Smith v. State Farm Fire and Casualty Company

Background

State Farm insured Mark Smith’s home. Lightning struck at or near the home on July 20, 2018, damaging personal property, electronics, appliances, and other equipment. Smith initially estimated the loss at $414,979. State Farm valued it at $62,353.76, while an engineer hired by Smith later calculated the loss at $285,405.

The parties eventually submitted the valuation dispute to an appraisal panel. The panel awarded $98,038.99 in actual cash value and $163,398.32 in replacement cost value. State Farm paid the actual cash value and later paid Smith $61,510.87 in replacement cost value for property that he timely repaired or replaced.

Smith replaced the damaged irrigation system on July 20, 2021, three years after the lightning strike. The panel valued that loss at $6,765. State Farm paid $4,059 in actual cash value but refused to pay the remaining $2,706 in replacement cost value because the policy required repair or replacement within two years.

The parties filed cross-motions for summary judgment on two remaining issues: whether State Farm owed the irrigation-system replacement-cost amount and how much preaward interest State Farm owed.

Preaward interest

The parties agreed that Smith was entitled to preaward interest but disputed the starting date and amount. Applying Minnesota law, the court held that interest began when Smith sent State Farm his August 28, 2018, email. The email listed the allegedly damaged items, included repair and replacement estimates, and stated an estimated loss of $414,979. The court found that this information was sufficient to allow State Farm to assess its potential liability. State Farm’s disagreement with Smith’s valuation did not mean that Smith had failed to give notice of his claim.

The court calculated interest at 10 percent and ruled that State Farm owed Smith $27,450.92 on the actual cash value award and $19,228.47 on the replacement value amount, for a total of $46,679.38 in preaward interest.

Irrigation system

State Farm argued that the policy’s two-year repair-or-replacement deadline barred recovery of the irrigation system’s replacement-cost value. The court rejected that argument. It held that State Farm materially breached the policy by failing to adjust the loss as the policy required. The court cited evidence that State Farm delayed the claims process, failed for at least a year to provide an adequate coverage position or answer Smith’s coverage questions, and initially denied Smith’s appraisal demand before agreeing to appraisal after the policy deadline had passed.

The court ruled that State Farm’s conduct frustrated Smith’s performance and excused his delay in repairing the irrigation system. State Farm therefore owed Smith the additional $2,706 in replacement-cost value.

Disposition

The court denied State Farm’s Motion for Summary Judgment, granted Smith’s Motion for Summary Judgment, and ordered State Farm to pay Smith $46,679.38 in preaward interest and $2,706 in replacement-cost value for the irrigation system.