This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).
STATE OF MINNESOTA IN COURT OF APPEALS A15-0370
Swanny of Hugo, Inc., d/b/a Carpenter’s Steak House, et al., Respondents,
vs.
Integrity Mutual Insurance Company, Appellant.
Filed December 28, 2015 Affirmed Ross, Judge
Washington County District Court File No. 82-CV-12-347
Britton D. Weimer, Jones Satre & Weimer, PLLC, Bloomington, Minnesota (for appellant)
Adina R. Bergstrom, Brenda M. Sauro, Kyle S. Willems, Sauro & Bergstrom, PLLC, Oakdale, Minnesota; and
Lucas D. Wilson, Wilson Law, LLC, Minneapolis, Minnesota (for respondent Swanny of Hugo, Inc., d/b/a Carpenter’s Steak House)
Considered and decided by Chutich, Presiding Judge; Ross, Judge; and Larkin,
Judge. UNPUBLISHED OPINION
ROSS, Judge
After fire destroyed Carpenter’s Steak House and Integrity Mutual Insurance
Company denied business-income coverage, a jury found that the insurer breached the
insurance policy and the district court rejected the restaurant’s statutory bad-faith denial-
of-benefits cost-recovery claim under Minnesota Statutes section 604.18 (2014). The
insurer appeals the judgment on the insurance-contract claim, and the restaurant appeals
the district court’s denial of its statutory costs claim. We are satisfied that the district court
either rightly decided the legal issues or that any error was harmless, and we affirm.
FACTS
In early January 2010 Carpenter’s Steak House in Hugo, Minnesota, was destroyed
by fire. Catherine Anderson solely owns Swanny of Hugo, Inc., which in turn solely owns
the restaurant, and her son, Michael Anderson, managed the restaurant. Integrity Mutual
Insurance Company insured the restaurant. The Swanny–Integrity policy covered various
losses: business personal property; debris and pollutant removal; computers; and structure.
The policy also provided limitless coverage for the loss of business income (BI) over a 12-
month restoration period.
Integrity’s claims representative Bree Sweetack called Swanny to discuss the fire
and loss. Sweetack immediately noted that the building was a total loss. Soon Catherine
Anderson met with Integrity’s claims representative Chad Bodenheimer. Bodenheimer
informed Anderson that the restaurant was a total loss and that Swanny would be covered
by the policy’s BI-loss provisions. Integrity allocated a payment reserve of over $50,000
2 for BI, and it also allocated the maximum reserves for the structure and the other coverage
categories.
Swanny submitted a proof-of-loss statement to Integrity on January 28, 2010, for
the restaurant structure. Six weeks later Integrity sent a letter confirming that it received
Swanny’s statement and expressly rejecting any statements declaring the value of the loss.
The letter also informed Swanny that it was holding payment until it completed its fire
investigation.
Swanny sent Integrity a claim for BI based on a calculation of $164,772 prepared
by public adjustor Paul Norcia. Integrity retained accountant Christian Fox to review
Swanny’s BI claim. Integrity’s investigation into possible arson and fraud lasted more than
100 days. During the investigation period, Swanny attempted unsuccessfully to open
another restaurant. Although Swanny had successfully negotiated a lease, it lacked the
funds to complete the deal. Integrity eventually made policy-limit payments for damages
to the restaurant structure, business personal property, computer, and for the cost of debris
and pollutant removal. But it paid Swanny nothing for BI after Fox finished his report in
December 2010, concluding that Swanny had no BI loss.
Swanny sued Integrity, claiming that Integrity breached the policy by denying BI
coverage and by failing to timely cover the other categories. A jury found that Integrity
breached the policy by failing to timely pay coverages and by refusing BI coverage
altogether. It awarded Swanny $275,000 in damages for BI loss and $859,500 in
consequential damages.
3 Integrity moved for a new trial and judgment as a matter of law. The district court
took the motions under advisement and conducted a hearing on Swanny’s statutory claim
of bad-faith claim-denial. After the hearing the district court denied Integrity’s motions and
rejected Swanny’s statutory claim. It deemed Integrity’s arguments unpersuasive and
reasoned that Swanny had not shown that Integrity lacked a reasonable basis for denying
the BI claim.
Both parties challenge the district court’s decision on appeal.
DECISION
Integrity asserts that (1) consequential damages are not permissible here as a matter
of law; (2) the district court misinterpreted the jury’s verdict and double counted the BI
award; (3) preverdict interest on the consequential damages award should have been
calculated from the date the damages were incurred rather than the date the complaint was
served; and (4) Swanny failed to produce sufficient evidence to support the award of BI
damages. We will address each of these issues before turning to Swanny’s related appeal
challenging the denial of its bad-faith claim.
I
Integrity challenges the district court’s decision denying its motion for judgment as
a matter of law. The denial of a motion for judgment as a matter of law presents a legal
question, which we review de novo. Gilbertson v. Leininger, 599 N.W.2d 127, 130 (Minn.
1999). Integrity specifically maintains that the consequential-damages award is in error,
and it rests on four arguments: the holding of Olson v. Rugloski, 277 N.W.2d 385 (Minn.
1979), contradicts the award; consequential damages were not reasonably foreseeable at
4 the time the parties entered the contract; Swanny failed to specifically plead consequential
damages as required by Minnesota Rule of Civil Procedure 9.07; and the district court
improperly permitted Swanny to present a claim for negligent claims-handling. We address
each argument.
The rule in Olson allows for consequential damages in this case.
Integrity presents various arguments based on Olson, which held that consequential
damages may arise from the breach of an insurance contract. Integrity first argues that
Olson limits consequential damages based on the breach of an insurance contract to bad-
faith refusal to pay. It asserts that bad faith in the context of breach of an insurance contract
means a “willful, wanton, and malicious” refusal to make payment. Integrity reads Olson
too restrictively. The Olson opinion twice includes the phrase “willful, wanton, and
malicious,” and neither is in the holding or reasoning. The phrase first appears in the
beginning of the opinion as an introduction to the case’s procedural history. Id. at 386. And
it appears again in a summary of the trial court’s findings. Id. at 387. We do not agree that
these references condition the award on a finding of the insurer’s willful, wanton, and
malicious motives. We look instead to Olson’s expressly stated holding for the rule of law
that the supreme court applied in that case and that we will apply:
The insurer is obligated to pay when the insured suffers a loss covered by the policy. When the insurer refuses to pay or unreasonably delays payment of an undisputed amount, it breaches the contract and is liable for the loss that naturally and proximately flows from the breach.
Id. at 387–88. If the Olson court were relying on the “willful, wanton, and malicious”
nature of the insurer’s actions, rather than on its “unreasonabl[eness],” it would not have
5 so broadly stated its proposition of law. Given that the supreme court declared that the
award is suited to cover unreasonable delays, not willful or malicious delays, we see no bar
for the award here.
We are not persuaded otherwise by Integrity’s reliance on Mattson Ridge, LLC v.
Clear Rock Title, LLP, 824 N.W.2d 622 (Minn. 2012). Integrity highlights the following
footnote in Mattson Ridge:
Although unnecessary to our decision here, we note that it appears that [the insurer] did not exhibit the type of “willful, wanton, and malicious” behavior present in Olson: an unreasonable failure to pay an undisputed amount of benefits to the insured.
Id. at 630 n.2. The Mattson Ridge footnote does not declare that a finding of willful,
wanton, and malicious behavior is necessary for an award for damages arising from
delayed payment. It instead inferred that the unreasonable refusal to pay the undisputed
amount in Olson was itself willful, wanton, and malicious behavior. Given the finding that
Integrity unreasonably delayed the payment here, the Mattson Ridge footnote does not
advance its position.
Integrity also argues that Olson requires that an insured must prove that the insurer
conditioned payment on an unreasonable demand before becoming eligible for
consequential damages. It is true that Olson involved an unreasonable demand by the
insurer, but again, the rule articulated and applied in that case is not so narrowly presented.
See Olson, 277 N.W.2d at 387–88. Integrity cites no case applying Olson in this narrow
fashion, and we are aware of none.
6 Integrity next argues that Olson does not allow for consequential damages in this
case because the coverage amount was disputed. Integrity correctly observes that Olson
declares that the award may be appropriate “[w]hen the insurer refuses to pay or
unreasonably delays payment of an undisputed amount.” Id. (emphasis added). This is a
close issue, but we are satisfied that the jury was presented with sufficient evidence to
support its determination under this standard. Immediately after the fire, Integrity claims
adjustor Bodenheimer informed Swanny that the building was a total loss and that Swanny
would be covered under the BI provision of the policy. After Swanny submitted a proof-
of-loss statement to Integrity in January 2010, it took six weeks for Integrity even to
acknowledge it received the statement. Although Integrity announced that it would
withhold payments until after it completed its investigation, the jury heard from Swanny’s
expert that no fraud indicators were ever present and that it was “very clear” as early as
mid-January 2010 that the coverage would reach the policy limits. There was sufficient
evidence from which the jury could find that the coverage amounts were not effectively or
genuinely in dispute for a significant majority of the payment-delay period.
Consequential damages were foreseeable at the time the contract was made.
Integrity argues that consequential damages are not available here because the
damages were not foreseeable at the time of contracting. It has been long established that
Minnesota follows the rule of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854).
See Paine v. Sherwood, 21 Minn. 225, 232 (1875) (adopting the Hadley rule). This rule
provides that consequential damages for breach-of-contract claims are generally prohibited
unless the damages are “those arising naturally from the breach or those which can
7 reasonably be supposed to have been contemplated by the parties when making the contract
as the probable result of that breach.” Lassen v. First Bank Eden Prairie, 514 N.W.2d 831,
838 (Minn. App. 1994). In other words, consequential damages are available only if they
were contemplated or “reasonably foreseeable.” Id. Whether damages were reasonably
foreseeable when the contract was made is a question of fact. Id.
The jury was properly instructed as to this foreseeability requirement. Because the
jury awarded consequential damages, it necessarily determined that the damages were
foreseeable when the parties entered the contract. Viewing the evidence in the light most
favorable to the verdict, we will not disturb the jury’s finding unless no reasonable mind
would find as the jury did. Reedon of Faribault, Inc. v. Fid. & Guar. Ins. Underwriters,
Inc., 418 N.W.2d 488, 491 (Minn. 1988).
Swanny presented enough evidence of foreseeability to sustain the jury’s verdict.
Michael Anderson testified that when the policy began he believed that the BI coverage
would protect the flow of the business following a catastrophic event. Insurance expert
Elliott Flood opined that an insurance company would have known that failure to make
timely payments could prevent a business from reopening. Integrity’s assertion that it
lacked prior knowledge of Swanny’s specific financial vulnerability is also unavailing
because the jury can hold a defendant liable for damages that a reasonable person ought to
have foreseen as likely to result from a breach. Franklin Mfg. Co. v. Union Pac. R.R. Co.,
311 Minn. 296, 298, 248 N.W.2d 324, 325 (1976). We are satisfied that the damages
awarded here arise naturally from the breach or can “reasonably be supposed to have been
contemplated by the parties when making the contract.” Lassen, 514 N.W.2d at 838.
8 Swanny specifically pleaded consequential damages as required by Minnesota Rule of Civil Procedure 9.07.
Integrity argues that Swanny failed to specifically plead consequential damages.
Whether specificity is required is a question of law that we review de novo. DeRosier v.
Util. Sys. of Am., Inc., 780 N.W.2d 1, 4 (Minn. App. 2010). Pleadings generally require
only “a short and plain statement of the claim” and “a demand for judgment for the relief
sought.” Minn. R. Civ. P. 8.01. But special damages must be “specifically stated.” Minn.
R. Civ. P. 9.07. Special damages are the natural but not necessary result of a wrongful act.
Smith v. Altier, 184 Minn. 299, 300, 238 N.W. 479, 479 (1931). Consequential damages
are commonly called special damages and therefore must be pleaded according to rule 9.07.
See DeRosier, 780 N.W.2d at 4. The purpose of the special pleading rule is to provide the
opposing party with notice of matters that may not necessarily be known to it. See Smith,
184 Minn. at 300–301, 238 N.W. at 479–80. In the context of consequential damages for
breach of contract, the plaintiff must plead facts that the parties knew the risk of
consequential damages at the time the contract was formed. Liljengren Furniture &
Lumber Co. v. Mead, 42 Minn. 420, 422, 44 N.W. 306, 307 (1890).
Integrity argues that Swanny’s pleadings do not satisfy rule 9.07. Swanny’s
complaint defeats the argument. The complaint expressly states that Swanny was seeking
“additional foreseeable consequential damages” arising from Integrity’s failure to make
timely payment. The complaint includes other particulars that defeat Integrity’s argument:
20. As a result of Integrity’s intentional failure and refusal to make payments under the Policy’s Business Income and Extra Expense provisions, the Plaintiffs have incurred debt, were unable to keep their restaurant business in operation, and
9 have suffered unnecessary humiliation and loss—all harms that Plaintiffs intended to avoid, in the event of a catastrophic event, when they purchased the Policy from Integrity. . . .
....
22. Defendant Integrity was aware that Plaintiffs used the Premises, insured under the above-described Policy, as a commercial property, and that Plaintiffs would be damaged by any delays or refusal in payments for their losses, thereby preventing Plaintiffs from restoring or replacing the Premises to its intended use and value as a restaurant.
(emphasis added).
The complaint notified Integrity that Swanny sought consequential damages,
satisfying rule 9.07.
Swanny did not try a negligent claims-handling case.
Integrity argues that the district court improperly allowed Swanny to try a negligent
claims-handling claim. Minnesota does not recognize a private cause of action for negligent
claims-handling under the Unfair Claims Practices Act. Morris v. Am. Family Mut. Ins.
Co., 386 N.W.2d 233, 238 (Minn. 1986). At the outset of trial, the district court ruled that
Swanny’s experts were prohibited from mentioning specific provisions of the act and that
claims-handling practices would be admissible for the limited purpose of showing that
Integrity’s actions fell outside industry custom. Swanny followed the court’s ruling.
Swanny never argued for damages based on the act or negligent claims-handling.
Integrity’s argument on appeal is unsupported.
10 II
Integrity argues that the district court erroneously interpreted the jury’s special
verdict form and double counted the award for BI damages. We will liberally construe a
special verdict form, giving effect to the intention of the jury and harmonizing all findings
if we can. Daly v. McFarland, 812 N.W.2d 113, 125 (Minn. 2012). A district court faced
with a potentially inconsistent special verdict may either exercise its own interpretive
powers or, if it concludes that the jury’s conclusion must be altered as a matter of law, it
may partially direct a verdict. Id. We will give “broad discretion to any interpretive choice
made by the district court.” Id. at 126. And “[i]f the answers to special verdict questions
can be reconciled on any theory, the verdict will not be disturbed.” Id. (quotation omitted).
We are satisfied that the district court reconciled the verdict answers on a reasonable
theory.
The jury’s responses to the special verdict form were, in relevant part, as follows:
6. Did Defendant Integrity’s denial of business income loss coverage to Plaintiffs or the timing of that decision breach the insurance contract?
Answer: Yes
7. Did Plaintiffs sustain any business income loss during the period of restoration?
8. If you answered “Yes” to Question 7, then answer this question: How much business income loss did Plaintiffs sustain during the period of restoration?
Answer: $275,000
11 9. If you answered “yes” to any of Questions 1, 2, 3, 4, 5, or 6, then answer this question: Was/were Defendant Integrity’s breach(es) of the insurance contract a direct cause of damage to Plaintiffs?
10. If you answered “Yes” to Question 9, then answer this question: What amount of money will fairly and adequately compensate Plaintiffs for damage directly caused by Defendant Integrity’s breach(es) of the insurance contract?
Answer: $859,500
The district court interpreted the jury’s $275,000 BI award to be separate from the
$859,500 award. It therefore saw the $859,500 award as representing solely consequential
damages. So it added the awards together for a total of $1,134,500.
Integrity argues that the jury intended the $859,500 amount to constitute its entire
award, of which, the $275,000 BI award was merely a part. It maintains that by adding the
two figures together the district court effectively double counted the BI award. The
argument is not without merit, but we do not consider it to represent the only reasonable
interpretation. Question 10 does not clearly request the jurors to provide a total amount. In
interpreting the jury’s answers, the district court reasoned that, throughout the litigation,
“Integrity agreed with [Swanny] that consequential damages and BI loss were separate and
distinct, and made various legal arguments grounded in that concept.” The jury was
presented evidence and argument relating to two distinct types of damages, lending support
to the district court’s interpretive rationale. We recognize that the district court’s
explanation is not the only reasonable one and that Integrity’s argument has some weight.
12 But because the district court expressed and relied on a reasonable interpretive theory to
explain the verdict, its conclusion does not reflect an abuse of discretion.
III
Integrity argues that the district court erred by granting preverdict interest on the
consequential damages award from the date the complaint was served rather than the date
the damages were incurred. This issue requires us to interpret a statute, triggering our de
novo review. Swenson v. Nickaboine, 793 N.W.2d 738, 741 (Minn. 2011). The legislature
has provided a statutory right to preverdict interest on money judgments. Minn. Stat.
§ 549.09 (Supp. 2015). The general rule is that “preverdict . . . interest on pecuniary
damages shall be computed . . . from the time of the commencement of the action.” Id.,
subd. 1(b). An exception to the rule requires interest on special damages to accrue from the
time those damages were incurred if that time was later than the commencement of the
action. Id. This exception applies if either party served a written settlement offer. Id.
Integrity made a written settlement offer in May 2013. The exception for special
damages therefore applies, and the preverdict interest should accrue from the date the
damages were incurred if later than the commencement of the action. Integrity is therefore
correct that the district court erred by not considering the special-damages exception in its
order granting entry of preverdict interest. Nevertheless, this error was harmless. Our
review of the record informs us that any consequential damages must have accrued before
the initial complaint was filed on December 30, 2011. We therefore affirm the entry of
preverdict interest accruing from that date.
13 IV
Integrity argues that Swanny failed to introduce evidence of BI damages sufficient
to sustain the verdict. We will not disturb a verdict so long as it is reasonably supported by
competent evidence. Gillespie v. Klun, 406 N.W.2d 547, 554–55 (Minn. App. 1987),
review denied (Minn. Aug. 19, 1987). The policy here defines BI as: (1) net profit or loss
that would have been earned or incurred if no physical loss or damage occurred; and
(2) continuing normal operating expenses incurred, including payroll. The parties
contested at trial how the policy calculates BI. Swanny relied on the testimony of two
experts to support its theory. Public adjustor Norcia estimated that the BI loss could reach
$164,772. Flood testified that even under Integrity expert Fox’s methodology BI loss
would result. Although the jury awarded $275,000 in BI damages (a figure above Norcia’s
estimated amount), Norcia also testified that his calculation was “conservative,” thus
giving the jury a basis for awarding an amount above his estimate. Integrity also does not
attempt to argue that this amount is excessive and could only be the product of passion or
prejudice, see Flanagan v. Lindberg, 404 N.W.2d 799, 800 (Minn. 1987), nor do we
believe that to be the case here. We therefore find the verdict to be reasonably supported
by the evidence.
V
In its related appeal, Swanny challenges the district court’s denial of its posttrial
bad-faith claim. A district court may award taxable costs for the bad-faith denial of first-
party insurance claims. Minn. Stat. § 604.18. To be eligible for this remedy, the insured
must establish two elements: that the insurer lacked a reasonable basis to deny the benefits
14 and either that the insurer knew about the lack of a reasonable basis or it recklessly
disregarded the lack of reasonable basis to deny the benefits. Id., subd. 2(a). There is no
Minnesota caselaw defining reasonableness under the statute, but a majority of states with
similar bad-faith statutes have adopted a “fairly debatable” standard for evaluating an
insurer’s denial of benefits. Friedberg v. Chubb & Son, Inc., 800 F. Supp. 2d 1020, 1025
n.1 (D. Minn. 2011).
The district court determined that the first prong of section 604.18 was not satisfied
here because the BI claim was fairly debatable and Integrity had a reasonable basis for
denying the claim for that category of loss. Reasonableness generally is a question of fact.
See Mullins v. Churchill, 616 N.W.2d 764, 768 (Minn. App. 2000), review denied (Minn.
Nov. 15, 2000). We review a district court’s fact findings for clear error. Goldman v.
Greenwood, 748 N.W.2d 279, 284 (Minn. 2008). Findings of fact are clearly erroneous if
they produce the firm conviction on appeal that a mistake was made. Fletcher v. St. Paul
Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999). Swanny argues unpersuasively that the
district court erred because it failed to consider the entirety of the evidence. The district
court found the BI claim to be fairly debatable based on the different opinions reached by
the parties’ experts as to how the BI provision functions, the different opinions as to what
sales data should be used to calculate BI loss, and the conflicting results in the calculation
of BI loss. It also found that Integrity had a reasonable basis to deny the claim because its
understanding of the policy language differed from Swanny’s and because Fox’s analysis
indicated that Swanny was not entitled to BI payments. We are satisfied that the district
court adequately considered the evidence before reaching these conclusions. And because
15 there is reasonable evidence supporting the district court’s findings, the court did not
clearly err by denying Swanny’s bad-faith claim. We observe that other states with bad-
faith statutes similar to Minnesota’s require the insurer to conduct a proper investigation to
have a reasonable basis for denying a claim. See, e.g., Anderson v. Cont’l Ins. Co., 271
N.W.2d 368, 377 (Wis. 1978). But because the district court rightly concluded that Swanny
failed to show that the investigation here was improper, we do not consider whether section
604.18 imposes an investigation requirement.
Affirmed.