Creekview of Hugo Association, Inc. v. Owners Insurance Company
File No. 19-cv-00487 (ECT/TNL)
UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA
May 29, 2019
Eric C. Tostrud
Adina R. Bergstrom, Kayla M. Cottier, and Brenda M. Sauro, Sauro & Bergstrom, PLLC, Oakdale, MN, for Plaintiff Creekview of Hugo Association, Inc.
Brock P. Alton, Gislason & Hunter LLP, Minneapolis, MN, for Defendant Owners Insurance Company.
The multi-building Creekview of Hugo Townhomes complex (the “Property“) was damaged by a large wind and hail storm on June 11, 2017. At the time of the storm, the Property was insured under a policy issued by Defendant Owners Insurance Company. Owners and the Property‘s homeowners association, Plaintiff Creekview of Hugo Association, Inc. (“Creekview“), dispute the amount currently owed under the policy, even following an appraisal conducted pursuant to the policy and Minnesota statute. Creekview filed a motion in Washington County District Court seeking confirmation of the appraisal award and an order requiring Owners to pay the $374,838.63 Creekview contends was still
I
The Parties seem to agree on the broad outline of the facts: The Property was damaged by wind and hail on June 11, 2017. Mem. in Supp. at 3 [ECF No. 4]; Mem. in Opp‘n at 3–4 [ECF No. 9]. At the time, Creekview was covered under an insurance policy issued by Owners that covered the replacement cost of just such a covered loss. Mem. in Supp. at 3; Mem. in Opp‘n at 3–4; see also Cottier Aff. Ex. A at BP 00 02 01 87 (“Policy“) at 12 [ECF No. 5-1 at 47–67].
The policy provides that, in general, Owners “will not pay on a replacement cost basis for any loss or damage . . . [u]ntil the lost or damaged property is actually repaired or replaced; and . . . [u]nless the repairs or replacement are made as soon as reasonably
Creekview opened a claim with Owners on June 19, 2017. Cottier Aff. Ex. B [ECF No. 5-1 at 69]. Owners retained an independent adjusting firm, Moe & Nevins, which determined that the replacement cost value of the damage was $1,196,299.26. See Cottier Aff. Ex. C [ECF No. 5-1 at 71]. On August 29, 2017, Owners issued Creekview a check for $832,684.96—to cover the actual cash value of the loss, as determined by its own adjuster, minus Creekview‘s $25,000 deductible—and confirmed that an additional payment for recoverable depreciation could be paid after Creekview completed its repairs. Cottier Aff. Ex. D [ECF No. 5-1 at 73–76]. But Creekview‘s repair contractor, Lincoln Hancock Restoration, estimated that the replacement cost value of the damage was $1,654,913.44, which was around $450,000 more than the replacement cost value assigned
2. Appraisal
If we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.
Policy at 11; Alton Decl. Ex. 2 [ECF No. 10-1 at 2]. Creekview‘s request was dated May 25, 2018, but was not received by Owners until July 3, 2018. Compare Alton Decl. Ex. 2 with Alton Decl. Ex. 3 [ECF No. 10-1 at 3]. No evidence in the record suggests the reason for this lag, although at oral argument Owners’ counsel stated that it was the result of a delay between when he received the request and when he transmitted it to Creekview.
On July 13, 2018, Owners requested that Creekview provide proof of loss, and reiterated that request several more times before Creekview provided an itemized and sworn proof-of-loss statement on October 11, 2018. See Alton Decl. Exs. 3–7 [ECF No. 10-1 at 3–93]. On October 30, 2018, the appraisal panel—the appraiser each Party selected, along with the umpire selected by those two appraisers—conducted the appraisal
Creekview understood the policy to require Owners to make full payment within five days after the appraisal award was issued, see Mem. in Supp. at 5 (citing
In furtherance of its position that all repairs at the Property had been completed, Creekview provided Owners with a copy of a December 19, 2018 invoice from Lincoln Hancock describing a total of $1,499,354.52 in “[s]torm damage repairs completed per the appraisal award,” and seeking payment for the unpaid balance of those repairs. Cottier Aff. Ex. E [ECF No. 5-1 at 78]; Mem. in Supp. at 6; Mem. in Opp‘n at 5. Moe & Nevins undertook reinspection in early January 2019. Alton Decl. Ex. 9 [ECF No. 10-1 at 103–04]. Following the reinspection, it exchanged several emails with Creekview‘s contractor about a number of repairs it did not believe had been completed, although Moe & Nevins‘s specific concerns were unclear and it was, in several respects, unresponsive to Creekview‘s contractor‘s requests for clarification. See Alton Decl. Ex. 8 at 1–6 [ECF No. 10-1 at 94].
Meanwhile, on February 5, 2019, Creekview filed a motion in Washington County District Court to confirm the appraisal award and for entry of a judgment awarding interest, costs, and fees. ECF No. 3. Two days later, on February 7, 2019, Moe & Nevins issued a supplemental report to Owners documenting that, in its opinion, several repairs remained incomplete. Alton Decl. Ex. 9. It had been unable to reinspect the roofing repairs at the Property due to weather conditions. Alton Decl. Ex. 10 [ECF No. 10-2]. On February 27,
As the Parties continued briefing Creekview‘s motion in federal court, Owners issued a partial depreciation payment of $20,273.95 on March 20, 2019, bringing the amount of unpaid recoverable depreciation to $354,564.68. Bergstrom Aff. Ex. R [ECF No. 16-1 at 159–68]. That payment was based on Moe & Nevins‘s reinspection and its itemized calculations, and it did not include any depreciation holdback relating to repairs that Owners did not believe had been completed or that, due to weather delays, it had not yet been able to verify to its satisfaction. Id.; see also Alton Decl. Ex. 10; Mem. in Opp‘n at 6; Elert Decl. Ex. B [ECF No. 17-1 at 18–128]. For example, the supplemental payment did not include payment for any depreciation holdback for roofing or roofing components, satellite-dish recalibration, two overhead doors, two windows, some number of aluminum gutters and downspouts, siding on one building, or chimney caps. Elert Decl. Ex. A at 4–5 [ECF No. 17-1 at 2–16]. Creekview‘s contractor maintains that many of these repairs have indeed been completed, but the record is at least ambiguous as to whether some items have been repaired or replaced to Owners’ satisfaction. Id. Creekview now seeks an order awarding it the unpaid balance of the entire appraisal award, plus interest, costs, and fees. ECF No. 18.
II
As an initial matter, the Parties disagree about which response brief the Court should consider with respect to Owners’ opposition to the motion. When Owners removed, it filed Creekview‘s motion papers in federal court, but not its own opposition to Creekview‘s
The Court declines Creekview‘s request and will consider Owners’ federal-court filings made in connection with this motion. Owners may have created some procedural confusion when it did not file its original brief in federal court at the same time it removed the case, but the Court did not explicitly order Owners to file the exact same brief it had filed in state court, and Owners therefore is not in violation of the Court‘s briefing order. See ECF No. 8 at 2 (ordering that “Owners must file any opposition to Creekview‘s motion” by the deadline (emphasis added)). Furthermore, this motion presents a fairly unusual situation in which highly pertinent facts—how much Owners has paid Creekview,
III
This matter is before the Court on the basis of diversity jurisdiction. Minnesota‘s substantive law therefore applies. Hanna v. Plumer, 380 U.S. 460, 465 (1965). Because the Court‘s role in this diversity action is to interpret the state law of Minnesota, it is bound by the decisions of the Minnesota Supreme Court. Minn. Supply Co. v. Raymond Corp., 472 F.3d 524, 534 (8th Cir. 2006). “When a state‘s highest court has not decided an issue, it is up to this court to predict how the state‘s highest court would resolve that issue.” Continental Cas. Co. v. Advance Terrazzo & Tile Co., 462 F.3d 1002, 1007 (8th Cir. 2006). When the decisions of a state‘s intermediate appellate court present “the best evidence of what state law is,” those decisions constitute persuasive authority that this Court will follow. Id.
A
The Parties dispute whether, under Minnesota law, appraisal awards are reviewed under the Minnesota Uniform Arbitration Act (as Creekview contends) or under a system
Owners strenuously argues that the Minnesota Uniform Arbitration Act does not apply to the review and confirmation of appraisal awards. Mem. in Opp‘n at 7–14. That position conflicts with numerous decisions by the Minnesota Court of Appeals spanning more than three decades. See, e.g., David A. Brooks Enterps., Inc. v. First Sys. Agencies, 370 N.W.2d 434, 435 (Minn. Ct. App. 1985) (“Since appraisal awards are to be treated as arbitration awards, the same standard of review applies.” (citation omitted)); Vesledahl Farms, Inc. v. Rain & Hail Ins. Serv., Inc., No. C2-96-1049, 1996 WL 722101, at *2 (Minn. Ct. App. 1996) (“The appraisal provision of the parties’ contracts necessitated that the district court construe the contract to provide for arbitration.” (citing David A. Brooks)); QBE Ins. Corp. v. Twin Homes of French Ridge Homeowners Ass‘n, 778 N.W.2d 393, 398 (Minn. Ct. App. 2010) (“Appraisal decisions are subject to
That is not to say that Owners is unreasonable in arguing that appraisal awards are a form of common-law arbitration not controlled by the Minnesota Uniform Arbitration Act. It cites, for example, Dufresne v. Marine Insurance Co., a 1923 Minnesota Supreme Court decision evaluating a challenge to the validity of an appraisal against the procedural rules that applied to common-law arbitrations. Mem. in Opp‘n at 9 (citing 196 N.W. 560, 561 (Minn. 1923)). Owners also relies heavily on a footnote in a dissent authored by Justice G. Barry Anderson in Poehler v. Cincinnati Insurance Co. distinguishing appraisals from arbitration. Mem. in Opp‘n at 11 (citing 899 N.W.2d 135, 148 n.4 (Minn. 2017) (Anderson, J., dissenting) (“Often, and unfortunately with resulting confusion, the terms ‘appraisal’ and ‘arbitration’ are used interchangeably.” (citation omitted))). But the majority decision in Poehler necessarily rejected the distinction Justice Anderson identified. See 899 N.W.2d at 140–41. In the absence of any Minnesota Supreme Court decision from the modern era specifically addressing whether appraisal awards are reviewed as a form of common-law arbitration or under the Minnesota Uniform Arbitration Act, the best evidence available is the long line of precedent from the Minnesota Court of Appeals and the Eighth Circuit‘s reliance on those state-court decisions. This Court will not deviate from that authority.
B
The Parties do not seem to seriously disagree that, at some point, Owners must pay Creekview the $354,564.68 in depreciation holdback that remains unpaid following the
It has. Suppose for a moment that Owners is correct that, for example, two overhead doors have not been replaced. See Elert Decl. Ex. A at 4. It does not want to pay Creekview for what Owners believes is the replacement cost of those doors until after those doors have in fact been replaced, and it argues that it is not required to do so under the policy. But the appraisal award did not indicate that those specific doors were included in the replacement cost it awarded and did not itemize a replacement cost for those doors. Cottier Aff. Ex. F.
C
Owners admits that, under Poehler, 899 N.W.2d 135, it owes Creekview pre-award interest. See Mem. in Opp‘n at 14. Under
1
The Parties agree that because Creekview commenced this action after the appraisal award, the date on which this action was commenced could not possibly be the correct start date for the pre-award interest calculation. See Mem. in Supp at 13; Mem. in Opp‘n at 16.
The statute does not define what it means to give “written notice of claim.” Creekview contends it submitted its “written notice of claim” to Owners about a week after the storm, on June 19, 2017, when Creekview‘s insurance manager informed Owners by email that it needed to open a claim stemming from hail damage that occurred on June 11, 2017.4 See Cottier Aff. Ex. B; Reply Mem. at 13. Owners contends that Creekview did not provide “written notice of claim” until more than a year later, on October 11, 2018, when it provided Owners a proof of loss. See Alton Aff. Ex. 7; Mem. in Opp‘n at 20.
Minnesota courts have not defined precisely what constitutes a “written notice of claim” in the context of an insurance dispute such as this one, again leaving this Court in the position of predicting how the Minnesota Supreme Court would resolve that issue. See
It is clear that, under Minnesota law, a written notice of claim need not identify a specific amount of damages sought to trigger pre-award interest; rather, the issue is whether the defendant “could have determined the amount of its potential liability from a generally recognized objective standard of measurement.” Bunn-O-Matic Corp., 1996 WL 689768, at *10 (quoting Solid Gold Realty, Inc. v. Mondry, 399 N.W.2d 681, 684 (Minn. Ct. App. 1987)). In the unpublished Bunn-O-Matic decision, the Minnesota Court of Appeals
Here, Creekview‘s insurance manager informed Owners on June 19, 2017:
Good afternoon,
I need to open a claim for this community. Below are the details:
DOL: 6/11/17
Cause: Hail
Please have the assigned adjustor contact me and let me know the claim number once you have record of it.
Thank you[.]
Cottier Aff. Ex. B. The only reason an insured would open a claim with its insurance carrier is that it believed its loss was covered under the applicable policy and that it claimed some amount of payment from the insurer for the damage. As in Bunn-O-Matic, Creekview‘s email notified Owners of its loss, the fact that it was making a claim under the policy, and the cause of the damage (hail). Though general, the email‘s reference to
This conclusion is further informed by the Minnesota Supreme Court‘s decision in Poehler, which cited favorably to a Report and Recommendation issued by Magistrate Judge Hildy Bowbeer in Eden Homeowners Association, Inc. v. American Family Mutual Insurance Co., No. 15-cv-3527 (RHK/HB) (D. Minn. Dec. 22, 2015), ECF No. 29 (hereinafter “Eden R&R“), R&R adopted (D. Minn. Jan. 11, 2016), ECF No. 30. See Poehler, 899 N.W.2d at 143. Poehler observed that in Eden, Magistrate Judge Bowbeer recommended awarding pre-award interest “from the date on which the insured provided written notice of its claim to the insurer.” Id. (citing Eden R&R at 16). The Report and Recommendation does not state explicitly that it was using the date on which the plaintiff informed its insurer that it was opening a claim, but given that Magistrate Judge Bowbeer recommended awarding pre-judgment interest beginning only two days after the date of loss, that is the obvious conclusion. See Eden R&R at 2 (identifying date of loss as August 6, 2013), 16 (using August 8, 2013, the date on which the plaintiff “gave written notice of its claim” to its insurer as the start date for pre-award interest). No party in Eden objected to Magistrate Judge Bowbeer‘s Report and Recommendation, and Judge Richard H. Kyle accepted it in full. Poehler‘s favorable treatment of Eden with respect to the start
A different rule or result would invite arbitrary line-drawing by courts. Because Minnesota courts have been clear that a party need not demand a specific dollar amount to trigger pre-award interest, expecting Creekview to do more than inform Owners that it was opening a claim for hail damage but something short of making a specific monetary demand would require the Court to identify some intermediate level of specificity not suggested by the statute, Minnesota case law, or even Owners’ brief. Cf. Buskey v. Am. Legion Post #270, 910 N.W.2d 9, 15, 17 (Minn. 2018) (rejecting defendant‘s argument that the Minnesota Civil Damages Act‘s actual-notice provision requires that a defendant have notice of “certain indispensable facts” in order to have “‘[a]ctual notice of sufficient facts reasonably to put the [defendant] on notice of a possible claim,‘” saying that, “[h]ad the Legislature wanted to specify and mandate the vital components of actual notice . . . it could have done so” (quoting
Accepting Owners’ argument would also encourage gamesmanship by insurers. Here, the policy only requires Creekview to submit proof of loss if and when requested by Owners. Policy at 11 (in a section entitled “Duties In The Event Of Loss Or Damage,” requiring Creekview to, “[a]t [Owners‘] request, give us complete inventories of the
As Owners points out, at least two decisions in this District have reached the opposite result, finding that similar communications to insurers do not constitute written notice of claim under
2
Creekview argues that pre-award interest should be calculated on the total appraisal award. Mem. in Supp. at 12. Owners argues, first, that interest should not be awarded on depreciation holdback because that money is not owed until repairs are completed; and second, that its initial payment of $832,684.96 should also be excluded in calculating pre-award interest. Mem. in Opp‘n at 20–23. As to Owners’ first argument, the Minnesota Supreme Court‘s decision in Poehler requires that the depreciation holdback be included in the interest computation. But as to its second argument, the purposes of pre-award interest under
As explained above, all repairs awarded by the appraisal panel—that is, repairs totaling the nonitemized replacement value of the Property, as determined at appraisal—are now complete. But even if that were not the case, the Minnesota Supreme Court made clear in Poehler that a contract provision governing when payment on a claim is due does not limit the availability of pre-award interest. 899 N.W.2d at 141–42. Even though
But Owners is correct that its pre-appraisal payment of $832,684.96 should be excluded from the pre-award interest calculation once that payment was made to Creekview.6 By statute, pre-award interest is owed only on pecuniary damages.
D
In Minnesota, post-award interest accrues annually on “the unpaid balance of the judgment or award from the time that it is entered or made until it is paid, at the annual rate
E
Given the longstanding and frequently reaffirmed authority of the Minnesota Court of Appeals holding that the Minnesota Uniform Arbitration Act applies to the review of appraisal awards, and given that Creekview is the prevailing party in this matter, it is entitled to an award of attorneys’ fees, costs, and reasonable litigation expenses under
ORDER
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that Plaintiff Creekview of Hugo Association, Inc.‘s Motion to Confirm the Appraisal Award, Enter Judgment, and for Interest, Costs, and Fees [ECF No. 3] is GRANTED IN PART and DENIED IN PART as follows:
- The appraisal award‘s determinations that the actual cash value of the loss is $1,124,515.89 and the replacement cost of the loss is $1,499,354.52 are CONFIRMED;
- Plaintiff is entitled to recoverable depreciation in the amount of $354,564.68;
- Plaintiff is entitled to pre-award interest in an amount to be calculated in accordance with this Order. Within seven days of the date of this Order, Plaintiff must file a revised calculation of pre-award interest consistent with the terms of this Order. If Defendant disputes that calculation, it must file a notice describing its objection within seven days of Plaintiff‘s filing;
- Plaintiff is entitled to post-award interest in the amount of $16,395.20 through March 20, 2019, plus an additional $97.14 per day per day from March 21, 2019, until the entry of judgment; and
- Plaintiff‘s request for attorneys’ fees, costs, and expenses is DENIED WITHOUT PREJUDICE to Plaintiff‘s ability to renew that motion at a later time.
Dated: May 29, 2019
s/ Eric C. Tostrud
Eric C. Tostrud
United States District Court