Article
Amicus Curiae Blog (June 1, 2020)

Minnesota Supreme Court Holds Appraisal Process Under Insurance Policy is not an “Agreement to Arbitrate” Under Uniform Arbitration Act

Kurt Mattson*

Background

The Minnesota Supreme Court recently held the Minnesota Uniform Arbitration Act (“the Act”)1 does not apply to fire insurance appraisal awards under the Minnesota standard fire insurance policy. In Oliver v. State Farm Fire & Casualty Insurance Co.2, the Court said that the district court erred by holding that a motion for pre-award interest on a fire insurance appraisal award was time-barred by the Act.

A fire occurred at the home of Sheila and William Oliver in Edina. The home was insured against fire loss by State Farm. Oliver and State Farm were unable to agree on the amount of the loss, so Oliver requested an appraisal. An appraisal panel issued an award, and State Farm paid. Oliver then sought confirmation of the appraisal award under the Act from the district court. Oliver also moved the court to grant pre-award interest on the appraisal award. 

District Court Says Motion for Pre-Award Interest Untimely under the Act

The district court ruled that the motion for pre-award interest was untimely under section 572B.24(a) of the Act because the motion was one to modify an arbitration award and was thus outside the ninety day limitation period in the statute. Oliver appealed, and the court of appeals reversed, holding that although appraisal awards are subject to the Act, the ninety day limitation period for motions to modify an arbitration award does not apply to motions for pre-award interest on appraisal awards. Further, the court of appeals held that appraisal panels lack the authority to grant pre-award interest.

State Farm sought review of whether the provision limiting modification of awards to ninety days after receiving notice of an arbitrator’s award applies to an insured’s right to obtain pre-award interest, and whether an appraisal panel has the authority to issue pre-award interest.

Oliver’s loss was covered by State Farm’s policy, which adhered to the Standard Fire Insurance Policy. Oliver sought pre-award interest on the fire loss award based on the Minnesota Supreme Court’s decision in Poehler v. Cincinnati Insurance Co.3 There, the Court held that, under section 549.09(1)(b), “absent contractual language explicitly precluding pre-award interest, an insured may recover pre-award interest on an appraisal award for a fire insurance loss.”4 Here, Oliver moved the district court to confirm the award and grant pre-award interest using the procedures contained in the Act.

Supreme Court Explains Application of Act to “Agreements to Arbitrate”

Justice Barry Anderson wrote in his opinion that “[i]nherent in the parties’ positions is the underlying assumption that the Minnesota Uniform Arbitration Act applies to appraisals.”5 The Minnesota Standard Fire Insurance Policy, which applied to Oliver’s policy with State Farm, provides an appraisal process for resolving disputes over the amount of fire loss. The Act applies to “agreements to arbitrate.”6

Justice Anderson opined that the Minnesota Standard Fire Insurance Policy does not use the term “arbitrate” or its derivatives.7 However, relying on precedent from the court of appeals’ holding that the Act applies to appraisals, Oliver proceeded under the Act to seek pre-award interest on the appraisal award. The court of appeals also relied on this authority in its decision, stating that “appraisal decisions are subject to the [Act].”8 Thus, the Court noted, before it could decide whether a request for pre-award interest is a modification of an award and subject to a 90-day limitation, it was required to determine if an appraisal is governed by the Act. While the court of appeals had opined on this issue, Justice Anderson noted that the supreme court had not— presenting a matter of first impression.9

The Act defines the scope of its application by stating that the Act “govern[s] agreements to arbitrate.”10 However, the Court pointed out that the Act does not define what constitutes an agreement to arbitrate nor what constitutes arbitration. Further, the Act does not use the word “appraisal” or its derivatives. Thus, to determine whether the Act applies to appraisals, the Court had to decide if governing “agreements to arbitrate” also means the Act governs appraisals, requiring the Court to interpret the Act itself.11

Justice Anderson noted that the parties and the court of appeals relied on a previous court of appeals’ decision that an appraisal is subject to the Act, which originated in David A. Brooks Enterprises, Inc. v. First Systems Agencies.12 In that decision, however, the conclusion “that the arbitration statute . . . governs the decision of the appraisers” was without any substantive analysis by the court.13 Instead, the appellate court merely stated that it “believe[s] that the arbitration statute governs the decision of the appraisers, and therefore, the appraisers had the authority to award prejudgment interest.”14 But the Court found that despite the holding of David A. Brooks and its progeny, the court of appeals hasn’t been consistent in this conclusion.

Justice Anderson explained that while the supreme court had yet to decide this issue, its decisions have recognized a distinction between arbitration and appraisal. He acknowledged that the Court’s decisions at times have used the terms “arbitration” and “appraisal” interchangeably but said that “[t]his past usage does not undermine the fundamental differences we have recognized between an appraisal and an arbitration as discussed in this opinion.”15

The Court noted that the dictionary definitions of the terms “arbitration” and “appraisal” also illustrate their differences. The term “arbitration” generally means “[a] dispute-resolution process in which the disputing parties choose one or more neutral third parties to make a final and binding decision resolving the dispute.”16 By contrast, “appraisal” is generally understood as “[t]he determination of what constitutes a fair price for something or how its condition can be fairly stated; the act of assessing the worth, value, or condition of something.”17 Justice Anderson found the definitions are consistent with the Court’s decisions that distinguish between appraisal and arbitration.

Justice Anderson went on to write that while other jurisdictions that have treated an appraisal clause as an agreement to arbitrate, they have done so under statutes that are distinguishable from Minnesota’s statute.

The Supreme Court’s Holding

The Minnesota Supreme Court held that based on its interpretation of the Act as well as its precedent limiting the authority of appraisal panels and distinguishing arbitration from appraisal, the appraisal process under the Standard Fire Insurance Policy18 is not an “agreement to arbitrate” under section 572B.03 of the Act. As such, because a fire insurance appraisal award does not fall within the scope of the Act, its ninety day limitation to modify an award does not apply to an appraisal award. Therefore the district court erred by denying pre-award interest to Oliver based on the ninety day limitation provision in the Act.19

Footnotes

* Kurt Mattson, William Mitchell Class of 1988, is president of Union Legal Research. His company provides quick, thorough legal research and writing services for attorneys.↩︎

  1. MINN. STAT. §§ 572B.01–31 (2018). ↩︎
  2. 939 N.W.2d 749 (Minn. 2020). ↩︎
  3. 899 N.W.2d 135 (Minn. 2017). ↩︎
  4. Id.at 142. ↩︎
  5. Oliver, 939 N.W.2d at 751. ↩︎
  6. Id. ↩︎
  7. Id. (citing MINN. STAT. § 527B.03 (2018)). ↩︎
  8. Oliver v. State Farm Fire & Cas. Ins. Co., 923 N.W.2d 680, 687 (Minn. App. 2019) (citing QBE Ins. Corp. v. Twin Homes of French Ridge Homeowners Ass’n, 778 N.W.2d 393, 398 (Minn. App. 2010)). ↩︎
  9. Oliver, 939 N.W.2d at 751. ↩︎
  10. Id. (citing MINN. STAT. § 527B.03 (2018)). ↩︎
  11. Id. at 752. ↩︎
  12. 370 N.W.2d 434, 435 (Minn. App. 1985). ↩︎
  13. Oliver, 939 N.W.2d at 752. ↩︎
  14. Id. ↩︎
  15. Id. at 752 n.3. ↩︎
  16. Id. (quoting Arbitration, BLACK’S LAW DICTIONARY (11th ed. 2019)). ↩︎
  17. Id. (quoting Appraisal, BLACK’S LAW DICTIONARY (11th ed. 2019)). ↩︎
  18. MINN. STAT. § 65A.01. ↩︎
  19. Id. at 753–54. ↩︎