Savanna Grove Coach Homeowners' Association v. Auto-Owners Insurance Company
U.S. District Court, District of Minnesota
Savanna Grove Coach Homeowners' Association v. Auto-Owners Insurance Company
Trial Court Opinion
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Savanna Grove Coach Homeowners’ Case No. 19-cv-1513 (ECT/TNL)
Association,
Plaintiff,
v. ORDER
Auto-Owners Insurance Company,
Defendant.
Adina R. Bergstrom, Brenda M. Sauro, and Kayla Marie Cottier, Sauro & Bergstrom,
PLLC, 992 Inwood Avenue North, Oakdale, MN 55128 (for Plaintiff); and
Bradley J. Ayers, Eric G. Nasstrom, and Nathaniel Richard Greene, Morrison Sund
PLLC, 5125 County Road 101, Suite 200, Minnetonka, MN 55345 (for Defendant).
This matter comes before the Court on Plaintiff Savanna Grove Coach
Homeowners’ Association’s (“Savanna Grove”) Motion for Leave to Amend the
Complaint (ECF No. 27) and Motions for Protective Order, to Quash Subpoena, and
Sanctions (ECF No. 33).
I. BACKGROUND
In brief, Savanna Grove, “the corporate representative of a townhome community
in Blaine, Minnesota, that suffered significant property damage in a June 2017 storm,
brought this case against its insurer, [Defendant Auto-Owners Insurance Company (‘Auto-
Owners’)], to recover policy benefits it claims Auto-Owners must pay for the storm
damage and additional amounts.” Savanna Grove Coach Homeowners’ Ass’n v. Auto-
Owners Ins. Co., No. 19-cv-1513 (ECT/TNL), 2020 WL 468905, at *1 (D. Minn. Jan. 29, 2020) [hereinafter Savanna Grove Op.].1 It is not disputed that Savanna Grove was “insured under an Auto-Owners policy that covered the replacement cost of this type of loss.”Id.
And, “Auto-Owners agrees Savanna Grove suffered a loss insured under the
policy.” Id. at *5.
Under the policy, Auto-Owners was required to process
Savanna Grove’s claim for replacement costs in two steps.
First, it was to have estimated and then issued payment for the
actual cash value of the loss—that is, the replacement cost
value minus some amount for depreciation. Second, after
repairs were complete, Auto-Owners was to have issued the
amount withheld for depreciation, called the “recoverable
depreciation” or “depreciation holdback.”
Id. at *1. The policy caps the amount Auto-Owners must pay at the lesser of (i) “the cost
to replace, on the same premises, the lost or damaged property with other property of
comparable material and quality; and used for the same purpose,” or (ii) “the amount
[Savanna Grove] actually spend[s] that is necessary to repair or replace the lost or damaged
property.” Id. (quotations omitted).
“On June 15, 2018, Savanna Grove made a written demand for appraisal pursuant
to the policy to resolve the Parties’ dispute about the amount of loss.” Id. at *2. “An
appraisal hearing was held on May 28, 2019.” Id. at *3. “The day after the hearing, the
appraisal panel issued a unanimous award of $2,614,624.35, of which $1,699,505.95 was
actual cash value and $915,118.40 was recoverable depreciation.” Id. “Subtracting Auto-
1 In setting forth the background of this matter, the Court borrows heavily from the recently issued decision of the
district court.
Owners’ previous payments from the total appraisal award, $1,277,854.56 of the award
remained unpaid.” Id.
“Savanna Grove provided Auto-Owners with all final invoices for the project, which
totaled $2,654,377.94, an amount greater than the appraisal award.” Id.
After attempting unsuccessfully to persuade Auto-Owners to
pay the outstanding amount of the appraisal award, Savanna
Grove filed this action. Auto-Owners responded with
counterclaims seeking declarations that it has no obligation to
pay Savanna Grove for the updated costs and supervisory fees
that it alleges Savanna Grove has not proven it incurred.
Id. (citations omitted).
“Auto-Owners made two additional payments to Savanna Grove after this case was
filed,” which “le[ft] $941,809.83 of the appraisal award unpaid.” Id. (footnote omitted).
II. PROCEDURAL HISTORY
Shortly before it filed the instant motions, “Savanna Grove . . . filed a motion
seeking confirmation of the appraisal award and entry of a judgment in its favor that would
include the unpaid amount of the appraisal award, interest of three types, and attorneys’
fees and costs.” Id. at *1. In essence, “Savanna Grove . . . [argued] it ha[d] triggered Auto-
Owners’ obligation to pay the unpaid amount of the appraisal award as a matter of law by
submitting evidence showing that it has incurred repair and replacement costs greater than
the appraisal award.” Id. “Auto-Owners accept[ed] the appraisal award but argue[d] that
judgment . . . [could not] be entered because Savanna Grove’s evidence [wa]s insufficient
and d[id] not eliminate fact questions concerning the legitimacy of its general contractor’s
invoices.” Id. at *1; see also id. at *5 (“Auto-Owners opposes the entry of judgment in
Savanna Grove’s favor because, it says, Savanna Grove has failed to establish as a matter
of law that it actually and necessarily spent an amount to repair or replace its damaged
property that is equal to or greater than the amount of the appraisal award.”).
The district court treated Savanna Grove’s motion as a motion for summary
judgment under Federal Rule of Civil Procedure 56. Id. at *3-4. There was no dispute that
the appraisal award “establishe[d] the ‘cost to replace.’” Id. at *5. The dispute was over
the amount Savanna Grove actually and necessarily incurred. Id. The district court
concluded that the “extensive” record submitted by Savanna Grove in support of its motion
“show[ed] that Savanna Grove actually and necessarily incurred an amount greater than
the appraisal award to repair or replace its damaged property,” including invoices,
documentation of project-management hours, and daily-activity logs. Id.
The district court was unpersuaded by Auto-Owners’ contention that Savanna
Grove’s documentation was insufficient or that it needed additional discovery to respond
to the motion. Id. at *6-8. The district court determined that Auto-Owners had not met its
burden under Rule 56(d) to identify specific facts it hoped to obtain from discovery. Id. at
*8.
The district court concluded that “Savanna Grove ha[d] submitted evidence
establishing the costs it incurred to replace or repair its damaged property were greater than
the replacement cost as determined by the appraisal, and Auto-Owners ha[d] not shown
that genuine issues of material fact exist regarding Savanna Grove’s claim.” Id. at *8.
Accordingly, under the policy, Auto-Owners was required to “tender payment in the
amount of the appraisal award,” and Savanna Grove was entitled to judgment “with respect
to the remaining $941,809.83 of the appraisal award.” Id.
In closing, the district court noted that its decision “would appear to render Savanna
Grove’s motions for a protective order and to quash the subpoena moot,” but left it to the
undersigned to determine what effect, if any, the decision had on the instant motions. Id.
at *10 n.7.
III. MOTIONS FOR PROTECTIVE ORDER, TO QUASH SUBPOENA, AND
SANCTIONS
Savanna Grove moves for a protective order in response to certain discovery
requests served by Auto-Owners and to quash a subpoena Auto-Owners served on Lincoln
Hancock Restoration, Savanna Grove’s general contractor. Collectively, the discovery
sought by Auto-Owners concerns certain categories of expenses, the value of which
Savanna Grove maintains was conclusively resolved by the appraisal panel. In the event
the Court grants the relief requested, Savanna Grove also seeks payment of its expenses,
including attorney fees. See Fed. R. Civ. P. 26(c)(3), 37(a)(5).
Auto-Owners maintains that it is entitled to this discovery because it is relevant to
the amount Savanna Grove “actually and necessarily spent to restore its property – the
second figure needed to determine Auto-Owners’ liability.” (ECF No. 42 at 1.) In the
event the Court denies the relief requested by Savanna Grove, Auto-Owners likewise seeks
its expenses, including attorney fees. See Fed. R. Civ. P. 26(c)(3), 37(a)(5).
As stated above, the district court recently determined that “Savanna Grove actually
and necessarily incurred an amount greater than the appraisal award to repair or replace its
damaged property” and is entitled to the unpaid balance of the appraisal award, granting
summary judgment in favor of Savanna Grove on its claims. Savanna Grove Op., 2020
WL 468905, at *5, 10. With respect to “Auto-Owners’ counterclaims . . . that Savanna Grove has failed to show that it actually incurred an amount equal to or greater than the appraisal award,” the district court correspondingly determined that “[t]he entry of judgment on Savanna Grove’s claims means Auto-Owners’ counterclaims must be dismissed,” dismissing such claims with prejudice.Id.
at *8 n.6, 10. In doing so, the
district court rejected Auto-Owners’ contention that “the invoices and other supporting
documentation Savanna Grove ha[d] submitted” were not “enough to trigger its payment
obligation under the policy” and more discovery was needed because it did not have
sufficient facts and information. Id. at *6, 8.
The Court concludes that the parties’ dispute over discovery directed at the amount
Savanna Grove actually and necessarily spent to restore its property is moot in light of the
district court’s ruling. See id. at *10 n.7. Therefore, Savanna Grove’s motion, and the
parties’ dueling requests for expenses, are denied as moot.
IV. MOTION FOR LEAVE TO AMEND
Savanna Grove moves for leave to amend its Complaint to add a claim for bad faith
under Minn. Stat. § 604.18. Auto-Owners opposes the motion on grounds of futility. Auto-
Owners also requests that certain documents filed by Savanna Grove in support of its
motion, namely, the declaration of counsel and the exhibits attached thereto “beyond the
proposed [amended c]omplaint,” be stricken as improper. (Def.’s Mem. in Opp’n at 4,
ECF No. 41.)
A. Legal Standard
The parties agree that Federal Rules of Civil Procedure 8 and 15, rather than
§ 604.18’s procedural subdivision, subd. 4(a), apply in this case.2 See Selective Ins. Co. of
S. Carolina v. Sela, 353 F. Supp. 3d 847, 855-63(D. Minn. 2018) [hereinafter Sela]. With the exception of amendments as a matter of course, the Federal Rules of Civil Procedure permit a party to “amend its pleadings only with the opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). The Rules further provide that leave shall be freely given “when justice so requires.”Id.
There is, however, “no absolute right to amend” and a finding of undue delay, bad faith, dilatory motive, undue prejudice to the non-moving party, or futility may be grounds to deny a motion to amend. Doe v. Cassel,403 F.3d 986, 990-91
(8th Cir. 2005). “Fundamentally, ‘the grant or denial of an opportunity to amend is within the discretion of the District Court.’” Ash v. Anderson Merchandisers, LLC,799 F.3d 957, 963
(8th Cir. 2015) (quoting Foman v. Davis,371 U.S. 178, 182
(1962)).
B. Futility
While Rule 15(a)(2) provides that “leave to amend shall be given freely when justice
so requires, a district court properly denies leave when a proposed amendment would be
futile.” Lansing v. Wells Fargo Bank, N.A., 894 F.3d 967, 973-74(8th Cir. 2018) (citation omitted); see also Munro v. Lucy Activewear, Inc.,899 F.3d 585, 589
(8th Cir. 2018) (“However, futility is a valid basis for denying leave to amend.” (quotation omitted)). “An 2 See infra n.3. amendment is futile if the amended claim could not withstand a motion to dismiss under Rule 12(b)(6).” Hillesheim v. Myron’s Cards & Gifts, Inc.,897 F.3d 953, 955
(8th Cir. 2018) (quotation omitted); accord Zutz v. Nelson,601 F.3d 842, 850
(8th Cir. 2010)
(“Denial of a motion for leave to amend on the basis of futility means the district court has
reached the legal conclusion that the amended complaint could not withstand a motion to
dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.” (quotation omitted)).
“To withstand a Rule 12(b)(6) motion, a complaint must contain sufficient factual
allegations to ‘state a claim to relief that is plausible on its face.’” Smithrud v. City of St.
Paul, 746 F.3d 391, 397(8th Cir. 2014) (quoting Bell Atl. Corp. v. Twombly,550 U.S. 544, 547
(2007)).3 “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
3 In support of its motion to amend, Savanna Grove filed numerous exhibits purportedly evidencing Auto-Owners’
bad faith. (See ECF Nos. 30 through 30-2.) Auto-Owners requests that these materials be “stricken and not
considered as part of Savanna [Grove]’s [m]otion pursuant to [Sela] . . . .” (Def.’s Opp’n at 1-2.) Auto-Owners
proclaims that, “[d]espite repeatedly citing to Sela, one wonders whether Savanna [Grove] in fact read the case.
Presuming it did in fact read Sela, Savanna [Grove] should have noticed that the Court specifically stated that
evidence in the form of affidavits by either party are irrelevant to a Rule 15 motion.” (Def.’s Opp’n at 3.)
Section 604.18 contains certain procedural steps for bringing a bad-faith claim, including the submission of
“one or more affidavits showing the factual basis.” See Minn. Stat. § 604.18, subd. 4(a); see also Sela,353 F. Supp. 3d at 856
(“Subdivision 4(a) of § 604.18 sets forth the procedural steps that an insured must follow . . . .”). Sela held that because these procedural steps “conflict[ed] with Rules 8 and 15 of the Federal Rules of Civil Procedure” and the application of Rules 8 and 15 to a motion for leave to amend to include a bad-faith claim under § 604.18 “d[id] not violate the Rules Enabling Act,” a motion for leave to amend to include a § 604.18 claim in a diversity case is “governed by Rules 8 and 15, and not by [the procedures of] § 604.18.”353 F. Supp. 3d at 863
.
While Sela may stand for the proposition that the plausibility of a proposed § 604.18 claim in a diversity
case such as this is evaluated on the basis of the proposed pleading and not through affidavits evidencing the factual
basis for the claim, Sela does not authorize the striking of such materials. See 353 F. Supp. 3d at 866. Auto-Owners provides no authority for its request to strike these materials other than Sela. Cf. Carlson Mktg. Grp., Inc. v. Royal Indem. Co., No. 04-cv-3368 (PJS/JJG),2006 WL 2917173
, at *2 (D. Minn. Oct. 11, 2006) (“[T]here is no such thing as a ‘motion to strike’—at least when the paper being targeted is a memorandum or affidavit submitted in connection with a motion for summary judgment. No such motion is authorized by the Federal Rules of Civil Procedure, and no such motion is authorized by the local rules of this District. Civil Rule 12(f) comes closest, authorizing parties to move a court to strike certain material from a pleading. But neither a memorandum nor an affidavit is a ‘pleading.’ See Fed. R. Civ. P. 8. This point has been made repeatedly, both by judges of this District and judges of other districts.” (citations omitted)). Auto-Owners’ request to have these materials stricken is denied. Consistent with Sela, however, the Court has not considered them here. misconduct alleged.” Ashcroft v. Iqbal,556 U.S. 662, 678
(2009) (citing Twombly,550 U.S. at 556
). “[A]lthough a complaint need not contain ‘detailed factual allegations,’ it must contain facts with enough specificity ‘to raise a right to relief above the speculative level.’” U.S. ex rel. Raynor v. Nat’l Rural Utils. Coop. Fin., Corp.,690 F.3d 951, 955
(8th Cir. 2012) (quoting Twombly,550 U.S. at 555
). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’” Iqbal,556 U.S. at 678
(quoting Twombly,550 U.S. at 555
). Similarly, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”Id.
“In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in the complaint to be true and construes all reasonable inferences most favorably to the complainant.” Raynor,690 F.3d at 955
.
1. Section 604.18
“Section 604.18 provides a remedy for an insured when an insurer denies a first-
party claim without a reasonable basis.” Wilbur v. State Farm Mut. Auto. Ins. Co., 892
N.W.2d 521, 524(Minn. 2017) (footnote omitted); accord Sela,353 F. Supp. 3d at 865
. It
provides that
[t]he court may award as taxable costs to an insured against an
insurer amounts as provided in subdivision 3 if the insured can
show:
(1) the absence of a reasonable basis for denying the benefits
of the insurance policy; and
(2) that the insurer knew of the lack of a reasonable basis for
denying the benefits of the insurance policy or acted in reckless
disregard of the lack of a reasonable basis for denying the
benefits of the insurance policy.
Minn. Stat. § 604.18, subd. 2(a).
“This first prong is an objective standard that asks whether a reasonable insurer
would have denied or delayed payment of the claim under the facts and circumstances.”
Friedberg v. Chubb & Son, Inc., 800 F. Supp. 2d 1020, 1025(D. Minn. 2011); accord Sela,353 F. Supp. 3d at 864
. “This prong requires courts to ‘consider whether the claim was properly investigated and whether the results of the investigation were subjected to reasonable evaluation and review.’” Sela,353 F. Supp. 3d at 864
(quoting Friedberg,800 F. Supp. 2d at 1025
). “Whether an insurer has acted reasonably in good or bad faith is measured against what another reasonable insurer would have done in a similar situation.” Friedberg,800 F. Supp. 2d at 1025
.
“The second prong is subjective and turns on what the insurer knew and when.” Id.;
accord Sela, 353 F. Supp. 3d at 864. “Knowledge of the lack of a reasonable basis may be inferred and imputed to an insurer where there is reckless indifference to facts or proofs submitted by the insured.” Friedberg,800 F. Supp. 2d at 1025
; accord Sela,353 F. Supp. 3d at 864
. “If coverage of the claim is ‘fairly debatable,’ though, ‘the insurer is entitled to debate it, whether debate concerns a matter of fact or law.’” Sela,353 F. Supp. 3d at 864
(quoting Freidberg,800 F. Supp. 2d at 1025
).
2. Proposed Amended Complaint
Based on its proposed amended pleading, Savanna Grove takes issue with nearly all
aspects of Auto-Owners’ investigation (or lack thereof) and handling of its claim. (See,
e.g., Proposed Am. Compl. ¶¶ 23-50, 78.b-l, ECF No. 27-2; see also Proposed Am. Compl.
¶ 99.) Savanna Grove’s laundry list of criticisms—whether valid or not—make it difficult
for the Court to discern what facts form the basis of its § 604.18 claim. In any event, “[§]
604.18 does not provide a cause of action against any insurer who acts unreasonably in any
way. Rather, § 604.18 creates a cause of action against an insurer who acts unreasonably
in denying a claim—or, as the statute puts it, in ‘denying the benefits of the insurance
policy.’” Sela, 353 F. Supp. 3d at 865(quotingMinn. Stat. § 604.18
, subd. 2(a)). “Courts
thus must determine whether the ‘denial of the claim’ was unreasonable when determining
whether an insured can recover under § 604.18.” Id.
Fundamentally, Auto-Owners has not denied that Savanna Grove experienced a
covered loss under the policy. Nor does Savanna Grove suggest otherwise. The parties’
dispute was over the amount of the loss, specifically, certain components of the loss:
applicable market pricing; additional damages and costs not reflected in Auto-Owners’
estimate; allowances for profit and overhead; and project management. (Proposed Am.
Compl. ¶¶ 25, 28, 30-32, 34.) This dispute led to the appraisal process and ultimately the
appraisal panel’s determination of the amount of the loss, namely, the value of the
replacement cost. (Proposed Am. Compl. ¶¶ 51-59.)
Savanna Grove alleges that, under the policy, Auto-Owners was obligated “to pay
a loss within five business days of an appraisal award.” (Proposed Am. Compl. ¶ 15; see
Proposed Am. Compl. ¶ 62; Minnesota Changes ¶ D, Ex. A to Compl., ECF No. 1-2 at
21.4) Savanna Grove alleges that while Auto-Owners made some additional payments
4 The policy documents were attached to the Complaint. See, e.g., Illig v. Union Elec. Co., 652 F.3d 971, 976 (8th
Cir. 2011) (“In addressing a motion to dismiss, the court may consider the pleadings themselves, materials embraced
by the pleadings, exhibits attached to the pleadings, and matters of public record.” (quotation omitted)).
following the appraisal award, (Proposed Am. Compl. ¶¶ 63, 70), Auto-Owners has not
paid the balance of the appraisal award, (Proposed Am. Compl. ¶¶ 72, 99; see Proposed
Am. Compl. ¶ 68). Savanna Grove alleges that it provided Auto-Owners with final
invoices from both its general contractor and another contractor it used for deck-staining.
(Proposed Am. Compl. ¶¶ 65-66, 70.) Savanna Grove alleges that “[d]espite . . .
represent[ing] that a final invoice showing the amounts incurred would suffice” and paying
for the deck-staining based on that contractor’s final invoice, Auto-Owners refused to pay
the balance of the appraisal award based on the general contractor’s invoice, “claiming that
[Savanna Grove] had not provided ‘documentation showing what [it] actually spent to
repair or replace the property.” (Proposed Am. Compl. ¶¶ 68, 40.) Savanna Grove alleges
that Auto-Owners then conditioned further payment on the production of more
documentation from its general contractor. (Proposed Am. Compl. ¶¶ 68, 99; see Proposed
Am. Compl. ¶ 79.) Savanna Grove alleges that this documentation was unnecessary and
not required under the policy. (Proposed Am. Compl. ¶¶ 71, 99.)
As best as this Court is able to tell, the crux of Savanna Grove’s proposed § 604.18
claim is that Auto-Owners’ failure to pay the full amount of the appraisal award within five
business days and demand for documentation beyond the final invoices before making
further payment constitutes a “de facto” denial of benefits for purposes of § 604.18.
Savanna Grove also relies on the opinions of an expert regarding the purported
unreasonableness and unlawfulness of Auto-Owners’ actions, which are summarized in the
Proposed Amended Complaint. (Proposed Am. Compl. ¶¶ 78, 103.)
3. Analysis
Savanna Grove must plead facts from which it can plausibly be inferred that Auto-
Owners denied Savanna Grove the benefits of the policy in order to state a claim under
§ 604.18. In relevant part, the policy required Auto-Owners to pay for a covered loss
within five business days after it received proof of loss and “an appraisal award ha[d] been
made.” (Minnesota Changes ¶ D.) Savanna Grove has alleged sufficient facts that it
fulfilled the conditions of the policy, yet Auto-Owners refused to pay the remainder of the
appraisal award while continuing to demand more documentation, and that together this
refusal and continued demand effectively denied Savanna Grove the benefits of the policy.
“Minnesota courts have recognized that an insurer can constructively deny a claim
through its conduct.” Weber v. Travelers Home & Marine Ins. Co., 801 F. Supp. 2d 819,
832(D. Minn. 2011) (citing cases); see, e.g., Hansen v. Markel Am. Ins. Co., No. 15-cv- 2833 (RHK/JSM),2016 WL 2901738
, at *2 (D. Minn. May 18, 2016) (claim for damage to grounded yacht was “effectively denied” as to the requested engine repairs where appraiser concluded engine repairs were not due to grounding and did not include them in damage appraisal, and insurer paid only appraised amount on claim); Weber,801 F. Supp. 2d at 832
(insurer’s rejection of insured’s “Sworn Statement in Proof of Loss” was “the functional equivalent of a denial”); Perry v. State Farm. Mut. Auto. Ins. Co.,506 F. Supp. 130, 133-34
(D. Minn. 1980) (one of two grounds provided for denial of coverage under
one aspect of policy “could reasonably be interpreted as a denial . . . of benefits” under
another).
Auto-Owners argues that any § 604.18 claim is futile because there has been no
denial. According to Auto-Owners, Savanna Grove has not plausibly alleged that it was
denied the benefits of the policy because the Proposed Amended Complaint acknowledges
that Auto-Owners made additional payments after the appraisal award and “notified
[Savanna Grove] that it needed additional documentation before it could make payments
on certain things.” (Def.’s Mem. in Opp’n at 8.) But, an insurer can constructively deny
a claim when the “insurer possesses the information necessary to decide an insured’s claim
but fails to act on that information.” Weber, 801 F. Supp. 2d at 832. Savanna Grove has
plausibly alleged that Auto-Owners’ continued non-payment of the balance of the appraisal
award and demand for more documentation after it received the final invoices effectively
denied Savanna Grove the benefits of the policy because a reasonable insurer would have
accepted the invoices as proof of the amount Savanna Grove actually and necessarily spent;
the amount actually and necessarily spent exceeded the replacement-cost value of the
appraisal award; and therefore, Savanna Grove was entitled to the remainder of the
appraisal award—the lesser amount—under the policy.
Auto-Owners’ remaining arguments are similarly unavailing for purposes of
determining whether Savanna Grove has stated a claim under § 604.18. That Auto-
Owners’ request for more documentation may have been otherwise permitted under the
policy or that the policy still permitted Auto-Owners to deny the claim following the
appraisal award are all defenses that go to the reasonableness of Auto-Owners’ actions.
(See Def’s. Opp’n at 5-7.) Notably, bad faith does not “arise simply because the insurer’s
construction of the policy was subsequently found to be legally incorrect.” Friedberg, 800
F. Supp. 2d at 1027. Likewise, it may be that Auto-Owners was acting as a reasonable
insurer would in waiting to make payments until certain information was provided, and
thus any resultant delays were likewise reasonable. (See Def.’s Mem. in Opp’n at 8.) These
arguments, however, all go to the merits of a § 604.18 claim.
Lastly, to be clear, the Court is not taking the position that the appraisal award itself
was somehow “sacrosanct,” (Def.’s Mem. in Opp’n at 6), or that the issuance of the
appraisal award determined Auto-Owners’ liability under the policy.
Appraisal is a means for resolving factual disputes over the
amount of a loss. Appraisal is not a means for resolving legal
disputes over whether an insurer must cover a loss. An
appraiser can determine the amount of any check that the
insurer must cut, but an appraiser cannot determine whether an
insurer must cut a check in the first place.
Sela, 353 F. Supp. 3d at 864; accord Savanna Grove Op.,2020 WL 468905
, at *4. In
concluding that Savanna Grove has stated a claim under § 604.18, the Court is not saying
that the amount of the loss determined by the appraisal award somehow dictated Auto-
Owners’ liability, if any, under the policy. The appraisal award is just part of the factual
basis comprising Savanna Grove’s allegations that the conditions of the policy had been
met and Auto-Owners had before it the information needed to evaluate and review Savanna
Grove’s claim.
V. ORDER
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. Savanna Grove’s Motions for Protective Order, to Quash Subpoena, and
Sanctions (ECF No. 33) are DENIED AS MOOT.
2. Savanna Grove’s Motion for Leave to Amend the Complaint (ECF No. 27) is
GRANTED.
3. Savanna Grove shall file its Amended Complaint in substantially the same
form as ECF No. 27-2 within 7 days from the date of this Order.
4. Within 14 days from the date of this Order, the parties shall meet and confer
as to what effect, if any, the Court’s ruling has on the existing Amended
Pretrial Scheduling Order (ECF No. 63). Within 7 days from the parties’
meet and confer, the parties shall:
a. File a joint letter indicating that no changes are necessary;
b. File a joint stipulation containing agreed-upon modifications to the
Amended Pretrial Scheduling Order; or
c. In the event the parties are unable to agree, file their respective
proposals with a brief explanation in support of the party’s position.
5. All prior consistent orders remain in full force and effect.
6. Failure to comply with any provision of this Order or any other prior consistent
Order shall subject the non-complying party, non-complying counsel and/or
the party such counsel represents to any and all appropriate remedies, sanctions
and the like, including without limitation: assessment of costs, fines and
attorneys’ fees and disbursements; waiver of rights to object; exclusion or
limitation of witnesses, testimony, exhibits and other evidence; striking of
pleadings; complete or partial dismissal with prejudice; entry of whole or
partial default judgment; and/or any other relief that this Court may from time
to time deem appropriate.
Dated: February 24 , 2020 s/ Tony N. Leung
Tony N. Leung
United States Magistrate Judge
District of Minnesota
Savanna Grove Coach Homeowners’
Association v. Auto-Owners Insurance
Co.
Case No. 19-cv-1513 (ECT/TNL) Trial Court Opinion
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Savanna Grove Coach Homeowners’ Case No. 19-cv-1513 (ECT/TNL)
Association,
Plaintiff,
v. ORDER
Auto-Owners Insurance Company,
Defendant.
Adina R. Bergstrom, Brenda M. Sauro, and Kayla Marie Cottier, Sauro & Bergstrom,
PLLC, 992 Inwood Avenue North, Oakdale, MN 55128 (for Plaintiff); and
Bradley J. Ayers, Eric G. Nasstrom, and Nathaniel Richard Greene, Morrison Sund
PLLC, 5125 County Road 101, Suite 200, Minnetonka, MN 55345 (for Defendant).
This matter comes before the Court on Plaintiff Savanna Grove Coach
Homeowners’ Association’s (“Savanna Grove”) Motion for Leave to Amend the
Complaint (ECF No. 27) and Motions for Protective Order, to Quash Subpoena, and
Sanctions (ECF No. 33).
I. BACKGROUND
In brief, Savanna Grove, “the corporate representative of a townhome community
in Blaine, Minnesota, that suffered significant property damage in a June 2017 storm,
brought this case against its insurer, [Defendant Auto-Owners Insurance Company (‘Auto-
Owners’)], to recover policy benefits it claims Auto-Owners must pay for the storm
damage and additional amounts.” Savanna Grove Coach Homeowners’ Ass’n v. Auto-
Owners Ins. Co., No. 19-cv-1513 (ECT/TNL), 2020 WL 468905, at *1 (D. Minn. Jan. 29, 2020) [hereinafter Savanna Grove Op.].1 It is not disputed that Savanna Grove was “insured under an Auto-Owners policy that covered the replacement cost of this type of loss.”Id.
And, “Auto-Owners agrees Savanna Grove suffered a loss insured under the
policy.” Id. at *5.
Under the policy, Auto-Owners was required to process
Savanna Grove’s claim for replacement costs in two steps.
First, it was to have estimated and then issued payment for the
actual cash value of the loss—that is, the replacement cost
value minus some amount for depreciation. Second, after
repairs were complete, Auto-Owners was to have issued the
amount withheld for depreciation, called the “recoverable
depreciation” or “depreciation holdback.”
Id. at *1. The policy caps the amount Auto-Owners must pay at the lesser of (i) “the cost
to replace, on the same premises, the lost or damaged property with other property of
comparable material and quality; and used for the same purpose,” or (ii) “the amount
[Savanna Grove] actually spend[s] that is necessary to repair or replace the lost or damaged
property.” Id. (quotations omitted).
“On June 15, 2018, Savanna Grove made a written demand for appraisal pursuant
to the policy to resolve the Parties’ dispute about the amount of loss.” Id. at *2. “An
appraisal hearing was held on May 28, 2019.” Id. at *3. “The day after the hearing, the
appraisal panel issued a unanimous award of $2,614,624.35, of which $1,699,505.95 was
actual cash value and $915,118.40 was recoverable depreciation.” Id. “Subtracting Auto-
1 In setting forth the background of this matter, the Court borrows heavily from the recently issued decision of the
district court.
Owners’ previous payments from the total appraisal award, $1,277,854.56 of the award
remained unpaid.” Id.
“Savanna Grove provided Auto-Owners with all final invoices for the project, which
totaled $2,654,377.94, an amount greater than the appraisal award.” Id.
After attempting unsuccessfully to persuade Auto-Owners to
pay the outstanding amount of the appraisal award, Savanna
Grove filed this action. Auto-Owners responded with
counterclaims seeking declarations that it has no obligation to
pay Savanna Grove for the updated costs and supervisory fees
that it alleges Savanna Grove has not proven it incurred.
Id. (citations omitted).
“Auto-Owners made two additional payments to Savanna Grove after this case was
filed,” which “le[ft] $941,809.83 of the appraisal award unpaid.” Id. (footnote omitted).
II. PROCEDURAL HISTORY
Shortly before it filed the instant motions, “Savanna Grove . . . filed a motion
seeking confirmation of the appraisal award and entry of a judgment in its favor that would
include the unpaid amount of the appraisal award, interest of three types, and attorneys’
fees and costs.” Id. at *1. In essence, “Savanna Grove . . . [argued] it ha[d] triggered Auto-
Owners’ obligation to pay the unpaid amount of the appraisal award as a matter of law by
submitting evidence showing that it has incurred repair and replacement costs greater than
the appraisal award.” Id. “Auto-Owners accept[ed] the appraisal award but argue[d] that
judgment . . . [could not] be entered because Savanna Grove’s evidence [wa]s insufficient
and d[id] not eliminate fact questions concerning the legitimacy of its general contractor’s
invoices.” Id. at *1; see also id. at *5 (“Auto-Owners opposes the entry of judgment in
Savanna Grove’s favor because, it says, Savanna Grove has failed to establish as a matter
of law that it actually and necessarily spent an amount to repair or replace its damaged
property that is equal to or greater than the amount of the appraisal award.”).
The district court treated Savanna Grove’s motion as a motion for summary
judgment under Federal Rule of Civil Procedure 56. Id. at *3-4. There was no dispute that
the appraisal award “establishe[d] the ‘cost to replace.’” Id. at *5. The dispute was over
the amount Savanna Grove actually and necessarily incurred. Id. The district court
concluded that the “extensive” record submitted by Savanna Grove in support of its motion
“show[ed] that Savanna Grove actually and necessarily incurred an amount greater than
the appraisal award to repair or replace its damaged property,” including invoices,
documentation of project-management hours, and daily-activity logs. Id.
The district court was unpersuaded by Auto-Owners’ contention that Savanna
Grove’s documentation was insufficient or that it needed additional discovery to respond
to the motion. Id. at *6-8. The district court determined that Auto-Owners had not met its
burden under Rule 56(d) to identify specific facts it hoped to obtain from discovery. Id. at
*8.
The district court concluded that “Savanna Grove ha[d] submitted evidence
establishing the costs it incurred to replace or repair its damaged property were greater than
the replacement cost as determined by the appraisal, and Auto-Owners ha[d] not shown
that genuine issues of material fact exist regarding Savanna Grove’s claim.” Id. at *8.
Accordingly, under the policy, Auto-Owners was required to “tender payment in the
amount of the appraisal award,” and Savanna Grove was entitled to judgment “with respect
to the remaining $941,809.83 of the appraisal award.” Id.
In closing, the district court noted that its decision “would appear to render Savanna
Grove’s motions for a protective order and to quash the subpoena moot,” but left it to the
undersigned to determine what effect, if any, the decision had on the instant motions. Id.
at *10 n.7.
III. MOTIONS FOR PROTECTIVE ORDER, TO QUASH SUBPOENA, AND
SANCTIONS
Savanna Grove moves for a protective order in response to certain discovery
requests served by Auto-Owners and to quash a subpoena Auto-Owners served on Lincoln
Hancock Restoration, Savanna Grove’s general contractor. Collectively, the discovery
sought by Auto-Owners concerns certain categories of expenses, the value of which
Savanna Grove maintains was conclusively resolved by the appraisal panel. In the event
the Court grants the relief requested, Savanna Grove also seeks payment of its expenses,
including attorney fees. See Fed. R. Civ. P. 26(c)(3), 37(a)(5).
Auto-Owners maintains that it is entitled to this discovery because it is relevant to
the amount Savanna Grove “actually and necessarily spent to restore its property – the
second figure needed to determine Auto-Owners’ liability.” (ECF No. 42 at 1.) In the
event the Court denies the relief requested by Savanna Grove, Auto-Owners likewise seeks
its expenses, including attorney fees. See Fed. R. Civ. P. 26(c)(3), 37(a)(5).
As stated above, the district court recently determined that “Savanna Grove actually
and necessarily incurred an amount greater than the appraisal award to repair or replace its
damaged property” and is entitled to the unpaid balance of the appraisal award, granting
summary judgment in favor of Savanna Grove on its claims. Savanna Grove Op., 2020
WL 468905, at *5, 10. With respect to “Auto-Owners’ counterclaims . . . that Savanna Grove has failed to show that it actually incurred an amount equal to or greater than the appraisal award,” the district court correspondingly determined that “[t]he entry of judgment on Savanna Grove’s claims means Auto-Owners’ counterclaims must be dismissed,” dismissing such claims with prejudice.Id.
at *8 n.6, 10. In doing so, the
district court rejected Auto-Owners’ contention that “the invoices and other supporting
documentation Savanna Grove ha[d] submitted” were not “enough to trigger its payment
obligation under the policy” and more discovery was needed because it did not have
sufficient facts and information. Id. at *6, 8.
The Court concludes that the parties’ dispute over discovery directed at the amount
Savanna Grove actually and necessarily spent to restore its property is moot in light of the
district court’s ruling. See id. at *10 n.7. Therefore, Savanna Grove’s motion, and the
parties’ dueling requests for expenses, are denied as moot.
IV. MOTION FOR LEAVE TO AMEND
Savanna Grove moves for leave to amend its Complaint to add a claim for bad faith
under Minn. Stat. § 604.18. Auto-Owners opposes the motion on grounds of futility. Auto-
Owners also requests that certain documents filed by Savanna Grove in support of its
motion, namely, the declaration of counsel and the exhibits attached thereto “beyond the
proposed [amended c]omplaint,” be stricken as improper. (Def.’s Mem. in Opp’n at 4,
ECF No. 41.)
A. Legal Standard
The parties agree that Federal Rules of Civil Procedure 8 and 15, rather than
§ 604.18’s procedural subdivision, subd. 4(a), apply in this case.2 See Selective Ins. Co. of
S. Carolina v. Sela, 353 F. Supp. 3d 847, 855-63(D. Minn. 2018) [hereinafter Sela]. With the exception of amendments as a matter of course, the Federal Rules of Civil Procedure permit a party to “amend its pleadings only with the opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). The Rules further provide that leave shall be freely given “when justice so requires.”Id.
There is, however, “no absolute right to amend” and a finding of undue delay, bad faith, dilatory motive, undue prejudice to the non-moving party, or futility may be grounds to deny a motion to amend. Doe v. Cassel,403 F.3d 986, 990-91
(8th Cir. 2005). “Fundamentally, ‘the grant or denial of an opportunity to amend is within the discretion of the District Court.’” Ash v. Anderson Merchandisers, LLC,799 F.3d 957, 963
(8th Cir. 2015) (quoting Foman v. Davis,371 U.S. 178, 182
(1962)).
B. Futility
While Rule 15(a)(2) provides that “leave to amend shall be given freely when justice
so requires, a district court properly denies leave when a proposed amendment would be
futile.” Lansing v. Wells Fargo Bank, N.A., 894 F.3d 967, 973-74(8th Cir. 2018) (citation omitted); see also Munro v. Lucy Activewear, Inc.,899 F.3d 585, 589
(8th Cir. 2018) (“However, futility is a valid basis for denying leave to amend.” (quotation omitted)). “An 2 See infra n.3. amendment is futile if the amended claim could not withstand a motion to dismiss under Rule 12(b)(6).” Hillesheim v. Myron’s Cards & Gifts, Inc.,897 F.3d 953, 955
(8th Cir. 2018) (quotation omitted); accord Zutz v. Nelson,601 F.3d 842, 850
(8th Cir. 2010)
(“Denial of a motion for leave to amend on the basis of futility means the district court has
reached the legal conclusion that the amended complaint could not withstand a motion to
dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.” (quotation omitted)).
“To withstand a Rule 12(b)(6) motion, a complaint must contain sufficient factual
allegations to ‘state a claim to relief that is plausible on its face.’” Smithrud v. City of St.
Paul, 746 F.3d 391, 397(8th Cir. 2014) (quoting Bell Atl. Corp. v. Twombly,550 U.S. 544, 547
(2007)).3 “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
3 In support of its motion to amend, Savanna Grove filed numerous exhibits purportedly evidencing Auto-Owners’
bad faith. (See ECF Nos. 30 through 30-2.) Auto-Owners requests that these materials be “stricken and not
considered as part of Savanna [Grove]’s [m]otion pursuant to [Sela] . . . .” (Def.’s Opp’n at 1-2.) Auto-Owners
proclaims that, “[d]espite repeatedly citing to Sela, one wonders whether Savanna [Grove] in fact read the case.
Presuming it did in fact read Sela, Savanna [Grove] should have noticed that the Court specifically stated that
evidence in the form of affidavits by either party are irrelevant to a Rule 15 motion.” (Def.’s Opp’n at 3.)
Section 604.18 contains certain procedural steps for bringing a bad-faith claim, including the submission of
“one or more affidavits showing the factual basis.” See Minn. Stat. § 604.18, subd. 4(a); see also Sela,353 F. Supp. 3d at 856
(“Subdivision 4(a) of § 604.18 sets forth the procedural steps that an insured must follow . . . .”). Sela held that because these procedural steps “conflict[ed] with Rules 8 and 15 of the Federal Rules of Civil Procedure” and the application of Rules 8 and 15 to a motion for leave to amend to include a bad-faith claim under § 604.18 “d[id] not violate the Rules Enabling Act,” a motion for leave to amend to include a § 604.18 claim in a diversity case is “governed by Rules 8 and 15, and not by [the procedures of] § 604.18.”353 F. Supp. 3d at 863
.
While Sela may stand for the proposition that the plausibility of a proposed § 604.18 claim in a diversity
case such as this is evaluated on the basis of the proposed pleading and not through affidavits evidencing the factual
basis for the claim, Sela does not authorize the striking of such materials. See 353 F. Supp. 3d at 866. Auto-Owners provides no authority for its request to strike these materials other than Sela. Cf. Carlson Mktg. Grp., Inc. v. Royal Indem. Co., No. 04-cv-3368 (PJS/JJG),2006 WL 2917173
, at *2 (D. Minn. Oct. 11, 2006) (“[T]here is no such thing as a ‘motion to strike’—at least when the paper being targeted is a memorandum or affidavit submitted in connection with a motion for summary judgment. No such motion is authorized by the Federal Rules of Civil Procedure, and no such motion is authorized by the local rules of this District. Civil Rule 12(f) comes closest, authorizing parties to move a court to strike certain material from a pleading. But neither a memorandum nor an affidavit is a ‘pleading.’ See Fed. R. Civ. P. 8. This point has been made repeatedly, both by judges of this District and judges of other districts.” (citations omitted)). Auto-Owners’ request to have these materials stricken is denied. Consistent with Sela, however, the Court has not considered them here. misconduct alleged.” Ashcroft v. Iqbal,556 U.S. 662, 678
(2009) (citing Twombly,550 U.S. at 556
). “[A]lthough a complaint need not contain ‘detailed factual allegations,’ it must contain facts with enough specificity ‘to raise a right to relief above the speculative level.’” U.S. ex rel. Raynor v. Nat’l Rural Utils. Coop. Fin., Corp.,690 F.3d 951, 955
(8th Cir. 2012) (quoting Twombly,550 U.S. at 555
). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’” Iqbal,556 U.S. at 678
(quoting Twombly,550 U.S. at 555
). Similarly, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”Id.
“In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in the complaint to be true and construes all reasonable inferences most favorably to the complainant.” Raynor,690 F.3d at 955
.
1. Section 604.18
“Section 604.18 provides a remedy for an insured when an insurer denies a first-
party claim without a reasonable basis.” Wilbur v. State Farm Mut. Auto. Ins. Co., 892
N.W.2d 521, 524(Minn. 2017) (footnote omitted); accord Sela,353 F. Supp. 3d at 865
. It
provides that
[t]he court may award as taxable costs to an insured against an
insurer amounts as provided in subdivision 3 if the insured can
show:
(1) the absence of a reasonable basis for denying the benefits
of the insurance policy; and
(2) that the insurer knew of the lack of a reasonable basis for
denying the benefits of the insurance policy or acted in reckless
disregard of the lack of a reasonable basis for denying the
benefits of the insurance policy.
Minn. Stat. § 604.18, subd. 2(a).
“This first prong is an objective standard that asks whether a reasonable insurer
would have denied or delayed payment of the claim under the facts and circumstances.”
Friedberg v. Chubb & Son, Inc., 800 F. Supp. 2d 1020, 1025(D. Minn. 2011); accord Sela,353 F. Supp. 3d at 864
. “This prong requires courts to ‘consider whether the claim was properly investigated and whether the results of the investigation were subjected to reasonable evaluation and review.’” Sela,353 F. Supp. 3d at 864
(quoting Friedberg,800 F. Supp. 2d at 1025
). “Whether an insurer has acted reasonably in good or bad faith is measured against what another reasonable insurer would have done in a similar situation.” Friedberg,800 F. Supp. 2d at 1025
.
“The second prong is subjective and turns on what the insurer knew and when.” Id.;
accord Sela, 353 F. Supp. 3d at 864. “Knowledge of the lack of a reasonable basis may be inferred and imputed to an insurer where there is reckless indifference to facts or proofs submitted by the insured.” Friedberg,800 F. Supp. 2d at 1025
; accord Sela,353 F. Supp. 3d at 864
. “If coverage of the claim is ‘fairly debatable,’ though, ‘the insurer is entitled to debate it, whether debate concerns a matter of fact or law.’” Sela,353 F. Supp. 3d at 864
(quoting Freidberg,800 F. Supp. 2d at 1025
).
2. Proposed Amended Complaint
Based on its proposed amended pleading, Savanna Grove takes issue with nearly all
aspects of Auto-Owners’ investigation (or lack thereof) and handling of its claim. (See,
e.g., Proposed Am. Compl. ¶¶ 23-50, 78.b-l, ECF No. 27-2; see also Proposed Am. Compl.
¶ 99.) Savanna Grove’s laundry list of criticisms—whether valid or not—make it difficult
for the Court to discern what facts form the basis of its § 604.18 claim. In any event, “[§]
604.18 does not provide a cause of action against any insurer who acts unreasonably in any
way. Rather, § 604.18 creates a cause of action against an insurer who acts unreasonably
in denying a claim—or, as the statute puts it, in ‘denying the benefits of the insurance
policy.’” Sela, 353 F. Supp. 3d at 865(quotingMinn. Stat. § 604.18
, subd. 2(a)). “Courts
thus must determine whether the ‘denial of the claim’ was unreasonable when determining
whether an insured can recover under § 604.18.” Id.
Fundamentally, Auto-Owners has not denied that Savanna Grove experienced a
covered loss under the policy. Nor does Savanna Grove suggest otherwise. The parties’
dispute was over the amount of the loss, specifically, certain components of the loss:
applicable market pricing; additional damages and costs not reflected in Auto-Owners’
estimate; allowances for profit and overhead; and project management. (Proposed Am.
Compl. ¶¶ 25, 28, 30-32, 34.) This dispute led to the appraisal process and ultimately the
appraisal panel’s determination of the amount of the loss, namely, the value of the
replacement cost. (Proposed Am. Compl. ¶¶ 51-59.)
Savanna Grove alleges that, under the policy, Auto-Owners was obligated “to pay
a loss within five business days of an appraisal award.” (Proposed Am. Compl. ¶ 15; see
Proposed Am. Compl. ¶ 62; Minnesota Changes ¶ D, Ex. A to Compl., ECF No. 1-2 at
21.4) Savanna Grove alleges that while Auto-Owners made some additional payments
4 The policy documents were attached to the Complaint. See, e.g., Illig v. Union Elec. Co., 652 F.3d 971, 976 (8th
Cir. 2011) (“In addressing a motion to dismiss, the court may consider the pleadings themselves, materials embraced
by the pleadings, exhibits attached to the pleadings, and matters of public record.” (quotation omitted)).
following the appraisal award, (Proposed Am. Compl. ¶¶ 63, 70), Auto-Owners has not
paid the balance of the appraisal award, (Proposed Am. Compl. ¶¶ 72, 99; see Proposed
Am. Compl. ¶ 68). Savanna Grove alleges that it provided Auto-Owners with final
invoices from both its general contractor and another contractor it used for deck-staining.
(Proposed Am. Compl. ¶¶ 65-66, 70.) Savanna Grove alleges that “[d]espite . . .
represent[ing] that a final invoice showing the amounts incurred would suffice” and paying
for the deck-staining based on that contractor’s final invoice, Auto-Owners refused to pay
the balance of the appraisal award based on the general contractor’s invoice, “claiming that
[Savanna Grove] had not provided ‘documentation showing what [it] actually spent to
repair or replace the property.” (Proposed Am. Compl. ¶¶ 68, 40.) Savanna Grove alleges
that Auto-Owners then conditioned further payment on the production of more
documentation from its general contractor. (Proposed Am. Compl. ¶¶ 68, 99; see Proposed
Am. Compl. ¶ 79.) Savanna Grove alleges that this documentation was unnecessary and
not required under the policy. (Proposed Am. Compl. ¶¶ 71, 99.)
As best as this Court is able to tell, the crux of Savanna Grove’s proposed § 604.18
claim is that Auto-Owners’ failure to pay the full amount of the appraisal award within five
business days and demand for documentation beyond the final invoices before making
further payment constitutes a “de facto” denial of benefits for purposes of § 604.18.
Savanna Grove also relies on the opinions of an expert regarding the purported
unreasonableness and unlawfulness of Auto-Owners’ actions, which are summarized in the
Proposed Amended Complaint. (Proposed Am. Compl. ¶¶ 78, 103.)
3. Analysis
Savanna Grove must plead facts from which it can plausibly be inferred that Auto-
Owners denied Savanna Grove the benefits of the policy in order to state a claim under
§ 604.18. In relevant part, the policy required Auto-Owners to pay for a covered loss
within five business days after it received proof of loss and “an appraisal award ha[d] been
made.” (Minnesota Changes ¶ D.) Savanna Grove has alleged sufficient facts that it
fulfilled the conditions of the policy, yet Auto-Owners refused to pay the remainder of the
appraisal award while continuing to demand more documentation, and that together this
refusal and continued demand effectively denied Savanna Grove the benefits of the policy.
“Minnesota courts have recognized that an insurer can constructively deny a claim
through its conduct.” Weber v. Travelers Home & Marine Ins. Co., 801 F. Supp. 2d 819,
832(D. Minn. 2011) (citing cases); see, e.g., Hansen v. Markel Am. Ins. Co., No. 15-cv- 2833 (RHK/JSM),2016 WL 2901738
, at *2 (D. Minn. May 18, 2016) (claim for damage to grounded yacht was “effectively denied” as to the requested engine repairs where appraiser concluded engine repairs were not due to grounding and did not include them in damage appraisal, and insurer paid only appraised amount on claim); Weber,801 F. Supp. 2d at 832
(insurer’s rejection of insured’s “Sworn Statement in Proof of Loss” was “the functional equivalent of a denial”); Perry v. State Farm. Mut. Auto. Ins. Co.,506 F. Supp. 130, 133-34
(D. Minn. 1980) (one of two grounds provided for denial of coverage under
one aspect of policy “could reasonably be interpreted as a denial . . . of benefits” under
another).
Auto-Owners argues that any § 604.18 claim is futile because there has been no
denial. According to Auto-Owners, Savanna Grove has not plausibly alleged that it was
denied the benefits of the policy because the Proposed Amended Complaint acknowledges
that Auto-Owners made additional payments after the appraisal award and “notified
[Savanna Grove] that it needed additional documentation before it could make payments
on certain things.” (Def.’s Mem. in Opp’n at 8.) But, an insurer can constructively deny
a claim when the “insurer possesses the information necessary to decide an insured’s claim
but fails to act on that information.” Weber, 801 F. Supp. 2d at 832. Savanna Grove has
plausibly alleged that Auto-Owners’ continued non-payment of the balance of the appraisal
award and demand for more documentation after it received the final invoices effectively
denied Savanna Grove the benefits of the policy because a reasonable insurer would have
accepted the invoices as proof of the amount Savanna Grove actually and necessarily spent;
the amount actually and necessarily spent exceeded the replacement-cost value of the
appraisal award; and therefore, Savanna Grove was entitled to the remainder of the
appraisal award—the lesser amount—under the policy.
Auto-Owners’ remaining arguments are similarly unavailing for purposes of
determining whether Savanna Grove has stated a claim under § 604.18. That Auto-
Owners’ request for more documentation may have been otherwise permitted under the
policy or that the policy still permitted Auto-Owners to deny the claim following the
appraisal award are all defenses that go to the reasonableness of Auto-Owners’ actions.
(See Def’s. Opp’n at 5-7.) Notably, bad faith does not “arise simply because the insurer’s
construction of the policy was subsequently found to be legally incorrect.” Friedberg, 800
F. Supp. 2d at 1027. Likewise, it may be that Auto-Owners was acting as a reasonable
insurer would in waiting to make payments until certain information was provided, and
thus any resultant delays were likewise reasonable. (See Def.’s Mem. in Opp’n at 8.) These
arguments, however, all go to the merits of a § 604.18 claim.
Lastly, to be clear, the Court is not taking the position that the appraisal award itself
was somehow “sacrosanct,” (Def.’s Mem. in Opp’n at 6), or that the issuance of the
appraisal award determined Auto-Owners’ liability under the policy.
Appraisal is a means for resolving factual disputes over the
amount of a loss. Appraisal is not a means for resolving legal
disputes over whether an insurer must cover a loss. An
appraiser can determine the amount of any check that the
insurer must cut, but an appraiser cannot determine whether an
insurer must cut a check in the first place.
Sela, 353 F. Supp. 3d at 864; accord Savanna Grove Op.,2020 WL 468905
, at *4. In
concluding that Savanna Grove has stated a claim under § 604.18, the Court is not saying
that the amount of the loss determined by the appraisal award somehow dictated Auto-
Owners’ liability, if any, under the policy. The appraisal award is just part of the factual
basis comprising Savanna Grove’s allegations that the conditions of the policy had been
met and Auto-Owners had before it the information needed to evaluate and review Savanna
Grove’s claim.
V. ORDER
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. Savanna Grove’s Motions for Protective Order, to Quash Subpoena, and
Sanctions (ECF No. 33) are DENIED AS MOOT.
2. Savanna Grove’s Motion for Leave to Amend the Complaint (ECF No. 27) is
GRANTED.
3. Savanna Grove shall file its Amended Complaint in substantially the same
form as ECF No. 27-2 within 7 days from the date of this Order.
4. Within 14 days from the date of this Order, the parties shall meet and confer
as to what effect, if any, the Court’s ruling has on the existing Amended
Pretrial Scheduling Order (ECF No. 63). Within 7 days from the parties’
meet and confer, the parties shall:
a. File a joint letter indicating that no changes are necessary;
b. File a joint stipulation containing agreed-upon modifications to the
Amended Pretrial Scheduling Order; or
c. In the event the parties are unable to agree, file their respective
proposals with a brief explanation in support of the party’s position.
5. All prior consistent orders remain in full force and effect.
6. Failure to comply with any provision of this Order or any other prior consistent
Order shall subject the non-complying party, non-complying counsel and/or
the party such counsel represents to any and all appropriate remedies, sanctions
and the like, including without limitation: assessment of costs, fines and
attorneys’ fees and disbursements; waiver of rights to object; exclusion or
limitation of witnesses, testimony, exhibits and other evidence; striking of
pleadings; complete or partial dismissal with prejudice; entry of whole or
partial default judgment; and/or any other relief that this Court may from time
to time deem appropriate.
Dated: February 24 , 2020 s/ Tony N. Leung
Tony N. Leung
United States Magistrate Judge
District of Minnesota
Savanna Grove Coach Homeowners’
Association v. Auto-Owners Insurance
Co.
Case No. 19-cv-1513 (ECT/TNL) Reference
- Status
- Unknown