Dewey Hill owned eight townhome buildings in Minnesota insured by Auto-Owners.1 On August 16, 2013, a hail and windstorm damaged the buildings. Three days later, Dewey Hill notified Auto-Owners of the loss and submitted written property loss notices ten days later. Auto-Owners investigated the claim and approximately nine months later issued its first payment to Dewey Hill. A second payment was made by Auto-Owners approximately four months after that.
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I recently wrote about the case of Poehler v. Cincinnait Insurance Company,1 in which the Minnesota Supreme Court recently held that Minnesota Statute section 549.09 provides for pre-interest on insurance appraisal awards. Following this decision, the Eighth Circuit Court of Appeals in Housing and Redevelopment Authority of Redwood Falls v. Housing Authority Property Insurance,2 similarly held that the insured was entitled to recover pre-award interest from its insurer.
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The True Value of Insurers’ Float, by Tom Mielenhausen, offers an excellent view of how insurers profit from delay and denial. Mielenhausen noted that:

[I]nsurance companies borrow money from policyholders interest free. Insurers enjoy the use of free money and get paid for holding it.

The true value of a property/casualty insurer’s float, therefore, is not merely the “return-on-investment value” – i.e., the return the insurer makes by investing premiums in bonds and other investments. Rather, the true value of the float also consists of the “use value” of the money the insurer borrows from its policyholders, which can be measured by the avoided cost of borrowing the money (typically two percent or more above the prime rate). If an insurer were required to disgorge the true value of the money it kept while erroneously denying coverage, it would pay the cost of borrowing that money plus any return on investment during that time.

When both the use value and return value are taken into account, the true value of the property/casualty insurer’s float far exceeds the single-digit rate of prejudgment interest set forth in a number of state statues. As a result, an insurer involved in coverage litigation in those states has little incentive to timely resolve the claim. In those states, legislative reform is due.


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On May 11, 2011, the Florida Fourth District Court of Appeal released an opinion addressing a policyholder’s claim for prejudgment interest following an appraisal award. Green v. Citizens Property Insurance Corp., 2011 WL 1775731 (Fla. 4th DCA 2011). This blog continues the discussion from my March 2011 post, Recent Third District Court of Appeal Ruling Regarding Entitlement To Prejudgment Interest Following An Appraisal Award In Florida, as well as Chip Merlin’s post from a couple weeks ago, Prejudgment Interest Following A Wrongful Denial.


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Last week, a very able insurance defense attorney from Florida’s panhandle, Robert Palmer, brought Citizens Prop. Ins. Corp. v. Mallett, 7 So3d 552 (Fla. 3d DCA 2009), which involved prejudgment interest, to my attention. This case is not favorable to policyholders, especially in Northern Florida, and challenges a longstanding case, Independent Fire Ins. Co. v. Lugassy, which provides for prejudgment interest following denial.


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Florida’s Third District Court of Appeal just released an opinion related to a policyholder’s claim for prejudgment interest after an appraisal award. In Alberto Jugo v. American Security Insurance Company, No. 3D09-3246 (Fla. 3d DCA 2011), the Third District held that a policyholder was not entitled to prejudgment interest on the supplemental amount of the appraisal award from the date of loss, despite the insurer’s denial of the “supplemental” claim.


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Texas law allows for interest to be awarded to a policyholder as a penalty for the insurer delaying payment of a claim, in addition to the amount of the claim. Section 542.060 of the Texas Insurance Code states:

If an insurer that is liable for a claim under an insurance policy is not in compliance with [Chapter 542, Subchapter B – Prompt Payment of Claims], the insurer is liable to pay the holder of the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages… .


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(Note: This Guest Blog is by Ruck DeMinico, Knowledge Manager with Merlin Law Group). 

The recent case of North Pointe Insurance Company v. Tomas, No. 3D08-2245, 2009 Fla. App. LEXIS 12505 (Fla. 3d DCA August 26, 2009), illustrates why many insurers who wrongfully fail to pay a claim choose to unnecessarily delay payment rather than out right deny them.


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