Ridgewood Bay Resort, Inc. v. Auto-Owners Ins. Co.
| Decision Date | 20 June 2022 |
| Docket Number | A21-1352 |
| Parties | Ridgewood Bay Resort, Inc., Respondent, v. Auto-Owners Insurance Company, Appellant. |
| Court | Minnesota Court of Appeals |
This opinion is nonprecedential except as provided by Minn. R Civ. App. P. 136.01, subd. 1(c).
Sherburne County District Court File No. 71-CV-19-1066
Charles J. Lloyd, Adam C. Hagedorn, Livgard & Lloyd PLLP Minneapolis, Minnesota (for respondent)
Beth A. Jenson Prouty, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., Minneapolis, Minnesota (for appellant)
Considered and decided by Wheelock, Presiding Judge; Jesson, Judge; and Bryan, Judge.
In this insurance-coverage dispute arising from fire damage, appellant-insurer challenges the grant of summary judgment to respondent-owner. Appellant argues the district court (1) erred in determining coverage under an ordinance-or-law endorsement and (2) misapplied the burden to show a genuine issue of material fact on the applicability of a preexisting-violation exclusion. By notice of related appeal, respondent-owner argues the district court erred in (1) denying its motion to amend the complaint to include a bad-faith claim, (2) overruling its objection to the appraisal panel's award based on a claim that the panel exceeded its authority, and (3) denying its claim for prejudgment interest. Because the district court correctly determined both that the policy language is ambiguous and that the insurer did not meet its burden as to exclusion, did not abuse its discretion in denying the owner's motion to amend, and correctly determined that the appraisal panel did not exceed its scope, we affirm in part. But because it erred in denying prejudgment interest, we also reverse in part and remand.
Respondent Ridgewood Bay Resort Inc. owns and operates a lakeside restaurant and bar that caught fire in August 2017. The fire damaged the structure and business personal property in the bar area and caused smoke damage elsewhere in the building. According to Ridgewood Bay, state and county agencies inspected the building following the fire and ordered that the ADA-noncompliant bathrooms and the undamaged kitchen vent hood, kitchen walls and flooring, and septic system be brought up to code before the restaurant could reopen. At all relevant times, appellant Auto-Owners Insurance Company insured Ridgewood Bay under a commercial-property insurance policy containing an ordinance-or-law coverage endorsement (O&L endorsement). The O&L endorsement lists four coverage types, one of which, Coverage A, provides coverage up to the full building-coverage limit of $400, 800, while the other three, Coverages B-D, each cover up to a $10, 000 limit, all subject to a $1, 000 deductible.[1]
Ridgewood Bay reported the loss to Auto-Owners and filed its claim for coverage. Auto-Owners determined that the insurance policy applied to losses of business personal property damaged in the fire but disputed whether all of the property listed in Ridgewood Bay's inventory was unsalvageable and therefore eligible for coverage. Auto-Owners d id not dispute that Ridgewood Bay's building also sustained covered physical damage; however, the parties disagreed on which provisions of the O&L endorsement apply to the work that the state and county agencies must require to bring the building into compliance with applicable codes. Auto-Owners took the position that Ridgewood Bay is limited to Coverage C; thus, Coverage A and Coverage B do not apply. The record shows that litigation commenced before Auto-Owners made any explicit final decision regarding coverage pursuant to the insurance policy and the O&L endorsement for the full scope of work that Ridgewood Bay submitted in its claim.[2]
Ridgewood Bay served Auto-Owners with a complaint asserting breach of contract on the basis that (1) Ridgewood Bay was entitled to the full replacement cost of damaged business-personal-property items under the commercial property policy; (2) Ridgewood Bay was entitled to the full replacement value for the code-required repairs and reconstruction on the undamaged portions of the building under the O&L endorsement; and (3) Auto-Owners refused to issue payment as provided by the policy. The parties filed cross-motions for partial summary judgment on the issue of which coverage provisions of the O&L endorsement apply to the code-required upgrades. Ridgewood Bay asked the district court to find that Coverage A applies to its claim for code-required upgrades. Auto-Owners countered that the only potentially available coverage for code-required upgrades is Coverage C and alleged that questions of fact existed on whether the preexisting-violation exclusion precluded coverage. Ridgewood Bay subsequently moved to amend its complaint under Minn. Stat. § 604.18 (2020), to add a claim of bad faith against Auto-Owners for its handling of the business-personal-property claim.
On the parties' cross-motions for summary judgment, the district court determined that Coverages A, B, and C of the O&L endorsement applied and that the preexisting-violation exclusion did not. The d istrict court denied Ridgewood Bay's motion to amend the complaint. It also incorporated the parties' stipulation for an appraisal into its order, relying on a form proposed by Ridgewood Bay.
Following the appraisal, Auto-Owners moved the district court to enter judgment on the appraisal award without reference to prejudgment interest. Ridgewood Bay opposed the motion, asserting that the appraisal panel exceeded its authority and that any judgment must include prejudgment interest. The district court directed entry of judgment and denied all motions not expressly addressed in its order, including Ridgewood Bay's request for prejudgment interest. Auto-Owners appeals, and Ridgewood Bay filed a notice of related appeal.
Auto-Owners asserts that the district court erred in determining both that Coverage A applied to the code-required upgrades and that Auto-Owners had the burden of proving the applicability of the preexisting-violation exclusion to defeat summary judgment. By notice of related appeal, Ridgewood Bay argues that the district court erred in denying its motion to amend its complaint to assert a claim of bad faith, in failing to find that the appraisal panel exceeded its scope, and in denying its claim of entitlement to prejudgment interest. We address each issue in turn.
Riverview Muir Doran, LLC v. JADT Dev. Grp., LLC, 790 N.W.2d 167, 170 (Minn. 2010) (citation omitted). "The interpretation of an insurance policy, 'including whether provisions in a policy are ambiguous, is a legal question subject to de novo review.'" King's Cove Marina, LLC v. Lambert Com. Constr. LLC, 958 N.W.2d 310, 316 (Minn. 2021) (quoting Latterell v. Progressive N. Ins. Co., 801 N.W.2d 917, 920 (Minn. 2011)). "Language in an insurance policy is ambiguous if it is reasonably susceptible to more than one interpretation." Midwest Fam. Mut. Ins. Co. v. Wolters, 831 N.W.2d 628, 640 (Minn. 2013). But policy endorsements and exclusions "must be construed in terms of the entire contract, and in such a way, if possible, to give effect to all provisions." Gen. Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147, 151 (Minn.App. 2001) (citing Bobich v. Oja, 104 N.W.2d 19, 24-25 (Minn. 1960)), rev. denied (Minn. Apr. 17, 2001).
A. The district court did not err in concluding that ambiguous coverage provisions must be construed in favor of Ridgewood Bay and that there is no genuine issue of material fact that Ridgewood Bay suffered a "loss in value" due to code enforcement.
The district court concluded that the coverage provisions are ambiguous because there are at least two reasonable interpretations of each of the terms "demolition" and "required." The court looked to the parties' differing interpretations of "demolition," reasoning that Auto-Owners's limited interpretation of the term to mean a complete leveling or tearing-down of a building was sensible, but that Ridgewood Bay's broader definition of the term to include removing or tearing out parts of a building as a step toward remodeling was also reasonable, noting the affidavits of Ridgewood Bay's construction project manager referring to the "demolition required to bring the building into compliance." The district court also reasoned that the term "requires" could mean the demolition itself must literally be required by the ordinance or law, but that such a reading is far narrower than the ordinary plain meaning of the term.
The district court additionally concluded that undisputed evidence showed Ridgewood Bay suffered a "loss in value" due to code enforcement, relying in part on a Loss Payment provision in the O&L endorsement that references the amount the insured would "actually spend to repair, rebuild or reconstruct the building." The district court therefore concluded that Coverage A applied to code-required upgrades.
Auto-Owners argues that the district court erred in concluding that Coverage A applies to code-required updates, contending that (1) the policy is not ambiguous and, reading the policy as a whole, the sole reasonable interpretation is that only Coverage C applies to code-required remodeling; and (2) there is no "loss in value" to trigger Coverage A.
Ridgewood Bay raised the issue of the applicability of Coverage A in its motion...
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