OUR BLOG HAS MOVED!

17 Mar

Thank you for visiting the Thomsen & Nybeck blog.  Our blog has moved!   Please be aware that our blog is now fully integrated within our firm website, which you can find here: http://www.tn-law.com/blog/.  Although our prior blog content will remain available here at this site, we will no longer be updating it.  

To see all of our blog entries, including anything new from this time forward, please visit and bookmark the following page: http://www.tn-law.com/blog/.

We hope to continue to be a resource to you in the future; thanks for stopping by.

Proof of Loss: Eighth Circuit Decision Highlights the Burden Placed on Insureds Seeking Coverage

8 Jan

In a decision filed January 7, 2014 (available here), the United States Court of Appeals for the Eighth Circuit discussed the effect of he insureds’ failure to timely file a proof of loss in connection with their flood insurance claim. in reversing the district court’s decision granting summary judgment in favor of the insureds, the Eighth Circuit held that insureds are barred from recovering any amounts under a flood insurance claims that are not asserted in a timely submitted proof of loss. Although the insureds were granted additional time to file their proof of loss due to the vast scope of the flood in question, this period typically expires just 60 days from the date of the flood. Proper owners should beware of the mandate to file a timely and complete proof of claim, particularly in flood claims, in light of this decision.

Importantly, this was a flood loss claim covered by a federally-administered insurance program, and therefore is subject to regulations that played a factor in the decision. This case almost certainly would have been decided differently if it were decided under Minnesota law. Insurance carriers in typical property-damage claims (and other kinds of claims) in Minnesota often have insurance policies mandating that insureds submit proofs of loss before they may recover under the policy, but frequently that requirement does not arise until and unless the carrier requests the proof of loss. Moreover, if the proof of loss is not timely submitted by the deadline set by the policy, there may be arguments that the insured can still pursue a recovery if there was no harm to the insurance company as a result of waiting a little longer to receive the formal proof of loss. Still, it can be important for insureds in Minnesota, even on non-flood claims, to prepare a complete proof of loss and timely submit it to the insurance company. In a lawsuit to enforce an insurance policy, it is possible for a court to deny a recovery to the insured if the insured has failed to submit the proof of loss when it is required under the policy.

Even though there are different standards applicable to the claims process for federally-managed flood insurance policies, the Eighth Circuit certainly did the insureds in this case no favors. Although the insureds had clearly asserted the intent to claim nearly $50,000 in additional coverage, the proof of loss, which was filled out by the adjuster for the insurance company, didn’t include these amounts. The insureds again reiterated their desire to claim the additional loss, and were told they could “always submit a supplemental claim for additional damages,” even though there was a deadline to do so which was less than a month away. Later, the adjusters told the insureds that their request for the additional coverage was, in fact, denied and that they had one year to commence a lawsuit to pursue the disputed portion of the claim. Again, the imminent deadline that would bar them from commencing such a suit was not mentioned. The Court held that it was the insureds’ job to make sure they prepared a complete proof of loss and to make sure they complied with applicable deadlines.

The Eighth Circuit’s decision today wasn’t incorrect in asserting that the insureds had the final responsibility to timely submit a claim for the full amount of the loss they hoped to recover, but the trial court had held that the insurer had engaged in “affirmative misconduct,” and the Eighth Circuit was dismissive of this finding. The Eighth Circuit held that the communications from the adjusters, who are identified to insureds as “independent adjusters” who will assist insureds with their claims, weren’t “legally inaccurate.” The Court cited extensively to the Code of Federal Regulations concerning these flood insurance claims to establish the extent of the insureds’ responsibility in this matter. However, the representations from these adjusters were incomplete, omitting information about prerequisites to the suit they were told they had one year to commence, under circumstances in which the insureds were clearly seeking information about how to preserve their ability to pursue the disputed portion of their claim and were led to believe they had received complete information about their options.

Despite some concerns about the Eighth Circuit’s dismissal of the insureds’ arguments about the communications surrounding the proof of loss involved in this case, it’s also still possible that the insurance adjusters properly denied the last $50,000 of the claim. The Eighth Circuit didn’t analyze that question as it was not the issue on appeal. The final outcome may have been the right one. But this case serves as an important reminder of two things: 1) While “independent” insurance adjusters are supposed to assist in determining all applicable coverage (as the Minnesota Court of Appeals affirmed in June 2013), insureds should beware that they are retained and paid by the insurance companies who have to pay on any claims that are approved and may have other agendas; and 2) there are technical requirements to the insurance claims process that, unfortunately, the typical property owner or manager may not understand or to which they may not have access.

This article was submitted by Matt Drewes, a Shareholder with Thomsen Nybeck. He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law, and insurance coverage. He has been included in several years of the annual list of Minnesota’s Rising Stars, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, and on various websites including Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on various legal issues involving construction litigation, community associations, real property, and insurance. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

BEING THE SUBJECT OF AN INVESTIGATION BY THE DEPARTMENT OF COMMERCE IS NOT THE TIME TO GO IT ALONE.

6 Jan

Whether you are a real estate broker or agent, appraiser or other professional licensed through a state agency, such as the Department of Commerce, knowledgeable representation is critical once you are notified of a pending investigation.  A single conversation, whether over the phone or in-person with a state investigator, can have serious consequences which can ultimately lead to the loss of a professional license.

Agencies such as the Minnesota Department of Commerce (“DOC”) are responsible for the licensing of many professionals and enforcing the statutes governing those professionals.  The DOC has wide-ranging powers, such as subpoena powers, ability to compel attendance at interviews under oath, and unannounced visits to a licensee’s business. Failure to comply with the investigation is in and of itself a violation of statute which can lead to penalties such as license suspension or revocation.  Agents or brokers called upon to respond to a DOC investigation need to immediately contact legal counsel, as every statement made to a DOC investigator can be used by the investigator to support their case against the broker or agent. An innocent admission as a way of showing sincerity to the investigator can be used against the professional in a subsequent proceeding.

A broker should inform agents that if they are contacted directly by a DOC investigator, to immediately state that they want their broker to participate in the conversation. The agent, or in a subsequent conversation the broker, should ask the investigator what transaction is the subject of their inquiry.   The broker should then retrieve that file and then review it with legal counsel to determine which areas could be subject to inquiry by the DOC. Neither the broker or agent should communicate with the investigator without first reviewing the transaction file nor speaking to legal counsel as even an innocent omission or misstatement can be used in a subsequent proceeding.  If the investigator requests the file the broker should provide it but retaining the original or a copy of the entire file is essential.

Legal counsel can assist in outlining the possible ramifications of the investigation and also act as a conduit of information to assisting in communicating accurate and requested information. Legal counsel can also make sure the investigative process is not abused.  The attorney can also assist in negotiations and provide advice of what could occur moving forward if the investigation reveals an alleged violation of Minnesota law.

In many cases, the DOC investigator has already done some level of inquiry prior to making contact with the broker or agent.  The contact may be made to confirm a fact or seek an admission. It is important to understand the implications of what may be said before it is actually said. Therefore, it is important for the broker- and agent to be aware that the communication from the DOC investigator is not just an innocent phone call.

The DOC has the authority to pursue the suspension or revocation of a broker or agent’s license.  Without a license the broker and agent are out of work. It is surprising that given the potential harsh outcome of an investigation by the DOC how many brokers and agents “go it alone” and do not seek legal counsel’s assistance. They may believe that they did nothing wrong and that will always save them. It sometimes is the belief that if they have an attorney the DOC will think they did something wrong. Or possibly, my personal favorite, the DOC works for brokers and agents and they will not do anything bad to them.  This is made even more surprising by the fact that brokers and agents do not feel any reluctance to contact legal counsel when they are sued by a disgruntled seller or buyer in a transaction when the worst possible consequence in that instance is the award of money.  Usually the award is covered by E&O insurance but they can still continue to have their license.

With the DOC investigation, the stakes are higher but brokers and agents appear to have less of a sense of the importance in having legal counsel involved. This, I can tell from my over 20 years of experience, is a mistake. The revelation to a broker or agent that the DOC proceeding may result in their losing their license makes them realize that the consequences cannot be any greater. This is enhanced further when they learn that their statement (i.e. “I could have done that better” or “If I had to do it over I would have done it differently”) during a phone conversation the day they learned of the investigation is being used to support the DOC’s action seeking revocation of their license.

Brokers and agents should not try to go it alone.  Proper representation immediately upon contact by the DOC is critical to making sure that the matter is handled in the best possible manner for the broker, agent and brokerage.

David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).

Radon disclosure effective January 1, 2014

3 Jan

Making Sense of the Radon Awareness Act

Buyers and sellers of residential real estate in Minnesota should be aware, if they are not already, of a law passed in the last legislative session that became effective January 1, 2014.  The new law requires sellers to disclose to buyers, in writing, any knowledge the seller has concerning radon concentrations in the dwelling.  It also requires very specific disclosure in the form of a statutory notice and accompanying publication, as detailed below.

Clearing the confusion.  While this law has only been in effect two days as of the time of this writing, it is clear that there is already some confusion and misinformation concerning what the law requires. Perhaps it is worth clarifying what the law does not require, first.  The law DOES NOT require a seller or buyer to perform a radon test before the property is sold.  The law DOES NOT require a seller to provide, or a buyer to obtain, a radon inspection.

  • What transactions are impacted? While the law became effective January 1, 2014, it applies very specifically to “[...]agreements to sell or transfer residential real property executed on or after that date.”  Minn. Stat. Sec. 144.496, subd. 6.
  • What does the Minnesota Radon Awareness Act require?  You can find the full text of the law here: https://www.revisor.mn.gov/statutes/?id=144.496. The new radon disclosure law is somewhat similar in approach to other Minnesota seller disclosure obligations, and also to federal lead-based paint disclosure.  The statutory language states:

Before signing an agreement to sell or transfer residential real property, the seller shall disclose in writing to the buyer any knowledge the seller has of radon concentrations in the dwelling.

(Minn. Stat. Sec. 144.496, subd. 3)

  • Additional requirements.  The disclosure must also include additional information, including whether radon tests have been performed on the property, recent records pertaining to radon concentration levels, a description of any remediation/mitigation efforts taken, etc.  Additionally, the law requires two very specific disclosure obligations be met: 1) the seller must provide a very specific radon disclosure statement containing language specified within the statute (Minn. Stat. Sec. 144.496, subd. 4); and 2) the seller must provide the buyer with a copy of the Minnesota Department of Health publication entitled “Radon in Real Estate Transactions”.  You can find that publication here: http://www.health.state.mn.us/divs/eh/indoorair/radon/rnrealestateweb.pdf
  • Certain transactions are excepted from the requirements.  The statute lists an array of transactions for which the Radon Awareness Act does not apply.  Minn. Stat. Sec. 144.496, subd. 3(d). To determine if your transaction may be excepted from the requirements, review the statute carefully and speak with your legal counsel to clarify any questions.

Some trade organizations, like the Minnesota Association of Realtors(R), and the Minnesota State Bar Association have created forms that incorporate the disclosure requirements.  If you are already utilizing an attorney or real estate agent in your transaction, hopefully they are assisting you with understanding and complying with this disclosure obligation.  If they aren’t, or you have not already engaged a real estate agent or attorney you should be sure to speak with a competent real estate attorney to ensure you obtain the advice and counsel you may need to help you fulfill this disclosure, and other applicable disclosure obligations.

For residential buyers, it is important that you understand that while a seller is obligated to disclose what they know, regarding radon, many sellers have no reason to know radon levels are normal or abnormal unless they have had an inspection done.  Buyers are free to negotiate a radon inspection into the terms of a purchase agreement.

If you are curious about the health concerns or rationale for why the legislature believed a radon disclosure to be necessary, radon facts and background information can be found at the Minnesota Department of Health website, here.  According to the Minnesota Department of Health,

High radon exist [sic] in every state in the US.  In Minnesota, 2 in 5 homes has radon levels that pose a significant health risk, and nearly 80% of counties are rated high radon zones.

Source: http://www.health.state.mn.us/divs/eh/indoorair/radon/index.html?utm_source=print&utm_medium=brochure&utm_campaign=general

Additional radon-related information can be found within the MDH website, here.

As real estate transactions become increasingly complex, it is prudent to engage professionals such as a real estate agent and attorney to help you navigate disclosure obligations and other responsibilities involved in buying or selling residential real estate.

_______________

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  a

Matt Drewes Quoted in Two Recent Articles at HOALeader.com: Handling rogue board members; and Proper treatment of meeting minutes.

20 Dec

Matt Drewes recently contributed quotes for the following articles published at www.hoaleader.com, a national web-based publication focused on homeowners association and condominium board members and association management professionals:

  • What’s Your Duty When Fellow HOA Board Members Violate Governing Documents?; published November 2013 at HOALeader.com
    • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now.
  • More HOA Meeting Minute Madness: When Can Minutes Be Changed?”; published November 2013 at HOALeader.com
    • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now.

Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law, and insurance coverage. He has been included in several years of the annual list of Minnesota’s Rising Stars, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, and on various websites including Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Matt Drewes Quoted in Three New Articles at National Community Association Forum

5 Sep

Matt Drewes recently contributed quotes for the following articles published at www.hoaleader.com, a national web-based publication focused on homeowners association and condominium board members and association management professionals:

  • 7 Tips to Keep HOA Legal Fees in Check; published August, 2013 at HOALeader.com
    • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now.
  • HOA Owners and Security Cameras: OK or No Way?; published August, 2013 at HOALeader.com
    • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now.
  • Smart Rules for your HOA Meetings Open Forum; published August, 2013 at HOALeader.com
    • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now.

Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, and on various websites including Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Minnesota Federal District Court clears up confusion regarding accountant malpractice claims in North American Specialty Insurance Company v. WIPfli, LLC, et al.

5 Aug

On July 26, 2013, the Federal District Court for the District of Minnesota issued an order reconciling almost 40 years of ambiguous rulings concerning the claims available to a third party non-client seeking to sue an accountant. The case is North American Specialty Insurance Company v. WIPfli, LLC, et al. A copy of the Order, which denied WIPfli, LLC’s (“WIPfli”) motion to dismiss the complaint for failure to state claims against it, can be read here.

The case involved North American Specialty Insurance Company (“NAS”), which provided statutory performance and payment bonds on projects performed by general contractor Crowley Company, Inc. (“Crowley”). The purpose of these bonds is to guaranty for the project owner or developer that, in the event Crowley were to fail to perform its obligations under its contract, which might involve failure to complete the work (performance bonds) or failure to make full payment to all of its subcontractors and suppliers (payment bonds), NAS would act as “surety”, and would pay to ensure those obligations were met.

According to the Court’s Order, NAS alleged that WIPfli performed accounting and auditing services for Crowley. Thus, NAS was not WIPfli’s client. However, WIPfli prepared two “Independent Auditor’s Reports” regarding Crowley’s financial statements and condition, on which NAS claims it relied in providing $8 million in bonds on Crowley’s projects. Ultimately, according to NAS, Crowley began defaulting on its obligations to several parties because it was in poorer financial condition than Crowley’s financial statements suggested, and NAS alleges it ultimately was obligated to pay on approximately $2 million in claims.

NAS apparently alleged several items contained in WIPfli’s reports were inaccurate and were not based on generally accepted accounting standards despite a statement within the reports that WIPfli had done so. Importantly, NAS also alleged that WIPfli was aware that NAS would rely on the WIPfli reports. Therefore, in addition to suing Crowley to recover the amounts it claims it had to pay because it relied on the contractor’s misleading financial statements, NAS sued WIPfli alleging it failed to catch certain manipulated and inaccurate figures in those financial statements when preparing its “Independent Auditor’s Reports.”

WIPfli argued that NAS’s complaint should be dismissed because: 1) Minnesota does not recognize a claim for negligence against accountants by parties who were not clients of that accountant; and 2) failed to state with the required specificity a claim for negligent misrepresentation. The Court analyzed whether Minnesota law recognizes a claim for negligence (otherwise known as malpractice when referring to a professional such as a doctor or accountant) by a party in NAS’s position against an accountant providing services for another party (in this case, Crowley). Although noting that several cases issued by Minnesota’s appellate courts have allowed claims to proceed against accountants on claims that were referred to as based on “negligence”, this Court observed that a close reading of those cases demonstrates that Minnesota Courts had never held “negligence” was the appropriate cause of action. Rather, the claims at issue were permitted to proceed because they satisfied the standard for negligent misrepresentation.

The Court suspected the apparently confusing holdings in prior cases was due to the similarity between claims for negligence and claims for negligent misrepresentation. Ordinary negligence requires, among other things, that a defendant, who owes a duty to the plaintiff, breaches that duty (generally by failing to exercise the appropriate degree of care or competence). Negligent misrepresentation contains several additional elements, including the nature of the defendant’s role in the applicable transaction, but also includes a failure “to exercise reasonable care or competence in obtaining the information or communicating . . . information” to the plaintiff. A failure to exercise reasonable care is required under both claims, but the Court determined that a party in NAS’s position has been recognized as having a cause of action against another party’s accountant for negligent misrepresentation; not for negligence/malpractice.

The Court went on to determine that NAS had sufficiently pled facts necessary to continue with its negligent misrepresentation claim against the accounting firm. More importantly, however, based on its incisive analysis, the Court dismissed NAS’s claim for negligence against WIPfli after concluding that Minnesota courts had never intended to recognize such a claim despite certain cases that may at first have suggested otherwise.

Matt Drewes contributed this article. Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law, and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in print publications such as the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, and on various websites including Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations, and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

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