Minnesota Courts Continue to Grapple with Pre-Appraisal-Award Interest Claims Post-Poehler
Two years ago, in Poehler v. Cincinnati Insurance Company, 899 N.W.2d 135 (2017), the Minnesota Supreme Court extended Minnesota’s civil interest statute—Minn. Stat. § 549.09—to insurance appraisal awards. Even though the insurer did not breach its insurance policy, the interest statute says nothing about appraisals, and both the insurance policy at issue and the Minnesota Standard Fire Insurance Policy, Minn. Stat. § 65A.01, subds. 3 and 3a, contained loss payment provisions that dictated that a loss did not become payable until after the filing of an appraisal award with the insurer, the Poehler court (in a 5-2 decision) broadly held that section 549.09 unambiguously provides for preaward interest on appraisal awards. Ever since, Minnesota courts have been grappling with how to apply the decision.
In particular, the Poehler court did not address how much time an insured has to bring a claim for pre-appraisal-award interest or what triggers the accrual of pre-appraisal award interest under the statute. The court also did not address the district court’s award of preaward interest on undisputed amounts paid prior to the appraisal in addition to the disputed amounts awarded by the appraisal panel. These issues and others have thus been the subject of additional litigation in Minnesota’s state and federal courts since the supreme court’s decision in Poehler.
Time Limit to Seek Pre-Appraisal-Award Interest
The Minnesota Supreme Court recently agreed to consider how much time an insured has to bring a claim for pre-appraisal-award interest in Oliver v. State Farm Fire & Cas. Ins. Co., A18-367, 923 N.W.2d 680 (Minn. App. 2019), rev. granted (Minn. Apr. 16, 2019). In August 2017, less than a month after Poehler was decided, homeowners demanded preaward interest on a March 14, 2016 appraisal award that was timely paid by State Farm. State Farm refused based on a two-year limitation clause in the homeowners’ policy, and the homeowners filed suit to confirm the appraisal award, which had long since been paid, and to recover preaward interest on the appraisal award. The district court confirmed the appraisal award but denied the homeowner’s interest claim as untimely under section 572B.24(a) of the Minnesota Uniform Arbitration Act (MUAA), Minn. Stat. §§ 572B.01-.31, which requires that a motion to modify or correct an award be filed within 90 days. The court of appeals reversed.
Citing Poehler, the court of appeals first held that the homeowners were statutorily entitled to preaward interest. The court of appeals then went on to hold that the homeowners’ motion to confirm the appraisal award and for interest was proper because an appraisal panel lacks authority to grant preaward interest. In so holding, the court of appeals reversed its decision in David A. Brooks Enterprises, Inc. v. First Systems Agencies, 370 N.W.2d 434, 435 (Minn. App. 1985). Having determined that an appraisal panel cannot award preaward interest, the court of appeals held that the district court erred in treating the homeowners’ motion as a request to modify an appraisal award and applying the MUAA’s 90-day filing deadline to the homeowners’ motion.
Despite rejecting the MUAA’s 90-day limitation, the court of appeals declined to determine how much time a policyholder has to bring a claim for preaward interest, stating that the issue was not before the court. And State Farm did not reassert its earlier claim that the homeowners’ policy’s two-year limitations clause barred the homeowners’ preaward interest claim. As the Oliver court noted in footnote 3 of its opinion, this is presumably because the court of appeals previously rejected the argument in K & R Landholdings, LLC v. Auto-Owners Ins., 907 N.W.2d 658, 662 (Minn. Ct. App. 2018).
In K & R Landholdings, which was stayed pending the supreme court’s resolution of Poehler, the court of appeals specifically held that the policy’s time limitation for bringing an action was inapplicable because the insured’s entitlement to preaward interest arose under section 549.09 rather than the policy. But, as in Oliver, the K & R Landholdings court stopped there and did not go a step further to determine how much time a policyholder has to bring a claim for preaward interest.
Trigger of Accrual of Pre-Appraisal-Award Interest
In addition to addressing partially addressing the timing issue (and also determining the pre-appraisal-award interest is available to commercial as well as noncommercial insureds), the K & R Landholdings court summarily rejected Auto-Owners’ argument based on the dissent in Poehler that the insured was not entitled to pre-appraisal-award interest because its demand for appraisal is not one of the three events that trigger to accrual of preaward interest under section 549.09, subd. 1(b) (“Except as otherwise provided by contract or allowed by law, . . . preaward . . . interest on pecuniary damages shall be computed . . . from the time of the commencement of the action or a demand for arbitration, or the time of a written notice of claim, whichever occurs first, except as provided herein. The action must be commenced within two years of a written notice of claim for interest to begin to accrue from the time of the notice of claim.”). The court of appeals concluded that Auto-Owners’ trigger argument was inconsistent with the majority’s decision in Poehler.
This trigger issue was recently revisited by the court of appeals in Dewey Hill III Townhomes Assoc., Inc. v. Auto-Owners Ins. Co., A18-1562 (Minn. App. Jul. 1, 2019). This time, in a 2-1 published decision, the court of appeals considered at length whether Poehler’s application is limited by the statute’s explicit reference to three events that trigger the accrual to preaward interest. Auto-Owners renewed its argument that it is and argued that its insured was not entitled to preaward interest because none of the three events occurred. Specifically, Auto-Owners argued that an appraisal is neither an “action” nor an “arbitration” and that the notice of claim trigger did not apply because its insured did not commence an action within two years of such notice. Despite acknowledging that the “triggering-event issue” was not resolved by the supreme court in Poehler, the Dewey Hill majority rejected Auto-Owners’ position as “contrary to Poehler” and held that preaward interest began to accrue on the date of the insured’s demand for appraisal since the insured did not commence suit within two years of providing written notice of its claim.
Judge Reyes dissented and would have reversed the district court’s award of pre-appraisal-award interest since the insured could not satisfy any of the triggering events to begin accrual of preaward interest under the plain language of section 549.09. While acknowledging Poehler’s broad holding, Judge Reyes observed that there was no preaward action, arbitration, or notice of claim within two years of commencement of an action to trigger the accrual of preaward interest under the statute. Interestingly, Judge Reyes’ dissent is directly at odds with his decision just over a year earlier in Andersen v. Owners Ins. Co., No. A16-0115, 2018 WL 1569837, at *3 (Minn. Ct. App. Apr. 2, 2018), that a demand for appraisal can trigger the accrual of interest under section 549.09. In Anderson, Judge Reyes wrote, “Owners . . . relies on the Poehler dissent to further argue that the appraisal cannot trigger a right to preaward interest under the statute. We are not persuaded.”
Given the Poehler court’s express reservation of the trigger issue for a later date and split decision in Dewey Hill, we expect Dewey Hill to be appealed and to join Oliver and the timing issue before the supreme court in the coming months.
Pre-Appraisal-Award Interest on Undisputed Amounts
In addition to the timing and trigger issues discussed above, the Poehler court expressly declined to address whether payments made by an insurer prior to an insured’s demand for appraisal must be deducted from an award before calculating preaward interest because the issue was not properly before the court. But it is clear from the Poehler court’s description of the district court’s award of interest on undisputed amounts paid prior to appraisal as anomalous that the court would have resolved the issue in the insurer’s favor had it been properly before the court. It is therefore unsurprising the courts have largely limited pre-appraisal-award interest to unpaid amounts post-Poehler.
For example, in Noonan v. Am. Family Mut. Ins. Co., a case we discussed in previous post here, the federal district court held: “Although Poehler left the issue undecided, it is clear that interest is available not on the full amount of the award, but rather only on the portion of the award the insurer has not paid. Prejudgment interest at the statutory rate is therefore available on the difference between the appraisal award and the payment American Family made to the Noonans, less their deductible.” No. CV 16-3891 (PAM/HB), 2017 WL 6389680, at *4 (D. Minn. Dec. 13, 2017), rev'd and remanded on other grounds, 924 F.3d 1026 (8th Cir. 2019), reh'g denied (July 5, 2019).
More recently, however, the same court softened its ruling in Noonan by observing that interest may nevertheless accrue on the full amount ultimately awarded at appraisal between an insured’s written notice of its claim and insurer’s partial payment in cases in which the written notice triggers the accrual of preaward interest. See Creekview of Hugo Ass'n, Inc. v. Owners Ins. Co., No. 19CV00487ECTTNL, 2019 WL 2283693, at *9 & n. 6 (D. Minn. May 29, 2019).
Other Outstanding Issues Post-Poehler
Since Poehler, Minnesota’s federal district court has also addressed on at least three occasions whether preaward interest should be calculated on actual cash value or replacement cost. In Herll v. Auto-Owners Ins. Co., No. 15-3104 (MJD/FLN), 2018 WL 4759833, at *5 (D. Minn. Oct. 2, 2018) and Hous. & Redevelopment, Auth. of Redwood Falls v. Hous. Auth. Prop. Ins., No. CV 14-4741 (PAM/HB), 2017 WL 5197135, at *3 (D. Minn. Nov. 8, 2017), the court held that pre-appraisal-award interest is to be calculated on the actual cash value of an appraisal award not the replacement cost value unless an insured completes repairs and is entitled to the replacement cost value before the appraisal panel issues its award. But in Creekview of Hugo, the court reached the opposite conclusion, holding that loss-payment provisions, including replacement cost provisions, has no bearing on the calculation of pre-appraisal-award interest. 2019 WL 2283693, at *9 & n. 5.
Creekview of Hugo, Herll, and Housing & Redevelopment also address what constitutes “written notice of claim” and again reach conflicting results on the issue. See Creekview of Hugo, 2019 WL 2283693, at *6-8 (holding that an email informing an insurer to open a claim is a sufficient “written notice of claim” to trigger the accrual of preaward interest even though Herll and Housing and Redevelopment previously determined that similar communications to insurers do not constitute written notice of claim under the interest statute).
These issues highlight the difficulties courts are having applying the Minnesota Supreme Court’s extension of Minnesota civil interest statute to insurance appraisal awards in Poehler. And it is unlikely that the litigation over such issues will die down until the supreme court either reverses its decision in Poehler or provides further guidance as to how it is to be applied.
OLWK attorneys Dale O. Thornsjo and Lance D. Meyer represented Amici The Insurance Federation of Minnesota and The National Association of Mutual Insurance Companies in Poehler and have been closely following the litigation in Minnesota’s state and federal courts in the two years since. Accordingly, if you have questions regarding the Poehler decision or those that have followed, including the post-Poehler decisions currently working their way through Minnesota’s appellate courts, please contact Dale or Lance at (952) 831-6544.