One of the most difficult and confusing issues to deal with in the world of homeowner’s insurance property claims is the obligation to repair or replace an insured’s damage property with “material of like kind and quality” or with “similar material.” When damage caused by fire, smoke, water, hail, or other causes results in a small portion of a home being damaged (e.g., shingles, siding, carpet, cabinets, etc.), whether and when a carrier must replace non-damaged portions of a building in order for there to be a perfect match of materials remains a point of contention—and fraud.
This issue is of great importance in the world of claims and insurance underwriting because “matching” the replacement of a slightly damaged section of roof or flooring which necessitates replacing items which are not damaged greatly increases the cost of insurance. The problem of partial replacement is especially troubling where the damaged siding or shingles have been discontinued, making it virtually impossible to properly match. To replace only the damaged portion would result in an obvious aesthetic deficit due to a clear difference in the appearance of the replaced portion of the building from the portion that remains undamaged.
When contractors can’t find materials which conform to or match the preexisting conditions of the item or structure, something known as the “line-of-sight rule” dictates that an entire area in “the line-of-sight” must be replaced. This matching issue most frequently arises in the cases of damage caused by wind, hail, water damage and fire. The most common repairs for line-of-sight coverage are to roofs, floors and walls. Whether a particular insurance company provides matching “line-of-sight” coverage depends on the policy and the state involved. The battle is being waged across the country, and many states have line-of-sight rules regarding matching of materials. States that do not have laws which require matching line-of-sight coverage might instead have case law decisions or regulations which require matching in certain circumstances or with certain policy language. Matthiesen, Wickert & Lehrer, S.C. has a 50-state chart summarizing the law regarding matching in every state. It can be found HERE.
Two states—Kentucky and Florida—are wrestling with the difficult issue of claims involving matching requirements. Kentucky Insurance Regulations involving Standards for Prompt, Fair, and Equitable Settlements address the subject of matching. Section 12:095 reads as follows:
(1) If the policy, contract, or certificate authorizes the adjustment and settlement of first-party losses based on replacement cost, the following shall apply:
(b) If a loss requires replacement of items and the replaced items do not reasonably match in quality, color, and size, the insurer shall replace all items in the area so as to conform to a reasonably uniform appearance. This applies to interior and exterior losses. The insured shall not bear any cost over the applicable deductible.
This regulation is also identical to the NAIC Unfair Property/Casualty Claims Settlement Practices Model Regulation (MDL-902, 1997). On October 17, 2023, the Kentucky Department of Insurance published Advisory Opinion No. 2023-08, interpreting and clarifying Kentucky’s matching regulation above. Insurance Commissioner Sharon Clark began the advisory opinion by stating that the purpose of the above regulation was to protect the value of an insured’s home or other real property, which could be damaged by the installation of a non-uniform item. She noted that the Department currently interprets “in the area” to mean “the entirety of a part used for a specific purpose, i.e., an entire roof, an entire contiguous interior carpet, an entire contiguous interior tile floor, etc.” The Commissioner stated that the language of this regulation does not permit a “line of sight” rule to be applied when replacing portions of a roof or other “area.” 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,” according to the Advisory Opinion. However, as long as replacement shingles are of the same make and model, even if they don’t exactly match due to deterioration, age, and fading, a full roof replacement is not necessary, the Advisory Opinion notes.
On the other hand, in Florida, where the state’s insurance market was in full meltdown mode even before Hurricane Ian flooded southwest Florida in 2022, fraudulent roof replacement schemes and rampant litigation further depleted insurance companies of their capital and caused them to raise rates, drop policies, or stop writing in Florida altogether. Six insurers had been declared insolvent in 2022 alone. But Florida is fighting back.
The Florida Office of Insurance Regulation has recently taken steps to combat costly matching requirements and has approved policy forms filed by at least eight property insurers that limit the amount the carriers will pay to replace undamaged materials to create a matching, uniform appearance after repairs, state records show. Matching requirements in Florida have cost the reeling homeowners’ insurance industry billions in recent years, raising premiums, and making homeowners’ insurance expensive and difficult to find. Currently, two-thirds of the premiums 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 the Office of Insurance Regulation in 2021 after regulators disapproved a policy form that would have limited payouts for matching materials.
Since then, the Office 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 limits of the policy to applicable to replacement of the primary structure. American Integrity was among the first carriers to win approval, getting OIR’s approval on Dec. 6, 2022.
This endorsement at issue typically looks like this:
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.
This means for a home with $750,000 in dwelling Coverage A, the endorsement would cap matching repairs to $7,500.
At the same time, Citizens Property Insurance Corp. took a different approach and successfully argued in litigation that replacement caused by matching requirements are not direct physical losses and are only required to be reimbursed to the insured once the work is done. In Vazquez v. Citizens Property Ins. Corp., the insured sustained a loss to her kitchen cabinets and twelve ceramic floor tiles as a result of water damage. Citizens paid $33,759.52 for the damages based on the actual cash value of the loss, even though the insured presented an estimate in the amount of $84,542.93. The insured filed suit, arguing that $70,000 of the estimate was included for matching costs. The trial court agreed, and on appeal, the court ruled that “matching” was not a direct physical loss and, therefore, did not need to be paid under an actual cash value analysis unless the repairs were performed. The policy explicitly covers loss that is “direct loss to property … only if that loss is a physical loss.” Florida courts have previously interpreted the meaning of this language: “A ‘loss’ is the diminution of value of something, and in this case, the ‘something’ is the insureds’ house or personal property.” This decision requires the policyholder to first incur the cost for matching damaged and undamaged items that are included in the claim estimate before payment will be made for those items.
Matching requirements and laws also complicate subrogation claims, which traditionally involve an insurance company stepping into the shoes of an insured and proceeding against the third-party tortfeasor who caused the loss in the first place to recover those claim payments. The subrogated insurance company (subrogee) assumes the same rights against the tortfeasor as the insured possessed – no greater, no less. The tortfeasor can usually employ any defenses against the subrogee that it could have employed against the insured. As a result, the measure of recovery (i.e., damages) for the subrogee is the same measure of damages as for the insured. This creates some unique and troubling issues when the law dictating third-party damages recoverable in tort are different from the measure of a first-party claim payment under a policy and/or applicable law or regulations. An insurance company that has paid additional damages in order to address “matching” problems in a first-party claim may or may not be able to recover those damages in its subrogation tort action against the tortfeasor/defendant. The law varies from state to state.
If a carrier pays for full replacement cost of a house or a portion of a structure, it might nonetheless be limited to recovering the “market value” or difference in market value before and after a loss, in a subsequent subrogation tort action. Whether a tort defendant is liable to a subrogated carrier for the additional claim payments necessary for the damaged property to match and be uniform after repair depends on the state. Reimbursement under an RCV policy is likely to lead to an economic betterment of the insured because it means that payment will be made to replace old, depreciated property with new property. Therefore, subrogated carriers cannot always count on recovering all of the claim dollars they have paid out. Liability carriers will argue they are only responsible for ACV or repair costs. Some states allow for recovery of the full cost of repairs without a reduction for depreciation or betterment, where the repairs do not materially increase the value of the property over its market value prior to the loss.
For questions regarding the subrogation of homeowners’ property losses, contact Gary Wickert at firstname.lastname@example.org.
 806 Ky. Admin. Regs. § 12:095(9)(1)(b).
 Vazquez v. Citizens Prop. Ins. Corp., 304 So. 3d 1280 (Fla. App. 2020).
 Homeowners Choice Prop. & Cas. v. Maspons, 211 So. 3d 1067 (Fla. App. 2017).