Selective Insurance Company of South Carolina v. Sela et al
Filing
282
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT. (Written Opinion). Signed by Judge Patrick J. Schiltz on 4/21/2020. (CLG)
CASE 0:16-cv-04077-PJS-BRT Document 282 Filed 04/21/20 Page 1 of 66
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
SELECTIVE INSURANCE COMPANY OF
SOUTH CAROLINA,
Case No. 16‐CV‐4077 (PJS/BRT)
Plaintiff/Counter‐defendant,
FINDINGS OF FACT,
CONCLUSIONS OF LAW,
AND ORDER FOR JUDGMENT
v.
AMIT SELA,
Defendant/Counter‐claimant.
Joseph F. Lulic, Kristi K. Brownson, Olivia Moreland Cooper, and Aaron
M. Simon, BROWNSON PLLC, for plaintiff/counter‐defendant.
Christopher H. Yetka, LARKIN HOFFMAN DALY & LINDGREN, LTD.,
for defendant/counter‐claimant.
Defendant/counter‐claimant Amit Sela owns a large home in Minnetonka,
Minnesota. Sela’s property was damaged by two hailstorms. The first hailstorm
occurred in June 2010, while the property was insured by Lexington Insurance
Company (“Lexington”). Sela submitted a claim to Lexington, and Lexington paid
$510,797.23. Sela used a portion of that payment to repair some, but not all, of the
damage caused by the hailstorm.
The second hailstorm occurred in June 2015, while Sela’s property was insured
by plaintiff/counter‐defendant Selective Insurance Company of South Carolina
(“Selective”). Sela submitted a claim to Selective. During its investigation of the claim,
CASE 0:16-cv-04077-PJS-BRT Document 282 Filed 04/21/20 Page 2 of 66
Selective asked Sela for information about the repairs that he had completed after the
2010 hailstorm. Sela told Selective what he had repaired and what he had not repaired,
and Sela provided Selective with documentation regarding some of his repairs.
Following an investigation, Selective alleged that Sela had willfully
misrepresented the extent to which he had repaired the exterior of his home following
the 2010 hailstorm. Selective then filed this lawsuit seeking a declaration that it was not
required to indemnify Sela because of his alleged fraud. Sela counterclaimed for breach
of contract, alleging, in essence, that he had not committed fraud, and thus Selective
was required to indemnify him for the losses that he suffered in connection with the
2015 hailstorm.
The Court presided over a week‐long jury trial on the issue of fraud. During the
trial, the parties stipulated that, if the jury found that Sela had not committed fraud, the
amount of Sela’s losses would be determined by a panel of appraisers rather than by the
jury. After brief deliberations, the jury found that Sela had not committed fraud, and a
panel of appraisers later determined that the actual cash value of the losses that Sela
sustained in the 2015 hailstorm was $493,789.
This matter is now before the Court on Sela’s counterclaim against Selective for
denying insurance benefits in bad faith in violation of Minn. Stat. § 604.18. The Court
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conducted a bench trial on Sela’s bad‐faith claim and now makes the following findings
of fact and conclusions of law.
I. FINDINGS OF FACT
Sela owns a large house with a complicated and expensive cement‐tile roof.
Sela’s property includes other structures, including a garage, pool house, and gazebo.
All of the structures are clad in part with copper. Sela’s property was extensively
damaged by a hailstorm on June 25, 2010. See Def. Ex. 80 at 0004; Def. Ex. 142; JT1 Pls.
Ex. 19. At the time, the property was insured by Lexington. Sela did not immediately
submit a claim, however, because Sela was in federal prison, serving sentences for
various fraud and tax offenses. ECF No. 266 at 100‐01; United States v. Sela, 08‐CR‐
0248(1) (PJS/JJK), ECF No. 132.
After he was released from prison, Sela submitted a claim to Lexington for the
2010 hail damage. ECF No. 266 at 100‐02. Sela’s homeowner’s policy was a
replacement‐cost policy, and it is important for purposes of this litigation to understand
how such policies work:
Under a typical replacement‐cost policy, the insurer must first pay the actual
cash value (“ACV”) of the loss. ACV is calculated by identifying the cost to repair or
1
The Court will refer to exhibits that Selective introduced at the jury trial as “JT
Pls. Ex.” and to exhibits that Selective introduced at the bench trial as “BT Pls. Ex.” The
Court will refer to exhibits that Sela introduced simply as “Def. Ex.,” because Sela’s
exhibits were labeled the same at both trials.
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replace the damaged property and then subtracting depreciation. Thus, if a four‐year‐
old gazebo is destroyed by a fire, and it will cost $5000 to replace the gazebo, the ACV
would be $5000 minus four years of depreciation. If, say, the useful life of the gazebo
was ten years, the depreciation might equal $2000 (40% of $5000), and the ACV might
equal $3000 ($5000 minus $2000). The insurer would pay $3000 to the policyholder.
The policyholder then has a choice. The policyholder can choose to do nothing,
pocket the $3000, and live without a gazebo. Or the policyholder can hire a contractor
to replace the gazebo. After the gazebo is replaced and the contractor is paid, the
insured can then seek reimbursement from the insurer for the amount that the cost of
replacing the gazebo exceeded the ACV, up to the replacement‐cost value (“RCV”). So
if the insured paid $4000 to replace the gazebo, the insurer would owe him $1000; if the
insured paid $5000, the insurer would owe him $2000; and if the insured paid $6000, the
insured would owe him $2000. The difference between the ACV (which the insurer
must pay no matter what) and the RCV (which the insurer must pay only if the insured
repairs or replaces the property) is sometimes referred to as the “holdback.”
In June 2012, Lexington paid Sela $510,797.23, Def. Ex. 97, which represented the
ACV of his damaged property, ECF No. 266 at 107‐08. Sela never sought any portion of
the holdback. In other words, Sela never told Lexington that the cost of the repairs had
exceeded the ACV and that he was therefore entitled to part or all of the holdback. ECF
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No. 266 at 107‐08, 170. In choosing not to repair all of the damage but instead to pocket
some of the ACV payment, Sela acted within his rights, and he saved Lexington money.
In July 2011—that is, after the 2010 hailstorm had damaged Sela’s property, but
before he had undertaken any repairs—Sela switched insurers, taking out a
homeowner’s policy with Selective. ECF No. 266 at 152; Def. Ex. 60 at 0013. Before
agreeing to insure Sela, Selective inspected Sela’s property, and thus Selective was able
to examine all of the damage that the 2010 hailstorm had caused. An appraisal of the
home commissioned by Selective characterized the home’s roof as being in “average”
condition. Def. Ex. 125 at 0003. After examining Sela’s property, Selective elected to
issue a homeowner’s policy that did not exclude pre‐existing damage.
From 2012 to 2015, Sela repaired some, but not all, of the damage from the 2010
hailstorm. See, e.g., Def. Ex. 58 at 0006, 0101‐05. Sela owns one of Minnesota’s largest
roofing companies. Using his extensive contacts within the home‐exterior industry, he
was able to hire companies with whom he had a relationship, and he mostly paid those
companies in cash (as doing so led to “much better prices”). BT Pls. Ex. 8 at 49‐52; ECF
No. 266 at 170‐71. Sela did not attempt to repair his own roof because of its complexity.
See, e.g., ECF No. 266 at 147‐49; JT Pls. Ex. 2 at 34.
On June 29, 2015, another hailstorm hit Sela’s property. Def. Exs. 107, 124. Sela’s
home, garage, pool house, and gazebo were once again damaged. See, e.g., Def. Ex. 158;
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ECF No. 272 at 80. In addition, an outdoor grill and three patio heaters sustained
damage. See, e.g., Def. Ex. 158 at 0012‐14.
Sela submitted a claim to Selective on July 8, 2015. Def. Ex. 124. In response,
Selective sent an independent appraiser (Bryan Walton) to inspect the property. ECF
No. 265 at 4‐5, 12‐13; BT Pls. Ex. 2. After briefly examining the damage, Walton told
Sela that he had “a catastrophic claim” and that Walton would “not be handling it any
longer.” ECF No. 272 at 9; see also ECF No. 266 at 172‐74. Walton submitted a loss
report to Selective. BT Pls. Ex. 2. In his report, Walton noted that Sela told him “that
the entire exterior of [the] dwelling was redone approximately 3 years ago.” Id. at 0001.
About three weeks later, Selective sent two of its own employees—David Clark
and Charlie Hubbard—to inspect Sela’s property. ECF No. 265 at 41; JT Pls. Exs. 31, 32.
Clark and Hubbard (accompanied by Sela) spent several hours examining the damage.
ECF No. 265 at 42; ECF No. 266 at 175; JT Pls. Exs. 31, 32. Sela told Clark and Hubbard
that the exterior of the home had been completely re‐done five or six years ago. JT Pls.
Ex. 31 at 13‐14; JT Pls. Ex. 32 at 12. Sela also explained that the property had sustained
damage in a prior hailstorm, and that Lexington had indemnified him for that damage.
JT Pls. Ex. 31 at 3‐6; JT Pls. Ex. 32 at 3‐5. When Clark asked Sela whether “all the gutters
and everything were replaced,” Sela responded “[o]h, yeah, everything was done,
replaced. Copper. See what they had to do—we had to take, like, a foot and a half from
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around the house, the edge, because all the flashing goes right into the tile system.” JT
Pls. Ex. 31 at 18; see also JT Pls. Ex. 32 at 17‐18. During the inspection, Sela on his own
initiative pointed out various items that had not been repaired after the first hailstorm.
See JT Pls. Ex. 32 at 7‐8, 16‐17, 57‐58, 60, 69, 76; ECF No. 265 at 57‐59; see also JT Pls.
Ex. 32 at 77‐78 (pointing out that various skylights were not part of his claim). By the
time that Clark and Hubbard finished their inspection, they knew that some of the
damage from the 2010 hailstorm had been repaired and some of it had not. Sela later
submitted photos to Selective on which he marked portions of his property that he had
not repaired after the 2010 hailstorm. See Def. Ex. 58 at 0101‐05.
Clark was the adjuster assigned to the claim. In that capacity, Clark was
responsible for inspecting the property, determining if Sela had sustained a loss,
and—if Sela had sustained a loss—calculating the damages and settling the claim. ECF
No. 272 at 57, 78‐79. Based on his inspection of the property, Clark determined that Sela
had sustained a “significant” loss as a result of the 2015 hailstorm. ECF No. 272 at 80.
Clark never got to the point of calculating the amount that Sela was owed, however, as
Selective’s Special Investigation Unit (“SIU”) was involved with the case. ECF No. 265
at 73, 76‐77.
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A. Selective’s Fraud Investigation
Shortly after Sela submitted his claim in July 2015, Selective received an
anonymous letter that accused Sela of fraud. See Def. Ex. 60 at 0001; Def. Ex. 98. The
anonymous author informed Selective about Sela’s criminal background—noting that
he was a “convicted felon” who had been found guilty of “tax evasion and fraud.” Def.
Ex. 98 at 0001. The author also alleged that Sela had previously submitted a similar
insurance claim on the property and had received “over $585,000” from “Lloyd’s of
London.” Id. Further, the author alleged that the prior damage to Sela’s property had
not been caused “by a natural cause/Weather,” but instead by Sela directing his workers
to intentionally “ding[] and damag[e]” his property so that he could collect insurance
proceeds. Id. The author added that, if Selective investigated, it would find that Sela
had not repaired the prior damage, except for spending a “few days polishing the
alleged damages.” Id. Finally, the author said “that after every significant [insurance]
claim” that Sela makes, he “switch[es] to a new [insurance] carrier,” thereby “abusing
the system and turning it into a profit center and cash flow machine.” Id.
Selective, understandably, decided to investigate the allegations made in the
anonymous letter. Charlene Pack, a member of Selective’s SIU, was assigned to Sela’s
claim. BT Pls. Ex. 10 at 13. Parts of the anonymous letter were quickly found to be
incorrect. For example, Lexington (not Lloyds of London) had paid the previous
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insurance claim, and Lexington had paid $510,797.23 (not more than $585,000).
Moreover, there was zero evidence that anyone had intentionally damaged any of Sela’s
property.2 The property contained some “isolated” mechanical damage, such as dings
or scrapes caused by ladders being placed against the exterior of the home. ECF
No. 272 at 93. But Sela was upfront about that damage—telling Selective, for example,
“[t]hat’s clearly damage from a worker,” ECF No. 266 at 64; see also, e.g., JT Pls. Ex. 32
at 8, 66.
Despite the fact that the author of the anonymous letter was quickly revealed to
be unreliable, Selective became fixated on the author’s allegation that Sela had not
repaired any of the damage from the 2010 hailstorm.3 It is difficult to understand why
Selective became so focused on this subject, particularly because Sela did not have
much incentive to lie about this subject. As already noted, following the 2010 hailstorm,
Lexington had paid Sela only the ACV. Sela had no obligation to use that money to
make a single repair, as Sela never sought any portion of the holdback from Lexington.
2
Both Bryan Walton and Clark inspected Sela’s property and saw no evidence of
intentional mechanical damage. ECF No. 265 at 23, 110; see also ECF No. 272 at 64.
3
As noted, the anonymous letter writer seemed to claim that all of the damage for
which Lexington had indemnified Sela had been intentionally created, and that the 2010
hailstorm had not caused any damage. That claim was preposterous, however, and no
one at Selective took it seriously.
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Moreover, Sela had a replacement‐cost policy with Selective—a policy that did
not contain any exclusion for prior damage. Thus, if an item of Sela’s property (say, the
roof of his house) sustained a loss in the 2015 hailstorm and Sela repaired or replaced
that item, then Sela was entitled to be indemnified for up to the RCV of that item—even
if that item had also been damaged in the 2010 hailstorm, and even if that item had
never been repaired. Thus, it did not matter whether a particular piece of property had
been damaged in the 2010 hailstorm—and it did not matter whether any damage
sustained in 2010 had been repaired—with two exceptions:
First, if a piece of property (1) sustained a loss during the 2010 hailstorm (when
Lexington insured Sela’s property) but (2) did not sustain a loss during the 2015
hailstorm (when Selective insured Sela’s property), then obviously the only loss
occurred in 2010, and that loss would not be the responsibility of Selective. But
Selective has never credibly contended that there was any such piece of property.4
4
At the summary‐judgment hearing, Selective’s attorney (Kristi Brownson)—who
had advised Selective throughout its handling of Sela’s claim—said that she could not
identify any piece of Sela’s property that had been damaged in 2010, not repaired, and
not also damaged in 2015. At the jury trial, however, Selective’s new attorney (Joseph
Lulic)—who had not advised Selective during its handling of Sela’s claim—argued that
Sela had suffered no “loss” as a result of the 2015 hailstorm, because all of his property
had been completely destroyed by the 2010 hailstorm, meaning that any damage caused
by the 2015 hailstorm could not have reduced its value. This argument was both new
(Selective had previously suggested no such thing) and ridiculous (it contradicted,
among other things, Selective’s own assessment of Sela’s roof as being of “average”
quality despite the unrepaired damage from the 2010 hailstorm, Def. Ex. 125 at 0003,
(continued...)
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Second, although the question of whether a piece of property that sustained a
loss in 2015 also sustained a loss in 2010 would not affect the RCV that Sela might
ultimately be entitled to receive from Selective, it would affect the ACV that Sela would
initially be paid. Obviously, a piece of property that has unrepaired prior hail damage
has depreciated more than a similar piece of property that does not have unrepaired
hail damage. As a practical matter, then, the only thing that Sela could have gained by
lying about the extent to which he had repaired property damaged in the 2010
hailstorm is inflating the ACV payment that he would receive upfront and reducing the
RCV holdback that he would receive after repairing or replacing the property. It seems
rather unlikely that Sela would lie to Selective—and put at risk almost a half a million
dollars in indemnification—in order to inflate the ACV payment and decrease the RCV
holdback.
As noted, however, Selective quickly became fixated—almost to the exclusion of
everything else—with the question of what repairs (if any) Sela had made following the
2010 hailstorm. Selective asked Sela from time to time to submit documents and other
evidence regarding those repairs. See, e.g., Def. Exs. 48, 53, 63. Sela cooperated with
Selective and submitted all of the records and other evidence in his possession. Among
4
(...continued)
and Selective’s own assessment that Sela had suffered a “significant” loss as a result of
the 2015 hailstorm, ECF No. 272 at 80).
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other things, Sela submitted invoices from five different businesses—Perfect Touch
Construction, Vassallo Fabrication and Installation, Northeast Sheet Metal, Sheridan
Sheet Metal, and Industrial Door Company—related to repairs done on his property
after the 2010 hailstorm. Def. Ex. 58 at 0008‐90. These invoices totaled $37,960.32. See
id.5 Sela also represented to Selective that he had made $176,794.09 in cash payments to
workers, and he submitted QuickBook invoice summaries of these payments. Id.
at 0006, 0091‐99. Sela noted that “[s]ignificant additional” cash payments were made
5
The Court arrives at this figure by summing the following: $5235.00 to Vassallo
Fabrication and Installation, $15,499.30 to Perfect Touch Construction, $2325.00 to
Northeast Sheet Metal, $2456.02 to Sheridan Sheet Metal, and $12,445.00 to Industrial
Door Company. Some of these numbers are slightly different than the ones provided in
Sela’s summary cover sheet. Def. Ex. 58 at 0006. First, Sela later clarified that about
$150 of his Northeast Sheet Metal payments were for work inside the garage (unrelated
to hail damage). Def. Ex. 45 at 0001. The Court thus deducted that amount. Second, in
the Vassallo Fabrication and Installation invoices, $100 was actually a rebate that Sela
was supposed to receive (not a charge that he was supposed to pay). ECF No. 267
at 142. The Court thus deducted that amount. The Court makes a couple of additional
notes:
First, Sela’s cover sheet represents that he paid $5335 to Vassallo Fabrication and
Installation. Def. Ex. 58 at 0006. Sela’s attached checks only amount to $3835, id.
at 0057‐59, and Sela later explained to Selective that he did not make payments for the
full amount because of issues with the quality of Vassallo Fabrication and Installation’s
work, Def. Ex. 45 at 0001; BT Pls. Ex. 8 at 47. But because what mattered was which
post‐2010 repairs were completed, and because Vassallo Fabrication and Installation
verified that it completed $5235 in repairs on Sela’s home, the Court includes the full
$5235 in its calculation.
Second, Sela also told Selective that the garage‐door replacement (by Industrial
Door Company) was not part of his prior insurance claim, but rather was simply a post‐
2010 repair. JT Pls. Ex. 32 at 43; Def. Ex. 45 at 0002.
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“that are not reflected in these summaries, but are contained in the records of [Sela’s ex‐
wife] Nicole Sela.” Id. at 0006.
Pack sent verification forms to all five businesses from whom Sela had submitted
invoices, Def. Ex. 60 at 0039, and all five businesses verified that the invoices were
authentic, id. at 0040‐42, 0052‐53; see also Def. Exs. 61, 67, 68; JT Pls. Ex. 34. Pack did not,
however, verify any of the cash payments that Sela claimed to have made to laborers.
Pack was provided with the name of one laborer to whom Sela had paid cash (Antonio
Rodriguez), but Sela noted that he “tried to get the contact information for
Mr. Rodriguez and he’s nowhere to be found.” BT Pls. Ex. 8 at 51. Sela explained to
Selective that the other laborers were “Mexican guys” who worked for various
businesses that had completed the repairs for him, and he did not know how to contact
them. Id. at 49‐55, 75‐83. Pack never attempted to find Rodriguez herself, or to ask any
of the businesses whether they could provide contact information with respect to any of
the laborers, or even to ask those business if, in fact, Sela had paid cash to their
employees.6 Sela also made clear in his examination under oath that, although he
believed that there were additional cash payments that were not reflected in the
$176,794.09, he did not have any records relating to any such payments, and, as far as he
6
Sela also told Selective that Garlock French and its workers did some repairs for
him. Id. at 48‐49. Pack never followed up with Garlock French.
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knew, neither did Nicole Sela. He therefore did not want to speculate further about
possible additional payments. Id. at 55‐59.
In sum, then, Selective knew that Sela had received $510,797.23 from Lexington
for the 2010 hail damage; Selective had verified about $38,000 in invoices submitted by
Sela; and Selective had received Sela’s statement that he had made nearly $177,000 in
cash payments to workers. Pack’s singular focus became the large gap between what
Lexington had paid to Sela for the damage caused by the 2010 hailstorm ($510,797.23)
and what Sela claimed to have spent on repairing some of that damage (about
$215,000). See, e.g., ECF No. 273 at 28, 40, 41, 63. Pack made it her goal to prove that
Sela could not possibly have spent just $215,000 to repair over $510,000 in damages.
Selective lost its way. Selective was supposed to be conducting a fraud
investigation—that is, investigating whether Sela (to quote the insurance policy)
“willfully and with intent to defraud[,] concealed or misrepresented any material fact or
circumstance relating to [his] insurance.” Def. Ex. 1 at 0057. Sela never told Selective
that he had managed to spend just $215,000 to repair over $510,000 in damages.
Instead, he told Selective—again and again—that he had not repaired much of the
damage caused by the 2010 hailstorm. Thus, Selective’s fraud investigation was
consumed with proving that something Sela had not said was false.
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Sela did make representations about the repairs that he had made. But no one at
Selective focused on what Sela claimed to have repaired, estimated the cost of those
repairs, and compared that estimate with Sela’s reported expenditures. Put differently,
no one at Selective asked whether the repairs that Sela claimed to have made could
have been done for $215,000. Instead, Selective focused entirely on whether something
that Sela never claimed to have done—repair all of the damage caused by the 2010
hailstorm—could have been done for $215,000.
B. Selective’s Expert
As part of its investigation, Selective retained an expert—Collins O.Y. Ofori‐
Amanfo—to inspect Sela’s property. See Def. Ex. 80. Ofori‐Amanfo is a forensic
engineer and owns his own consulting company, Collins Forensics. ECF No. 265 at 124.
Ofori‐Amanfo has not received any specific training in copper or cement‐tile roofs. ECF
No. 266 at 61‐62. Ofori‐Amanfo spent three full days inspecting Sela’s property—one
day inspecting Sela’s windows to determine the cause of leaks and two days inspecting
the hail damage to the rest of the property. Def. Ex. 80 at 0009; ECF No. 266 at 17.
Ofori‐Amanfo issued a report in August 2016. See Def. Ex. 80.7
7
Ofori‐Amanfo also issued a revised report in January 2018. ECF No. 272 at 92.
But those revisions were made long after Selective denied Sela’s claim and commenced
this action against him. Thus, all references to Ofori‐Amanfo’s “report” are references
to his August 2016 report.
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Ofori‐Amanfo concluded that most of the damage caused by the 2010 hailstorm
had not been repaired. See Def. Ex. 80. Most significantly, Ofori‐Amanfo said that,
contrary to Sela’s representations, the following pieces of property had not been
repaired after being damaged by the 2010 hailstorm:
•
On the home, the gutters, downspouts, “barrel roof,”8 and copper roof
panels that were not attached to the stucco walls. Def. Ex. 80 at 0017.
•
The gazebo’s roof panels. Def. Ex. 80 at 0017.9
•
Three patio heaters and an outdoor grill. Def. Ex. 80 at 0019.
As evidence that these items had been repaired after the 2010 hailstorm, Sela
provided Selective invoices and receipts documenting such repairs, including:
8
Sela uses the term “barrel roofs” to refer to curved roofs above certain windows;
Ofori‐Amanfo refers to those roofs as “eyebrows.” ECF No. 266 at 48‐49; ECF No. 267
at 57. Sela uses the term “eyebrows” to refer to the copper roof panels that were not
attached to the stucco walls. ECF No. 266 at 48‐49, 75. The Court uses the term “barrel
roofs” in the same way as Sela. To avoid confusion, the Court will simply not use the
term “eyebrows.”
9
The Court notes that there was a miscommunication between Sela and Ofori‐
Amanfo regarding the gazebo repairs. Ofori‐Amanfo claims that Sela told him that the
middle flat panels of the gazebo were not repaired, but the rafters between the flat
panels were repaired. ECF No. 266 at 44, 96‐97. Sela claims that he told Ofori‐Amanfo
just the opposite—that he repaired the middle flat panels of the gazebo but not the
rafters. A witness corroborates Sela’s account. ECF No. 267 at 97. Moreover, it is clear
that Sela consistently told Selective that he had repaired the middle flat panels of the
gazebo but not the rafters. Selective should have drawn Ofori‐Amanfo’s attention to his
mistake, which was contradicted by the photos that Sela had submitted to Selective, see
Def. Ex. 58 at 0105, and the statements that Sela had made to Clark, see JT Pls. Ex. 32
at 8, 60, 76. Selective did not do so.
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•
An invoice from Vassallo Fabrication and Installation dated March 21,
2013. The invoice identified the job as “take out hail dented panels and
replace except at wall.” Def. Ex. 58 at 0056. This invoice had been verified
by owner Richard Vassallo. JT Pls. Ex. 34. Vassallo explained to Selective
that he replaced Sela’s copper panels except the “panels against the wall
. . . because they were behind the stucco.” Def. Ex. 61 at 0002.
Accordingly, he “le[ft] the panels in the wall and [shined] them up a little
bit, and . . . put all new panels in between those.” Id.
•
Two invoices from Sheridan Sheet Metal, one dated April 10, 2013, and the
other dated April 23, 2013, both for “4ʺ Round Corr Pipe Copper 10ʹL.”
Def. Ex. 58 at 0074, 0078. These invoices had been verified by owner Steve
Mattson. Def. Ex. 60 at 0040. Mattson told Selective that the invoices were
for downspouts. Id.
•
An invoice from Sheridan Sheet Metal dated April 9, 2013, for “#42 Rivet
Copper.” Def. Ex. 58 at 0073. This invoice was verified by Mattson. Def.
Ex. 60 at 0040. He told Selective that the invoice was for rivets which were
used to install the new downspouts. Id.
•
An invoice from Sheridan Sheet Metal dated April 11, 2013. This invoice
identified the job as “measure, make, install and solder 20 oz. copper
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custom box gutter to replace two damage areas.” Def. Ex. 58 at 0079. This
invoice had been verified by Mattson. Def. Ex. 60 at 0041. He told
Selective that it was for replacing a damaged gutter at the right corner of
Sela’s garage and another gutter in the middle of the front of Sela’s house.
Id.
•
An invoice from Northeast Sheet Metal dated August 7, 2013, which
identified the job as “furnish and install new stainless steel framing and
top.” Def. Ex. 58 at 0063. This invoice had been verified by owner David
Stohlanske. Def. Ex. 60 at 0052‐53. Stohlanske said that this invoice
related to his installation of a new stainless steel cover on Sela’s outdoor
grill. Def. Ex. 117 at 0001.
Sela also provided Selective with photos of his outdoor grill. Photos taken before
the 2015 hailstorm showed no damage; photos taken after the 2015 hailstorm showed
damage. The photos supported Sela’s claim that the grill’s stainless‐steel cover had
been damaged in 2015, but not in 2010. Def. Ex. 158 at 0014; see also Def. Ex. 3 at 0060.
In addition, Sela provided Selective with an affidavit from Stolhanske (the owner of
Northeast Sheet Metal), who swore that in 2013 Sela asked him to fix a problem with a
patio heater—a problem that was unrelated to hail damage. Def. Ex. 117. Stolhanske
swore that the patio heater, which he still possessed, showed no signs of hail damage.
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Id. Sela provided Selective with photos of his three hail‐damaged patio heaters—and
his one undamaged patio heater (the one that Stolhanske possessed)—further
supporting Sela’s claim that the patio heaters had been damaged in the 2015 hailstorm,
but not in the 2010 hailstorm. Def. Ex. 158 at 0012‐13.
In sum, Selective had in its possession verified receipts and invoices that showed
that repairs had been done on four pieces of property that Ofori‐Amanfo said had not
been repaired (the gutters, the downspouts, the copper‐roof panels that were not
attached to the stucco walls, and the outdoor grill). Selective also had a third‐party
affidavit and photos showing that the outdoor grill and patio heaters had not been
damaged before 2015, contrary to Ofori‐Amanfo’s conclusions. But Selective did not
share any of this evidence with Ofori‐Amanfo,10 despite the fact that Ofori‐Amanfo told
10
Ofori‐Amanfo testified at the bench trial that he “list[ed] every document that
[he] had at the time of writing” his report, ECF No. 272 at 99, and nowhere in his report
are Sela’s invoices or affidavits listed, see Def. Ex. 80 at 0006‐08. Ofori‐Amanfo does list
“[a] sworn statement regarding interim proof of loss claiming $749,794.76 for hail
damage that occurred on June 29, 2015.” Id. at 0007. As part of Sela’s “proof of loss”
submitted to Selective, he provided Selective the invoices. But while Ofori‐Amanfo lists
the “sworn statement” regarding Sela’s proof of loss—and also the 2015 damage
estimates (which were also part of Sela’s proof of loss)—he does not mention the
invoices. See id. The absence is telling. At the jury trial, when discussing documents
that Ofori‐Amanfo possessed at the time of his revised report (in January 2018), Ofori‐
Amanfo seemed to state that the invoices were part of a “sworn statement of interim
Proof of Loss for damage that occurred from 2010” that he was provided. ECF No. 266
at 89‐90 (emphasis added). The Court does not know if “2010” was simply a
misstatement, or if this is, in fact, referring to something different from the “sworn
statement regarding interim proof of loss claiming $749,794.76 for hail damage that
(continued...)
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Selective “that what could have changed his opinion would have been if Sela produced
some evidence from some company to show work done or replacements made.” Def.
Ex. 60 at 0062‐63.
In other words, Selective hired Ofori‐Amonfo to identify the extent to which
Sela’s property had been damaged in the 2010 hailstorm and not repaired before the
2015 hailstorm. But then Selective failed to give Ofori‐Amonfo critical evidence in its
possession relevant to the very issue that he had been hired to investigate. Even after
Ofori‐Amanfo told Selective that he might change his opinion if there was any evidence
that an item that he had identified as unrepaired had in fact been repaired, Selective did
not tell him that it possessed precisely that type of evidence. ECF No. 272 at 89‐90. To
make matters worse, Clark and Pack did not even read Ofori‐Amonfo’s report. See ECF
10
(...continued)
occurred on June 29, 2015 ” listed in Ofori‐Amanfo’s original report.
Regardless, even assuming that Ofori‐Amanfo had the invoices prior to issuing
his original report, he admittedly did not look at them. See ECF No. 272 at 100‐01
(Q: “And if there were invoices from Rich Vassallo where he showed work done on
Mr. Sela’s house, those aren’t listed in your report either, are they?” A: “No, they are
not in this report.” Q: “And whether or not they were provided to you before you
issued your report, they weren’t considered by you, were they?” A: “No.” Q: “No, they
were not?” A: “No. I didn’t have that information to—to—” Q: “Did you not have it or
did you not consider it?” A: “I did not rely on that information for my report.” Q: “So
whether you had it or not, you didn’t look at it? It didn’t form any basis for your report
whatsoever?” A: “That is correct. Yes.”).
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No. 273 at 73.11 In short, although Selective hired an expert, Selective withheld critical
information from him (information that he himself indicated he needed to produce an
accurate report), and then the fraud investigator and adjuster assigned to the claim did
not even bother to read his report.
C. Selective’s Denial of Sela’s Claim
A couple of weeks after Ofori‐Amanfo issued his report, the attorney whom
Selective had hired to advise it about Sela’s claim (Kristi Brownson) advised Selective
that it could deny Sela’s claim under the fraud exclusion of his policy, as Sela “told us in
his [examination under oath] that all the damages from [the] prior storm were repaired
and [Ofori‐Amanfo’s] report says differently.” Def. Ex. 60 at 0060. This was not true; as
the Court has explained, Sela never told Selective—during his examination under oath
or at any other time—that he had repaired all of the damage from the prior storm.12 To
11
Pack does not recall even receiving the report, ECF No. 273 at 58‐59, and her
SIU file does not show that she ever got a copy, see Def. Ex. 60 at 0060‐63. Similarly,
there is no evidence that Clark received a copy of Ofori‐Amanfo’s report. BT Pls. Ex. 10
at 0002‐04.
12
Selective (now) contends that there were three occasions on which Sela
represented that all of the damage caused by the 2010 hailstorm had been repaired and
that Selective relied on these representations:
First, Sela allegedly told Bryan Walton “that the entire exterior of [the] dwelling
was redone approximately 3 years ago.” BT Pls. Ex. 2. at 0001. But, as the Court will
explain below, no one at Selective who made the decision to deny Sela’s claim was even
aware of this statement, and a reasonable insurer would not have relied on it.
(continued...)
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the contrary, Sela consistently told Selective that he had not repaired all of the damage
from the prior storm. Several Selective employees were aware of that fact, and yet, as
far as the record reflects, not one of them corrected Brownson.
12
(...continued)
Second, Sela responded to Clark’s question about whether “all the gutters and
everything were replaced,” by saying “[o]h, yeah, everything was done, replaced.
Copper. See what they had to do—we had to take, like, a foot and a half from around
the house, the edge, because all the flashing goes right into the tile system.” JT Pls.
Ex. 31 at 18. (Multiple times during the same conversation, Sela also told Clark that he
had not repaired all of the damage from the 2010 hailstorm.) As the Court will explain
below, no reasonable insurer would have relied on this statement—and, in fact, none of
the decision makers at Selective did, as the only person at Selective who was even
aware of this statement was Clark, and he forgot about it until after this lawsuit was
commenced and Sela produced a recording of his conversation with Clark.
And third, Sela provided Selective a report from a company called “Vericlaim.”
The Vericlaim report was commissioned by Lexington to document Sela’s post‐2010
repairs. Selective contends that, in providing the Vericlaim report to Selective, Sela
represented that all of the 2010 damage had been repaired—citing text found next to
photos in the report stating (for example) that various items “ha[ve] been repaired” or
“ha[ve] all been replaced.” See BT Pls. Ex. 5. But Sela made clear before he submitted
the Vericlaim report to Selective that the report was not accurate and that he had not
completed all of the repairs identified by the report. JT Pls. Ex. 31 at 4‐5; JT Pls. Ex. 32
at 4; Def. Ex. 49. It should go without saying that no reasonable insurer would rely on
the statements in the Vericlaim report that Sela had disclaimed—and, in fact, as the
Court will explain below, none of the decision makers at Selective did so.
There is a reason why the jury quickly determined that Sela had not committed
fraud. No reasonable insurer would have relied on any of these statements to conclude
that Sela had falsely represented that all of the damage caused by the 2010 hailstorm
had been repaired. And, in fact, no one at Selective did rely on these statements in
deciding to deny coverage to Selective. These statements became prominent only much
later when, months after suing Sela, Selective’s attorneys began casting about for
evidence of misrepresentations.
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A couple of months later, Brownson sent an email formally recommending that
Selective deny Sela’s claim on grounds of fraud. Def. Ex. 60 at 0062. Clark, Pack, and
Pack’s supervisor (Terry Steele) all approved Brownson’s recommendation. Id. Pack
and Clark then noted in their files that Brownson was proceeding with the filing of this
declaratory‐judgment action. Id. at 0063; BT Pls. Ex. 10 at 0002. Selective never
bothered to tell Sela that it had decided to deny his claim; instead, Sela learned of
Selective’s decision when he was served with the complaint in this declaratory‐
judgment action.
Throughout this declaratory‐judgment action, Selective has struggled mightily to
identify a single “material fact or circumstance” that Sela allegedly misrepresented,
despite being ordered by the Court to do so. Def. Ex. 1 at 0057. Selective has also
struggled mightily to identify the person at Selective who decided that Sela should be
denied coverage because he had misrepresented a “material fact or circumstance.” This
latter point warrants some elaboration.
As this Court explained in an earlier order:
One bizarre aspect of the case is that, from the
beginning of the litigation, Selective has been unwilling to
identify the person who made the decision to deny coverage
to Sela. Typically, when an insured files a claim, the claim is
assigned to an adjuster, the adjuster does an investigation,
the adjuster makes a decision (sometimes seeking the
approval of a supervisor), and the adjuster notifies the
insured of the decision. If litigation commences, the insurer
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promptly identifies the decision maker (whose identity is
generally known to the insured anyway), and the insurer
produces the decision maker’s file. It would not even occur
to an insurer to try to hide the identity of the decision maker.
That information is obviously highly relevant and not
privileged—and, if the insurer is confident that it acted
lawfully, the insurer should be eager for the decision maker
to be given an opportunity to explain and defend his or her
decision.
ECF No. 193 at 2.
As is clear from the Court’s description of the facts—and as is even clearer from
Selective’s files—Brownson, Pack, and Clark have their fingerprints all over the decision
to deny coverage to Sela. Pack was the SIU investigator and Clark was the adjuster
assigned to the claim. Pack and Clark are the individuals at Selective who appear most
frequently in the claim notes and SIU file; they are the ones joining Brownson on
conference calls to discuss Sela’s claim; and they are the ones responding to Brownson’s
emails about Sela’s claim.
Curiously, however, both Pack and Clark have steadfastly denied that they made
the decision to deny Sela’s claim. See, e.g., ECF No. 273 at 42; ECF No. 265 at 100. In
fact, Pack and Clark have gone even further. Both Pack and Clark have made the rather
incredible assertion that they did not even express an opinion about whether Sela’s claim
should be denied on the basis of fraud. See, e.g., ECF No. 273 at 42 (Pack testifying that
while Selective brought a lawsuit, that was “not [her] decision,” and, in fact, she does
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not recall even communicating a recommendation regarding whether Sela’s claim
should be paid or not); ECF No. 265 at 72 (Clark testifying that he does not do fraud
investigations, so he does not “make a determination” on whether there is fraud or not).
For reasons that escape the Court, Sela never took Brownson’s deposition. But in
her appearances before this Court, Brownson also denied making the decision to deny
coverage to Sela. So who made that decision, if not Pack, Clark, or Brownson?
Selective’s attorneys have given the Court three different answers (at least two of which
are necessarily wrong):
First, at the hearing on the summary‐judgment motion, the Court asked
Brownson who made the decision to deny coverage to Sela. Brownson tried to duck the
question. After being pressed by the Court, however, Brownson finally identified the
decision maker as “Wade Christian.”
Second, at the pretrial conference immediately prior to the jury trial, the Court
expressed puzzlement that Christian did not appear on either party’s witness list. In
response, Joseph Lulic—an attorney for Selective who, unlike Brownson, had not
worked with Selective on the claim at the time it was investigated and
denied—informed the Court that Brownson was wrong, and that Christian had not
made the decision to deny coverage to Sela. Instead, said Lulic, a “committee of
people” had made that decision—people whom Lulic refused to name.
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And third, after the jury trial concluded with a verdict against Selective, the
Court scheduled a bench trial on Sela’s bad‐faith counterclaim. At that bench trial, of
course, the Court would have to decide whether the person who made the decision to
deny Sela’s claim had acted in bad faith. The Court asked Selective to identify the
decision maker so that the Court could better review the record in preparation for trial,
and so that the Court could fulfill its duty to enforce the Minnesota Rules of
Professional Conduct. See D. Minn. LR 83.6. Those rules provide that, with few
exceptions, “[a] lawyer shall not act as an advocate at a trial in which the lawyer is
likely to be a necessary witness.” Minn. R. Prof’l Conduct 3.7(a). After presiding over
the case for almost three years, the Court believed that it was possible—even
likely—that Brownson made the decision to deny coverage to Sela. If Brownson was
the decision maker, then she would not be able to act as an advocate at the bad‐faith
trial. Minn. R. Prof’l Conduct 3.7(a). The Court thus sent Selective’s attorneys a letter
asking them to identify who made the decision to deny coverage to Sela on the basis of
fraud. ECF No. 187 at 1.
In response, Selective refused the Court’s request and said that it would not
identify the decision maker. ECF No. 191. The Court then had to take the time to draft
a lengthy order explaining to Selective why it wanted to know who made the decision
to deny coverage to Sela. See ECF No. 193. The Court ordered Selective to identify that
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person and warned that, if Selective failed to so do, the Court would schedule a hearing
and order Selective to show cause why it should not be held in contempt. Id. at 11.
Selective relented and filed an affidavit identifying “Carl Walton” (Clark’s supervisor)
as the individual at Selective who made the decision to deny Sela’s claim on the basis of
fraud.
Having reviewed the record and presided over both the jury trial on fraud and
the bench trial on bad faith, the Court does not credit Selective’s assertion that Walton
made the decision to deny Sela’s claim. Instead, the Court finds it likely that the second
of Selective’s three conflicting answers—that the decision was made by a “committee of
people”—is true. That committee probably did not even include Walton; instead, the
committee was likely composed of Clark, Pack, and Pack’s supervisor (Steele).
To elaborate: Selective’s files show that Walton’s involvement in the case was
extremely limited—amounting to little more than reviewing the claims file every few
months and “monitor[ing it] for [a] resolution.” See BT Pls. Ex. 10. At one point in the
file, Walton instructed Clark to “continue to work with [the] SIU in resolving this one.”
Id. at 0004. The file indicates that Walton did not intend to “resolv[e]” the claim
himself; instead, he intended to sign off on whatever Clark and the SIU decided. And
that is what he seems to have done.
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On November 16, 2016, Brownson sent an email to various individuals at
Selective recommending that the company proceed with the filing of a declaratory‐
judgment action against Sela. Def. Ex. 60 at 0062. Clark responded that same day,
agreeing with Brownson’s recommendation, but noting that the SIU (which does not
include Walton) will have to weigh in. Id.; BT Pls. Ex. 10 at 0002‐03. Pack and Steele
(both of whom work in the SIU) responded the next day (November 17, 2016), and both
agreed with Brownson’s recommendation. Def. Ex. 60 at 0062. Pack entered a note that
same day stating that “Brownson will be filing [a declaratory‐judgment] action.” Id.
at 0063. Clark updated his notes a couple of weeks later (on November 28, 2016),
stating that “[c]overage counsel is in the process of filing a [declaratory‐judgment
action].” BT Pls. Ex. 10 at 0002. In other words, it is clear that by November 17, the
decision to deny Sela’s claim and file a declaratory‐judgment action had been made.
And yet Walton’s name does not appear in Selective’s files during this time period.
There is no indication that Walton played any role in the November 16‐17 discussions,
nor any indication that he had further involvement with the file until December 1,
2016—several days after Clark had written that Brownson was “in the process of filing a
[declaratory judgment action].” Id. On December 1, Walton merely noted that Selective
needed advice on whether it had to issue a formal denial before the declaratory‐
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judgment action was filed (as opposed to letting the filing of the declaratory‐judgment
action serve as the denial). BT Pls. Ex. 10 at 0002.
For these reasons, the Court does not credit Walton’s eleventh‐hour attempt to
take the fall for the Selective employees who actually made the decision to deny Sela’s
claim. Indeed, it appears to the Court that Selective may have identified Walton as the
decision maker—after earlier identifying “Wade Christian” and then “a committee of
people”—precisely because he had so little involvement in the case that he would be
more difficult to impeach than Brownson, Pack, and Clark.
II. CONCLUSIONS OF LAW13
The question before the Court is whether Selective acted in bad faith in denying
insurance benefits to Sela, thus entitling Sela to recovery of “taxable costs” under Minn.
Stat. § 604.18. The Court first explains why it finds that Selective acted in bad faith. The
Court next identifies the “taxable costs” that Sela is entitled to recover. And finally, the
Court addresses a dispute between the parties regarding prejudgment interest.
13
Labeling the Court’s conclusions as “Conclusions of Law” is a bit of a
misnomer, as the two main issues that the Court must address under Minnesota’s bad‐
faith statute—one regarding reasonableness, and the other regarding recklessness—are
actually issues of fact. See Minn. Stat. § 604.18, subds. 2(a)(1) & 2(a)(2).
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A. Bad Faith
In Minnesota, an insured such as Sela can recover “taxable costs” from his
insurer under the bad‐faith statute when the insured establishes both:
(1)
the absence of a reasonable basis for denying the benefits of the
insurance policy; 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, subd. 2(a).14
14
Selective argues that Sela cannot recover under the bad‐faith statute because his
insurance claim was “resolved or confirmed by arbitration or appraisal.” See ECF
No. 239; see also Minn. Stat. § 604.18, subd. 4(c) (stating that “[a]n award of taxable costs
under this section is not available in any claim that is resolved or confirmed by
arbitration or appraisal”). Selective is incorrect.
On December 12, 2016—10 days after Selective filed this lawsuit—Sela
demanded that Selective agree to appraisal of his insurance claim and Selective refused.
See ECF No. 37 at ¶ 66; ECF No. 38 at ¶ 24. Sela later sought to bring a bad‐faith claim
against Selective based on Selective’s refusal to resolve his insurance claim through
appraisal. ECF No. 68‐1 at ¶¶ 77‐78. This Court agreed with Selective that it had acted
properly in refusing to resolve Sela’s insurance claim through appraisal:
Appraisal is a means for resolving factual disputes
over the amount of a loss. Appraisal is not a means for
resolving legal disputes over whether an insurer must cover
a loss. . . .
Selective was not required to submit this dispute to a
panel of appraisers. The dispute between Selective and Sela
is not a dispute over “the amount of loss,” such as a dispute
(continued...)
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The first prong is objective and asks whether a reasonable insurer would have
denied benefits under the circumstances. Friedberg v. Chubb & Son, Inc., 800 F. Supp. 2d
1020, 1025 (D. Minn. 2011). The second prong is subjective and asks whether the
particular insurer denied benefits while knowing of, or acting in reckless disregard of,
the lack of a reasonable basis. Id.
14
(...continued)
over how much it would cost to replace the roof on Sela’s
home. Rather, the dispute between Selective and Sela is a
dispute over whether Selective has any obligation to
indemnify Sela regardless of “the amount of loss.” This is a
coverage dispute . . . .
. . . [W]hat Selective and Sela dispute is whether there is any
coverage, and coverage disputes cannot be resolved by
appraisers. . . . That includes disputes over whether the
insured has forfeited all coverage by engaging in some kind
of fraud.
Selective Ins. Co. of S. Carolina v. Sela, 353 F. Supp. 3d 847, 864–65 (D. Minn. 2018).
Sela’s entitlement to be indemnified turned entirely on the question of whether
he had forfeited coverage by committing fraud. That question was resolved by the jury;
no appraiser ever considered it. Instead, after the jury resolved the dispute over Sela’s
entitlement to indemnification, a panel of appraisers assigned a dollar value to Sela’s
claim pursuant to an agreement reached by the parties during trial (and not because
either party had agreed to a demand for appraisal under the provisions of the policy).
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1. First Prong: Objective
a. Legal Standard
As noted, the first prong of Minnesota’s bad‐faith statue is objective and asks
whether the insurer had a reasonable basis to deny benefits under the circumstances of
the particular case. In applying the objective prong, a court must “consider whether the
claim was properly investigated and whether the results of the investigation were
subjected to reasonable evaluation and review.” Friedberg, 800 F. Supp. 2d at 1025; see
also Darmer v. State Farm Fire & Cas. Co., ___ F. Supp. 3d ___, No. 17‐CV‐4309
(JRT/KMM), 2020 WL 514261, at *10 (D. Minn. Jan. 31, 2020); Borchardt v. State Farm Fire
& Cas. Co., No. 16‐CV‐0055 (PJS/KMM), 2017 WL 8315883, at *3 (D. Minn. Apr. 26, 2017).
Whether the insurer “acted reasonably in good or bad faith is measured against what
another reasonable insurer would have done in a similar situation.” Friedberg, 800 F.
Supp. 2d at 1025 (citation omitted). Expert testimony regarding what another
reasonable insurer would have done is not necessary unless the issue “‘is so esoteric
that jurors of common knowledge and experience cannot form a valid judgment as to
whether the conduct . . . was reasonable.’” Roettger v. United Hosps. of St. Paul, Inc., 380
N.W.2d 856, 860 (Minn. Ct. App. 1986) (citation omitted); see also New Appleman
Insurance Law Practice Guide § 6.10 (2019 ed.) (explaining that “[e]xpert testimony is
not required where the reasonableness (or lack of it) of the insurer’s conduct is
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something that is within the understanding of the average juror and does not require
specialized knowledge or skill to understand”).15
After careful consideration, the Court finds that Selective did not have a
reasonable basis to deny benefits to Sela on the basis of fraud.
15
Assessing the reasonableness of Selective’s investigation and its denial of Sela’s
claim is certainly not “so esoteric” that the Court needs the assistance of an expert
witness. See, e.g., DeChant v. Monarch Life Ins. Co., 547 N.W.2d 592, 594, 599‐600 (Wis.
1996) (bad‐faith claim alleging that an insurer improperly reclassified a totally‐disabled
insured as only residually disabled was “well within the jury’s ordinary experience” to
understand and did not require an insurance‐industry expert); Weiss v. United Fire &
Cas. Co., 541 N.W.2d 753, 759‐60 (Wis. 1995) (bad‐faith claim alleging that an insurer’s
“incomplete and slipshod investigation of the claim prevented it from learning the true
facts” was one that “the average juror might readily determine, without the benefit of
expert testimony”); Dregne v. W. Bend Mut. Ins. Co., No. 97‐1284, 1998 WL 30157, at *2
(Wis. Ct. App. Jan. 29, 1998) (bad‐faith claim alleging that an insurer acted unreasonably
in considering the insured’s submitted evidence by “fail[ing] to share” that evidence
“with the appraiser on whose opinion [it] relied” and “fail[ing] to investigate further
based on” that evidence was not so complex as to require expert testimony); Tholl v.
State Farm Fire & Cas. Co., No. 84‐2141, 1985 Wisc. App. LEXIS 3946, at *11 (Wis. Ct.
App. Dec. 4, 1985) (“Certainly, a jury could determine without expert testimony
whether an insurer’s investigation of a claim was neutral and detailed, and whether the
claim was fairly evaluated before payment was denied.”); see also Tengvall v. Stuart
Corp., No. CX‐97‐80, 1997 WL 360906, at *2 (Minn. Ct. App. July 1, 1997) (holding that
expert testimony regarding apartment‐managers’ standard of care was not necessary,
because “[a]partment managers are professionals in a field to which many lay persons
have had exposure, and the public understands the general nature of an apartment
manager’s responsibilities”).
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b. Selective’s Denial
i. Selective’s Fraud Investigation
Selective denied Sela’s claim under the fraud provision of its policy, which
precludes coverage to an insured who “willfully and with intent to defraud[,] concealed
or misrepresented any material fact or circumstance relating to [his] insurance.” Def.
Ex. 1 at 0057. Specifically, Selective alleged that Sela lied by claiming that, after the 2010
hailstorm, he made repairs that he had not made.
In deciding whether an insured committed fraud, nothing is more important
than identifying the words that the insured spoke or wrote. After all, the essence of
fraud is a lie—a false statement made by an insured. Yet prior to concluding that Sela
had lied about the repairs that he had made to his home following the 2010 hailstorm,
no one at Selective (1) identified what Sela had actually said and (2) investigated
whether what Sela had actually said was true. Indeed, Pack—who led the fraud
investigation— admitted that she did not care “what Mr. Sela may or may not have told
people.” ECF No. 273 at 53. Instead, Pack wanted Sela to “prove that the previous
work was done”—i.e., that he had repaired all of the damage caused by the 2010
hailstorm. Id. There were a couple of glaring problems with Pack’s approach:
First, Sela did not have to prove to Selective that any previous work had been
done. Rather, Sela needed only to show that he had sustained a loss as a result of the
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2015 hailstorm. Prior to denying Sela’s claim, no Selective employee ever suggested
that Sela had not sustained a loss from the severe hailstorm that pounded his home on
June 29, 2015; to the contrary, Clark characterized Sela’s loss as “significant.” ECF
No. 272 at 80. Sela also needed to cooperate with Selective’s investigation, which he
did. And finally, Sela needed to not lie. Thus, the only “previous work” that Sela had
to “prove . . . was done” was the previous work that Sela said had been done.16
Second, to identify what previous work Sela said had been done, Pack would
have had to focus on the very thing that she said did not matter to her: “what Mr. Sela
may or may not have told people.” ECF No. 273 at 53. True to her word, Pack ignored
much of what Sela said. For example, although Sela submitted to Pack photos on which
he identified what he had not repaired following the 2010 hailstorm, Pack’s file notes
dismiss these photos as “a few photos with ‘no’ written on them and arrows pointing to
section[s] of house.’” Def. Ex. 60 at 0035. These photos were some of the most critical
evidence that Pack had regarding what Sela claimed to have repaired, and yet it
appears that she paid little attention to them.
Moreover, Pack did not try to understand the nature of the repairs that Sela
claimed to have made. For example, upon being shown a receipt for painting supplies
that Sela had submitted, Pack claimed that the receipt did “not appear to be related to a
16
In fact, Sela did not need to “prove” this much; the burden of proof was on
Selective to show that the fraud exclusion applied.
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roof claim.” ECF No. 273 at 31. When asked “if the gazebo was sanded, refinished, and
painted” to repair damage from the 2010 hailstorm, Pack responded, “I do not know.
That’s not the focus of my investigation.” Id.
As the Court has already explained, the “focus of [Pack’s] investigation” was the
large gap between the amount of money that Lexington had paid to Sela ($510,797.23)
and the amount of money that Sela claimed to have paid to repair damage caused by
the 2010 hailstorm (about $215,000). See, e.g., ECF No. 273 at 28, 40, 41, 63. Pack clearly
thought it impossible that Sela could have spent only $215,000 to repair over a half
million dollars in damage. But Pack missed the crucial point that Sela was not claiming to
have repaired everything.17 And if Pack had paid attention to what Sela actually told
17
As previously noted, Selective now contends that Sela represented that he
repaired all of the damage caused by the 2010 hailstorm and that his representation was
material—that is, something that would “matter to a reasonable insurer.” Borchardt v.
State Farm Fire & Cas. Co., 931 F.3d 781, 786 (8th Cir. 2019). But a reasonable insurer
would not have relied on any of the statements cited by Selective.
First, Selective points to Bryan Walton’s report, which asserts that Sela said “that
the entire exterior of [the] dwelling was redone approximately 3 years ago.” BT Pls.
Ex. 2. at 0001. But in the months following Walton’s initial inspection, Sela consistently
told everyone with whom he communicated at Selective that he had not repaired all of
the damage caused by the 2010 hailstorm. Given that Selective’s files were bulging with
documents in which Sela made clear that he had not repaired all of the 2010 damage, no
reasonable insurer would have relied on one sentence in Walton’s brief report—
especially without talking to Walton (which no one at Selective did, ECF No. 265 at 19‐
20) or asking Sela about his conversation with Walton (which no one at Selective
appears to have done).
(continued...)
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Selective, she would have heard Sela explain not only that he did not repair much of the
2010 damage, but also that the repairs that he chose to forego were among the most
costly. In other words, Sela went forward with the cheaper repairs and did not go
forward with the more expensive repairs.
For example, Sela explained that he repaired only the “middle parts” of the
gazebo roof panels, and not the ridges or cap of the gazebo, as “it was too expensive
and too crazy to build it.” JT Pls. Ex. 32 at 76. He added that he “did not touch the
windows . . . because of the complexity,” explaining that he would have had “to take all
the stone around the windows apart.” Id. at 7. Sela also made clear that, on the main
17
(...continued)
Second, Selective points to Sela’s response to Clark’s question of whether “all the
gutters and everything were replaced.” JT Pls. Ex. 31 at 18. Sela’s response was, “Oh,
yeah, everything was done, replaced. Copper. See what they had to do—we had to
take, like, a foot and a half from around the house, the edge, because all the flashing
goes right into the tile system.” Id. But, for a couple of reasons, a reasonable insurer
would not have relied on this as an assertion that all copper parts of the house had been
repaired, much less as an assertion that all parts of the house had been repaired. First,
Sela’s discussion of the flashing shows that he is talking about gutter repairs (which led
to damaged flashing, see, e.g., Def. Ex. 3 at 0040). Second, in the very same conversation,
Sela pointed out to Clark various pieces of copper (and other damaged items) that had
not been replaced.
Finally, Selective points to a Vericlaim report submitted by Sela which notes that
various pieces of Sela’s property “ha[ve] been repaired” or “ha[ve] all been replaced.”
See BT Pls. Ex. 5. But Sela made clear before he submitted the Vericlaim report to
Selective that it was not accurate. JT Pls. Ex. 31 at 4‐5; JT Pls. Ex. 32 at 4; Def. Ex. 49.
Accordingly, no reasonable insurer would have relied on the Vericlaim report in finding
that Sela had committed fraud.
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house, he replaced only the copper roof panels below the balcony, as fixing the other
copper roof panels would have required removing the stucco. Def. Ex. 58 at 0102; Def.
Ex. 80 at 0008.
Moreover, even with respect to the repairs that Sela made, he tried to do them on
the cheap. Sela hired companies whose owners he knew, he paid laborers cash because
it led to “much better prices,” and he chose to repair (rather than replace) some of the
property. For example, instead of paying for new copper gutters, Sela removed,
“heated, rolled and reinstalled” the damaged gutters. Def. Ex. 80 at 0008‐09.
In sum, before denying Sela’s claim on the ground that he had lied about what
repairs he had made after the 2010 hailstorm, no one at Selective identified (1) what,
exactly, Sela said about those repairs and (2) whether what Sela said was true. And
even though Pack focused obsessively on the gap between the $510,797.23 that
Lexington had paid to Sela and the $215,000 that Sela claimed to have spent, neither
Pack nor anyone else ever made a list of all of Sela’s claimed repairs, estimated the
likely cost of those repairs, and then determined whether Sela could plausibly have
spent only $215,000 on those repairs.18
18
To give a very rough example of the kind of calculus that Selective could have
made: One of the first documents that Sela provided to Pack was an estimate that the
replacement cost of repairing or replacing all of the property damaged in the 2010
hailstorm was $618,584.98. See Def. Ex. 49 at 0002. If you sum the amounts attributed to
damage that was not repaired (chimney caps, windows, snow guards), damage that
(continued...)
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ii. Selective’s Reliance on Ofori‐Amanfo
Selective’s retention of Ofori‐Amanfo did not make matters any better, as Ofori‐
Amanfo was not truly independent, as Selective did not ensure that he reviewed all of
the relevant evidence, and as Selective did not reasonably review and rely on his work.
Before Ofori‐Amanfo inspected Sela’s property, Brownson provided him with a
copy of the anonymous letter. Def. Ex. 130. The anonymous letter included
information that was highly prejudicial to Sela and either irrelevant to Ofori‐Amanfo’s
work (such as information about Sela’s prior felony convictions) or false (such as
allegations that Sela had instructed workers to intentionally damage his own property).
Providing the anonymous letter to Ofori‐Amanfo had the predictable impact on him.
He responded: “YAK!!!! The anonymous information is truly damaging!” Def. Ex. 130.
In other words, Selective led Ofori‐Amanfo to believe that Sela was a “convicted felon”
18
(...continued)
was mostly not repaired (gazebo, pool‐house skylights), damage that was repaired but
not replaced (gutters on the main house and pool house), and half of the damage to the
copper standing‐seam roof panels (because the panels attached to the stucco walls were
not repaired), the replacement costs would total about $359,640.84. See id.; see also JT
Pls. Ex. 19. (This does not reflect the fact that some of the vents were not replaced. Def.
Ex. 58 at 0001.) Subtracting $359,640.84 from the total replacement‐cost estimate of
$618,584.98 leaves a replacement‐cost estimate of $258,944.14. The gap between
$258,944.14 and Sela’s claimed expenses of slightly above $200,000 (deducting for the
garage door, which was not included in the 2010 repair estimates) looks much less
suspicious than the gap between “half a million dollars” and $200,000, especially
recognizing the leverage that Sela had as the result of his contacts in the industry and
his ability to pay cash.
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who made a “cash flow machine” out of intentionally damaging his own property and
filing fraudulent insurance claims. Def. Ex. 98 at 0001.
Worse still, Selective did not provide Ofori‐Amanfo with evidence that was both
relevant to his work and favorable to Sela. Ofori‐Amanfo’s report states at one point
that “receipts were not made available to describe the specific repair that was
performed by the homeowner.” Def. Ex. 80 at 0008. The report also lists all of the
documents that Selective gave to Ofori‐Amanfo, and notably absent from the list are the
invoices documenting the post‐2010 repairs. Id. at 0006‐08. There is simply no excuse
for Selective withholding this evidence from its expert. See New Appleman on
Insurance Law Library Edition § 55.04[2][b][ii] (2018) (“An insurer cannot rely on an
expert opinion where the insurer has failed to provide the expert with important
information in its possession.”).
Having been given irrelevant and untrue information that was harmful to Sela,
and having been deprived of relevant and true information that was favorable to Sela,
Ofori‐Amanfo concluded that most of Sela’s property had not been repaired after the
2010 hailstorm. After issuing his report, though, Ofori‐Amanfo told Selective “that
what could have changed his opinion would have been if Sela produced some evidence
from some company to show work done or replacements made.” Def. Ex. 60 at 0063.
Selective still did not tell Ofori‐Amanfo that it had evidence of such repairs in its files.
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In his report, Ofori‐Amanfo opined that the copper downspouts and gutters had
not been repaired after the 2010 hailstorm. Def. Ex. 80 at 0017. He based his opinion in
large part on his analysis of the pattern of the dents that he found. Id. at 0010, 0017.
After later being given the invoices from Sheridan Sheet Metal, however, Ofori‐Amanfo
changed his opinion and conceded that Sela had replaced some of the downspouts and
gutters after the 2010 hailstorm. ECF No. 266 at 71, 81, 83, 86.
Similarly, Ofori‐Amanfo opined that Sela’s outdoor grill and patio heaters had
not been repaired after the 2010 hailstorm. Once again, he based his opinion on his
analysis of the pattern of dents on these items. Def. Ex. 80 at 0019. And once again, he
was wrong. Sela had submitted evidence to Selective showing that the damage to the
patio heaters and grill was from 2015—as the patio heaters were in storage during the
2010 hailstorm, and as the grill received a new stainless‐steel cover in 2013.
Selective’s failure to provide relevant information to Ofori‐Amanfo thus had
significant consequences. It contributed to him forming incorrect opinions about
specific items, such as the downspouts, gutters, grill, and patio heaters. More
importantly, though, it kept him from realizing that the dent analysis on which he relied
in concluding that other items had not been repaired (such as the single‐pitched copper
roof panels, see Def. Ex. 80 at 0009, and the roof panels on the gazebo, see id. at 0015) was
unreliable.
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In short, Ofori‐Amanfo’s report was riddled with errors and was based in part on
a method of analysis that was clearly unreliable. But Selective did not care whether
Ofori‐Amanfo’s report provided a basis for denying Sela’s claim. No decision maker at
Selective bothered to read the report—and thus no one seemed to notice that many of
the report’s conclusions were contradicted by the verified invoices sitting in Selective’s
own files. See New Appleman on Insurance Law Library Edition § 55.04[2][b][ii] (2018)
(“Even having retained a properly qualified expert, an insurer may not blindly rely on
the opinion rendered. If the opinion rendered is facially incomplete or fails to take
account of obviously relevant information, then even a non‐expert may be in a position
to recognize that it is unworthy of reliance.”).
iii. Conclusion
Applying the objective prong of Minnesota’s bad‐faith statute, the Court finds
that Sela has established “the absence of a reasonable basis for denying the benefits of
the insurance policy.” Minn. Stat. § 604.18, subd. 2(a).
Selective denied Sela’s claim on the basis of fraud. Yet Selective never took the
time to identify exactly what Sela said and to determine whether it was true. Instead,
Selective became fixated on trying to prove that Sela could not have spent only $215,000
to repair over $500,000 in damage caused by the 2010 hailstorm. But Sela never claimed
that he had repaired all of the damage caused by the 2010 hailstorm. Sela claimed that
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he had repaired some of the damage caused by the 2010 hailstorm—and he explained
what he had done.
Ofori‐Amanfo found that Sela had not repaired some of the damage that he
claimed to have repaired. But no reasonable insurer would have relied on Ofori‐
Amanfo’s conclusions, given that he was poisoned against Sela from the start, his
attention was not called to information that he said he needed to reach accurate
conclusions, and his method of analyzing the pattern of dents was shown to be
unreliable. Instead of reasonably evaluating Ofori‐Amanfo’s report, neither Pack nor
Clark—the two Selective employees who were in charge of handling Sela’s claim—even
bothered to read it. Selective’s investigation and evaluation of Sela’s claim fell far
below the investigation and evaluation that would have been done by a reasonable
insurer, leaving Selective without a reasonable basis for concluding that Sela committed
fraud.
2. Second Prong: Subjective
a. Legal Standard
As noted, the second prong of Minnesota’s bad‐faith statute is subjective and
asks whether the insurer denied benefits while knowing of, or acting in reckless
disregard of, the lack of a reasonable basis for doing so. Minn. Stat. § 604.18,
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subd. 2(a)(2).19 “Knowledge of the lack of a reasonable basis may be inferred and
imputed to an insurer where there is reckless indifference to facts or proofs submitted
by the insured.” Friedberg, 800 F. Supp. 2d at 1025. After careful consideration, the
Court finds that Selective acted with reckless disregard of the lack of a reasonable basis
for denying Sela’s claim.
19
Courts have consistently referred to the second prong as “subjective,” but this
may be a misnomer. The second prong incorporates a reckless‐disregard standard, and
“the common law has generally understood” reckless disregard “in the sphere of civil
liability” to include “conduct violating an objective standard: action entailing ‘an
unjustifiably high risk of harm that is either known or so obvious that it should be known.’”
Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 68 (2007) (emphasis added; citation omitted).
It is unclear whether the Minnesota legislature intended to adopt this objective
reckless‐disregard standard or instead intended to adopt the higher standard (often
found in the criminal law) of “‘conscious[] disregar[d]’ [of] a substantial risk of serious
harm.” Farmer v. Brennan, 511 U.S. 825, 839 (1994) (citing Model Penal Code § 2.02(2)(c)
(emphasis added)); compare In re M.J.S., No. C3‐00‐76, 2000 WL 1015886, at *1 (Minn. Ct.
App. July 25, 2000) (analyzing a Minnesota statute criminalizing communicating
terroristic threats and concluding that “[r]eckless disregard require[s] an actual,
conscious disregard of the risk even though not having the specific purpose of
terrorizing posed by one’s conduct” (citation omitted)), with Huygen v. Plums Enters. of
St. Paul, Inc., 355 N.W.2d 149, 155 (Minn. Ct. App. 1984) (explaining that Minnesota
common law allowed a civil punitive‐damages award if a defendant acted with “a
conscious or reckless disregard of another’s rights” (emphasis added; citation omitted)).
Because Selective’s conduct meets even the conscious‐disregard standard, the Court
need not decide the issue.
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b. Selective’s Denial
Clark and Pack were the two main decision makers at Selective. After Brownson
sent an email to them in November 2016 recommending that Sela’s claim be denied and
a declaratory‐judgment action be filed against him, both Clark and Pack agreed with
Brownson, as did Pack’s supervisor (Steele). Def. Ex. 60 at 0062. Clark was the first to
agree that Sela’s claim should be denied on the basis of fraud. Id. But Clark had
virtually no basis—much less a reasonable basis—for his decision. Clark had done
nothing himself to investigate Sela’s alleged fraud. See, e.g., ECF No. 265 at 68 (Q: “And
just so we’re perfectly clear, Mr. Clark, you didn’t do any investigation of fraud in this
case at all, did you?” A: “No. It’s not my job.”); see also id. at 72; ECF No. 272 at 78.
Clark had not discussed Sela’s alleged fraud with anyone at Selective. See, e.g. , ECF
No. 265 at 100 (Q: “You haven’t had any discussions with anybody at Selective about
what fraud has or hasn’t been committed here, have you? A: “No.”); see also id. at 66‐68,
98‐99. And Clark had not meaningfully tracked the SIU investigation.20 In short, with
20
See, e.g., ECF No. 272 at 73 (Q: “Now, you’ve testified that there was some
information that [the] SIU asked you to put in [the reservation‐of‐rights] letter, correct?”
A: “Yes.” Q: “What did you do to verify that the information that [the] SIU was adding
to that letter was accurate?” A: “That would be part of their investigation, so I would
not—I don’t have that specialty to understand their investigation.”); ECF No. 265 at 72‐
73 (Q: “So why was [the] SIU even involved?” A: “Because of that anonymous letter.”
Q: “All right. And you don’t know whether any of the information in the anonymous
letter is true or false, do you?” A: “No.” Q: “Has anybody at Selective that you’re
aware of looked at that letter to determine whether any of it has any truth or not?” A: “I
(continued...)
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virtually no knowledge whatsoever of Sela’s alleged fraud, Clark approved Brownson’s
recommendation that Sela’s claim be denied on the basis of fraud.
The day after Clark approved Brownson’s recommendation to deny Sela’s claim,
Pack and Steele followed suit. Def. Ex. 60 at 0062. They too acted without a reasonable
basis.
As the Court has explained, Pack’s entire investigation missed the point. She
was asked to determine whether Sela committed fraud, yet she did not identify what
Sela said about the repairs to his home and then investigate whether what Sela said was
true. To the contrary, she admitted that she did not care what Sela said—an astonishing
admission from a fraud investigator. See ECF No. 273 at 52. Instead of investigating
fraud, Pack kept insisting that Sela prove how he had managed to repair all of the
damage caused by the 2010 hailstorm while spending only $215,000—something that
Sela never claimed to have done.
Reading Pack’s file and watching her testimony makes clear that Pack’s
judgment was distorted by personal animosity toward Sela, likely rooted in her
knowledge that he had been convicted of fraud and tax evasion. Pack treated
20
(...continued)
would not know that.” Q: “Who would know?” A: “Probably [the] SIU Department.”);
ECF No. 272 at 63‐64 (Q: “Did [the] SIU ever inform you that there was a problem with
notice in this case?” A: “I don’t recall if they did. I didn’t really get into their
investigation.”); see also ECF No. 265 at 114, 116 (Clark testifying that he does not
believe that he had access to Pack’s SIU file).
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everything that Sela told her, and everything that he submitted to her, as suspect—even
if there was other evidence corroborating it. For example, when Pack was asked if she
had found that any of the invoices that Sela submitted were “false or fabricated,” she
responded, “Yes, because I cannot verify them.” ECF No. 273 at 30. Pack’s testimony
was irrational. All five businesses that issued the invoices verified that the invoices
were authentic and accurate. Moreover, a couple of those businesses even corroborated
the involvement of a couple of the other businesses. For example, Richard Vassallo (the
owner of Vassallo Fabrication and Installation) knew that Sheridan Sheet Metal had
done some repairs on the hail damage, Def. Ex. 61 at 0004, and David Stolhanske (the
owner of Northeast Sheet Metal) knew that Vassallo had done some work on the hail
damage as well, Def. Ex. 117.21
Despite overwhelming evidence that the invoices were genuine and that the
work described had been done, Pack stubbornly insisted that she could not “verify”
them. ECF No. 273 at 30. It is unclear what more Pack wanted. Pack conceded that at
no point in her investigation did she ever receive any indication that work listed on the
21
Selective did possess an affidavit—filed in an unrelated state‐court action—in
which Hector Ramirez swore that Sela had been involved in a fraudulent‐invoice
scheme with Perfect Touch Construction (one of the five businesses that claimed to have
done repairs on Sela’s property). See BT Pls. Ex. 16. But, in a subsequent affidavit,
Ramirez swore that the relevant part of his prior affidavit was false and had been added
to his original statement without his knowledge. See Def. Ex. 74. Even a cursory review
of the docket of the state‐court action would have discovered that Ramirez’s affidavit
provided no evidence to contradict Sela’s claims.
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invoices had not been done or that the invoices were otherwise inaccurate. Id. at 46.
She simply refused to believe anything that Sela told her or to credit any document that
he provided to her.
Making matters worse, Pack did little to seek out relevant information from other
sources. For example, Pack never once reached out to Bill Conrad—the individual who,
on behalf of Lexington, had inspected many of the repairs that Sela had done following
the 2010 hailstorm. ECF No. 273 at 36. Pack claimed to not even know that Conrad was
the person whom Lexington had sent to inspect Sela’s repairs. Id. at 35‐36. But the
record shows that Pack was told by Sela—repeatedly—that Conrad had been sent by
Lexington to inspect the repairs. See, e.g., Def. Ex. 49 at 0001; BT Pls. Ex. 8 at 32; Def.
Ex. 60 at 0024.
Pack did hire Ofori‐Amanfo to investigate the veracity of some of Sela’s
statements, but she did not call Ofori‐Amanfo’s attention to the information that he
himself said he needed—and then she did not even read the report that she hired him to
produce. Throughout her investigation, Pack gave no indication that she wanted to
learn whether Sela’s statements were true; instead, she appears to have decided at the
outset that he was a liar, and she did not seek or credit any evidence that might have
suggested otherwise. Pack, like Clark, approved Brownson’s recommendation that
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Sela’s claim be denied on the basis of fraud with almost no basis for believing that
anything Sela actually said had been false.
Finally, Pack’s supervisor (Steele) never testified at trial and clearly did not play
much of a role in the handling of Sela’s claim. Steele supervised Pack’s misguided and
biased investigation. There is no evidence that he ever expressed any concern about her
egregious mistakes; instead, he just kept signing off on all of her (and Clark’s and
Brownson’s) recommendations. In fact, Steele parroted Pack’s line that Brownson
believed that Sela’s claim could be denied “because [Sela] told us in his [examination
under oath] that all the damages from [the] prior storm were repaired and [Ofori‐
Amanfo’s] report says differently.” See Def. Ex. 60 at 0061. This was untrue; Selective
had a transcript of Sela’s examination under oath, and nowhere in that transcript does
Sela claim that he repaired “all the damages” from the 2010 hailstorm. Steele also
asserted that Selective was justified in denying Sela’s claim because it had “confirmed
material misrepresentations.” Id. at 0062. But Steele never identified a single material
misrepresentation that Sela actually made that was untrue. Pack’s file—Steele’s
primary (or exclusive) source of information about the claim—also does not identify
any such statement. Like Clark and Pack, Steele “acted in reckless disregard of the lack
of a reasonable basis for denying the benefits of the insurance policy.” Minn. Stat.
§ 604.18, subd. 2(a).
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Selective’s conduct throughout this litigation provides further confirmation of its
recklessness. Selective’s original complaint— drafted by Brownson—alleged that Sela
had committed fraud because, when he signed the proof of loss, he was “aware” “that
he had not fully repaired the damages from 2010.” ECF No. 1 at ¶ 69. But Sela never
claimed to have fully repaired the 2010 damages in the proof of loss; to the contrary, in
the proof of loss—and in numerous other communications with Selective—Sela told the
company that he had not “fully repaired the damages from 2010.”
A few months later, Sela moved to dismiss Selective’s amended complaint. The
Court granted Sela’s motion, in large part because Selective had failed to adequately
plead fraud. The Court gave Selective leave to file a second amended complaint, but
warned:
plaintiff must clearly and specifically identify each instance
in which it alleges that Amit Sela, willfully and with intent to
defraud, concealed or misrepresented a material fact or
circumstance. Plaintiff must identify exactly what Amit Sela
concealed or misrepresented, and plaintiff must identify the
exact written or oral communication in which Amit Sela
committed the concealment or misrepresentation.
ECF No. 32 at 3.
Selective’s second amended complaint alleged eight instances of fraud. Six of
those allegations of fraud relied on Ofori‐Amanfo’s report, which no decision maker at
Selective had even read. One allegation of fraud relied on the Hector Ramirez affidavit,
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which had been withdrawn after Ramirez swore that it was a fake. And the last
allegation of fraud was an assertion that Sela had lied about the cash payments that he
had made to laborers to repair the 2010 damage because—well, because he just had to
have been lying. See ECF No. 34 at ¶¶ 23‐30.
Fast forward to the jury trial. Even though Selective had been ordered to identify
every one of Sela’s allegedly fraudulent statements in its second amended complaint,
Brownson’s opening statement featured two allegedly false statements that Selective
had not mentioned in its second amended complaint or in either of its prior complaints.
First, Brownson mentioned Sela’s alleged statement to Bryan Walton “that the entire
exterior of [the] dwelling was redone approximately 3 years ago.” BT Pls. Ex. 2 at 0001.
And second, Brownson mentioned Sela’s statement to Clark that “[o]h, yeah, everything
was done, replaced. Copper. See what they had to do—we had to take, like, a foot and
a half from around the house, the edge, because all the flashing goes right into the tile
system.” JT Pls. Ex. 31 at 18.
Not only were these statements not mentioned in any of Selective’s complaints,
but these statements were not mentioned by Clark (or anyone else) in the claims file or
by Pack (or anyone else) in the SIU file. It is absolutely clear that the decision makers at
Selective did not rely on these statements when they decided to deny Sela’s claim.
Clark said that he never read Bryan Walton’s report (he only looked at the photos), ECF
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No. 272 at 61, and Pack said she was not aware of any issues regarding statements that
Sela made to Walton, ECF No. 273 at 52‐53.
As to the statement that Sela made to Clark: Clark said he never told anyone at
Selective about this statement. ECF No. 265 at 66‐67. Thus, Clark is the only individual
at Selective who, in theory, could have relied on the statement in denying Sela’s claim.
Clark did not do so, however. As Clark’s deposition makes clear, Clark had long
forgotten about Sela’s statement by the time that he approved Brownson’s
recommendation to deny coverage. ECF No. 272 at 82‐84. In fact, Sela’s statement
would have gone completely unnoticed except that Sela secretly recorded his
conversation with Clark and turned over the recording during discovery. After
listening to the recording, Selective’s attorneys began to rely upon Sela’s statement—a
statement that is never mentioned in its files or pleadings and that never crossed the
mind of anyone at the time Sela’s claim was denied.
Fast forward again, this time to the bench trial. At the bench trial, Selective’s
lawyers offered yet more allegedly fraudulent statements on which they contended
Selective had relied. One of those statements was the Vericlaim report—which was not
mentioned at all in Selective’s complaint, amended complaint, or second amended
complaint, and which was mentioned only in passing at the jury trial (and never as an
example of Sela’s alleged fraud). At the bench trial, however, Selective’s lawyers tried
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to make the Vericlaim report the star of their show. Selective repeatedly emphasized
the language that appears in text boxes next to the report’s photos, which states that
various items “ha[ve] been repaired” or “ha[ve] all been replaced.” BT Pls. Ex. 5.
Selective argued that this text showed that Sela had tried to fool it into thinking that all
of the repairs had been completed.
Selective conveniently failed to acknowledge that Sela made clear before he
submitted the Vericlaim report that it was not accurate and that he had not completed
all of the repairs. JT Pls. Ex. 31 at 4‐5; JT Pls. Ex. 32 at 4; Def. Ex. 49. Moreover, it is clear
that Selective’s decision makers did not rely on any assertions made in the Vericlaim
report, as Clark never looked it, ECF No. 272 at 55, and as Pack did not rely on it or
investigate it, ECF No. 273 at 52‐53, 60.
Selective should be embarrassed. Any reasonable insurer that denied its insured
hundreds of thousands of dollars of indemnification on the basis of fraud would have
no difficulty identifying (1) who made that decision and (2) the fraudulent statements
on which the decision was based. And yet, throughout this litigation, Selective has
repeatedly changed its story, making multiple contradictory assertions about who
decided to deny Sela’s claim and which statements of Sela’s were fraudulent. Selective
has flailed about for an explanation for its decision precisely because it did not have a
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“reasonable basis” for its decision and because it “acted in reckless disregard of the lack
of a reasonable basis.” Minn. Stat. § 604.18, subd. 2(a). Selective acted in bad faith.
B. “Taxable Costs”
Because Selective acted in bad faith, Sela is entitled to an award of “taxable
costs.” See Minn. Stat. § 604.18, subds. 2 & 3. “[T]axable costs” include “an amount
equal to one‐half the proceeds awarded that are in excess of an amount offered by the
insurer at least ten days before the trial begins or $250,000, whichever is less.” Minn.
Stat. § 604.18, subd. 3(a)(1). The parties dispute what was the highest “amount offered”
by Selective to settle Sela’s claim, and it appears that they also dispute the amount of
proceeds that Sela has been awarded.
1. Amount Offered
Selective argues that its highest offer was made on May 23, 2019, at a settlement
conference mediated by Magistrate Judge Steven E. Rau (who is now deceased).
Selective’s representative at that conference (Mark Vandegraft) testified that his highest
offer was $115,000, and that he made that offer to Sela through Judge Rau. ECF No. 273
at 4‐5. Sela, meanwhile, testified that he was never told that Selective made a $115,000
offer. ECF No. 272 at 39. Instead, the highest offer of which he was aware was $65,000.
Id.; Def. Ex. 172.
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Having listened to the conflicting testimony—and being aware of how
magistrate judges typically conduct settlement conferences in this District—the Court
believes that Judge Rau was trying to gauge whether there was any overlap between
the parties’ positions. He privately asked Selective what was the highest offer that it
was willing to make, and he privately asked Sela what was the lowest offer that he was
willing to accept. Judge Rau was not asking Selective to make its highest offer or Sela to
make his lowest demand. Instead, Judge Rau was merely trying to figure out whether
there was any overlap between the parties’ positions—that is, a range within which the
case might settle. That is the most likely scenario, and that is the most likely reason for
the conflicting testimony.
The Court therefore credits Sela’s testimony and finds that the highest “amount
offered by the insurer” for purposes of Minn. Stat. § 604.18, subd. 3(a)(1) was $65,000.
2. Proceeds Awarded
The parties seem to disagree about the amount of the “proceeds awarded” to
Sela in this action, although the parties have not briefed this specific issue. Selective
likely would argue that the “proceeds awarded” are $493,789 (the ACV award), because
that is all that Sela is entitled to recover until he completes repairs. Sela contends that
the “proceeds awarded” are $596,734 (the RCV award), see ECF No. 235 at 8,
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presumably because Sela will be entitled to recover that amount if he completes repairs
and spends the necessary funds.
The Court finds that, upon entry of judgment pursuant to this order, the
“proceeds awarded” will be $493,789. At this point, the Court cannot find that Sela is
entitled to more than $493,789, because any recovery above the ACV is conditioned on
Sela completing repairs and spending more than the ACV in the process, and because
the record does not contain any evidence that this condition has been met.
Accordingly, Sela is presently entitled to taxable costs totaling $214,394.50,22
plus up to $100,000 in reasonable attorney’s fees. Sela will presumably move for
attorney’s fees under Fed. R. Civ. P. 54(d)(2) after judgment is entered, and the Court
will determine the amount of fees to which he is entitled when it rules on that motion.
Should Sela complete repairs and become entitled to some or all of the holdback, he will
be entitled to recover additional taxable costs. Those additional taxable costs would be
calculated by taking the amount of the holdback to which Sela is entitled and dividing
by two, for up to an additional $35,605.50.
C. Interest Calculation
“When a judgment or award is for the recovery of money,” Minnesota law
authorizes the award of prejudgment interest on the “pecuniary damages.” Minn. Stat.
22
The Court arrives at this figure by taking the $493,789 ACV award, subtracting
the $65,000 settlement offer, and dividing by two.
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§ 549.09, subd. 1. Prejudgment interest accrues from the earliest of three potential
triggering events. See Minn. Stat. § 549.09, subd. 1(b). The parties first disagree about
whether there has been a triggering event. The parties then disagree about the amount
of “pecuniary damages” on which any award of prejudgment interest should be based.
The Court will address the issues in turn.
1. Triggering Event
If “a judgment or award is for the recovery of money,” Minnesota provides for
prejudgment interest from the earliest of three events: (1) the action being commenced,
(2) arbitration being demanded, or (3) written notice of the claim being made (provided
that the party commences the action within two years after giving written notice).
Minn. Stat. § 549.09, subds. 1(a) & 1(b). Selective argues that none of these triggering
events occurred and thus that prejudgment interest never began to accrue. ECF No. 263
at 7‐19.23 Sela concedes that he did not make a demand for arbitration, and he does not
rely on his demand for appraisal (which Selective rejected) as the triggering event. ECF
23
Selective also argues that because its policy limits coverage to “not more than
the least of the following amounts,” and then lists amounts that do not expressly
contemplate interest, its policy does not provide for interest. ECF No. 263 at 4‐5. But
the fact that Selective’s policy “does not mention . . . interest,” id. at 4, is exactly why
prejudgment interest is available. Section 549.09 is a default rule; it instructs courts to
award prejudgment interest in cases in which interest is not “otherwise provided by
contract . . . .” Minn. Stat. § 549.09, subd. 1(b). Because Sela’s policy says nothing about
interest—neither expressly providing for it nor expressly precluding it—§ 549.09
controls.
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No. 270 at 5‐6.24 Instead, Sela argues that he gave Selective written notice of his claim
and then—within two years of that written notice—he commenced this action, which
led to the recovery of money. Id. at 6‐9.
The Court agrees with Sela. Sela brought a counterclaim against Selective
alleging breach of the insurance contract. ECF No. 37 at ¶¶ 76, 78, 81. Selective
contends that Sela’s counterclaim did not lead to the recovery of money, relying on the
fact that only one question was posed to the jury: whether Sela had committed fraud.
See ECF No. 263 at 14‐15 (citing the jury verdict form, ECF No. 186). But because the
only basis Selective cited for denying coverage to Sela was fraud, when the jury found
that Sela had not committed fraud, the jury necessarily found—as a matter of law and
logic—that Selective breached the insurance contract and had to pay damages to Sela.
Consequently, the Court will enter judgment for the recovery of money in favor of Sela.
Sela is therefore entitled to prejudgment interest.25
24
At Selective’s request, the Court permitted supplemental briefing regarding a
recent Minnesota Supreme Court decision—Oliver v. State Farm Fire and Casualty
Insurance Company, 939 N.W.2d 749 (Minn. 2020). But because Sela does not contend
that his demand for appraisal is the triggering event that entitles him to an award of
prejudgment interest, Oliver is irrelevant.
25
Selective also seems to contend that, because judgment has yet to be entered on
Sela’s breach‐of‐contract counterclaim, and because Selective has already paid Sela the
ACV award, no judgment can ever be entered against it, “as the award has been paid.”
ECF No. 263 at 15. Again, Selective is incorrect. Pursuant to this order, the Clerk of
Court will enter judgment in favor of Sela on his breach‐of‐contract counterclaim. That
(continued...)
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Sela served and filed his counterclaim on April 17, 2017, and thus, at the latest,
prejudgement interest began to accrue on that date. The Court finds, however, that
prejudgment interest began to accrue before April 17, 2017, because prior to that date
Sela provided written notice of his claim, and Sela then filed his counterclaim within
two years. Minn. Stat. § 549.09, subd. 1(b).
“Written notice of claim” is not defined by the statute, but courts have
consistently found it “simply means a demand for payment (or other similar assertion)
contained in writing.” Gen. Mills Operations, LLC v. Five Star Custom Foods, Ltd., 845 F.
Supp. 2d 975, 978 (D. Minn. 2012). It is not necessary that the claimant specify the
precise amount of money that he seeks; instead, the claimant must merely inform the
opposing party of his claim in a manner that would allow the opposing party to assess
its potential liability. See, e.g., Creekview of Hugo Ass’n, Inc. v. Owners Ins. Co., 386 F.
Supp. 3d 1059, 1068 (D. Minn. 2019); Indep. Sch. Dist. 441 v. Bunn‐O‐Matic Corp., No.
C0‐96‐594, 1996 WL 689768, at *10 (Minn. Ct. App. Dec. 3, 1996).
Selective received written notice of Sela’s claim on July 8, 2015. See Def. Ex. 124;
ECF No. 272 at 5‐6. The Court deems this to be a demand for payment. Creekview, 386
25
(...continued)
judgment will provide that Sela is presently entitled to recover the ACV award (along
with taxable costs and interest), and, if Sela completes the repairs and spends the
necessary funds, Sela will be entitled to some or all of the holdback (as well as more
taxable costs and interest). If Selective has already paid Sela the ACV award, Selective
will simply have partially satisfied the judgment.
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F. Supp. 3d at 1068‐69. Moreover, the information that Sela provided would have
enabled Selective to assess its potential liability. See id. at 1067‐71; see also Savanna Grove
Coach Homeowners’ Ass’n v. Auto‐Owners Ins. Co., No. 19‐CV‐1513 (ECT/TNL), 2020 WL
468905, at *8‐9 (D. Minn. Jan. 29, 2020) (finding an email sent to the insurer which
sought to open an insurance claim for hail damage to the property was written notice of
the claim); Bunn‐O‐Matic Corp., 1996 WL 689768, at *10 (finding a letter which stated
that the company’s coffee machine caused a fire which destroyed the school was written
notice of the claim).
The Court acknowledges that other judges in this District have come to contrary
conclusions. See Herll v. Auto‐Owners Ins. Co., No. 15‐CV‐3104 (MJD/FLN), 2018 WL
4759833, at *4 (D. Minn. Oct. 2, 2018) (finding an insured’s email to his insurer seeking
to start the claims process was not written notice of his claim because there was no
demand for payment in the email); Hous. & Redevelopment, Auth. of Redwood Falls v.
Hous. Auth. Prop. Ins., No. 14‐CV‐4741 (PAM/HB), 2017 WL 5197135, at *2–3 & n.2
(D. Minn. Nov. 8, 2017) (same). But the undersigned respectfully disagrees with those
decisions. In the undersigned’s view—and in the view of Judge Eric Tostrud—filing a
first‐party claim with a homeowner’s insurer is a demand for payment, as “[t]he only
reason an insured would open a claim with its insurance carrier is that it believed its
loss was covered under the applicable policy and that it claimed some amount of
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payment from the insurer for the damage.” Creekview, 386 F. Supp. 3d at 1068.
Moreover, “Minnesota courts have been clear that a party need not demand a specific
dollar amount to trigger pre‐award interest.” Id. at 1069. To require an insured to do
something more than “open[] a claim for hail damage,” but something less than
“mak[e] a specific monetary demand,” would require courts to “identify some
intermediate level of specificity not suggested by the statute [or by] Minnesota case law
. . . .” Id. This Court declines to adopt such an arbitrary and unworkable standard.26
2. Pecuniary Damages
The parties next disagree about whether the “pecuniary damages” on which Sela
is entitled to recover interest is the ACV award ($493,789) or the RCV award ($596,734).
Sela argues that he is presently entitled to payment of interest on the RCV award.
Selective responds that Sela will never be entitled to payment of interest on the RCV
award, as the RCV award represents “future damage” on which interest cannot be
26
Selective also appears to argue that the property‐loss notice was not “written
notice” of Sela’s claim because Sela did not himself submit the notice. ECF No. 263
at 16‐17. The Court cannot tell if Selective is claiming that the problem is that Sela’s
insurance agent submitted the notice on Sela’s behalf, or if Selective is claiming that the
notice was internally generated at Selective. If the former, obviously Sela’s agent
providing Selective with written notice on Sela’s behalf constitutes written notice under
the statute. If the latter, the Court notes that it has no evidence that the property‐loss
notice was an internally generated form; the only evidence in the record suggests that
Sela’s agent submitted the notice to Selective. ECF No. 272 at 5‐6. Moreover, in other
places in its brief, Selective seems to concede that Sela submitted the notice to it. See
ECF No. 263 at 1‐2 (“On July 8, 2015, Sela notified Selective of the damage by
submitting a Property Loss Notice.” (emphasis added)).
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awarded. According to Selective, Sela is entitled to interest only on the ACV award.
The Court disagrees with both Sela and Selective. The Court finds that Sela—today—is
entitled to interest on only the ACV award, but also finds that Sela—in the
future—could be entitled to interest on the RCV award.
In Poehler v. Cincinnati Insurance Company, an insurer argued that its contractual
loss‐payment provision controlled the date on which interest began to accrue. 899
N.W.2d 135, 141‐42 (Minn. 2017). Specifically, because the insurance policy provided
that the insurer did not need to pay a loss until five days after the filing of an appraisal
award, the insurer contended that interest did not accrue before that date. Id. The
insured, meanwhile, argued that the loss‐payment provision of the policy only
addressed the question of when the appraisal award had to be paid; it did not address
the question of when interest on that award began to accrue. Id. at 142. The Minnesota
Supreme Court agreed with the insured, holding that “absent contractual language
explicitly precluding preaward interest, an insured may recover preaward interest on
an appraisal award . . . notwithstanding a contractual loss payment provision” that
controls when the loss is payable. Id. The court reasoned that the question of when a
payment for a loss is due is separate from the question of when interest on that
payment begins to accrue. Id. at 143. As the court put it, “[t]he loss payment provision
in Cincinnati’s insurance policy governs only when a covered loss is payable; it does not
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speak to when interest begins to accrue, which can be months or even years before the
payment is due.” Id.
The Court finds that, under Poehler, interest began to accrue on both the ACV
and RCV awards on July 8, 2015, when Selective received written notice of Sela’s claim.
The fact that the terms of Sela’s insurance policy do not provide for payment of the full
RCV award until Sela completes repairs is not relevant to when interest began to accrue
on the RCV award. See Creekview, 386 F. Supp. 3d at 1071 (holding that, under Poehler,
an insured was entitled to interest on the full RCV award from the time of written
notice of the claim).
Selective argues that this cannot be the case, as the RCV award is an award for
“future damages,” and Minnesota does not allow interest on future damages. See ECF
No. 263 at 19‐20; Minn. Stat. § 549.09, subd. 1(b)(2). The Court disagrees. The RCV
award does not compensate Sela for a loss that he will suffer in the future; the RCV
award compensates Sela for a loss that he suffered five years ago. The fact that
Selective is not required to pay Sela for his entire loss until he completes repairs simply
means that Sela cannot recover for past damage until a condition is met.
Thus, the Court concludes that Sela may be entitled to interest on the RCV
award, and if he becomes so entitled, the interest on the RCV award started accruing on
July 8, 2015. But the Court does not believe that Sela is presently entitled to recover
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interest on the RCV award. In both Poehler and Creekview, the insured did not have to
do anything more to be entitled to payment of the full appraisal award. Because the
insured in each of those cases was entitled to payment of the award, the insured was
also entitled to payment of interest on the award. Here, Sela is entitled to payment of
his ACV award, but not his RCV award. It does not make sense to make Selective pay
interest today on an award that Sela may never be entitled to collect. If Sela never
becomes entitled to the holdback, he will never become entitled to be paid interest on
the holdback.
ORDER
Based on the foregoing, and on all of the files, records, and proceedings herein,
IT IS HEREBY ORDERED THAT:
1. Defendant/counter‐claimant Amit Sela shall recover a total of $924,233.10 from
plaintiff/counterdefendant Selective Insurance Company of South Carolina. This
includes:
a.
$493,789.00 in insurance proceeds under Sela’s contract, representing the
ACV of the losses that he suffered in the 2015 hailstorm.
b.
27
$216,049.60 in prejudgment interest on the ACV award.27 And
The Court arrived at this figure as follows:
It first determined the number of days for which Sela is entitled to interest. Sela
(continued...)
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c.
$214,394.50 in taxable costs.
2. Sela may move under Fed. R. Civ. P. 54(d)(2) for an award of reasonable
attorney’s fees, not to exceed $100,000, pursuant to Minn. Stat. § 604.18, subd. 3(a)(2).
3. In the event that Sela incurs repair or replacement costs in excess of $493,789,
he is entitled to the following additional payments from Selective:
a.
The cost of the repairs or replacements, up to a cap of $102,945.
b.
Interest on any additional insurance proceeds that Sela is awarded under
¶ 3(a) of this order, calculated as follows: Take the additional insurance
proceeds that Sela is awarded under ¶ 3(a), multiply by the 10% interest
rate, multiply by 1749 (the number of days for which Sela is entitled to
prejudgment interest), and divide by 365 (the average number of days in a
year).
27
(...continued)
is entitled to interest from the date that Selective received written notice of his claim
(July 8, 2015) to the date that Selective made the ACV payment (November 21, 2019).
Like Sela, the Court calculated 1597 days. See ECF No. 262 at 3.
The Court then took the 1597 days and divided by the typical number of days in
a year (365 days), then multiplied by the interest rate (10%), and then multiplied by the
amount of the ACV damages ($493,789). The Court’s interest calculation is slightly
different than Sela’s, as Sela was calculating interest based on $493,798 in ACV
damages. ECF No. 262 at 3. But the proper ACV damage amount is 493,789. Def.
Ex. 165.
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c.
Taxable costs on any additional insurance proceeds to which Sela is
entitled under ¶ 3(a) of this order, calculated as follows: Take the
additional insurance proceeds that Sela is awarded under ¶ 3(a) and
divide by two, for up to an additional $35,605.50.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: April 21, 2020
s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
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