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Know Your Rights: What Every Property Owner Should Know About Making an Insurance Claim for Storm, H
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Minnesota Community Living September/October 2011

Know Your Rights: What Every Property Owner Should Know About Making an Insurance Claim for Storm, Hail or Fire Damage

By J. Robert Keena, Hellmuth & Johnson, PLLC

With the recent history of significant storms throughout the Midwest, many property owners, including both commercial building owners and private homeowners, have been faced with significant property insurance claims.

While the typical property owner may not be sophisticated in the technicalities of these claims, there can be no doubt insurance companies understand their rights, as well as the explicit terms of their particular insurance policies.

Further, there is an old saying in the insurance industry that when property owners are purchasing insurance the most important concern is price, and when property owners are making an insurance claim the most important thing is coverage. In other words, some property owners skimp on coverage in favor of saving dollars and live to regret it.

Because of this, all property owners must understand their rights when making a property damage claim. Property owners face a number of technical and contractual issues when it comes to making a damage claim, even when there is a disagreement between themselves and the insurers with regard to the value of the loss.

One important provision included in every policy in Minnesota gives property owners a right to demand an appraisal of the loss when there is a disagreement with the insurer as to the value of the loss. The word "appraisal” in this context can be confusing.

While many people are familiar with the term appraisal when it comes to evaluating the value of a property itself (say, for example, with a mortgage or a tax appraisal), that same term is used for an alternative dispute resolution process utilized when there is a disagreement between the property owner and their insurer as to the cost of repair for a loss. In this context, an "appraisal” refers to a process whereby the insured can submit evidence regarding their view as to the value of the loss and the insurer can do the same. Insureds are often very surprised as to the insurer’s view of the value of the loss.

Often the insurer will "make an offer” with regard to a loss that is far less than what the insured perceives as the cost of repair. When an impasse occurs, under most every policy sold in the State of Minnesota, the insured has a right to demand to enter into the process called an appraisal.

The appraisal process can be formal and involve attorneys in the event the insured decides to retain someone to act on their behalf. As the "appraisal” is an alternative dispute resolution process, like mediation or arbitration, if an attorney is retained evidence is presented regarding the insured’s calculation on the value of the damages followed by a presentation by the insurer on the same issue.

Then, the appraisers (one of whom has been retained by the insurer and one of whom has been retained by the insured) discuss the evidence presented. If they agree, then they sign the Appraisal Award and the matter is over. If the appraisers disagree, an umpire selected by the two appraisers will review the evidence and typically sign on with one of the appraiser’s views. The insured and the insurers both pay their own fees for their respective appraiser, and one-half of the umpire’s fee. Often, with the assistance of an attorney, the ultimate Appraisal Award can be many times the amount offered by the insurer after limited review by their adjusters.

The appraisal process is one of the most overlooked rights of an insured when a property loss occurs. Very often insureds will perceive that their only right against the insurer is to sue them for breach of contract. This appraisal process, however, is often the best way to increase the amount of the award for the loss. Even without an attorney, many insureds have obtained better claim results after an appraisal than without. When an attorney is not used, the insureds typically have their own contractor act as their appraiser and simply forward correspondence to the insured demanding an appraisal of the loss. Their contractor then presents the evidence with regard to the cost of the repair and a contractor for the insurer or even an adjuster presents their own evidence to an umpire. Typically without an attorney the umpire will then make a decision regarding the value of the loss. Although the process of appraisal and other rights of the insureds under an insurance policy should be used as a standard course of business by the insurers in response to claims by property owners, there are times when the insurers fail to act in good faith and deny their insureds rights to which they are entitled under the law.

Historically, Minnesota has been a state in which insureds have very few rights to pursue a claim for "bad faith” insurance adjusting. Many other states surrounding Minnesota have had bad faith laws which historically have favored insureds. Minnesota’s laws in the past have had hurdles that were very difficult to overcome.

In 2008, however, Minnesota adopted Minnesota Statute Section 604.18 which, although referred to as the "Good Faith Statute,” gives insureds rights and remedies and penalties when they have been treated unfairly or in bad faith by their insurer.

The "Good Faith Statute” allows the District Court to award "taxable costs” to an insured against an insurer if the insured can show 1) the insurer lacked a reasonable basis for denying a policy benefit; and 2) the insurer knew that it lacked a reasonable basis for denying the policy benefit or recklessly disregarded its lack of a reasonable basis for denying the benefit. This new statute certainly has teeth. Under this statute, an insured, upon successfully presenting a violation of the statute, is entitled to "the lesser of either $250,000 or one-half of the proceeds awarded in excess of the amount offered by the insurer at least ten days before trial,” as well as "reasonable attorney’s fees actually incurred to establish the insurer’s bad faith.” (Citing Minn. Stat. § 604.18, subd. 3).

So, for example, under this statute, if an insurer were to deny coverage in bad faith and later the insured were to recover $100,000, the insured could be entitled to $50,000 as an additional penalty, along with the attorney’s fees incurred to establish the statutory breach. This will result in positive benefits for insureds in that it will dissuade insurers from recklessly denying rights under insurance policies. 
There is a variety of conduct which could constitute a violation under the statute. Although a Court of Appeals decision has yet to be issued directly applying to this statute, some examples of conduct that may constitute a breach of the statute include: 1) failure to honor an insurance demand for an appraisal; 2) failure to admit coverage when there is no evidence to support a lack thereof; 3) failure to promptly pay an undisputed amount of loss; and 4) delay in conducting the investigation or inadequate investigation of a loss by an insurer.

While it is true that citizens also have to wait for a Court of Appeals analysis on the application of any new statute, the Minnesota Good Faith Statute gives insureds rights which they previously did not have. It also may result in insurers acting in a more prompt and professional manner in the analysis of a claim.

This new statute, coupled with an insured’s understanding of all of their rights under the policy, such as their right to appraisal, can facilitate quick resolution of insurance claims in this era of increased storm damages and complex statutory and insurance policy applications. The message to insureds is simple: They must know their rights.

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