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by Mackenzie Moy

A recent decision from the Minnesota Court of Appeals serves as a reminder that in the North Star state, appraisal generally occurs before coverage disputes are resolved, and “amount of loss” may not mean what you think it means.

Minnesota courts, like many other jurisdictions, prefer the appraisal process as a means to resolve disputes over the value of an insured loss. Unlike some other jurisdictions, however, Minnesota courts do not require resolution of coverage issues prior to appraisal (unless the policy requires otherwise). To trigger the appraisal process, the party demanding appraisal generally only needs to demonstrate that the parties disagree as to the “amount of loss.” Furthermore, although “amount of loss” has traditionally been interpreted to encompass the cause of property damage, and the cost to repair that damage while questions of coverage are left to the courts, over time the meaning of “amount of loss” has slowly but steadily expanded.

The latest example of this is trend is Gibbs v. SECURA Ins. Co., No. 24-cv-1663 (ECT/ECW), 2024 WL 4199804 (Minn. Ct. App. Sept. 16, 2024). In Gibbs, the insurer accepted coverage for some components of the claim and paid for those parts of the loss but resisted the insured’s appraisal demand on the basis that other components involved coverage disputes that could not be resolved through appraisal. In particular, the insured argued that some of the damage was cosmetic – and therefore excluded under the policy’s cosmetic damage exclusion. This dispute, the insurer argued, does not constitute a disagreement over the “amount of loss,” so the appraisal provision had not been triggered. For its part, the insured asserted that the existence of competing estimates was all that was needed to demonstrate a disagreement as to the “amount of loss.” Id. The Minnesota Court of Appeals disagreed with the insurer, and granted an insured’s motion, sending all components of the claim to appraisal and leaving coverage issues to be sorted out later.

Gibbs also illustrates the expansion of the scope of what appraisal panels can decide in Minnesota. Historically, while coverage issues are reserved for the courts, Minnesota appraisal panels have decided questions of causation. See Quade v. Secura Ins., 814 N.W.2d 703 (Minn. 2012). Relying on Quade, the Gibbs court reiterated that “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.” Id. In other words, “appraisers have authority to resolve damage questions and causation questions necessary to resolving those damage questions, and courts have authority to resolve coverage questions remaining after the appraisal.” Id.

Despite this precedent, the scope of appraisal has expanded to include other fact questions. For example, unless a policy says otherwise, Minnesota caselaw requires the completion of repairs with reasonably matching materials. Minnesota courts have effectively left it up to appraisers to decide whether reasonably matching materials are available in the market, or if more extensive repairs are necessary to achieve a cosmetic match. More recently, Minnesota courts have also permitted appraisal panels to decide fact questions that many would consider closer to coverage than to quantum. For example, Minnesota appraisal panels have been tasked with deciding whether losses occurred during the policy period, even when the answer to that question would be dispositive of whether the claim is covered.

In Gibbs, the court may have expanded the scope again to include another coverage-adjacent question: whether damage was functional or merely cosmetic. As noted above, the policy in Gibbs included a cosmetic damage exclusion. By sending the claim to appraisal with that dispute pending, the court seems to have left it up to the appraisers to decide whether the dispute damage was cosmetic (excluded) or functional (covered). 

The court’s decision in Gibbs reminds us that in Minnesota, appraisal generally comes first, and coverage issues are addressed later, and that Minnesota’s already broad scope of appraisal continues to expand.