Christina Phillips | Property Insurance Coverage Law Blog | June 25, 2019
I recently had a public adjuster reach out to me asking me how pre-award interest on an appraisal award was calculated. Coincidently, in Creekview of Hugo Association v. Owners Insurance Company,1 the United States District Court for the District of Minnesota recently addressed the application of pre-award or pre-judgment interest under Minnesota Law.
Under Minnesota Statute §549.09, subd. 1(b), except as otherwise provided by contract or allowed by law, prejudgment interest on an appraisal award begins accruing “from the time of the commencement of the action or the demand for arbitration, or the time of a written notice of the claim, whichever occurs first.” The Minnesota Supreme Court, in Poehler v. Cincinnati Insurance Company,2 held that §549.09 provided for pre-judgment interest on appraisal awards.
In Creekview, the claim dispute proceeded to appraisal which ultimately resulted in an award being entered for the insured for approximately $450,000 more than the replacement cost value determined by the insurer’s independent adjuster. Creekview filed suit seeking confirmation of the appraisal award, as well as pre and post-award interest. The parties disputed the date on which pre-award interest began to accrue.
The insured submitted written notice of its claim via email to Owners approximately one week after the hailstorm event, requesting that Owners open a claim stemming from the hail damage that had occurred. Owners disputed that this constituted “written notice of claim,” arguing that such notice was not provided until the insured submitted its proof of loss.
While “written notice of claim” is not defined, the court in Creekview held that such a notice need not identify a specific amount of damages to trigger pre-award interest. Rather, the only reason an insured would open a claim with its insurance carrier was because it believed its loss was covered under the policy and that it claimed some amount of payment from the insurer for that damage.3 In that regard, the association’s email which had referenced the “community” suggested that the extent of the damages was not confined to a single building, but rather provided information from which Owners could have determined its potential liability.
More specifically, the court noted that Owners’ interpretation of Minn. Stat. §549.09, requiring that an insured submit a proof of loss before pre-award interest is triggered, would allow insurers to largely control whether and when pre-award interest is triggered. In other words, the insured could delay or not ask for a proof of loss, whereby avoiding altogether its pre-award interest obligations. Such conduct would be inconsistent with and defeat the dual purposes of the pre-award interest: (1) compensating the plaintiff for the loss of use of the money; and (2) promoting settlement.4
The court concluded that the better approach, consistent with the intent of Minn. Stat. §549.09, is that pre-award interest began accruing when Creekview opened its claim, triggering Owners’ “affirmative duty to inquire into the particular benefits that [Creekview was] claiming and to provide [it] with a position on [its] claim.”5
The court went on to explain that while the depreciation holdback should be included in the interest computation, the amount of Owners’ initial payment (before appraisal occurred) should be excluded from the computation. The court’s reasoning went back to the dual purposes of the pre-award interest statute. First, once Owners made its initial payment, the insured had the money in hand and needed no compensation for the loss of its use of these funds. Second, inclusion of such funds in the calculation of the pre-award interest would also disincentivize insurers from making such payments, curbing settlement.
___________________________________
1 Creekview of Hugo Association, Inc. v. Owners Ins. Co., No. 19-487, 2019 WL 2283693 (D. Minn. May 29, 2019).
2 Poehler v. Cincinnati Ins. Co., 899 N.W.2d 135 (Minn. 2017).
3 Creekview, 2019 WL 2283693 *7.
4 Id. at *8.
5 Id.