Update on Insurance Coverage and Appraisal Law in Minnesota; David Quade v. Secura Insurance, 2011 WL 68822 (Minn. Ct. App. Jan. 11, 2011)

On January 11, 2011, the Minnesota Court of Appeals issued its latest opinion involving the ever-changing law involving insurance coverage disputes and the appraisal process in Minnesota.

According to the Court of Appeals in David Quade v. Secura Insurance, 2011 WL 68822 (Minn. Ct. App. Jan. 11, 2011), when an insurance company pays a portion of a claim and denies coverage on another portion of the claim, the insured is not entitled to an appraisal on the portion of the claim that is denied, but rather the district court retains jurisdiction to decide the denial as a coverage dispute.  Specifically, the Quade opinion dealt with a claim for damage to several buildings, for which the insurance company paid for the damage to some of the buildings, but not all of them on the grounds of inadequate maintenance.  The district court ordered the parties to submit to an appraisal of the claim on the grounds that the insurance company’s failure to pay for repair to all the buildings constituted a dispute as to the amount of loss, for which an appraisal was appropriate.

The Court of Appeals, however, reversed, suggesting that the refusal to cover the damage to some of the buildings is not a dispute as to the amount of loss, but rather a denial of coverage as to the claims on those buildings.  Therefore, the Court of Appeals concluded that under the facts presented, an appraisal was not appropriate because the dispute was one as to coverage, rather than the amount of loss, and jurisdiction over said disputes is within the purview of the courts.  This opinion will have a significant impact on how insurance companies characterize their response to claims in which there is not undisputed damage as a result of a covered loss.

Previously, insurance companies and insured would consider this a dispute as to the amount of loss for the entire claim (rather than separating the claim into covered and uncovered portions), for which the parties would participate in an appraisal pursuant to the insurance policy.  Since this new opinion, however, all a party may need to do is claim a denial of coverage on even a portion of the damaged property in order to avoid an appraisal of the amount of loss.  Therefore, the Quade opinion can be interpreted to mean that if there are any coverage issues involved with a claim, such as what caused the damage or whether the damage occurred within the policy period, the Court could require a lawsuit to resolve those issues before compelling the parties to participate in an appraisal, which is meant to be a cost-effective way of resolving disputes between insureds (i.e., homeowners) and insurance companies, without the expense of a lawsuit.

Depending on the situation, this can be both beneficial and harmful for homeowners in Minnesota.  If, for example, an insurance company demands an appraisal without first providing its estimate as to the amount of loss, while at the same time claiming the right to deny coverage after the appraisal process occurs, the homeowner may be able to successfully argue that an appraisal is not appropriate until after the coverage issues are resolved by the Court.

Under this scenario, insurance companies previously were able to improperly use the appraisal process as a delay tactic by demanding and participating in an appraisal with full intent of denying coverage thereafter if the appraisal award was not favorable to the insurance company.  The Quade opinion arguable hampers an insurance company’s use of the appraisal process to delay resolution of a claim in the future.  On the other hand, if a homeowner demands an appraisal after concluding there is a dispute as to the amount of loss, the insurance company can arguably avoid the appraisal and force the homeowner into a lawsuit by simply claiming that the insurance company has denied coverage with respect to at least some of the alleged damage at issue in the claim.  Under this scenario, if a hail storm severely damages the western slope of a roof, while causing less damage to the other slopes, the insurance company can arguably pay the claim with respect to the western slope, and claim no coverage on the other slopes due to insufficient damage, thereby forcing the homeowner into a lawsuit with respect to the other slopes, rather than an appraisal as provided for in the insurance policy.

Although this case is the latest in legal developments in insurance coverage and appraisals, a lot of its reasoning is open to interpretation.  Until another case is brought before the Court of Appeals, or unless this case is reviewed by the Minnesota Supreme Court, the Quade opinion will likely be the subject of much dispute between homeowners, insurance companies, lawyers and the courts.

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