Insurers must generally pay statutory preaward interest on Minnesota appraisal awards under commercial and residential property policies unless the policy expressly prohibits such interest. Recent decisions confirm that Minnesota courts will enforce policy provisions barring preaward interest.
Recovery of interest is based on Minnesota Statute section 549.09, which governs “interest on verdicts, awards, and judgments.” (emphasis added). Subdivision 1(b) provides that “[e]xcept as otherwise provided by contract or allowed by law, preverdict, preaward, or prereport interest on pecuniary damages shall be computed . . . from . . . the time of a written notice of claim.” (emphasis added). For awards over $50,000, the applicable interest rate is 10% per year.
Almost 10 years ago, the Minnesota Supreme Court held that, in accordance with section 549.09, “absent contractual language explicitly precluding preaward interest, an insured may recover preaward interest on an appraisal award . . . notwithstanding a contractual loss payment provision stating that the loss is payable after the filing of an appraisal award.” Poehler v. Cincinnati Ins. Co., 899 N.W.2d 135, 142 (Minn. 2017).
More recently, the Minnesota Supreme Court confirmed the corollary of the holding in Poehler: parties to an insurance policy may exclude preaward interest on an appraisal award under section 549.09. In Wesser v. State Farm Fire & Cas. Co., 989 N.W.2d 294 (Minn. 2023), the policy’s loss payment provision stated the “[l]oss will be payable five business days after [the insurer] receive[s the insured’s] proof of loss and . . . there is a filing of an appraisal award. No interest accrues on the loss until after the loss becomes payable.” (emphasis added). The Minnesota Supreme Court held that the “only reasonable interpretation of the Policy provision is that no form of interest starts to accrue until 5 days after receipt of proof of loss and the loss amount is ascertained by agreement, judgment, or appraisal award. Preaward interest under section 549.09, subdivision 1(b), however, necessarily accrues during the time period before an award is made. Therefore, [the insured] is not entitled to statutory preaward interest because, under the Policy, interest does not begin to accrue until after an appraisal award is made.” Id. at 299-300. (emphasis in original).
Some insureds have tried, albeit unsuccessfully, to collect additional preaward interest and/or to bypass contractual prohibitions of preaward interest by seeking such interest under Minnesota Statute section 60A.0811, which governs the recovery of interest by an insured who prevails on specified claims against an insurer in a court action or arbitration proceeding. That statute provides:
Subd. 2. Interest. (a) An insured who prevails in any claim against an insurer based on the insurer's breach or repudiation of, or failure to fulfill, a duty to provide services or make payments is entitled to recover ten percent per annum interest on monetary amounts due under the insurance policy, calculated from the date the request for payment of those benefits was made to the insurer.
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Subd. 3. Application. This section applies to a court action or arbitration proceeding, including an action seeking declaratory judgment.
Minn. Stat. § 60A.0811.
Minnesota courts, however, have consistently refused to apply this statute to appraisal awards.
For example, in PSS Properties, LLC v. North Star Mutual Insurance Co., 999 N.W.2d 902 (Minn. Ct. App. 2023), the insured moved for entry of judgment on an appraisal award and for preaward interest under section 60A.0811. The insured argued they prevailed on their breach of contract claim by obtaining an appraisal award (after commencing suit) in an amount greater than the insurer’s original payment. Id. The Minnesota Court of Appeals rejected this argument, holding that obtaining an appraisal award, without more, is not “prevailing on a claim against an insurer” because an appraisal award is not a determination of a breach-of-contract claim in a court action. (Minnesota courts uniformly hold that an appraisal is not the same as an “arbitration proceeding” because an arbitration results in a final judgment “of both law and fact,” while an appraisal merely determines “the amount of loss”—not “whether the insurer should pay.”)
More recently, in Valley Craft Industries, Inc. v. AMCO Insurance Co., No. 79-CV-23-821 (Minn. Dist. Ct. May 1, 2025), a Minnesota district court held that a policy provision barring preaward interest precludes such interest under section 549.09 and section 60A.0811. In that case, the insured demanded appraisal and then commenced suit. The litigation was stayed pending appraisal. Following issuance of the appraisal award and the insurer’s payment of the actual cash value award, the insured moved for partial summary judgment seeking statutory preaward interest under section 60A.0811.
Zelle lawyers successfully argued that the insured was not entitled to preaward interest under section 60A.0811 or section 549.09. Relying on PSS Properties, the court held that section 60A.0811 was never triggered because there was no judicial finding as to liability. Rather, after the insured filed a complaint alleging breach of contract and declaratory judgment, an umpire was appointed and an appraisal was conducted. The insured agreed to the appraisal award and accepted timely payment of the award. Critically, the court held that even if preaward interest was available under section 60A.0811, the plain language of the policy, as allowed under section 549.09, barred preaward interest. Specifically, the policy’s loss payment condition stated, in relevant part, that “we will not pay you any interest, other than the interest that accrues between the time that it is determined that a loss shall be payable…and before we pay, tender or deposit in court payment for the loss.” The court held that “[a] plain reading of the policy language precludes interest payments other than those which began to accrue after the appraisal award is made and before payment of the appraisal award is made under the Policy.”
Insurers seeking to limit their exposure in Minnesota appraisals to the amount of loss awarded by the appraisal panel (subject to any coverage issues which are beyond the panel’s authority) and avoid preaward interest can do so via policy language.
This article was originally published in The Zelle LLP Midwest Monitor: Heartland Insurance Review
