Maplebrook Estates Homeowner's Ass'n v. Hartford Fire Ins. Co.

Alexander M. Jadin and David A. Brandis, Smith Jadin Johnson, PLLC, for Plaintiff.

Jonathan D. Day and Paulette S. Sarp, for Defendant.

MEMORANDUM AND ORDER ON PARTIES' MOTIONS FOR SUMMARY JUDGMENT

SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant Hartford Fire Insurance Company's (“Hartford”) Motion for Summary Judgment [Doc. No. 65] and Plaintiff Maplebrook Estates Homeowner's Association, Inc.'s (“Maplebrook”) Cross Motion for Summary Judgment [Doc. No. 73]. For the following reasons, the Court grants in part and denies in part each party's motion.

I. BACKGROUND

A. Hailstorm and Insurance Policy

Maplebrook manages a non-profit, common interest residential community in Brooklyn Park, Minnesota. (Notice of Removal [Doc. No. 1], Ex. 1 (Compl.) ¶ 1.) On

August 5, 2019, a storm caused hail and wind damage to eighty-nine of Maplebrook's buildings. (See Miller Decl. [Doc. No. 68], Ex. 1 (Miller Damage Report); Brandis Decl. [Doc. No. 74], Ex. E (Appraisal Award or the “Award”) at 1.) Although various parts of the buildings ultimately needed repair, this dispute concerns the repair of damaged siding.

At the time of the storm, Hartford insured Maplebrook's buildings under a Special Multi-Flex Business Insurance Policy (the “Policy”). (Brandis Decl., Ex. A (Policy) at 5.)^[1]The Policy reads, in relevant part, “We will pay for direct physical loss of or direct physical damage to . . . Covered Property caused by or resulting from a Covered Cause of Loss.” (Id. at 119.) Covered causes of loss include “windstorm or hail.” (Id. at 107.)

When damaged, Covered Property is subject to “Replacement Cost.” (Id. at 23.) For such property, the Policy provides:

[W]e will determine the value of Covered Property at the actual amount spent to repair, replace or rebuild the damaged property as of the time of the loss or damage, at the same site or another site, subject to the following:

a. We will not pay more for lost or damaged property than the least of

(1) The Limit of Insurance applicable to the lost or damaged property

(2) The amount it costs to replace, on the same premises, the lost or damaged property with other property

(a) Of comparable material and quality; and

(b) Used for the same purpose; or

(3) The amount you actually spend that is necessary and reasonable to repair or replace the lost or damaged property with other property

(a) Of comparable material and quality; and

(b) Used for the same purpose ....

b. We will pay you on an Actual Cash Value basis until the lost or damaged property is actually repaired, rebuilt or replaced.

(Id. at 121.)

Minnesota law requires all hail insurance policies to provide for an appraisal process. See Minn. Stat. § 65A.26 (2023). The Policy thus outlines:

If [Hartford] and [the insured] disagree on the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:

a. Pay its chosen appraiser; and b. Bear the other expenses of the appraisal and umpire equally.

If there is an appraisal, we will still retain our right to deny the claim on the grounds that it is not covered under this policy.

(Policy at 103.)

Finally, the Policy requires Maplebrook to take certain actions when a covered loss occurs. (See id. at 106.) Of note here, Maplebrook must “Protect Property”:

Take all reasonable steps to protect the property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim . . . [Hartford] will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.

(Id.)

B. Claim Submission

After the hailstorm, Maplebrook initiated the claims process. The record is silent as to how Maplebrook reported its loss, however on September 9, 2019, Hartford acknowledged by email receipt of the claim. (Brandis Decl., Ex. C (Sept. 9, 2019

Email).) In the ensuing months, Maplebrook entered into a series of contracts to assess and repair the damage to its buildings.

On September 24, 2019, Maplebrook retained a public adjuster, James Pierce, d/b/a Gavnat and Associates (“Gavnat”), to represent it in the insurance claim process. (First Sarp Decl. [Doc. No. 70], Ex. C (Authorization Agreement).) Under their contract, Mr. Pierce would receive as compensation 10% of the total insurance proceeds paid by Hartford to Maplebrook. (First Sarp Decl., Ex. D (Public Adjuster Contract).)

That same month, Maplebrook hired Capital Construction, LLC (“Capital”) as its general contractor to “perform the repair and replacement work specified in [Maplebrook's] insurance company's estimate of repairs.” (First Sarp Decl., Ex. E (Construction Contract).) Capital would receive as payment the proceeds from the insurance settlement and pay Gavnat's fee out of those proceeds. (Id.; First Sarp Decl., Ex. F (Muelken Dep.) at 25:12-26:2, 40:3-12.)

Finally, in early October 2019, Capital entered into an agreement with New Concepts Management, Maplebrook's property manager at the time, to act as a liaison between Capital and Maplebrook during the construction project. (First Sarp Decl., Ex. G (Project Oversight Contract) at 45; First Sarp Decl., Ex. H (McLarty Dep.) at 17:9-18:4.) Per the contract, New Concepts would receive 1% of the payments made to Capital on behalf of Maplebrook. (Project Oversight Contract at 46; Muelken Dep. at 27:22-31:1.)

For its part, Hartford retained J.S. Held, LLC (“J.S. Held”) to determine the nature and extent of the hail damage to Maplebrook's properties. (Miller Decl. ¶¶ 2-3.)

C. Loss Estimates and First Undisputed ACV Payment

On October 2, 2019, Mr. Pierce sent Mr. Becker “the initial estimate for the roofs only.” (First Sarp Decl., Ex. Y.) He noted that Maplebrook had pulled samples of the siding to send to ITEL, an independent laboratory that identifies construction materials matching those on an existing home. (Id.; Muelken Dep. at 6:11, 61:1-62:2.) To obtain the samples for ITEL, Mr. Muelken removed one-foot sections of siding from four or five buildings, corresponding to the colors used across Maplebrook's properties. (Muelken Dep. at 61:19-62:2; Brandis Decl., Ex. G (ITEL Report) (analyzing five samples).) Mr. Muelken did not conduct a close inspection or make a record of the siding's condition when he removed the samples. (Muelken Dep. at 61:1-65:2.)

ITEL found that four of the five original siding products had been discontinued and were no longer available. (See ITEL Report.) It suggested alternative siding replacements “based on closest match to the original color and physical specifications.” (Id.) These alternatives varied in their degree of similarity to the original siding. (See id.)

Also in October, Sean Miller, building consultant and vice president with J.S. Held, and two colleagues inspected Maplebrook's damaged buildings and recorded the number of hail strikes on each elevation. (Miller Damage Report; First Sarp Decl., Ex. K (Hartford Statement of Loss) at 7.) One building displayed as many as forty damaged siding areas, while some buildings had no visible damage. (Miller Damage Report; Muelken Dep. at 86:23-87:2.) Still others sustained a handful of hail strikes. (See Miller Damage Report.) Maplebrook does not dispute the overall accuracy of Mr. Miller's report. (See Muelken Dep. at 87:6-9; First Sarp Decl., Ex. J (Pierce Dep.) at 78:1-25

(noting that although he found additional hits after Mr. Miller's report, Mr. Pierce had no record of them).)

On December 13, Hartford's adjuster Jay Becker sent Mr. Pierce the insurer's Statement of Loss. (Hartford Statement of Loss at 3.) The Statement, based on J.S. Held's preliminary estimates, assessed the undisputed actual cash value (“ACV”)^[2] of the claim as $3,442,778.08: the estimated replacement cost value (“RCV”) of $6,348,856.46, less $2,016,078.38 in depreciation and Maplebrook's $890,000 deductible. (Id. at 5.) Hartford issued a payment of $3,442,778.08 to Maplebrook three days later. (See First Sarp Decl., Ex. L (Claim Payment Log) at 1.)

Along with the Statement of Loss, Mr. Becker sent J.S. Held's damage estimate reports for each building. (See Hartford Statement of Loss at 6-90.)^[3]Under the heading “Scope recap,” J.S. Held noted, “The vinyl siding will require some elevation replacement and some spot repairs, or replacement of pieces on other elevations due to the direction of the storm.” (Id. at 7.) The “General Conditions” estimate included a lineitem for “Job-site cargo/storage container” with an explanatory note: “Allowance for on site storage of salvaged siding, and other materials.” (Id. at 8.) In the individual building estimates, siding-related line items noted, “Remove and replace one piece of siding identified with damage .... Material provided by siding removed from other buildings/elevations.” (See, e.g., id. at 16.)

In his declaration, Mr. Miller explained that J.S. Held's estimates assumed the use of “harvesting” as a siding repair method. (Miller Decl. ¶ 7.) Harvesting, according to Mr. Miller, is a common,...