WIN: Insurance Company Must Pay for Depreciation after Litigation Delays

SJJ attorneys Tim Johnson and Brad Hammond recently won a decision in the Minnesota Federal District Court requiring that an insurance company pay depreciation on an insurance claim that has been tied up in litigation for almost three years.

Back in 2018, the insured suffered a hail loss to its residential apartment buildings resulting in extensive hail damage. After the insured made a claim for damages and an appraisal demand, AXIS denied the claim asserting that there was no loss within the Policy period and filed suit against the insured. After the insured successfully compelled an appraisal of the loss, AXIS appealed to the 8th Circuit Court of Appeals, where the appellate court affirmed the district court’s decision compelling appraisal. See Axis Surplus Insurance Company v. Condor Corporation, 19 F.4th 1062 (8th Cir. 2021).

After SJJ won the appeal, an appraisal of the loss was finally completed more than four years after the loss occurred. The appraisal award awarded a replacement cost value for 2018 (the year of the loss) and a value for 2022 (the year that the appraisal was completed).  Axis paid the Actual Cash Value of the award, but refused to pay any recoverable depreciation because the insured has not made repairs “as soon as reasonably possible after the loss or damage.”  Essentially, Axis contended the insured should have replaced the roofs before an appraisal panel even inspected the damage.

SJJ made a motion before the district court arguing that (1) replacement cost benefits cannot be waived when the carrier delays payment; and (2) that replacement cost benefits should be paid based on the price when repairs would be made, rather than on the date of loss.  AXIS argued that repairs should have been completed in 2019 after AXIS had allegedly completed its investigation of the loss, even though AXIS denied that any loss occurred within the Policy period and maintained that position through the appraisal process.

The district court ruled against AXIS and in favor of the insured, finding:

1. The insured reasonably waited for the coverage dispute to resolve before committing to over $2 million in replacement work.
2. The delay was due to AXIS’s persistent denial of coverage, which included the lawsuit and the related appeal, rather than the insured’s lack of action.
3. Once the appraisal award was issued, the insured requested assurances from AXIS that it would pay the RCV, which was refused by AXIS.

Considering those findings, the district ruled that the insured had a right to depreciation under the 2022 replacement cost value awarded by the appraisal panel.  A copy of the Court’s decision is included here.

This is an important win for this insured and others in the future. Insurers cannot undervalue or improperly deny claims or the right to appraisal and then deny replacement cost benefits caused by the delays in resolving those incorrect claim decisions.