Henning Nelson Const. Co. v. Fireman's Fund American Life Ins. Co.

• Decision Date: 21 March 1986
• Docket Number: No. C5-84-1007,C5-84-1007
• Citation: 383 N.W.2d 645
• Parties: HENNING NELSON CONSTRUCTION COMPANY, Respondent, v. FIREMAN'S FUND AMERICAN LIFE INSURANCE COMPANY, petitioner, Appellant.
• Court: Minnesota Supreme Court

Page 645

383 N.W.2d 645

HENNING NELSON CONSTRUCTION COMPANY, Respondent, v. FIREMAN'S FUND AMERICAN LIFE INSURANCE COMPANY, petitioner Appellant.

No. C5-84-1007.

Supreme Court of Minnesota.

March 21, 1986.

Syllabus by the Court

1. Absent a specific statute to the contrary, the parties to an insurance contract may limit the time within which an action may be brought to a period less than that fixed by the general statutes of limitation, provided the limitation is not unreasonably short. The 1-year limitation provision on legal actions contained in appellant's insurance policy, however, was unreasonably short in this case.

2. Respondent's loss is not excluded under the provisions in the insurance policy concerning ground water, earth movement, or design defects.

3. Respondent established a prime facie case of damages under the facts of this case.

4. The trial court did not err by holding respondent's mistakes in calculating damages did not amount to willful or intentional fraud.

Hugh J. Cosgrove, Minneapolis, for appellant.

Gary J. Meyer, Robbinsdale, for respondent.

Heard, considered, and decided by the court en banc.

AMDAHL, Chief Justice.

Fireman's Fund American Life Insurance Company (American Life) appeals from a decision of the Court of Appeals affirming the decision of the trial court in favor of Henning Nelson Construction Company (HNCC). HNCC originally brought suit against American Life when American denied coverage of a claim submitted by HNCC under a policy issued by American. American Life responded by asserting the 1-year limitation on legal actions contained in the policy barred HNCC's suit in this case. The trial court held the 1-year limitation in the policy did not apply in this case. The Court of Appeals affirmed. Henning Nelson Construction Co. v. Fireman's Fund American Life Ins. Co., 361 N.W.2d 446 (Minn.Ct.App.1985). We granted review and now affirm the decision of the Court of Appeals, but hold it applied the wrong standard.

On January 17, 1979, American Life issued a "Builder's Risk" insurance policy to HNCC, the general contractor on the construction of an addition to the Baker Community Center in St. Paul, Minnesota. The policy contained specific exclusions from coverage, as well as various other policy restrictions.

On June 21, 1979, a foundational wall of the Baker project collapsed. Respondent's vice president and expert witness, Mark Reinertson, testified that eight factors contributed to the collapse of the wall. These included: (1) a subcontractor who was backfilling around the wall and caused ground vibrations; (2) a large crane, used to lay precast spancrete planks across the top of the foundation, which caused ground vibrations and exerted downward pressure on the ground; (3) several trucks carrying spancrete planks which exerted downward pressure; (4) a concrete truck which caused ground vibration; (5) another subcontractor, working on the other side of the project, who also caused ground vibration; (6) a large pile of backfill dirt located near the wall, which exerted a downward pressure; (7) approximately 1 1/2 inches of rain that had fallen within the previous 4-5 days; and (8) the fact that the collapsed wall was constructed of concrete block rather than poured concrete. Reinertson testified all of these combined to exert a downward force on the ground, which transferred to a lateral force underground pushing earth against the wall and causing it to collapse. Reinertson also testified he did not think that any one of these factors alone was enough to cause the wall to collapse, but that it was a combination of all the factors. ¹

Reinertson contacted HNCC's insurance agent, Francis Lauenstein, on the day of the collapse to report the incident for insurance purposes. Reinertson, through Lauenstein, filed a proof of loss with American Life the following day. American Life assigned a claims adjuster, Gary Rawie, to investigate the claim.

The parties disagree over the dates they discussed the outcome of the insurance claim and over what was said concerning acceptance or rejection of the claim by American Life. Reinertson testified he met with Rawie and Lauenstein on the Monday following the collapse and that Rawie instructed him to "go ahead and start cleaning up and getting the wall [rebuilt]." He also testified Rawie revisited the jobsite several days later and that nothing was mentioned regarding American denying coverage on either occasion. He claimed he had no other contact with Rawie in 1979 and that all inquiries concerning the insurance claim were directed to Lauenstein. He also testified Lauenstein mentioned that American Life would cover the loss and "to go ahead and fix the wall up and when you get the walls done and repaired, send [Rawie] the bill." Reinertson testified that the next contact he had with Rawie was in late 1980. At that time, the parties discussed the claim and Rawie instructed Reinertson to turn in the bills as soon as possible, but did not mention denying coverage. The parties allegedly had 3-6 meetings between September and December of 1980. On December 18, 1980, Reinertson sent a letter to Lauenstein detailing the costs for the first phase of reconstruction and asking for payment. Although the parties had allegedly discussed the costs at earlier meetings, Reinertson admitted his letter was the first formal submission of the bills to American Life. ² On January 7, 1981, Reinertson received a letter from Rawie denying coverage on the claim and asserting that coverage had been denied earlier. Reinertson, however, denies ever receiving any previous indication that coverage had been denied under the policy.

Rawie, on the other hand, testified he first contacted Reinertson by phone on June 25, 1979. He then inspected the jobsite on June 26, at which time the scope of the loss was discussed. At that time, Rawie allegedly discussed with Reinertson the possibility of recovering from the Aetna Insurance Company, the insurer of the backfill excavator, A. Kamish & Sons, who was partially responsible for the accident. Rawie then testified he telephoned Reinertson on July 2, 1979, and informed him that HNCC should attempt to recover from Aetna. American Life considered the loss was due either to Kamish's heavy equipment, and therefore covered by Aetna, or to hydrostatic ground pressure, which was allegedly excluded under HNCC's Builder's Risk policy. Rawie claimed he wrote Reinertson a letter on October 9, 1979, followed by a phone call on October 16, 1979, inquiring about the possible denial of coverage by Aetna. When no answer was given, Rawie closed the Baker project file on May 8, 1980. The file was reactivated in December of 1980 when Rawie received a copy of Reinertson's December 18th letter.

Francis Lauenstein testified he had been in contact with HNCC at different times during the rebuilding of the wall. While he had been informed by American Life that there was a possible problem with coverage, he never communicated this to HNCC. Lauenstein, however, had told Reinertson to get copies of the rebuilding costs to American Life so they could make their "final determination."

After receiving Rawie's January 7th letter, Reinertson contacted Lauenstein. Lauenstein agreed to work with HNCC in an attempt to reverse American Life's decision. After that attempt failed, Reinertson, through his attorneys, sent a letter to Rawie on September 2, 1981, attempting to change the company's decision. When American Life again denied coverage, HNCC filed suit on December 16, 1981, contesting American's denial of coverage.

1. The insurance policy issued by American Life to HNCC contained a provision limiting HNCC's ability to proceed by legal action against American Life to "within 12 months * * * after discovery by the Insured of the occurrence which gives rise to the claim * * *." ³ HNCC filed its proof of loss on June 22, 1979, but did not file suit until December 16, 1981. American Life argues, therefore, that HNCC's claim is barred under the contract. The trial court held the limitation provision was modified by Minn.Stat. Sec. 541.05, subd. 1(1) (1984), which provides a 6-year statute of limitations for all contract actions. ⁴ The trial court ruled that this statute modified the time period under the contract and that therefore HNCC's claim was timely. ⁵ The Court of Appeals held section 541.05, subd. 1(1), applied in this case because American Life did not show that it was prejudiced by HNCC's failure to bring suit within 1 year of the wall's collapse. ⁶ American Life claims these decisions were erroneous and that its policy limitation is valid under Minnesota law.

When considering whether the parties to an insurance contract can modify the statutorily prescribed limitations period, this court has held that absent a specific statute to the contrary, "the parties * * * may limit the time within which an action may be brought to a period less than that fixed by the general statutes of limitation provided the limitation is not unreasonably short * * *." Prior Lake State Bank v. National Surety Corp., 248 Minn. 383, 388, 80 N.W.2d 612, 616 (1957); see Gendreau v. State Farm Ins. Co., 206 Minn. 237, 288 N.W. 225 (1939); Stewart v. National Council of Knights and Ladies of Security, 125 Minn. 512, 147 N.W. 651 (1914). Such provisions, however, are not generally favored and are strictly construed against the party invoking them. Prior Lake State Bank, 248 Minn. at 388, 80 N.W.2d at 616.

Based on this standard, the rulings by both the trial court and Court of Appeals were erroneous. The proper analysis for a court in examining whether the parties to a contract can validly shorten the statutorily prescribed limitation period is twofold. The court must first look to see if a specific statute prohibits the use of a different limitation period in the particular case. See Gendreau, 206 Minn. at 239, 288 N.W. at 226. If no such statute exists, the...