Minnesota Supreme Court: § 65A.10 Requires Coverage for Code‑Mandated Sheathing to Replace Damaged Shingles; Overhead and Profit Not Automatic

Introduction

In Great Northwest Insurance Company v. Campbell, 24 N.W.3d 256 (Minn. 2025), the Minnesota Supreme Court clarified the scope of mandatory code-compliance coverage under Minnesota Statutes section 65A.10, subdivision 1, for replacement cost homeowners insurance policies. The case arose after hail damaged the roof shingles on Hector Campbell’s Saint Paul home. During the shingle replacement, the contractor discovered the existing plank decking had gaps larger than the maximum allowed under the state building code as applied to the specific shingles’ manufacturer installation instructions. To create a permissible substrate, the contractor installed a new oriented strand board (OSB) sheathing layer and then installed the shingles.

Great Northwest Insurance Company denied coverage for two categories of costs: (1) $5,600 for the new sheathing layer, citing a “Roof Damage Limitation Endorsement” that excluded any layer beneath the outermost roof covering even if required by law or ordinance; and (2) $5,282 in contractor overhead and profit ($2,641 each), citing an “Overhead and Profit Endorsement” that excluded O&P on roofing work except in cases of fire or lightning.

The district court held that § 65A.10, subd. 1, required coverage for the sheathing as a code‑compliant cost of replacing the damaged shingles but upheld the exclusion of overhead and profit. The court of appeals affirmed, and the Minnesota Supreme Court granted review. With multiple amici curiae participating (Insurance Federation of Minnesota; United Policyholders; American Property Casualty Insurance Association), the Supreme Court affirmed in full.

Summary of the Opinion

The Minnesota Supreme Court held:

Section 65A.10, subdivision 1, requires replacement cost insurers to pay for code‑required enabling work on undamaged substrates when that work is necessary to replace the damaged portion of the property (here, shingles) in accordance with the governing code. Because the applicable code incorporated manufacturer instructions that prohibited installing the new shingles on decking with gaps exceeding 1/8 inch, the added OSB sheathing was a covered cost of replacing the damage.
The statute does not obligate payment of contractor overhead and profit unless the insured shows those amounts are part of the “cost of replacing, rebuilding, or repairing” the damaged property “in accordance with the minimum code.” Campbell offered no code authority requiring overhead or profit; therefore, the policy’s O&P exclusion was enforceable.
The insurer’s endorsement excluding coverage for layers beneath the outermost roofing material is invalid to the extent it conflicts with § 65A.10’s mandated code-compliance coverage for the damaged portion. But the O&P endorsement stands on these facts because the insured did not show a code-based necessity for O&P.

Result: The court of appeals’ decision is affirmed. Great Northwest must cover the sheathing cost; it need not cover overhead and profit on this record.

Analysis

Precedents Cited and Their Influence

The Court situated its decision within a line of Minnesota cases that collectively establish two principles: (1) insurance is heavily regulated and contract terms that violate statutory mandates are unenforceable; and (2) § 65A.10’s code‑compliance obligation in partial‑loss scenarios is limited to the “damaged portion” of the property.

St. Matthews Church of God & Christ v. State Farm Fire & Casualty Co., 981 N.W.2d 760 (Minn. 2022): The Court interpreted the phrase “damaged portion of the property” in § 65A.10 to mean that in partial-loss cases, the insurer’s code‑compliance obligation does not extend to other, undamaged parts of the property. In St. Matthews, hail damaged drywall, and the city required repair of cracked masonry behind the drywall before issuing a permit. The Court held the masonry repairs were not covered because they were not required by code provisions governing drywall and the drywall could be replaced in code compliance without repairing the masonry. This case provides the critical framework: coverage turns on whether the code governing the damaged component necessitates the additional work. Great Northwest relied on St. Matthews to argue that only shingles were damaged, hence no coverage for sheathing; the Court distinguished St. Matthews because, unlike the drywall there, shingles here could not be installed in compliance with the applicable code without the sheathing overlay.
Remodeling Dimensions, Inc. v. Integrity Mutual Insurance Co., 819 N.W.2d 602 (Minn. 2012): Recited to confirm that, absent statutory provisions to the contrary, insurance policies are contracts subject to general contract principles, and insurers owe a duty to indemnify covered claims. Here, that contract baseline yielded to a statutory mandate.
Illinois Farmers Insurance Co. v. Glass Service Co., 683 N.W.2d 792 (Minn. 2004): Emphasized that insurance is quasi‑public and subject to state regulation. Serves as a foundation for invalidating policy language that contravenes statutory requirements.
Streich v. American Family Mutual Insurance Co., 358 N.W.2d 396 (Minn. 1984): Established that when policy provisions conflict with statutes, the statute controls and the policy provision is unenforceable. The Court applied this to invalidate Great Northwest’s roof endorsement as applied to the code‑required sheathing cost.
In re GlaxoSmithKline PLC, 699 N.W.2d 749 (Minn. 2005): Cited for the principle that issues not raised in the petition for review are generally not addressed by the Supreme Court. The Court adopted the court of appeals’ determination that the policy’s roof endorsement, by its terms, excluded the sheathing, and proceeded to ask whether the statute mandated coverage anyway.
Midway Center Associates v. Midway Center, Inc., 237 N.W.2d 76 (Minn. 1975): “The burden of showing error rests upon the one who relies upon it.” Applied to hold that Campbell failed to carry his burden to show that overhead and profit were code‑required costs under § 65A.10.

The statutory framework was also anchored in Minnesota’s adoption of the 2018 International Building Code and International Residential Code (as amended in Minn. R. chs. 1305 and 1309). Those codes incorporate manufacturer installation instructions for roofing products. Because the asphalt shingle manufacturer’s instructions prohibited installation over decking with gaps greater than 1/8 inch, that instruction had the force of law for purposes of § 65A.10’s “minimum code” standard.

Legal Reasoning

1) Textual reading of § 65A.10, subd. 1

The statute provides that, subject to policy limits, when an insurer offers replacement cost coverage, “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.” For a partial loss, “this coverage applies only to the damaged portion of the property.”

The Court adheres to St. Matthews’ reading that the “damaged portion” is the specific building component physically harmed by the covered peril—in this case, the shingles, not the underlying decking. That limitation reins in code‑upgrade coverage so that insurers are not responsible for general building-wide code improvements when only certain components are damaged.

At the same time, the Court clarifies an important corollary: when the code provisions that govern the damaged component condition its compliant replacement on preparatory or enabling work to adjacent or underlying undamaged components, those enabling costs are part of the “cost of replacing” the damaged component “in accordance with the minimum code.” The insurer must pay them, notwithstanding policy language to the contrary.

2) Application to sheathing under hail‑damaged shingles

Because Minnesota’s building code (through the International Residential Code and the manufacturer’s instructions) prohibited installing the shingles over decking with gaps greater than 1/8 inch, the contractor could not lawfully install new shingles without adding a compliant nailable substrate (OSB sheathing). That sheathing was therefore a code‑required enabling cost tied directly to the damaged portion (the shingles).

This is precisely where the Court distinguishes St. Matthews. In St. Matthews, even though the city made masonry repair a condition to issuing a permit, the drywall itself could be replaced in code compliance without fixing the masonry; the code governing drywall did not require masonry repair. Here, by contrast, the code governing shingle installation itself forbade reinstallation over the existing deck gaps. The enabling work (sheathing) is inseparable from code‑compliant replacement of the shingles and thus covered by § 65A.10.

The “Roof Damage Limitation Endorsement” sought to exclude any costs for layers beneath the outermost roof covering—even if required by law or ordinance. Under Streich and the insurance‑as‑regulated‑industry principle, that endorsement is unenforceable insofar as it conflicts with § 65A.10’s mandate. The statute prevails.

3) Application to overhead and profit (O&P)

The Court took a narrower approach to O&P. Section 65A.10 obligates coverage for costs necessary to repair or replace the damaged portion “in accordance with the minimum code.” Campbell argued that O&P are standard components of construction pricing and thus part of replacement cost. But he provided no statutory or code authority showing that overhead and profit are themselves required to comply with building codes governing shingles.

On that record, the policy’s O&P exclusion (absent fire or lightning) did not run afoul of § 65A.10 and was enforceable. Importantly, the Court did not announce a categorical rule that O&P can never be mandated by § 65A.10; rather, it held that the insured bears the burden to prove the claimed O&P are “part of the cost” necessary to perform code‑compliant work on the damaged portion. Without such a showing, the statute does not invalidate an O&P exclusion.

Impact and Practical Implications

For policyholders and contractors

Code‑required enabling work on undamaged substrates is covered when it is necessary to replace the damaged component in compliance with the codes that govern that component. For hail‑damaged shingles, common examples include:
- Adding OSB/plywood over spaced plank decking where manufacturer instructions require a solidly sheathed deck.
- Installing ice‑and‑water barrier, underlayment, or drip edge where required by code for roof coverings.
Documentation matters. To secure coverage, assemble:
- Relevant code provisions (e.g., IRC sections as adopted in Minn. R. ch. 1309) and amendments.
- Manufacturer installation instructions applicable to the specific product.
- Photographs/measurements (e.g., deck gaps exceeding 1/8 inch).
- Building official correspondence, if available.
Overhead and profit are not automatically covered by § 65A.10. To overcome policy exclusions, an insured would have to show that O&P are code‑required costs for performing the work. In most roofing contexts, that will be difficult because codes typically regulate technical installation and safety, not business‑pricing components like profit.

For insurers and adjusters

Endorsements purporting to exclude “layers beneath the outermost roofing material,” even when “required by law or ordinance,” cannot be applied to deny code‑required enabling work tied to the damaged portion. Claims practices should be adjusted to recognize such costs as covered under § 65A.10, subd. 1.
Expect more claims involving older homes with plank decking or spaced sheathing. Adjusters should evaluate substrate conditions and applicable manufacturer instructions during inspections.
O&P exclusions remain viable where the insured cannot demonstrate code‑driven necessity. Insurers can request specific code citations tying O&P to compliance with the codes governing the damaged component.
Even when endorsements remain enforceable, § 65A.10’s mandate applies “subject to policy limits.” Traditional limits, deductibles, and non‑conflicting conditions still apply.

Wider doctrinal effects and likely future disputes

The decision refines St. Matthews: “damaged portion” remains the controlling limiter, but the insurer must fund enabling work on undamaged components when the code governing the damaged component requires it. This will influence disputes involving other assemblies (e.g., siding over non‑compliant sheathing or missing water‑resistive barriers; window replacements requiring tempered glass or safety glazing).
Open questions:
- How to handle disputes where a building official conditions permits on addressing unrelated hazards (as in St. Matthews). Today’s decision suggests those are not covered unless they are specifically required by the code provisions that govern the damaged component.
- The boundary between “minimum code” costs and elective upgrades (e.g., thicker sheathing, premium products). Only the minimum necessary for code compliance is mandated.
- Policies without O&P exclusions may still cover O&P under standard replacement cost provisions; today’s holding speaks only to whether § 65A.10 forces coverage when policy language excludes it.

Complex Concepts Simplified

Replacement cost insurance: Pays the cost to repair or replace covered property without depreciation, typically up to policy limits, and—under § 65A.10—must include the minimum code‑compliance costs for the damaged portion in partial‑loss scenarios.
Partial loss vs. total loss: A partial loss is repairable damage to part of the property; § 65A.10’s code‑compliance mandate in partial losses applies only to the “damaged portion.”
“Damaged portion of the property”: The specific component harmed by the covered event (e.g., shingles, drywall), not the entire assembly (e.g., the entire roof or wall).
Code‑required enabling work: Work on undamaged adjacent or underlying components that is necessary to install or repair the damaged component in compliance with applicable codes (here, adding OSB sheathing to lawfully install shingles).
Manufacturer installation instructions: For many products, the building code requires installation per the manufacturer’s instructions; those instructions therefore function as part of the “minimum code.”
Overhead and profit (O&P): Contractor markups that reflect indirect costs (overhead) and earnings (profit). They are not inherently “code‑required” and, under this decision, are not mandated by § 65A.10 unless the insured shows a code‑based necessity.
Policy endorsements vs. statutes: Insurance policy provisions control unless they conflict with statutory mandates; if they do, the statute prevails and the conflicting policy term is unenforceable.

Conclusion

Great Northwest Insurance Co. v. Campbell cements a practical and important refinement to Minnesota’s code‑compliance coverage regime under § 65A.10. The Court confirms that, in partial‑loss cases, insurers must fund not only the direct replacement of the damaged component but also code‑mandated enabling work on undamaged substrates when such work is required by the code that governs the damaged component’s installation. At the same time, the Court draws a clear boundary: costs not shown to be dictated by the relevant code—like contractor overhead and profit on this record—are not mandated by § 65A.10 and can be excluded by policy endorsement.

Key takeaways:

Code compliance for the “damaged portion” includes necessary enabling work expressly required by the applicable code for that portion (here, sheathing to lawfully install shingles). Policy provisions cannot reduce that statutory obligation.
Overhead and profit are not presumed to be code‑required costs. The insured bears the burden to identify code provisions that make O&P necessary for the repair; absent such proof, an O&P exclusion is enforceable.
St. Matthews remains good law: code‑upgrade coverage does not extend to unrelated undamaged components merely because an authority conditions a permit on broader fixes; what matters is whether the code governing the damaged component requires the disputed cost.

The decision provides needed clarity for homeowners, contractors, and insurers confronting modern code requirements, especially in roofing claims involving older decking. It will streamline claims handling by focusing the inquiry on the specific codes governing the damaged component and whether the claimed costs are indispensable to code‑compliant replacement of that component.

Case Details

Court: Supreme Court of Minnesota; Opinion by Justice Moore, III; Justice Gaïtas took no part.

Citation: 24 N.W.3d 256 (Minn. 2025); decision filed July 30, 2025.

Parties: Great Northwest Insurance Company (Appellant/Cross‑Respondent) v. Hector A. Campbell (Respondent/Cross‑Appellant); Betty L. Campbell (Defendant).

Disposition: Affirmed (coverage required for sheathing; no coverage for O&P on the record).