Minnesota Litigation News

Skjold ▪ Barthel Wins Important Appellate Victory Involving Insurance Coverage Disputes

Impact may extend to all businesses involved in insurance disputes with mandated arbitration or appraisal process

MINNEAPOLIS , MN – ( March 11, 2010 ) – Skjold ▪ Barthel won an important appellate victory for businesses in coverage disputes with their insurance carriers where the insurance contract requires submission of the dispute to an arbitration and/or appraisal process. The decision makes it more difficult for insurance carriers to reject the findings of an arbitration or appraisal panel, even where it is alleged that the non-attorney panel made policy determinations or conclusions of law. Rather than incur costly litigation over insurance disputes, businesses and other property owners can now rely on the arbitration or appraisal process mandated in their policies when insurable claims are in dispute.

Although this case directly involved a dispute between a homeowners association and its insurer regarding storm damage, its impact may extend to all businesses involved in insurance coverage or contract disputes in which an arbitration or appraisal process has been contractually agreed upon.

Affirming earlier District Court rulings, the Minnesota Court of Appeals recently rejected the attempt by appellant QBE Insurance Corporation (“QBE”) to overturn an action in which the Twin Homes of French Ridge Homeowners Association (“Twin Homes”) was awarded full replacement of hail-damaged roofing following a contractually agreed upon appraisal process.

In QBE Insurance Corporation v. Twin Homes of French Ridge Homeowners Association, — N.W.2d —, 2010 WL 607409, *1 (Minn. Ct. App. Feb. 23, 2010). , the appellant unsuccessfully challenged the district court’s decision on the grounds that the contractually agreed upon appraisal panel exceeded the scope of its authority, arguing that the appraisal award amounted to a coverage determination and conclusion of law. The appellant also was also ineffective in challenging the district courts’ dismissal of its request for a continuance for further discovery in the case.

Christopher P. Parrington, a shareholder with Skjold ▪ Barthel, who has appeared before the Minnesota Court of Appeals in a number of important commercial contract cases, led the Skjold ▪ Barthel litigation team on behalf of the respondent in both the district and appellate courts. The Skjold ▪ Barthel litigation team handled all aspects of this case for the respondent, from the initial pleadings in the district court, through the oral arguments before the Minnesota Court of Appeals.

The Damage and Appraisal

Following a hailstorm in May 2007, Twin Homes contacted its insurer, QBE, seeking coverage for damage sustained to the roofs of its 16- building complex pursuant to its insurance policy with QBE. After the parties could not reach an agreement on the amount of the loss, the dispute went to the appraisal process, as was contractually agreed upon and defined in the parties’ insurance policy. The appraisal panel complied with the appraisal process set forth in the insurance policy and awarded Twin Homes a full roof replacement, citing, among other considerations, that the existing shingles were no longer manufactured and a partial replacement would not be practical.

The appellant first challenged the appraisal in a district court action, in which the court granted summary judgment in favor of Twin Homes, concluding that the appraisal panel did not exceed its authority and upholding the full appraisal award.

In this decision, the Court of Appeals affirmed the District Court, stating, in part, that an appraisal panel acts within the scope of its authority and will not be reversed if it determines that roof replacement is necessary because the shingles are no longer available, even if only part of the roof has been damaged. Furthermore, the Court of Appeals concluded that the appraisal panel does not exceed the scope of its authority in making such an award even if its determination involved some conclusions of law.

This appeals court victory is a positive development for businesses and individual property owners expecting a resolution of any insurance-related claims through an arbitration and/or appraisal process, rather than costly litigation. Many insurance policies or other contracts contain agreed upon alternative dispute resolution mechanisms such as arbitration or appraisal, and this victory assures parties to such contracts that the decisions of their arbitration and/or appraisal panels will not be overturn except for the most extreme reasons.

The Court of Appeals made clear in its opinion that if parties contractually agree upon arbitration or appraisal as an alternative to litigation as dispute mechanism, the decision of the arbitration or appraisal panel will be upheld even if it is alleged that they made coverage determinations or erroneous conclusions of law.