HackBarth et al v. State Farm Fire and Casualty Company

Filing 108

ORDER denying 91 Motion for Attorney Fees; granting in part 95 Motion to Amend the Judgment (Written Opinion). Signed by Senior Judge David S. Doty on 1/31/2013. (PJM)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 11-690(DSD/FLN)
Steven Hackbarth and
Lynn Hackbarth,
Plaintiffs,
ORDER

v.
State Farm Fire and
Casualty Company,
Defendant.

Brendan R. Tupa, Esq. and Udoibok, Tupa & Hussey, PLLP,
The Grain Exchange, Suite 310M, 400 South Fourth Street,
Minneapolis, MN 55415, counsel for plaintiffs.
C. Todd Koebele, Esq., Scott G. Williams, Esq., Cole A.
Hickman, Esq. and Murnane Brandt, PA, 30 East Seventh
Street, Suite 3200, St. Paul, MN 55101, counsel for
defendant.

This matter is before the court upon the motion for attorneys’
fees by plaintiffs Steven and Lynn Hackbarth and the motion to
amend judgment by defendant State Farm Fire and Casualty Company
(State

Farm).

Based

on

a

review

of

the

file,

record

and

proceedings herein, and for the following reasons, the motion for
attorneys’ fees is denied and the motion to amend judgment is
granted in part.

BACKGROUND
This insurance-coverage dispute arises out of a structure fire
at the Hackbarth residence on March 2, 2009.

At the time of the

fire, the Hackbarths had a State Farm homeowner’s policy (the
Policy). See Williams Aff. Ex. B, ECF No. 21.

The Policy provided

dwelling coverage in the amount of $680,900, personal property
coverage up to $510,675 and a living expenses stipend.
SFPROD 01948.

Id. at

As a result of the fire, State Farm paid $540,004.72

for damages to the dwelling, $127,500.96 in personal property
losses and $23,512.35 in living expenses. See Pls.’ Trial. Ex. 49.
Believing they were entitled to a larger payout under the
terms

of

the

Policy,

the

Hackbarths

filed

a

second

amended

complaint on September 7, 2011, alleging, among other things,
breach of contract. Specifically, the Hackbarths argued that their
residence was a total loss and that they were entitled to the
policy maximum for their dwelling coverage.

See Second Am. Compl.

¶ 12. The Hackbarths also sought recovery of attorneys’ fees under
Minnesota Statutes § 604.18.
Farm

counterclaimed,

Id. ¶¶ 17-21.

alleging,

among

other

In response, State
things,

that

the

Hackbarths intentionally concealed and misrepresented numerous
material facts in conjunction with their claim, thereby voiding the
Policy.

See Def.’s Countercl. ¶¶ 67-72, ECF No. 33.

State Farm

based its claim on the Policy’s “Concealment or Fraud” provision,
which stated that “any occurrence or loss caused by fire” would not
be covered if the insured “(1) before a loss, willfully; or

2

(2) after a loss, willfully and with intent to defraud; concealed
or misrepresented any material fact or circumstance.”

Williams

Aff. Ex. B, at SFPROD 01952, ECF No. 21.
On July 9, 2012, the matter proceeded to trial, and a jury
determined that “plaintiffs willfully and with intent to defraud,
conceal[ed] or misrepresent[ed] a material fact or circumstance as
defined

in

provision.”

the

insurance

policy’s

‘Concealment

Special Verdict Form ¶ 1.

entered judgment in favor of State Farm.

or

Fraud’

As a result, the court
See ECF No. 89.

Thereafter, on August 9, 2012, the Hackbarths moved for an
award of attorneys’ fees under Minnesota Statutes § 604.18.1
same day, State Farm moved to amend the judgment.

That

Specifically,

State Farm requested that the court dismiss the Hackbarths’ claim
for attorneys’

fees

and

order

that

the

Hackbarths

remit

the

$691,018.03 paid prior to the jury verdict.

DISCUSSION
I.

Minnesota Statutes § 604.18
Under Minnesota law, a court may award attorneys’ fees if the

insured establishes:
(1) the absence of a reasonable basis for
denying the benefits of the insurance policy;
1

At the pretrial conference, the court determined that any
claim for attorneys’ fees would be decided by the court after the
conclusion of trial. See Minn. Stat. § 604.18, subdiv. 2(a) (“The
court may award [relief].”) (emphasis added).
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and (2) that the insurer knew of the lack of a
reasonable basis for denying the benefits of
the insurance policy or acted in reckless
disregard of the lack of a reasonable basis
for denying the benefits of the insurance
policy.
Minn. Stat. § 604.18, subdiv. 2(a).

Section 604.18 establishes a

two-part

after

test

jurisdictions.

that

is

modeled

statutes

in

other

See, e.g., Anderson v. Cont’l Ins. Co., 271 N.W.2d

368, 377 (Wis. 1978).

“The first prong is an objective standard

that asks whether a reasonable insurer would have denied or delayed
payment of the claim under the facts and circumstances.” Friedberg
v. Chubb & Sons, Inc., 800 F. Supp. 2d 1020, 1025 (D. Minn. 2011)
(Keyes, M.J.) (citation omitted).

“Whether an insurer has acted

reasonably in good or bad faith [under this prong] is measured
against what another reasonable insurer would have done in a
similar situation.”

Id. (citation omitted).

The second prong is subjective, and a court may infer a lack
of

reasonable

basis

where

the

insurer

exhibits

reckless

indifference to facts or proofs submitted by the insured.

Id.

“But when a claim is fairly debatable, the insurer is entitled to
debate it, whether debate concerns a matter of fact or law.
Whether a claim is fairly debatable implicates the question whether
the facts necessary to evaluate the claim are properly investigated
and

developed

or

recklessly

ignored

(citations omitted).

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and

disregarded.”

Id.

Despite

the

jury

finding

in

favor

of

State

Farm,

the

Hackbarths argue that an award for attorneys’ fees is appropriate
because success on the merits in the underlying claim is irrelevant
for purposes of § 604.18.

See Anderson, 271 N.W.2d at 374 (stating

that a claim for bad faith is “separate and apart from a [claim
for] breach of contract”).

State Farm responds that without

success on the merits, a claim under § 604.18 is not cognizable.
The court need not answer this question, however.

Even if

success on the breach-of-contract claim is not required, the facts
do not support a claim under § 604.18.

The Hackbarths argue that

their home was a total loss and that State Farm should have paid
the $680,900 policy maximum.

At trial, two Hackbarth witnesses

testified that the residence was a total loss, and Tom Beier, a
construction-industry expert, explained that State Farm advised him
to estimate the repair cost at sixty-five to seventy-five percent
of the total insured value.

See Beier Aff. ¶¶ 7-11; Jarman Aff.

¶ 3.2 John Woodworth, a professional engineer, testified, however,
that the residence was not a total loss.
Moreover,

Josh

representative,

Berg,

the

testified

See Woodworth Aff. ¶ 11.

Hackbarths’

that

he

never

State

Farm

pressured

concluding that the home was less than a total loss.

2

claims

Beier

into

Berg Aff.

The Hackbarths did not submit a transcript in support of
their motion. As a result, the court cites to affidavits in the
record.
These affidavits are substantially similar to the
testimony provided at trial.
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¶ 9.

In sum, State Farm had a reasonable basis to conclude that a

total loss did not occur,3 and the claim fails under the first
prong of § 604.18.
Moreover, even if the Hackbarths could satisfy the first prong
of § 604.18, the claim fails under the second prong, as the
Hackbarths cannot show indifference on the part of the insurer.
Upon learning that the Hackbarths disagreed with State Farm’s
amount-of-loss

calculation,

Berg

gave

the

Hackbarths

the

opportunity to hire an independent expert to examine the residence.
Id. ¶ 8.

No such report was submitted.

Id.

Therefore, for this

additional reason, the Hackbarths’ claim under § 604.18 fails.
II.

Rendering Policy Null and Void
Under Minnesota law, the “entire policy shall be void if ...

after a loss, the insured has willfully and with intent to defraud,
concealed or misrepresented any material fact or circumstance
concerning this insurance or the subject thereof, or the interests
of the insured therein.”

Minn. Stat. § 65A.01, subdiv. 3; see Bahr

v. Union Fire Ins. Co., 209 N.W. 490, 491 (Minn. 1926) (“[A]ny
attempt to defraud the insurer by the insured voids the policy.”).
Although such a practice can lead to harsh results, “voiding the
policy for material misrepresentations of substantive amounts is

3

The court also notes that State Farm did not deny the
Hackbarths’ claim in its entirety; payment was provided in the
amount of $540,004.72, only $149,895.28 less than the total insured
value.
6

consistent with the reciprocal duties of the insured to its insurer
and is also consistent with the holdings of the majority of
jurisdictions that have addressed this issue.”

Collins v. USAA

Prop. & Cas. Ins. Co., 580 N.W.2d 55, 57 (Minn. Ct. App. 1998)
(citations omitted).
In the present action, the jury found that the Hackbarths
violated the “Concealment or Fraud” provision of the Policy, which
mirrors Minnesota Statutes § 65A.01.

The Hackbarths agree that

this finding renders the Policy null and void, but argue that such
a finding merely acts to terminate the contract and does not
require the return of money previously paid by State Farm.
court disagrees.

The

Section 65A.01 does not state that the policy is

“terminated” upon a finding of fraud or concealment; rather, it
states that the policy is “void.”

See Kohout v. Homecomings Fin.,

LLC, No. A11-1765, 2012 WL 2685076, at *3 (Minn. Ct. App. July 9,
2012) (holding that a finding of fraud or concealment results in a
void, not a canceled, policy).
In response, the Hackbarths argue that if the Policy is void
and they must return the $691,018.03 distributed by State Farm,
then they should be entitled to recover all premiums paid over the
life of the Policy. Under Minnesota law, however, if a policy “was
valid at its inception and went into effect, by reason whereof the
insurer ran the risk of incurring liability thereunder, but was
subsequently annulled, the insurer is entitled to retain the

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premiums for the period during which the contract was in force.”
Nat’l Council of Knights & Ladies of Sec. v. Garber, 154 N.W. 512,
513 (Minn. 1915).

As a result, State Farm is entitled to retain

all premium payments made while

a risk of payment under the Policy

existed. Stated another way, the Hackbarths are entitled to recoup
only the premium payments attributable to the period after they
first committed fraud or concealment as defined in the Policy.4
Therefore, the Hackbarths must return the $691,018.03 paid by State
Farm, less any premium payments attributable to the period after
the fraud or concealment occurred.

CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that:
1.

Plaintiffs’ motion for attorneys’ fees and costs [ECF No.

91] is denied; and
2.

Defendant’s motion to amend the judgment [ECF No. 95] is

granted in part, and the judgment shall be amended to:
a.

Dismiss plaintiffs’ claim under Minnesota Statutes

§ 604.18 with prejudice; and

4

If the Hackbarths paid their premium in a lump sum in the
year that the Policy was rendered void, State Farm is entitled to
retain only a pro rata share of the premium for the number of days
that the Policy was in effect. The court also notes that the jury
did not determine the date that the Hackbarths first engaged in
fraud or concealment.
The court is hopeful, however, that the
parties can, in good faith, determine this date and the
corresponding amount, if any, that may be used to offset the
Hackbarths’ repayment to State Farm.
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b.

Enter judgment in favor of defendant in the amount

of $691,018.03, less any premium payments attributable to
the period after the plaintiffs’ fraud or concealment
occurred.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated:

January 31, 2013
s/David S. Doty
David S. Doty, Judge
United States District Court

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