On April 26, 2023, the Minnesota Supreme Court enforced a no-interest provision in State Farm’s property policy that stated: ”[n]o interest accrues on the loss until after the loss becomes payable.” Applying the provision, the Court denied pre-award interest on an appraisal award. Wesser v. State Farm Fire & Cas. Co. (Minn. April 26, 2023).
Wesser reaffirms that Minnesota courts will enforce provisions in a property insurance policy that limit or preclude pre-verdict, pre-award, or pre-report interest in a way that is different from that allowed by Minn. Stat. § 549.09, subd. 1(b).
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Minnesota Statute § 549.09, subd. 1(b) (2022), provides:
(b) Except as otherwise provided by contract or allowed by law, pre-verdict, pre-award, or pre-report interest on pecuniary damages shall be computed as provided in paragraph (c) from the time of the commencement of the action or a demand for arbitration, or the time of a written notice of claim, whichever occurs first, except as provided herein… (Emphasis added.)
The State Farm Policy issued to Wesser stated:
8. Loss Payment. We will adjust all losses with you. We will pay you unless some other person is named in the policy or is legally entitled to receive payment.
Loss will be payable five business days after we receive your proof of loss and:
a. reach agreement with you;
b. there is an entry of a final judgment; or
c. there is a filing of an appraisal award with us.
No interest accrues on the loss until after the loss becomes payable. (Emphasis added.)
In Wesser, the Minnesota Supreme Court concluded that under § 549.09, subd. 1(b), pre-award interest accrues during the period of time before an award is made. However, under the policy as written, interest did not begin to accrue until after the appraisal award was made. Under § 549.09, subd. 1(b), the terms of the policy controlled and precluded pre-award interest.
In another recent opinion, the Minnesota Court of Appeals held that where pre-award interest is controlled by § 549.09, subd. 1(b), and not by the policy, a written notice generated by a third-party insurance agency at the insured’s direction and on the insured’s behalf is a “written notice of claim” sufficient to start accrual of pre-award interest. Shardlow Townhomes Ass’n v. Midwest Family Mut. Ins. Co., 2023 WL 2847234 (Minn. App. April 10, 2023).
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More Details on Wesser v. State Farm
On February 5, 2020, a fire damaged Wesser’s house. Over a course of months, State Farm investigated the loss. By July 10, 2020, State Farm had made payments of $241,451.45 to Wesser—the full amount of State Farm’s estimate repair cost less Wesser’s $1,000 deductible. Wesser disagreed with State Farm’s valuation; his contractor estimated it would cost $330,213.95 to rebuild the house. On July 29, 2021, the parties submitted the claim to appraisal. The appraisal panel determined that the actual cash value of the loss was $228,191.74 and that the loss replacement cost was $302,113.50. Because Wesser had not completed the repairs to his house and State Farm had already paid Wesser $241,451.45 (which was more than the $228,191.74 that the appraisal panel determined to be the actual cash value of the loss), State Farm did not pay Wesser any additional amounts following the appraisal panel award.
Wesser’s attorneys demanded $30,211.35 in pre-award interest on the appraisal award, calculated by multiplying the loss replacement cost of $302,113.50 as determined by the panel by the 10 percent per annum rate set forth in statute. State Farm denied any obligation to pay pre-award interest on the appraisal award. It asserted that the policy expressly provided that State Farm only owed Wesser interest if it failed to pay Wesser the total amount due as set forth in the appraisal award within 5 days of the award. Accordingly, because State Farm paid Wesser more than the actual cash value for the loss (the total amount due to Wesser until he completed the repairs) before the appraisal award was issued, State Farm maintained that there was no outstanding amount upon which interest could accrue. The district court agreed with State Farm. The court of appeals reversed. The Minnesota Supreme Court enforced the no-interest provision in the Policy and concluded that Wesser was not entitled to pre-award interest.
The holding in Wesser reinforces past precedent from the Minnesota Supreme Court. In the 2017 opinion of Poehler v. Cincinnati Ins. Co., 899 N.W.2d 135 (Minn. 2017), the Court concluded that § 549.09, subd. 1(b), allows for the recovery of pre-award interest on the amount of the loss determined by an insurance appraisal. But Poehler also recognized that the statute does not control the recovery of preaward interest where “‘otherwise provided by contract,’” i.e., where the parties to an insurance policy “contract . . . on the accrual of interest.” In Poehler, the insurance policy was silent as to the accrual of interest and so the court calculated pre-award interest under § 549.09, subd. 1(b). In response to Poehler, many insurers revised their policies to expressly address the accrual of pre-award interest.
On appeal, Wesser had argued that the no-interest provision was ambiguous (and thus not enforceable) as to the meaning of the word “loss” because the ultimate amount of the loss may vary depending on whether the insured completes a repair or replacement. The Minnesota Supreme Court concluded that “the fact that two measures of loss may apply under the policy do not make the word ‘loss’ ambiguous in the ‘no interest’ provision.”
Wesser argued that the no-interest provision violates Minnesota’s standard fire policy, Minn. Stat. § 65A.01, which requires than an insurer pay interest “from the time when the loss shall become payable.” But the Court held that when a case goes to appraisal, Minn. Stat. § 65A.01, subd. 3, “does not contemplate interest accruing before the appraisal award is filed with the insurer.” The opinion suggests that the outcome may be different if an insurer denies coverage outright and there is no ascertainment of the loss either by agreement or appraisal, but rather a denial and subsequent litigation.
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Issues of pre- and post-award interest and pre-and post-judgment interest are complex and often litigated. The members of Arthur Chapman’s Insurance Coverage Group are experienced in handling these issues, but at the district court and on appeal, and are ready to walk you through your insurance coverage questions.
