ELM Creek Courthome Ass'n, Inc. v. State Farm Fire & Cas. Co.

971 N.W.2d 731

ELM CREEK COURTHOME ASSOCIATION, INC., Appellant,

v.STATE FARM FIRE AND CASUALTY COMPANY, Respondent.

A21-0964

Court of Appeals of Minnesota.

Filed February 14, 2022

Alexander M. Jadin, Timothy D. Johnson, Ross M. Hussey, Karly A. Kauf, Smith Jadin Johnson, PLLC, Bloomington, Minnesota (for appellant/cross-respondent)

Scott G. Williams, Kathleen K. Curtis, Lehoan T. Pham, Haws-KM, P.A., St. Paul, Minnesota (for respondent/cross-appellant)

Considered and decided by Cochran, Presiding Judge; Connolly, Judge; and Smith, John, Judge.^*

CONNOLLY, Judge

Appellant and cross-respondent Elm Creek Courthome Association, Inc. (Elm Creek) seeks to reverse a grant of summary judgment relating to an insurance appraisal award providing for the use of existing undamaged siding to repair damaged siding on the same property. Respondent and cross-appellant State Farm Fire and Casualty Company (State Farm) in turn appeals the district court's decision granting preaward interest to Elm Creek. Because the insurance policy does not preclude the use of undamaged siding for repairs, we affirm in part, and because the amount of preaward interest was incorrectly calculated we reverse in part, and remand.

FACTS

Elm Creek is a residential common-interest community of 21 buildings in Champlin, Minnesota. A hailstorm damaged the buildings in June 2017. Elm Creek reported the loss to State Farm, its insurer. The record is silent as to how Elm Creek reported its loss. There is no written document in the record from Elm Creek to State Farm reporting the loss. However, State Farm generated a notice-of-loss report on September 20, 2017, and sent the notice to Elm Creek.¹ State Farm inspected the buildings a month later, estimated the covered damages amounted to $187,978.99, and issued a net payment for $75,530.08.

Elm Creek requested a second inspection in 2018. In June 2019, Elm Creek hired its own public adjustor to provide an independent estimate. This adjustor estimated Elm Creek suffered a loss of $2,869,634.10 due to the June 2017 hailstorm. After receiving this estimate, Elm Creek served State Farm with a complaint alleging breach of the insurance contract and seeking declaratory judgment as to the extent of the policy's coverage.

Elm Creek also demanded an appraisal at that time. The appraisal panel issued its decision on October 11, 2019. It awarded Elm Creek $622,839.72 in replacement cost value (RCV) of the losses, or $582,519.72 in actual cash value (ACV) of the losses. The panel specifically stated that "[s]iding was covered on 4 buildings due to match." It also provided for "harvesting from the other 4 buildings" for damages to the siding on 10 additional buildings. State Farm issued a check to Elm Creek for $486,989.64² the next month.

Elm Creek filed a motion to vacate the appraisal award and a motion seeking declaratory relief in January 2020. Elm Creek argued that the policy does not allow for "harvesting,"³ that the appraisal panel reached matters outside the scope of its authority, and that Elm Creek is entitled to full siding replacement for all 21 buildings. State Farm opposed this motion. In June, the district court determined that Elm Creek's motions and State Farm's opposition to them were to proceed as "cross motions for summary judgment as to the procedural validity of the appraisal award and whether the award is in violation of the terms of the insurance contract."⁴

The district court issued its summary judgment decision in July 2020. It denied Elm Creek relief, concluding that "harvesting" is a method of repair that did not violate the terms of the insurance contract. Accordingly, it granted summary judgment in State Farm's favor. But it also instructed the parties to identify any remaining issues before it directed entry of final judgment.

Elm Creek identified the amount of preaward interest that may be due as an outstanding issue. The district court issued its order on preaward interest in June 2021. It determined Elm Creek was the prevailing party in the appraisal and concluded that the September 20, 2017, notice-of-loss report generated by State Farm constituted a written notice of claim by Elm Creek to trigger the accrual of preaward interest. It awarded Elm Creek $109,510.42 in interest calculated based on the RCV appraisal award amount. The district court also directed entry of final judgment on both the July 2020 summary judgment order and the June 2021 order for preaward interest.

Elm Creek appeals the denial of its claims for declaratory relief. State Farm cross-appeals the award of preaward interest to Elm Creek.

ISSUES

I. Is State Farm entitled to summary judgment that the appraisal award was consistent with the terms of the insurance policy?

II. Is Elm Creek entitled to $109,510.42 in preaward interest?

ANALYSIS

I. The appraisal award was consistent with the terms of the insurance policy and State Farm is entitled to summary judgment.

Elm Creek challenges the district court's award of summary judgment to State Farm. A district court "shall grant summary judgment" if "there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Minn. R. Civ. P. 56.01. We review a grant of summary judgment de novo to determine if the district court properly applied the law and if genuine issues of material fact preclude summary judgment. Riverview Muir Doran, LLC v. JADT Dev. Grp., LLC , 790 N.W.2d 167, 170 (Minn. 2010). And the "interpretation of an insurance policy and the application of the policy to the undisputed facts" is a question of law reviewed de novo. Com. Bank v. W. Bend Mut. Ins. Co. , 870 N.W.2d 770, 773 (Minn. 2015). Upon review, we conclude that the district court did not err by granting summary judgment to State Farm.

A. The insurance policy does not plainly prohibit "harvesting."

Elm Creek's primary challenge to the district court's decision is that the policy's plain language prohibits using "harvesting" to determine the amount of loss. We review the interpretation of an insurance policy de novo and according to general contract principles. Thommes v. Milwaukee Ins. Co. , 641 N.W.2d 877, 879 (Minn. 2002). A contract is to be interpreted as a whole "with meaning given to all of its provisions." Am. Nat'l Bank of Minn. v. Hous. & Redevelopment Auth. , 773 N.W.2d 333, 337 (Minn. App. 2009). We interpret an insurance policy to "ascertain and give effect to the intentions of the parties." King's Cove Marina, LLC v. Lambert Com. Constr. LLC , 958 N.W.2d 310, 316 (Minn. 2021) (quotation omitted). We determine the parties’ intent from "the plain language of the instrument itself." Storms, Inc. v. Mathy Constr. Co. , 883 N.W.2d 772, 776 (Minn. 2016) (quotation omitted). If the language is "clear and unambiguous," we "enforce the agreement of the parties as expressed" in the contract. Id. In other words, we do not "rewrite, modify, or limit" the effect of an unambiguous provision "by a strained construction." Id. (quotation omitted).

The relevant policy provisions are those concerning the conditions for "Loss Payment:"

e. Loss Payment

In the event of loss covered by this policy:

(1) At our option, we will either:

(a) Pay the value of lost or damaged property;

....

We will determine e.(1)(a) in accordance with the applicable terms of Paragraph e.(4) ....

(4) ... we will determine the value of Covered Property as follows:

(a) At replacement cost without deduction for depreciation, as of the time of loss, subject to the following:

i. We will pay the cost to repair or replace, after application of the deductible and without deduction for depreciation but not more than the least of the following amounts:

....

2) The cost to replace, on the described premises, the lost or damaged property with other property of comparable material, quality and used for the same purpose

....

Elm Creek first focuses on "depreciation." The plain meaning of "depreciation" is "[a] decrease or loss in value, as because of age, wear, or market conditions," or "[a]n allowance made for a loss in value of property." The American Heritage Dictionary of the English Language 488 (5th ed. 2018). Because "harvesting" is the "process of reusing materials from one location or structure to repair portions of a separate location or structure," Elm Creek contends that the policy prohibits "harvesting" because it necessarily uses aged materials to make repairs. This interpretation is a strained construction that does not give effect to all the policy's provisions.

Whenever "depreciation" is used in the policy, it is used in the context of the phrase "without deduction for depreciation." The plain meaning of "deduction" is "[t]he act of deducting; subtraction," or "[a]n amount that is or may be deducted." Id. at 473. These "Loss Payment" provisions thus merely provide a method of accounting that disclaims subtracting the property's inherent loss of value over time from the amount to be paid as the RCV of the property. As the plain meaning of "without deduction for depreciation" does not relate to any method of making repairs, it does not operate to prohibit "harvesting."

Elm Creek also argues that because the "Loss Payment" provisions require the use of "other property" to replace "lost or damaged property," re-using existing materials from the same property to make repairs is contrary to the policy's plain language. But construing these provisions as a whole reveals that "other property" in its proper context does not mandate the use of brand-new materials in all repairs. The plain meaning of "other" includes "[d]ifferent from that or those implied or specified." Id. at 1249. In context of the "Loss Payment" provision, "other property" merely designates the materials used for repairs as different from "the lost or damaged property." Because "harvesting" contemplates using existing but undamaged materials to repair the "lost or damaged property," it does not fall afoul of the "other property" provision.

Construing the ...