Imagine your homeowners association gets walloped by a Minnesota hailstorm. Thirty-four buildings take a beating. You report the damage. Your insurer acknowledges it. You go through all the proper channels and even submit to the hallowed “appraisal process” designed to resolve disputes fairly.
You win! But you don’t get paid by the insurer.
Because even after a binding appraisal award of $2,752,280.41 to cover the full replacement cost value (RCV) and despite the roofs being completely replaced in 2022, with all other repairs wrapped up by October 2023, the insurance company is still sitting on its wallet and not paying.
Why? Well, buckle up for why I am posing the question in the title of this blog.
The Storm, the Repairs, and the Appraisal
This saga begins with a classic hail event on May 19, 2022, damaging all 34 buildings in the Spinnaker Cove Clubhomes II Association in Woodbury, Minnesota. Spinnaker submitted the claim to its carrier, Country Mutual Insurance Company, which most know as Country Financial. Country Mutual initially valued the damage at $243,512.43.
Spinnaker’s contractor, Capital Construction, came up with an estimate of over $3.1 million using Xactimate. Next came the normal claims dance with inspections, disputes over gutter sizes, waste factors, overhead and profit, and whether or not the laws of physics allowed skylights to disappear.
When the negotiations predictably deadlocked, the parties turned to appraisal, as required by both the policy and Minnesota Stat. § 65A.26.
The three-member appraisal panel, after visiting the property and the extensive back-and-forth, awarded $2,752,280.41 (RCV) and $1,926,596.29 (ACV), plus permits. The panel sided with Capital on 6-inch gutters, awarded all skylights, allowed appropriate overhead and profit, and even threw amounts for job site management.
An extremely important fact is that the contractor has already done the work. The roofs were completed as of November 2022, and the rest (except for some gutter guards worth about 7,000 dollars) was done by October 2023. Capital invoiced Spinnaker for the exact amount of the award.
Most cases like this would be done, dusted, hammered, nailed, and, most importantly, paid. The truth is that this case, up to this point, is a common fact scenario in many appraisal cases that Steve Badger and I discuss on the appraisal circuit.
“Actually Spent” vs. “Incurred Costs”: Welcome to Insurance Limbo
So why hasn’t Country paid?
Because, says Country, Spinnaker hasn’t written the actual check to Capital yet.
In other words, the work is done, the contractor invoiced the association, and everyone agrees Spinnaker owes the money, but because no check has been physically handed over yet, Country claims it’s not time to release the RCV.
That’s right. In this version of events, unless your association either writes a multimillion-dollar check out-of-pocket (don’t worry, the bake sale should cover it) or takes out a loan to front the cash before being reimbursed, you apparently haven’t “actually spent” the money.
According to the policyholder’s motion for summary judgment, 1 Country’s own adjusters have testified that invoices are usually sufficient proof of incurred costs. Even Country Mutual’s own internal “Streamlining Property Payments” guide says to pay upon receipt of invoices. But not here. Now, the insurer is diving into the contractor’s books, asking for receipts, ledgers, payroll details, subcontractor costs, and, for all we know, if they used money to pay for dental records. These requests by insurers to contractors are becoming more common as well.
Despite all that, Country hasn’t paid even its own last estimate of $2.25 million, much less the actual appraisal award. And while it did recently cough up the permit fees—a year late—the remaining $839,438.15 in RCV remains unpaid.
The Appraisal Memorandum
I normally dislike appraisal memorandums. But here’s the kicker in this case. Country Mutual wrote and required a special Appraisal Memorandum, which it demanded Spinnaker sign before it would even agree to the appraisal. That document clearly states that RCV would be paid upon submission of invoices and verification of incurred costs.
Even Country’s own claim representatives admitted under oath that Capital’s invoice meets that standard.
And yet,…still no payment.
Do HOAs Need to Get Loans to Trigger Coverage?
This whole dispute raises an absurd but increasingly common question in large property losses: Do policyholders need to secure loans and pre-pay construction bills just to unlock insurance coverage?
That wasn’t the deal Spinnaker signed up for when it bought its policy. And it’s certainly not the intent of Minnesota’s appraisal statute, which is designed to provide a speedy and final resolution of loss disputes rather than send HOAs groveling to banks while repairs are already completed and invoices sent.
Maybe the insurance industry should start a new line of business offering loans to its customers so they can pay for the reconstruction, since the industry seems hell-bent on delaying and not paying. This is a classic example.
Stay Tuned….
The facts of this are from the policyholder’s memorandum. We’ll find out soon enough what Country’s official explanation is once its very capable lawyers file their reply. Until then, we’ll be here, watching this pageant unfold, and asking the question no policyholders all over the country are more frequently asking after months of waiting:
“Can we finally have our money now?”
Thought For The Day
“Insurance is like marriage. You pay, pay, pay, and you never get anything back.”
—Al Bundy
1 Spinnaker Cove Clubhomes II v. Country Mut. Ins. Co., No. 23-cv-0627 [Doc. 110, Memorandum of law in support of plaintiff’s motion for summary judgment and to enforce award] (D. Minn.).
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