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STATE OF MINNESOTA IN SUPREME COURT A10-0714

Court of Appeals

Meyer, J. Dissenting, Page, J.

David Quade, et al., Respondents, vs. Secura Insurance, Appellant. ________________________ Richard D. Snyder, Fredrikson & Byron, P.A., Minneapolis, Minnesota, for respondents. Andrea E. Reisbord, Dawn L. Gagne, Cousineau McGuire Chartered, Minneapolis, Minnesota, for appellant. ________________________ SYLLABUS In the insurance context, an appraiser's assessment of the "amount of loss" necessarily includes a determination of the cause of the loss and the amount it would cost to repair that loss. Reversed and remanded. Filed: June 13, 2012 Office of Appellate Courts

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OPINION MEYER, Justice. This case concerns the scope of an appraisal clause in a fire and wind insurance policy, which provides that either party may demand an appraisal if the parties fail to agree on "the amount of loss." The district court ordered the parties to participate in an appraisal process, and the court of appeals reversed. We hold that the phrase "amount of loss," as it relates to the authority of the appraiser under the policy, unambiguously permits the appraiser to determine the cause of the loss. Therefore, we reverse. On July 10, 2008, a strong windstorm caused extensive damage to buildings on the farm of respondents, David and Melinda Quade. The Quades were insured by appellant Secura Insurance under a "special farmowners protector policy" for direct physical loss to property caused by windstorms. The policy excludes damage caused by faulty or

inadequate maintenance of the property. An appraisal clause in the policy provides that if the parties fail to agree on "the amount of loss," either may demand "an appraisal of the loss." The policy also sets forth the procedure for obtaining an appraisal and includes the limitation that a policyholder may not file suit against Secura unless the policyholder has complied with the policy provisions. The Quades submitted a claim to Secura for storm damage to several buildings. Secura paid for some of the damages, but determined that damage to the roofs of three buildings--a warehouse, a horse barn, and a cow barn--resulted from "continual deterioration over a period of time rather than a specific storm occurrence."

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Consequently, Secura denied the claim for damage to the roofs based on the exclusion from coverage for damage caused by inadequate maintenance. Secura advised the

Quades that they should initiate an appraisal pursuant to the policy if they disagreed with the denial of the claim. Instead of pursuing an appraisal, the Quades initiated a breach of contract action in Dakota County District Court. The Quades argued that the appraisal clause did not apply to their claim for damage to the roofs because the parties disputed whether the damage to the roofs is covered by the policy--not the cost of repairing the roofs. Secura asserted that the dispute is governed by the appraisal clause and the district court lacked jurisdiction over the matter.1 Ultimately, the district court granted summary judgment to Secura. The district court concluded that determining the amount of loss under the appraisal clause includes "a causation element." Therefore, the court ordered the parties to participate in the appraisal process. Although the court dismissed the Quades'

complaint with prejudice, the court stated that the decision does not "prevent either party from, following the appraisal, bringing a declaratory judgment action on any coverage issue if there exists a coverage dispute at that time."

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The court retained jurisdiction and ordered Secura to respond to the Quades' discovery request. The court of appeals subsequently denied Secura's request for a writ of prohibition, which sought to stop enforcement of the discovery order, noting that the insurer had not "genuinely challenged the amount of the claimed loss" and that the district court, not the appraisal process, was the appropriate forum for determining liability.

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The Quades appealed, and the court of appeals reversed. The court of appeals concluded that the resolution of the Quades' claim "requires the determination of legal questions concerning the meaning and application of contract clauses, causation, and liability"; therefore, the district court erred by ordering the parties to engage in the appraisal process. Quade v. Secura Ins., 792 N.W.2d 478, 483 (Minn. App. 2011). We granted Secura's petition for review on the issue of whether a party may demand appraisal when the parties fail to agree on the "amount of loss" even if there are remaining coverage questions. The interpretation of insurance contracts is a question of law. Iowa Kemper Ins. Co. v. Stone, 269 N.W.2d 885, 887 (Minn. 1978). "Subject to the statutory law of the state, a policy of insurance is within the application of general principles of the law of contracts." Bobich v. Oja, 258 Minn. 287, 294, 104 N.W.2d 19, 24 (1960). Absent ambiguity, we construe contract terms consistent with "their plain, ordinary, and popular sense, so as to give effect to the intention of the parties as it appears from the entire contract." Id. at 294, 104 N.W.2d at 24. Although we begin with the plain and ordinary meaning of the terms, "the terms of a contract must be read in the context of the entire contract." Emp'rs Mut. Liab. Ins. Co. of Wis. v. Eagles Lodge of Hallock, Minn., 282 Minn. 477, 479, 165 N.W.2d 554, 556 (1969). The primary issue raised by the parties is the meaning of the phrase "amount of loss." Essentially, the Quades urge this court to construe the phrase "amount of loss" narrowly to mean determining the amount of money necessary to repair or replace the

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roofs, without determining the cause of the damage to the roofs or the amount of the "covered" loss. The Quades argue that the plain language and ordinary meaning of the appraisal provision requires the appraisers to set the amount of loss but does not empower the appraisers to determine the "cause" of the loss. Secura contends that the Quades' argument and the court of appeals' holding confuse the question of determining the amount of loss with the question of coverage. According to Secura, coverage questions deal with whether an event, such as a windstorm, is covered in the first instance, while the question of amount of loss relates to the damage done by the covered event and the cost to repair that damage. Secura does not contest that the policy covers wind damage and that the windstorm damaged some of the Quades' property. Secura does contest, however, the extent of the damage to the roofs caused by the windstorm. According to Secura, the extent of the wind damage is a question concerning the amount of loss and is appropriately determined in the appraisal process. Secura argues that if the Quades' position is adopted, the appraisal would become a useless process because it would not fix the amount of loss and either party could contest damages in the district court. According to Secura, such a result would contravene the express and plain language of the appraisal clause. The parties' disagreement concerning the scope of the appraisal process focuses on the meaning of the phrase "amount of loss." After reading the appraisal clause in the context of the insurance policy as a whole, we conclude that the phrase "amount of loss" is not ambiguous, because it is susceptible to only one reasonable interpretation.

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Specifically, in the insurance context, an appraiser's assessment of the "amount of loss" necessarily includes a determination of the cause of the loss, and the amount it would cost to repair that loss. With respect to insurance, "loss" is defined as "[t]he amount of financial detriment caused by . . . an insured property's damage, for which the insurer becomes liable." Black's Law Dictionary 1030 (9th ed. 2009) (emphasis added).

Merriam-Webster's Collegiate Dictionary defines "loss" in the insurance context as "the amount of an insured's financial detriment by death or damage that the insurer becomes liable for." Merriam-Webster's Collegiate Dictionary 687 (10th ed. 2001) (emphasis added). These definitions state that as a general matter the term "loss" refers to damages for which the insurer is responsible. Thus, the dictionary definitions of "loss" for

purposes of insurance expressly contemplate an element of causation. By extension, an appraiser's duty to determine the "amount of loss" requires the appraiser to determine causation. The court of appeals based its decision on the "well established" rule under Minnesota law that "liability determinations are made by courts, not appraisers." Quade, 792 N.W.2d at 481. The scope of appraisal is limited to damage questions while liability questions are reserved for the courts. See Itasca Paper Co. v. Niagara Fire Ins. Co., 175 Minn. 73, 77-78, 220 N.W. 425, 426-27 (1928). We generally agree that appraisers have authority to decide the "amount of loss" but may not construe the policy or decide whether the insurer should pay. See, e.g., Mork v. Eureka-Sec. Fire & Marine Ins. Co., 230 Minn. 382, 384, 42 N.W.2d 33, 35 (1950); 15 Lee R. Russ & Thomas F. Segalla,

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Couch on Insurance

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