Else v. Auto-Owners Ins. Co.

• Docket Number: A20-0476
• Decision Date: 05 October 2022
• Citation: 980 N.W.2d 319
• Parties: Kyle Wendell ELSE, Appellant, v. AUTO-OWNERS INSURANCE COMPANY, Respondent.
• Court: Minnesota Supreme Court

980 N.W.2d 319

Kyle Wendell ELSE, Appellant,

v.AUTO-OWNERS INSURANCE COMPANY, Respondent.

A20-0476

Supreme Court of Minnesota.

Filed: October 5, 2022

Michelle K. Olsen, Jacob M. Birkholz, Birkholz & Associates, LLC, Mankato, Minnesota; and Timothy D. Johnson, Smith Jadin Johnson, PLLC, Bloomington, Minnesota, for appellant.

Timothy P. Tobin, Jeffrey M. Markowitz, Marissa K. Linden, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, Minnesota, for respondent.

Dale O. Thornsjo, Lance D. Meyer, O'Meara, Leer, Wagner & Kohl, P.A., Minneapolis, Minnesota, for amici curiae The Insurance Federation of Minnesota, The American Property Casualty Insurance Association, and The National Association of Mutual Insurance Companies.

OPINION

CHUTICH, Justice.

This appeal involves a dispute between a homeowner and an insurance company over prejudgment interest. At issue is whether a homeowner is entitled to prejudgment interest for a fire loss in an amount that brings the homeowner's total recovery above the coverage limit in the insurance policy. After fires damaged his home, appellant Kyle Else sought coverage from his homeowner's insurer, respondent Auto-Owners Insurance Company. Auto-Owners denied coverage, claiming that Else had intentionally set the fires. Else sued, and a jury found for Else on his claims against Auto-Owners. The district court awarded Else prejudgment interest, but limited the amount, finding that Else's total recovery for his personal property loss could not exceed the policy coverage limit. The court of appeals affirmed. Because we conclude that the Minnesota standard fire insurance policy, Minnesota Statutes section 65A.01 (2020), entitles Else to prejudgment interest in an amount that may result in a total recovery that exceeds the policy limit, we reverse the court of appeals’ decision and remand to the district court to recalculate prejudgment interest.

FACTS

In 2015, two separate fires a week apart damaged Kyle Else's home. At the time of the fires, he insured his home under an insurance policy issued by Auto-Owners Insurance Company. Else made claims under the policy for the damage to his home and other losses, including the loss of personal property.

The dispute here relates to Else's claim for household personal property loss. The Auto-Owners policy covered property loss because of fire, including personal property up to a limit of $173,411. The policy provides that the insurer will pay the amount of loss in excess of the insured's deductible, "not to exceed the applicable limit of insurance." The policy does not specifically address interest.

Auto-Owners asserted that Else caused the fires and denied his claims. The State of Minnesota charged him with arson, but a jury acquitted him of all criminal charges. Despite this acquittal, Auto-Owners continued to maintain that Else caused at least one of the fires and accordingly continued to deny coverage for the fire losses. Else requested an appraisal, and Auto-Owners refused his request.

Else sued Auto-Owners for its denial of insurance coverage, and the case went to trial. The jury found that Else did not start either fire and awarded him damages. After considering post-trial motions, including Else's motion for prejudgment interest, the district court adjusted the amount of damages but did not award prejudgment interest.

In his first appeal, Else raised several issues, including the district court's failure to consider his motion for prejudgment interest. The parties agreed that he is entitled to prejudgment interest but disputed the amount. The court of appeals remanded to the district court for a determination of the appropriate amount of prejudgment interest. Else v. Auto-Owners Ins. Co. (Else I ), No. A19-0650, 2020 WL 413351, at *11 (Minn. App. Jan. 27, 2020), rev. denied (Minn. Apr. 14, 2020).

On remand, the district court applied Minnesota's prejudgment interest statute, Minnesota Statutes section 549.09 (2020), and found that prejudgment interest in the amount of $55,632 had accrued on the personal property portion of the judgment. But the district court also found that an insurer is "not liable" for prejudgment interest "which, when added to total damages, would exceed policy liability limits." The district court therefore reduced the amount of prejudgment interest by $35,889 to $19,743 so that Else's total recovery did not exceed the $173,411 policy limit for personal property loss. The district court rejected Else's reliance on the Minnesota standard fire insurance policy, Minnesota Statutes section 65A.01.

The court of appeals affirmed the district court's award of prejudgment interest on the personal property portion of the judgment. Else v. Auto-Owners Ins. Co. (Else II ), No. A20-0476, 2020 WL 7490559, at *8 (Minn. App. Dec. 21, 2020). The court of appeals concluded that "the district court correctly determined that Else is not entitled to prejudgment interest in excess of the applicable policy limit" of the Auto-Owners policy. Id. The court of appeals also concluded that Else is not entitled to prejudgment interest in excess of the policy limit under the Minnesota standard fire insurance policy. Id. at *6. Else petitioned for further review, asking us to determine what effect the standard fire policy has on insurance companies’ attempts to limit prejudgment interest. We granted Else's petition for review.

ANALYSIS

This case requires us to decide whether the Minnesota standard fire insurance policy, Minnesota Statutes section 65A.01, entitles Else to prejudgment interest in an amount that may cause his total recovery for his personal property loss to exceed the coverage limit of his homeowner's insurance policy. This case also requires us to determine when prejudgment interest began to accrue under the standard fire policy. The resolution of this dispute over prejudgment interest involves issues of statutory interpretation, which we review de novo. Visser v. State Farm Mut. Auto. Ins. Co. , 938 N.W.2d 830, 832 (Minn. 2020).

The district court awarded prejudgment interest under Minnesota Statutes section 549.09 —the prejudgment interest statute. Under the prejudgment interest statute, "[e ]xcept as otherwise provided by contract or allowed by law," the prevailing party is entitled to preverdict interest "from the time of the commencement of the action or ... the time of a written notice of claim, whichever occurs first." Minn. Stat. § 549.09, subd. 1(b) (emphasis added). The court of appeals determined that, in limiting the insurer's total liability, the Auto-Owners policy imposed a contractual limit on prejudgment interest as permitted by section 549.09, and concluded that Else "is not entitled to prejudgment interest in excess of the applicable policy limit." Else II , 2020 WL 7490559, at *8. In reaching that conclusion, the court of appeals relied on our decision in a case involving benefits under an automobile insurance policy, which held that, " ‘[a]s an element of compensatory damages, prejudgment interest ... is plainly subject to any applicable limitation on liability for such damages.’ " Id. at *2 (quoting Lessard v. Milwaukee Ins. Co. , 514 N.W.2d 556, 558 (Minn. 1994) ).

Else challenges the court of appeals’ decision on a number of grounds. He argues that Lessard is distinguishable because that case involved underinsured motorist benefits and because the policy language here is different from the policy language at issue in Lessard . He also argues that he is entitled to prejudgment interest in excess of the policy limit under the Minnesota standard fire insurance policy. We resolve this dispute based on the interest provision of the standard fire policy. Minn. Stat. § 65A.01, subd. 3.

I.

The Minnesota Legislature first enacted the Minnesota standard fire insurance policy in 1895 "to secure uniformity in fire insurance policies." Watson v. United Servs. Auto. Ass'n , 566 N.W.2d 683, 690 (Minn. 1997) ; see Act of Apr. 25, 1895, ch. 175, § 53, 1895 Minn. Laws 392, 417–22 (codified as amended at Minnesota Statutes section 65A.01 ). " Minnesota Statutes § 65A.01 requires that certain terms and conditions be included in fire insurance policies in Minnesota." Poehler v. Cincinnati Ins. Co. , 899 N.W.2d 135, 144 (Minn. 2017). The provisions of the Minnesota standard fire insurance policy generally "may not be omitted, changed, or waived." Watson , 566 N.W.2d at 690. Insurers may include "additional or different terms" in a fire insurance policy as long as those terms "offer more coverage than the statutory minimum." Id. We will uphold a provision in a fire insurance policy "only if it affords the insured all the rights and benefits of the Minnesota standard fire insurance policy or offers additional benefits which provide more coverage to the insured than the statutory minimum." Id. at 691.

Because the Auto-Owners policy does not contain an interest provision, the interest provision of the standard fire policy, Minnesota Statutes section 65A.01, subdivision 3, applies to Else's fire loss. Minnesota's prejudgment interest statute does not control prejudgment interest under the standard fire policy because the prejudgment interest statute, by its express terms, does not control prejudgment interest that is "otherwise provided by contract or allowed by law." Minn. Stat. § 549.09, subd. 1(b). We therefore consider whether the Minnesota standard fire insurance policy permits the amount of prejudgment interest to exceed the coverage limit of the policy.

We have described prejudgment interest generally as "an element of damages awarded to provide full compensation by converting time-of-demand ... damages into time-of-verdict damages." Lienhard v. State , 431 N.W.2d 861, 865 (Minn. 1988). The interest provision of the standard fire policy provides that the insurer "will not in any case be liable for more than the sum insured, with interest thereon from the time when the loss shall become payable." Minn. Stat. § 65A.01, subd. 3 (...