Minnesota Supreme Court Holds That The “Cause of Loss” Is To Be Determined By the Insurance Appraisal Process

In a decision issued on June 13, the Minnesota Supreme Court analyzed whether the cause of loss, in addition to the amount of the loss, was a determination to be made by the insurance appraisal process.

In Quade v. Secura Insurance, there was a dispute regarding property damage from a windstorm.  The insurance company took the position that some of the damage claimed by the insured was not caused by the windstorm, but rather continual deterioration over time.  The insurance policy required that the appraisal process be initiated prior to a lawsuit being commenced.  The insured did not initiate the appraisal process, but instead brought an action directly in district court.  The insured contended that the appraisal clause didn’t apply because the dispute was about whether the damage was covered by the policy, not the cost of that repair, and that the question was a coverage question inappropriate for an appraisal panel.  The district court disagreed with the insured and held that the appraisal process had to be used.  The court of appeals reversed.  The Supreme Court then took up the case.

The Supreme Court held that the insurance policy’s language concerning the appraisal process’s determination of the amount of loss includes a determination of the cause of the loss.  As a result, where there is a dispute about what the cause of certain damage was, the question is one to be determined by an appraisal panel.  The Court was careful to clarify that the appraisal process can’t construe the policy or decide whether an insurer can pay, but it does determine the amount of loss, which includes determining what the cause of the loss claimed was.  The Court noted the public policy in favor of appraisals.

A copy of the decision can be found here.

This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, insurance law, townhome and condominium law, and criminal law.  Chris and his colleagues at Thomsen Nybeck have extensive experience representing clients in insurance appraisal hearings.  More regarding the firm’s abilities in that area can be found here.

Court Limits Scope of Insurance Appraisal Process

In a published decision issued yesterday, March 26, 2012, the Minnesota Court of Appeals clarified that whether there was total loss under a fire insurance policy was an issue for a court to decide, not an appraisal panel. 

In Auto-Owners Insurance Company v. Second Chance, Investments, LLC, Court File No. A11-1145, a commercial building suffered severe fire damage.  The insured—Second Chance, Investments, LLC submitted a claim to is insurer—Auto-Owners Insurance Company under its policy, which policy provided for payments of the policy limits (more than $2,000,000) in the event of a total loss.  The insurer admitted there was a covered loss, but denied the loss was total and paid the insurer less than the policy limits.  The insurer demanded appraisal, to which the insured objected on the basis that appraisal was inappropriate where a total loss occurred.  The District Court ultimately determined that the question of whether there was a total loss was to be decided by a jury, not by an appraisal panel.  The insurer appealed.

The Court of Appeals agreed with the District Court’s decision that an appraisal panel was not the appropriate venue to determine whether there was a total loss.  The Court cited the policy and Minnesota Statute 65A.01 (found here), theMinnesota standard fire insurance policy, for the proposition that policies inMinnesota are valued policies, meaning the policy can not provide for less than policy limits in the event of a total loss.  As a result, the Court reasoned, the appraisal panel whose function is to determine the amount of loss is inappropriate in the event of a total loss is not the appropriate body to make the determination of whether there is a total loss.  In addition, the Court cited language in the statute and policy that specifically excluded the question of whether there is total loss from the circumstance in which the appraisal process is appropriate.  That question is determined under a reasonable person standard, which is not limited to the cost of repair (the only question for an appraisal panel).

There are many insurers, and law firms dedicated to insurance defense, that have taken a shine to appraisal hearings for determination of as many issues as possible.  Insurers appear to find that appraisal hearings are more efficient than court, in addition to not being restricted to the rules and strictures that are part of the court process.  However, insurers and their attorneys seem to also make those hearings into a much more complicated and trial-like process than initially anticipated.  Be sure that you have appropriate knowledge and representation as an insured before going into such a hearing.  And in the case of total loss, per the recent published decision of the Minnesota Court of Appeals, the appraisal process is not the appropriate forum to make a decision about whether total loss occurred.

The decision can be found here.

This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, insurance law, townhome and condominium law, and criminal law.  Chris and his colleagues at Thomsen Nybeck have extensive experience representing clients in insurance appraisal hearings.  More regarding the firm’s abilities in that area can be found here.