Tag Archives: Minnesota

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.

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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.

Contracting Diseases: Mishaps in contract drafting, limitation of liability edition

1 Aug

One of the problems I regularly encounter with new clients is that they have come to me too late to do the most good. This frequently happens in the area of drafting contracts relating to their business or project. Many people say they want a “simple” contract, or they think they know what they’re signing, or that they trust the other party to the deal, so they don’t need to overthink what they’re doing. A recent decision by a Federal Court in Indiana demonstrates how costly this kind of “penny-wise” thinking can be.

SAMS Hotel Group, LLC set out to build a new hotel. Unfortunately, the architecture firm the company retained to provide the design work for the project apparently did not employ or even consult with a registered professional structural engineer for the project. The county building officials later found structural design defects, which resulted in the condemnation of the structure and its ultimate demolition before the hotel ever opened its doors to the public.

SAMS sued its architect, Environs, Inc. The trial court held that Environs breached the applicable standard of care by failing to involve a structural engineer and for failing to timely inspect the project during construction. SAMS proved damages in the amount of $4.2 million.

Now the story turns truly tragic for the developer. Environs incorporated a clause in its contract with SAMS that sought to limit its liability:

The Owner [SAMS] agrees that to the fullest extent permitted by law, Environs/Architects/Planners, Inc. total liability to [SAMS] shall not exceed the amount of the total lump sum fee due to negligence, errors, omissions, strict liability, breach of contract, or breach of warranty.

SAMS, as the “Owner” under the applicable contract, paid Environs a lump sum fee of $70,000. The court enforced this limitation of liability provision and held that SAMS could recover only $70,000 of its $4.2 million loss, even though the source of Environs’ liability arose out of negligence rather than a breach of the parties’ contract. The United States Court of Appeals for the Seventh Circuit affirmed the trial court’s ruling. It noted, under Indiana law, that sophisticated parties aren’t entitled to protection from even the apparently unfair terms of the contracts they sign:

[T]he general rule of freedom of contract includes the freedom to make a bad bargain.

Parties are free to enter into any kind of contract they like, but just know that if you assume you are sophisticated enough not to need a lawyer’s assistance with your contract, the court just might agree with you and hold you to what you signed.

The complete order of the Federal District Court for the Southern District of Indiana can be read here.

The complete opinion of the Seventh Circuit Court of Appeals can be read here.

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.

Wait a Second Before Choosing Who Prepares Your Minutes

22 Jan

If you own a business registered with the Minnesota Secretary of State, you my have received a recent mailing that appears to be a “Notice” or “Disclosure Statement” from the State of Minnesota advising you to get your annual meeting minutes prepared. See example here: Mailer: Annual Meeting Disclosure Statement. The company behind the mailing, the Minnesota Corporate Minutes Company, is using these mailings to present an offer to prepare Minutes of Directors and Shareholders Meetings (for a corporation) or Minutes of Member and Governor Meetings (for a limited liability company –or LLC) for a fee. However, it’s important to know the company is a commercial enterprise that is neither affiliated with the State of Minnesota nor is it providing legal representation. I have had multiple clients contact me confused about their obligations and asking me what they need to do with this “notice.” Fortunately, they contacted me before sending their money or turning over potentially sensitive business and personal information.

The mailing requests, among other things, the identity of officers, directors, and even shareholders, including their names, email addresses, and/or mailing addresses. This information, once turned over, is subject to use for whatever means Minnesota Corporate Minutes Company may wish. Despite requesting personal information about anyone involved with the business, the mailing contains no indication of a privacy policy or a limit to the soliciting company’s permitted use of the information. The requested information is the kind of data advertisers and marketers often purchase so they can target their efforts at certain groups, such as a list of confirmed business owners and operators in Minnesota. We are not aware of information suggesting that Minnesota Corporate Minutes Company has sold or intends to sell the business or personal information it receives. But in general, if you are the officer or manager of a business, and you turn over information about your company’s shareholders to an entity with which you are not familiar, with which there is no attorney-client relationship, which is not a government agency, and which has no bounds on its ability to use that personal information, you have the potential to face some tough questions from those shareholders, or worse.

The mailing does highlight important statutes relating to a corporation’s or limited liability company’s obligations to maintain books and records. It also refers to the concept of “piercing the corporate veil,” which means a court may decide to hold the owners of a company personally liable for the debts or obligations of that company if it has not observed the proper corporate formalities. Maintaining updated books and records, complete with meeting minutes, is one of those formalities. Moreover, this article is not intended to comment on the propriety of having another party prepare your meeting minutes or advise you on what they should contain. Nevertheless, businesses and business owners should fully understand with whom they’re sharing information, and of the other purposes to which that information may be put without the business or business owner’s knowledge or further consent.

Business owners can receive guidance on how to prepare annual meeting minutes from their lawyers, or they can have their lawyers prepare the minutes for them. Like many things, there are proper ways to establish and maintain a business identity and to protect the business owners from liability, but there are many mistakes that can be made along the way –any of which could be very costly to the business and its owners. In addition, your business lawyer has professional and ethical obligations to ensure the confidentiality and proper handling of your company’s information, and that of its owners. If you have any questions about a notice or offer that your business receives, or maintaining the protections against personal liability that your company was intended to provide, it usually pays to consult with a lawyer before acting on it.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-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, 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.

Real Estate Buyers Beware: Supreme Court opinion demonstrates importance for investors and developers to perform due dilligence before closing

14 Dec

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We’ve all heard the old adage: An ounce of prevention is worth a pound of cure. It surprises me how frequently I learn that clients or other savvy investors or businesspeople proceed to purchase real estate without receiving critical advice or performing adequate due diligence.

The Minnesota Supreme Court’s decision in Mattson Ridge, LLC v. Clear Rock Title, LLP, et al. demonstrates why, when purchasing land for investment, development, or even for personal enjoyment, due diligence is so important. The case involves Mattson Ridge, a real estate firm seeking investment opportunities in real estate, and presumably a savvy real estate investor in its own right. The company purchased 64 acres of farmland with the intent to hold it as an investment to sell to another party for future development.

Mattson Ridge read the market perfectly. It closed on its purchase of the property in September 2005 for $1.286 million and by the end of October 2005 had a purchase agreement in place to sell the property for $2.9 million. The sale was scheduled to close in May 2006, but a problem with the legal description of the property prevented the sale because it constituted a defect in the title to the property. In real estate terms, the seller was unable to provide “marketable title” to the property as of the date the buyer was ready, willing and able to close.

Mattson Ridge did take one step to protect itself that a surprising number of parties fail to do, which was to secure title insurance to protect against any title issues that might arise based on defects existing at the time it purchased the property. Unfortunately, that wasn’t enough to completely protect it. The limits under the title insurance policy were set at Mattson Ridge’s purchase price ($1.286 million), rather than at a higher figure that would have covered the full market value of the property (which the evidence suggests was $2.9 million, in light of the purchase agreement it entered into to sell the property).

In its opinion in the Mattson Ridge case, the Supreme Court held that the title to the property was defective, but that Mattson Ridge was not permitted to recover more on its insurance than the policy limits. This means Mattson Ridge is entitled to recovery $1.286 million, plus about $11,000 of out-of-pocket expenses, but it will not recover the profits it lost as a result of the failed closing; more than $1.6 million beyond those policy limits. An ounce of legal advice and assistance with due diligence in this matter would have prevented the need to seek more than a pound of cure -a cure that the buyer was denied because just buying title insurance was not enough.

What’s even more alarming than the $1.6 loss that wasn’t covered by insurance was that the case could have turned out even worse for Mattson Ridge. The Supreme Court declined to decide certain additional issues, which included whether a clause in the insurance policy called a “coinsurance provision” or “coinsurance clause” should reduce the coverage available to Mattson Ridge. A coinsurance provision in an insurance policy states that, if the insured purchases a policy with limits that are more than a certain percentage below the actual extent of potential loss that may arise (often 80 percent), the insured’s recovery may be reduced significantly. This issue did not affect Mattson Ridge because the title insurer did not raise it before the case reached the Supreme Court, but it certainly could have done so and if it had, the buyer could have lost even more money. This represents yet another reason to get advice and assistance when performing the proper due diligence required to make a sound real estate purchase.

Mattson Ridge ultimately was able to remedy the title defect, meaning it could be sold with a title that is now marketable (i.e., without the title defect that prevented its sale under the October 2005 purchase agreement). But the delays and defects that existed because the problem was not discovered prior to its own purchase means Mattson lost its opportunity to obtain a profit of more than $1.6 million in less than a year, and that kind of opportunity may not present itself again.

If you’re considering buying or selling real estate, or have a potential problem with providing or obtaining marketable title, consider taking a heavy dose of prevention and contact an attorney with Thomsen Nybeck. We have been assisting parties with real estate transactions and disputes for 40 years, and we can help you avoid the need for a painful cure that may never come. And, if need be, we can help administer the cure as well.

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Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-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 on issues involving construction litigation, community associations and real property issues in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Conciliation Court Limit in MN increased to $10,000 Today

1 Aug

In Minnesota, Conciliation Court (the term used for small claims court) has been the forum to resolve legal disputes concerning a smaller amount of disputed damages than would otherwise be pursued in District Court.  Until today, the limit on the amount in controversy that can be pursued in Conciliation Court was capped at $7500.

Due to the Minnesota Legislature changing that cap, an amount in controversy up to $10,000 may now be pursued in Conciliation Court.  The $10,000 limit became effective today (August 1, 2012).  While it is still possible to handle a Conciliation Court matter without utilizing an attorney, having the possibility of obtaining a judgment for $10,000 (or conversely having a judgment against you for $10,000) is likely a sufficiently significant financial proposition that is its prudent to consider hiring an attorney to at least advise you about your options, help you prepare for Conciliation Court and so forth.

Now that a dispute up to $10,000 can be held in Conciliation Court, determining whether a matter is “worth litigating” and whether or not to enter an arbitration agreement in various business or real estate transactions is something to consider anew.  If you are faced with a Conciliation Court action, or are contemplating initiating one, some preliminary information can be found at the Minnesota Judicial Branch website (mncourts.gov).  Separately, you might find the guide available at the Attorney General’s Office website useful.  They have a “User’s Guide to Small Claims Court”, which you can find here.  Once you’ve reviewed that information, your next step should be to contact your attorney.

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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.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.

Minnesota Supreme Court Reverses Court of Appeals; Gives Advice On How to Preserve Claims and Avoid Spoliation (An Update on Miller v. Lankow)

4 Aug

On February 25, 2010, I first wrote about the case of Miller v. Lankow.  At the time, I explained why the Minnesota Court of Court of Appeals’ decision that upheld the district court’s dismissal of the plaintiff’s case seemed extreme and inconsistent with existing law.  (Read that post here).  The Minnesota Supreme Court apparently agreed, and on August 3, 2011 it reversed the dismissal and sent the case back to the district court for further proceedings.  (Read the Minnesota Supreme Court’s Opinion here).

Without going into too much detail, the facts of the case involve a property owner who discovered water intrusion problems, which the seller claimed to have fixed, were still causing problems and resulted in mold and other damage.  The buyer provided notice to the seller and the contractors who were involved that he had discovered these defects and that he would pursue legal action if the parties did not reach a resolution.  Several parties attended an inspection at the property where they had the opportunity to view some of the damage.   The contractors and former owners knew they might be sued, but they did not request the ability to conduct further investigation into the cause or extent of the damage.  The owner later repaired the damage without telling the defendants exactly when he planned to start.

After the owner sued the property sellers and contractors for construction defects, water intrusion, fraud and a seller’s failure to disclose defects, the defendants claimed they were not given a sufficient opportunity to inspect the cause and extent of the damage.  They asked the district court to exclude the evidence the plaintiff gathered because they claimed they did not have a similar opportunity to review the same evidence before it was removed and destroyed.  The district court agreed, ordering that the plaintiff may not use any evidence of the defects and damage that the defendants did not see, which was a sanction for “spoliation” (i.e., destroying evidence).  Without this evidence, the plaintiff had no case, and the district court concluded that the case must be dismissed.  The plaintiff appealed to the Minnesota Court of Appeals, which held that the district court had not abused its discretion by sanctioning the plaintiff and dismissing the case.

The concern the Court of Appeals’ decision raised for me was the notion that, even if the defendants have notice of the claim of damage and the potential for litigation, the plaintiff might still have to wait to make repairs to his home while the defendants seemed to be in no particular hurry to investigate the claims against them.  Sometimes, particularly where water intrusion is at issue, prompt repairs are necessary to avoid further property damage and even personal injury.

The Minnesota Supreme Court agreed that legitimate concerns about destroying evidence before others have had a chance to inspect it must be weighed against the reasonableness of asking the party in control of the evidence to maintain it.  The Supreme Court held that, as has always been the case, the party with custody of evidence has a “duty” to preserve relevant evidence to permit other parties to inspect the evidence for use in litigation.  It also remains true that  party who breaches this duty may be sanctioned for spoliation, whether or not the breach was committed intentionally or in bad faith.

But a custodial party’s duty to preserve evidence is not boundless.

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[T]he duty to preserve evidence must be tempered by allowing custodial parties to dispose of or remediate evidence when the situation reasonably requires it.

The Court identified a three-factor test for evaluating a case of spoliation:

“(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.”

(citing Schmid v. Milwaukee Electric Tool Corp., 13 F.3d 76, 79 (3d Cir. 1994)).  “[S]anctions are not appropriate when the custodial party has a legitimate need to destroy evidence, and it appears from the totality of the circumstances that noncustodial parties have received sufficient notice to protect themselves by taking steps to inspect or preserve the evidence and nevertheless do nothing.”

The Court went on to offer recommendations to avoid a sanction for spoliation.  Ideally, an owner will call a meeting or send a letter “indicating the time and nature of any action likely to lead to destruction of the evidence, and offering a full and fair opportunity to inspect.”  Obviously, any notice of the meeting or of an offer to inspect should be in writing.

People might be amazed to realize that this issue is just one hurdle to sustaining a successful case for construction defects.  There also are notice requirements under certain statutory warranties (as well as other requirements to satisfy prior to commencing suit), as well as statutes of limitation which differ from claim to claim and the little-known statute of repose.  There also are agreements by which a party may have reduced the time during which it has to raise a claim for construction defects.  To help navigate the issues that exist, parties should consult with an attorney knowledgeable in the area of construction and construction defects.  At Thomsen Nybeck, we know these issues, and we can help.  Find out more at www.tn-law.com or call us at 952.835.7000.

Entry by Matt Drewes.  Matt Drewes is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment.  He has been quoted in articles appearing in the Minneapolis StarTribune, Minnesota Lawyer, and on websites such as Yahoo!Finance.com, Bankrate.com and HOALeader.com, and has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years.  He can be reached at mdrewes@tn-law.com.

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