Herll v. Auto Owners Insurance Company

Background

Mark and Patricia Herll’s home sustained damage in a hailstorm. They submitted an insurance claim to Auto-Owners under their homeowners’ policy. Because the parties could not agree on the amount of the loss, they used an appraisal process provided by the policy.

The appraisal panel’s original September 2014 award listed $116,208 as the replacement cost and $81,345.60 as the actual cash value for dwelling damage other than the front and right windows. It separately listed $60,000 in replacement cost and $42,000 in actual cash value for the front and right windows, while questioning the number of losses involving those windows. Auto-Owners paid $76,345.60, representing the $81,345.60 actual cash value less a $5,000 deductible. It made no other payments.

In an earlier stage of the case, the court confirmed the award, but the United States Court of Appeals for the Eighth Circuit held that the award was ambiguous, vacated the judgment, and sent the matter back for clarification. On April 10, 2018, Auto-Owners notified the court that the appraisal panel had clarified the award. The panel stated that the dwelling loss amounts were $116,208 in replacement cost and $81,345.60 in actual cash value. It also stated: “Gross Loss. Windows on the Front/South and Right/East exterior have hail damage but not from this 8/26/2013 storm!!”

Pre-award interest

The court held that the Herlls were entitled to pre-award interest under Minnesota Statutes section 549.09. That statute generally provides interest on money damages beginning with the earliest of the lawsuit, a demand for arbitration, or a written notice of claim that sufficiently describes the damages and demands payment.

The Herlls argued that interest should run from a September 13, 2013 email in which Mark Herll reported hail damage and asked that the claim process begin. The court rejected that argument because the email notified Auto-Owners of a possible claim but did not demand payment. The court ruled that interest began on the date the Herlls demanded an appraisal. Because the record did not state that date, the court ordered the Herlls to provide supporting documentation within fourteen days. If the parties disputed the date, Auto-Owners was required to notify the court within five days after the Herlls’ submission.

The court also rejected the request to calculate interest through the clarified award in March 2018. Auto-Owners had paid the actual cash value listed in the original award in September 2014. The court therefore directed that interest be calculated from the appraisal demand through the date of the original award.

The court further ruled that interest applied to the actual cash value, not the replacement cost value. The policy required payment of replacement costs actually spent to repair or replace damaged property, and the Herlls did not spend the remaining repair money until after the appraisal award. The court concluded that they were not entitled to interest for the use of money they had not yet spent.

Recoverable depreciation

The Herlls sought $14,361.02 in unpaid repair costs under the policy’s replacement-cost provisions. They submitted evidence that they had spent $95,706.62 repairing the dwelling, excluding the front and right windows.

Auto-Owners argued that $44,000 of the claimed expenses involved a full roof replacement, while the appraisal panel had allowed only $630 for roof repair. The court rejected that argument because the appraisal award did not limit which roof repairs were covered. The court also found that one of the appraisers who issued the award, James Stoops, was not competent to testify about the matter under Minnesota law.

Disposition

The court ordered that the motion to confirm the appraisal award, for declaratory judgment, and for pre-award interest was granted in part and denied in part. It confirmed the $81,345.60 actual cash value and the $116,208 replacement cost value, awarded the Herlls $14,361.02 in recoverable depreciation, and ruled that they were entitled to pre-award interest calculated under the directions in the order. The order did not state the final dollar amount of that interest.