Insured Minnesota property owners who take their disputed insurance claim to appraisal can recover interest on the award.
Appraisal is an out-of-court dispute resolution process comparable to arbitration. In Minnesota, it is the forum to decide the amount and cause of loss with finality. This forum is typically less expensive for resolving a disputed insurance claim than district court litigation. In appraisal, the property owner names a person to serve as an appraiser, the insurance company does the same, and the two appraisers nominate a neutral umpire. This constitutes the appraisal panel and two of the three members will decide the amount and cause of loss with finality.
Minnesota law requires insurance companies to write a policy that includes an appraisal clause for policy coverage that encompass hail and fire. Because so many insurance policies are all-peril polices that cover many perils, the appraisal clause applies to all perils. Even if state law does not require the appraisal of water damage arising from a pipe burst, if the all-peril policy encompasses fire or hail along with water damage, then the appraisal clause applies to the water damage[1].
Written Notice Triggers Interest
The statute that mandates interest on appraisal awards is Minnesota Statute Section 549.09. With this statute, the first written notice of loss from the property owner triggers the running of interest. This written notice can be delivered by an agent of the property owner such as a contractor or public adjuster. The law has developed so that the written notice can be in any form, including an e-mail, or direct message through an insurer’s web portal. The content of the message ought to include the date of loss, type (fire, hail, etc.), and give the insurer a sense of the scope of the claim.
Storm or fire restoration contractors typically generate an estimate using software that provides sufficient detail to trigger interest. These estimates, as a matter of course, state the date of loss, type of loss, and provide an itemized breakdown of the damage. That should be sufficient to trigger interest. Insurers will often argue only a formal proof of loss or demand for appraisal triggers interest, yet in my view court precedent does not support that position.
Property owners will often search for the first written acknowledgment of the claim from the insurance company is the date that triggers interest. This is not how interest operates in Minnesota. The date that triggers interest is something in writing from the property owner or its agent (contractor, public adjuster, etc.).
Principal Amount
While a calculation of interest begins with the appraisal award, the principal amount for calculating interest is less than the award. The deductible is subtracted from the appraisal award and any payments from the insurer prior to appraisal. It is therefore wise for property owners (or their public adjusters) to keep track of when the insurer issued pre-appraisal payments. Those dates will decrease the principal amount for the interest calculation.
Rate
If the principal amount is less than $50,000 the statute awards 4% interest[2]. If the amount is greater than $50,000 a 10% rate applies.Interest on Minnesota Appraisal Awards
Email me if you have any questions about how to calculate interest in Minnesota. My e-mail address is ed@beckmannlawfirm.com.
[1] It is hypothetically possible for an insurer to carve-out perils like water damage from the appraisal clause, yet in my 10 years of doing this work I have never seen such a carve-out.
[2] The 4% rate can adjust annually, but rarely does.