Thought Leadership

The Insurance Claims Process Part Two: Rules that Insurance Companies Must Follow

Claims Process 102

In my first article I described rules that insured property owners must abide by for a successful claim.  In this article I will address rules that insurance companies must follow.  Many of these rules are imposed by state law.

State law writes part of an insurance policy.[1]   The legislature has written form policy language to be copied into an insurance policy that covers fire and lightening losses.  An insurance policy that does not reflect the statutory language will be “reformed” to match it.[2]  The form policy language includes several deadlines for insurance companies to follow.  Property owners ought to know these deadlines and remind the insurer of them to keep a claim moving.

Deadlines Imposed By Statute

If part of a claim is settled, state statute requires that the settled part of the claim be paid in 60 days.  Property owners can enforce this deadline.[3]  The Minnesota Unfair Claims Practices Act requires payment in 5 days.[4]  Unfortunately, only the Attorney General can enforce this statute.  However, I have seen many policies that include the 5-day deadline.  Property owners ought to check the policy to see if the deadline is 5 days or 60 days.  Failure to follow whatever deadline in the policy is a breach of contract (the insurance policy is a contract) the property owner may enforce in court, if necessary.

The insurance company is also obligated to elect whether to rebuild, repair or replace.  Within 30 days after the property owner files a proof of loss.[5]  In this way the proof of loss is very helpful to property owners, since it triggers a deadline for insurers to act.  The deadline keeps the process moving.

If a property owner writes to the insurer to start an insurance appraisal, the insurance company has 20 days to name its appraiser.[6]  An insurance appraisal is much like arbitration in that it is an out-of-court dispute resolution process, as described more fully below.  If the insurance company fails to honor this 20-day deadline, the insurer may be deemed to have waived its right to nominate an appraiser and a district court judge can appoint an appraiser with only five days notice.  If the insurance company does nominate an appraiser, that appraiser and the property owner’s appraiser have 15 days to nominate the umpire.

The statute states that the insurer has to abide by the 60-day (or 5-day) deadline described above when issuing payment after an insurance appraisal award.[7]  An appraisal is described below.  The deadline applies to partial settlements and appraisal awards.

Repair to Building Code

Old case law defines the scope of an insurance loss to include any repair required by code.[8]  If an insurance policy offers replacement cost value, it must also offer coverage of a scope of repair that satisfies state building code.[9]  Indeed, contractors or property owners that commission repairs that do not comply with state building code commit a misdemeanor![10]  Any scope of repair from an insurance policy ought to satisfy state building code for a repair.  Property owners should demand the insurer issue payment that reflects state law.  Nobody should be forced to commit a misdemeanor.  The state building code can now be found on the internet at an internet site operated by the Department of Labor and Industry.[11]

Insurance Appraisal

If a property owner and insurer dispute the scope of an insurance claim, the forum to resolve the scope of the loss ought to be an insurance appraisal.  Appraisal is much like arbitration, and indeed is often referred to as arbitration.  The rules that govern a fair arbitration apply to an insurance appraisal.[12]

I use the term insurance appraisal because this process is unlike hiring one appraiser to understand the value of real estate.  Three people serve on this arbitration-like panel to decide the scope of the loss.  The property owner appoints one person, the insurance company appoints one person, and these two “appraisers” nominate a neutral umpire.  A decision by two of the three is binding on the parties as to the scope of the loss.

Typical disputes resolved in appraisal include the cost of materials and labor, whether observed damage is from a storm or a pre-existing construction defect, whether the damage is from a prior storm outside the statute of limitations, and other such issues.  In Minnesota, any dispute about what caused an observed loss should be decided in appraisal.[13]  Property owners need to appoint a highly qualified appraiser for the panel.  The central qualification is that the appraiser be neutral in the sense the appraiser can render a fair judgment.  At a minimum, the appraiser should not have a financial interest in the outcome.  The appraiser can be paid for his or her time spent preparing for and appearing on an insurance appraisal, but that person should not have a vested interest in the outcome.  The contractor who will do work for the property owner, and any public adjuster that has done advocacy for the property owner, should not serve as the appraiser.  A good appraiser will also insist on selection of a true neutral umpire.  A novice appraiser might agree to appoint a neutral umpire who has a strong bias towards insurance companies.  If a dispute arises over the appointment of an umpire, this may warrant petitioning a judge to appoint a neutral umpire as is the procedure outlined by Minnesota statute.[14]

There are several safeguards in place to ensure a fair process.  An insured has the right to present evidence and have her “day in court” in the sense of being fully heard on all arguments.  An appraisal panel should not consider evidence not presented to the panel.  For example, an appraisal panel should not call lumber yards regarding current pricing.  If the parties do not present that evidence the panel should not independently go obtain it.[15]  This rule allows property owners as well as insurance companies an opportunity to know, understand and cross-examine evidence presented to an appraisal panel.  Property owners have other rights as well such as reasonable notice of the date for an appraisal hearing.  These safeguards, when properly followed, usually lead to a fair outcome regarding the scope of the loss.

In my next article I will share “tips from the trenches” that property owners can use to ensure a successful appraisal.

Published in CIC Midwest News, Vol. 14, Number 4, Winter 2016


[1] Minn. Stat. § 65A.01 subd. 3.

[2] Watson v. United Services Auto Association, 566 N.W.2d 683, 691 (Minn. 1997).

[3] Id.

[4] Minn. Stat. § 72A.201 subd. 5.

[5] Minn. Stat. § 65A.01 subd. 3.

[6] Id.

[7] Id.

[8] A.H. Jacobson Co. v. Commercial Union Assur. Co., 83 F.Supp. 674, 677 (D. Minn. 1949), citing Larkin v. Glen Falls Ins. Co., 80 Minn. 527, 83 N.W. 409, 81 Am. St. Rep. 286 (Minn. 1900).

[9] Minn. Stat. § 65A.10.

[10] Minn. Stat. § 326B.081 Subd. 3; § 326B.082 Subd. 16; State v. Hardy, 2013 WL 118796 (Minn. Ct. App. 2013).

[12] QBE Ins. Corp. v. Twin Homes of French Ridge Homeowners Ass’n., 778 N.W.2d 393, 398 (Minn. Ct. App. 2010).

[13] Quade v. Secura Ins., 814 N.W.2d 703, 706-07 (Minn. 2012).

[14] Minn. Stat. § 65A.01 subd. 3.

[15] Interlachen Propertyowners Ass’n v. Am. Family Mut. Ins. Co., 2012 Minn. Dist. LEXIS 184