Longfellow Investment v. Cincinnati Specialty Underwriters Insurance Company

Background

Longfellow purchased a commercial property insurance policy from Cincinnati Specialty Underwriters Insurance Company (CSU), which the opinion describes as a surplus-line insurer. The policy covered damage from fire, smoke, riot or civil commotion, vandalism, and firefighting efforts. It defined a constructive total loss as a loss exceeding the property’s actual cash value at the time of loss. The policy limits valued the property at $1.5 million and allowed either party to demand an appraisal if the parties disagreed about the amount of the loss.

During civil unrest following George Floyd’s murder in spring 2020, a pawnshop sharing a common wall with Longfellow’s property was set on fire, and the property was vandalized. Longfellow claimed that the property was a total loss and submitted two repair estimates exceeding $1.5 million. CSU obtained an estimate valuing the repairs at less than $200,000 and demanded an appraisal under the policy.

The appraisal panel inspected the property, considered evidence from both sides, and used Google Maps to measure the roof because neither party’s estimate included roof measurements. The panel concluded that CSU’s estimate was closer to the actual damage amount, while adding some amounts based on the information obtained during the appraisal. It issued an award of $334,969.84 in total loss value, or $282,343.61 after depreciation.

Longfellow sued, alleging breach of contract, breach of the covenant of good faith, and seeking a declaration invalidating the appraisal award. CSU asserted counterclaims alleging that Longfellow breached the contract and seeking a declaration that CSU had satisfied its contractual duties. Both parties moved for summary judgment, which is a decision without a trial when the evidence shows no genuine dispute over a fact important to the outcome and the moving party is entitled to judgment under the law.

Longfellow’s Motion

Longfellow argued that Minnesota Statute § 65A.01 barred CSU from demanding an appraisal when Longfellow claimed a total loss. The court rejected that argument. It explained that § 65A.01 establishes requirements for traditional, authorized fire-insurance policies, including an appraisal process that excludes total losses. But the Minnesota Surplus Lines Insurance Act provides that surplus-line insurers are not subject to the insurance laws in chapters 60 through 79, subject to the limitations discussed by the court.

Because CSU was a surplus-line insurer, the court held that § 65A.01 did not apply to it and did not bar CSU from demanding an appraisal. The court therefore denied Longfellow’s Motion for Partial Summary Judgment.

Validity of the Appraisal Award

The court explained that Minnesota law presumes appraisal awards are valid, but insured parties must have a right to be heard and a reasonable opportunity to present evidence. Longfellow argued that the award was invalid because the panel limited its evidence, relied on its own observations and investigation, and issued an award that was not rationally related to the repair estimates.

The court rejected Longfellow’s argument that the panel improperly excluded pertinent evidence. Longfellow’s property manager, Hamoudi Sabri, did not attend the appraisal in person after CSU demanded that he not appear at the property. But the court noted that Longfellow did not object to Sabri’s absence before or during the appraisal and did not show that Sabri could not have testified remotely. The court also found that the panel considered Longfellow’s repair estimates, engineering reports, rebuttal report, and expert testimony.

The court further held that the panel did not improperly rely on its own investigation. Appraisers may use their judgment and experience if the parties receive notice and a reasonable opportunity to present evidence and the panel does not disregard that evidence. The panel heard testimony from both parties, inspected the property, and used Google Maps to supplement missing roof measurements. The panel also observed repairs to the adjoining pawnshop and considered evidence supporting CSU’s position that the property was not a total loss.

Finally, the court held that Longfellow did not show that the award was so grossly inadequate that it supported an inference of fraud. The award was lower than Longfellow’s estimates but slightly higher than CSU’s estimate and was based on CSU’s estimate with additional amounts. Mere inadequacy was not enough to invalidate the award.

Ruling

The court granted CSU’s Motion for Summary Judgment in part and denied it in part. It dismissed Longfellow’s breach-of-contract and declaratory-relief claims because Longfellow failed to establish that the appraisal award was invalid and there was no genuine dispute of material fact concerning those claims. The court denied CSU’s motion as to Longfellow’s breach-of-the-covenant-of-good-faith claim because CSU did not address that claim in its summary-judgment arguments. The court also denied Longfellow’s Motion for Partial Summary Judgment.