new sheathing, the court concluded coverage is required by section 65A.10, subdivision 1.

The court in Campbell observed that its reasoning “align[ed]” with its reasoning in St. Matthews. In St. Matthews, the code relating to drywall installation did not require the masonry to be repaired before the new drywall could be installed. This was not the case in Campbell because the contractor could not have complied with the code governing the replacement of the damaged shingles without installing new sheathing. In Campbell, the insurer’s failure to cover the cost of installing a new sheathing surface meant that they did not “fully cover[ ] the cost of replacing the [shingles] consistent with any municipal codes related to the [shingles].” This was not the case in St. Matthews.

The court held that section 65A.10, subdivision 1 does not obligate an insurer to pay for overhead and profit costs unless the insured shows that those costs are part of 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 Campbell, the insureds cited no code provision supporting his argument that the contractor’s overhead and profit were a “cost of repairing” the damaged property “in accordance with the minimum code as required by state or local authorities.” The insurer’s refusal to pay for overhead and profit costs was proper under the policy’s “Overhead and Profit” Endorsement.

While it is critical that insurance professionals handling Minnesota property claims understand the implications of Campbell, it is important to recognize this case was decided under Minnesota’s statutory scheme for fire insurance (i.e., Minnesota Statute section 65A). Its import fades 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. 

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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.