Creekview of Hugo Ass'n, Inc. v. Owners Ins. Co.

• Decision Date: 29 May 2019
• Docket Number: File No. 19-cv-00487 (ECT/TNL)
• Citation: 386 F.Supp.3d 1059
• Parties: CREEKVIEW OF HUGO ASSOCIATION, INC., Plaintiff, v. OWNERS INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Minnesota

386 F.Supp.3d 1059

CREEKVIEW OF HUGO ASSOCIATION, INC., Plaintiff,

v.OWNERS INSURANCE COMPANY, Defendant.

File No. 19-cv-00487 (ECT/TNL)

United States District Court, D. Minnesota.

Signed May 29, 2019

Adina R. Bergstrom, Kayla M. Cottier, and Brenda M. Sauro, Sauro & Bergstrom, PLLC, Oakdale, MN, for Plaintiff Creekview of Hugo Association, Inc.

Brock P. Alton, Gislason & Hunter LLP, Minneapolis, MN, for Defendant Owners Insurance Company.

OPINION AND ORDER

Eric C. Tostrud, United States District Court

The multi-building Creekview of Hugo Townhomes complex (the "Property") was damaged by a large wind and hail storm on June 11, 2017. At the time of the storm, the Property was insured under a policy issued by Defendant Owners Insurance Company. Owners and the Property's homeowners association, Plaintiff Creekview of Hugo Association, Inc. ("Creekview"), dispute the amount currently owed under the policy, even following an appraisal conducted pursuant to the policy and Minnesota statute. Creekview filed a motion in Washington County District Court seeking confirmation of the appraisal award and an order requiring Owners to pay the $ 374,838.63 Creekview contends was still owed under the appraisal,¹ plus pre-award and post-award interest, costs, and fees. Owners removed to federal court on the basis of diversity jurisdiction, which exists here because the Parties are of diverse citizenship and the amount in controversy well exceeds the $ 75,000 threshold.² See ECF No. 1 at 3–4; 28 U.S.C. § 1332(a). Creekview's motion will be granted in part and denied in part.

I

The Parties seem to agree on the broad outline of the facts: The Property was damaged by wind and hail on June 11, 2017. Mem. in Supp. at 3 [ECF No. 4]; Mem. in Opp'n at 3–4 [ECF No. 9]. At the time, Creekview was covered under an insurance policy issued by Owners that covered the replacement cost of just such a covered loss. Mem. in Supp. at 3; Mem. in Opp'n at 3–4; see also Cottier Aff. Ex. A at BP 00 02 01 87 ("Policy") at 12 [ECF No. 5-1 at 47–67].

The policy provides that, in general, Owners "will not pay on a replacement cost basis for any loss or damage ... [u]ntil the lost or damaged property is actually repaired or replaced; and ... [u]nless the repairs or replacement are made as soon as reasonably possible after the loss or damage." Policy at 12–13. But even if the insured initially "make[s] a claim for loss or damage ... on an actual cash value basis instead of on a replacement cost basis," it may—and here, Creekview did—subsequently "make a claim on a replacement cost basis" if it does so timely. Id. at 12. When a claim proceeds in that manner, Owners follows a two-step claims-payment process: first, it issues payment for the actual cash value of the loss—that is, the replacement cost minus depreciation—and then, after repairs are complete, it issues the amount withheld for depreciation, called the "recoverable depreciation" or "depreciation holdback." Mem. in Supp. at 3 (citing Policy at 12); see also Mem. in Opp'n at 4. The policy caps Owners' obligation on replacement cost at either the amount actually spent to repair or replace the damaged property or the cost to repair or replace the damaged property with other property of comparable quality and used for the same purpose, whichever is less. Policy at 13.

Creekview opened a claim with Owners on June 19, 2017. Cottier Aff. Ex. B [ECF No. 5-1 at 69]. Owners retained an independent adjusting firm, Moe & Nevins, which determined that the replacement cost value of the damage was $ 1,196,299.26. See Cottier Aff. Ex. C [ECF No. 5-1 at 71]. On August 29, 2017, Owners issued Creekview a check for $ 832,684.96—to cover the actual cash value of the loss, as determined by its own adjuster, minus Creekview's $ 25,000 deductible—and confirmed that an additional payment for recoverable depreciation could be paid after Creekview completed its repairs. Cottier Aff. Ex. D [ECF No. 5-1 at 73–76]. But Creekview's repair contractor, Lincoln Hancock Restoration, estimated that the replacement cost value of the damage was $ 1,654,913.44, which was around $ 450,000 more than the replacement cost value assigned by Moe & Nevins.³ When the Parties failed to agree on the amount of loss, Creekview invoked the policy's appraisal clause, which provides:

2. Appraisal

If we and you 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.

Policy at 11; Alton Decl. Ex. 2 [ECF No. 10-1 at 2]. Creekview's request was dated May 25, 2018, but was not received by Owners until July 3, 2018. Compare Alton Decl. Ex. 2 with Alton Decl. Ex. 3 [ECF No. 10-1 at 3]. No evidence in the record suggests the reason for this lag, although at oral argument Owners' counsel stated that it was the result of a delay between when he received the request and when he transmitted it to Creekview.

On July 13, 2018, Owners requested that Creekview provide proof of loss, and reiterated that request several more times before Creekview provided an itemized and sworn proof-of-loss statement on October 11, 2018. See Alton Decl. Exs. 3–7 [ECF No. 10-1 at 3–93]. On October 30, 2018, the appraisal panel—the appraiser each Party selected, along with the umpire selected by those two appraisers—conducted the appraisal and awarded Creekview a total replacement cost of $ 1,499,354.52, with an actual cash value of $ 1,124,515.89.

Cottier Aff. Ex. F [ECF No. 5-1 at 80–81]. The panel transmitted the appraisal award to the Parties that same day. Cottier Aff. Ex. G [ECF No. 5-1 at 83]. The award listed an actual cash value and a replacement cost value for each of the eighteen buildings at issue, as well as for "general conditions" at the Property, but did not otherwise itemize values for particular types of damage (e.g. , it did not identify specific values for elements of roofing, gutters, siding, etc., either at specific buildings or for the Property as a whole). Cottier Aff. Ex. F.

Creekview understood the policy to require Owners to make full payment within five days after the appraisal award was issued, see Mem. in Supp. at 5 (citing Minn. Stat. § 72A.201, subd. 5(5) and policy endorsements specific to Minnesota); when Creekview had received no further payment within that time, it sent a letter dated November 9, 2018, requesting that Owners pay the total replacement cost plus pre-award and post-award interest, see Cottier Aff. Ex. H [ECF No. 5-1 at 85–86]. Creekview's position was that it was entitled to the total replacement cost because all repairs had been completed—or "substantially complete[d]"—at the time of the appraisal. Mem. in Supp. at 5–6; Elert Decl. ¶ 3 [ECF No. 17]. Owners evidently disputed that point. See Mem. in Opp'n at 5. At the appraisal, Owners' adjuster had determined that, contrary to Creekview's assertions, some repairs had not yet been completed. Alton Decl. ¶ 10 [ECF No. 10]. On November 16, 2018, it mailed Creekview a check for $ 266,830.93, representing the difference between the actual cash value awarded by the appraisal panel and the payment previously issued by Owners. See Cottier Aff. Ex. I [ECF No. 5-1 at 88–89]. In the letter enclosing the check, Owners requested that Creekview not deposit the check "pending the potential modification by the appraisal panel." Id. Ultimately, the award was not modified, and on November 29, 2018, Owners advised that Creekview could deposit the check. See Cottier Aff. Ex. J [ECF No. 5-1 at 91–95]. That still left Creekview without the $ 374,838.63 portion of the appraisal award representing recoverable depreciation.

In furtherance of its position that all repairs at the Property had been completed, Creekview provided Owners with a copy of a December 19, 2018 invoice from Lincoln Hancock describing a total of $ 1,499,354.52 in "[s]torm damage repairs completed per the appraisal award," and seeking payment for the unpaid balance of those repairs. Cottier Aff. Ex. E [ECF No. 5-1 at 78]; Mem. in Supp. at 6; Mem. in Opp'n at 5. Moe & Nevins undertook reinspection in early January 2019. Alton Decl. Ex. 9 [ECF No. 10-1 at 103–04]. Following the reinspection, it exchanged several emails with Creekview's contractor about a number of repairs it did not believe had been completed, although Moe & Nevins's specific concerns were unclear and it was, in several respects, unresponsive to Creekview's contractor's requests for clarification. See Alton Decl. Ex. 8 at 1–6 [ECF No. 10-1 at 94].

Meanwhile, on February 5, 2019, Creekview filed a motion in Washington County District Court to confirm the appraisal award and for entry of a judgment awarding interest, costs, and fees. ECF No. 3. Two days later, on February 7, 2019, Moe & Nevins issued a supplemental report to Owners documenting that, in its opinion, several repairs remained incomplete. Alton Decl. Ex. 9. It had been unable to reinspect the roofing repairs at the Property due to weather conditions. Alton Decl. Ex. 10 [ECF No. 10-2]. On February 27, 2019, with communications continuing among the Parties, Owners' adjuster, and Creekview's contractor, Owners removed this case to federal court. ECF No. 1.

As the Parties continued briefing Creekview's motion in federal court, Owners issued a partial depreciation payment of $ 20,273.95 on March 20, 2019, bringing the amount of unpaid recoverable depreciation to $ 354,564.68. Bergstrom Aff. Ex. R [ECF No. 16-1 at 159–68]. That payment was based on Moe & Nevins's reinspection and its itemized calculations, and it did not include any depreciation holdback relating to repairs that Owners did not...