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Minnesota has adopted “harvesting”— the process of reusing materials from one location or structure to repair portions of a separate location or structure—as an acceptable means for an insurance company to fulfill its obligation to repair or replace damaged property under an insurance policy providing replacement cost coverage. See Elm Creek Courthome Ass’n, Inc. v. State Farm Fire & Cas. Co., 971 N.W.2d 731 (Minn. Ct. App. 2022). Additionally, Elm Creek holds that statutory interest accrues, and is potentially recoverable, on the full replacement cost value of an appraisal award. Id.  The Minnesota Supreme Court denied further review of the decision, meaning Elm Creek is binding precedent in Minnesota state court. Id., rev. denied (Minn. May 17, 2022).

Elm Creek arose out of hail damage to a residential common-interest ownership community consisting of 21 buildings. Elm Creek submitted a claim to its insurer alleging property damage caused by hail, a dispute arose over the amount of loss and the claim proceeded to appraisal. An appraisal panel awarded Elm Creek the actual cash value and replacement cost value of damage to exterior building materials damaged in the hailstorm. The award included the cost to replace siding on four (4) buildings, but the panel also determined that undamaged siding taken from several buildings could be harvested to replace damaged siding on 10 other buildings.

Elm Creek moved to vacate the appraisal award, arguing that reusing siding material is contrary to an insurer’s promise to repair or replace damaged property with “other property of comparable material, quality and used for the same purpose.” The district court rejected Elm Creek’s argument, observing that  harvesting is a known method of repair in the construction industry. The district court reasoned that an insurer satisfies its duty to repair or replace damaged property so long as the harvested material is a reasonable match to the color and material being replaced. Thus, the insurer’s promise to repair or replace damaged property with “other property” does not require the replacement material to come from outside the insured location—i.e., the replacement material need not be “new.”

Elm Creek will have far-reaching implications for appraisals in future property damage claims, as it establishes harvesting as an acceptable means for an appraisal panel to resolve disputes over the amount of loss. Provided there is undamaged material on the insured’s premises, appraisal panels may now consider harvesting such material to minimize the time, expense, and waste of awarding full replacement of siding and other materials.

Additionally, Elm Creek answers, in part, how statutory interest accrues on appraisal awards. Under Minnesota law, interest at the rate of 10% per year on judgments or awards exceeding $50,000, while interest accrues at the rate of 4% per year for judgments or awards that are equal to or less than $50,000. Id., subd. 1(c)(1)(i); id., subd. 2.  Further, statutory interest is recoverable on appraisal awards. See Poehler v. Cincinnati, 899 N.W.2d 135 (Minn. 2017). Prior to Elm Creek, however, Minnesota courts had not determined whether statutory interest attaches to the replacement cost value of an appraisal award or whether recoverable interest is limited to the actual cash value of an award. Elm Creek partially resolves that issue by holding that statutory interest accrues on the full value of a replacement cost award—a decision that will likely increase the value of future first-party claims.

Elm Creek does not, however, answer the question of when interest on replacement cost damages is recoverable. While the decision notes that payment of replacement cost damages is not owed until repairs have been completed, Elm Creek does not directly address whether interest on replacement cost damages may be recovered before the completion of repair. When statutory interest is owed therefore remains open for debate.

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Christopher L. Goodman

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