United States Court of Appeals
For the Eighth Circuit
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No. 17-2665
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Charles P. Nelson; Darlene F. Nelson, on behalf of themselves and all others
similarly situated
Plaintiffs - Appellants
v.
American Family Mutual Insurance Company
Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: June 13, 2018
Filed: August 2, 2018
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Before GRUENDER, ERICKSON, and GRASZ, Circuit Judges.
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ERICKSON, Circuit Judge.
In 1990, Charles P. Nelson and Darlene F. Nelson (“the Nelsons”) purchased
a Gold Star Homeowners Insurance Policy (“Gold Star Policy” or “Policy”) from
American Family Mutual Insurance Company (“American Family”) on their home in
Monticello, Minnesota. The Policy provided that the Nelsons could recover up to
120% of the policy limit in the event of a total loss, so long as they purchased
coverage no less than the replacement cost of the house. Each year, American Family
provided the Nelsons with a replacement cost estimate, which was adjusted from the
prior year based on inflation. In 2007, however, the estimate spiked approximately
$140,000, the apparent result of a change in the designated “Quality Grade” of the
house. Four years later, the Nelsons complained to their agent for the first time that
their coverage was too high. In response, American Family reduced coverage for
2011 but refused to refund the Nelsons’ claimed overcharges incurred from 2007 to
2010.
The Nelsons filed an amended complaint against American Family, asserting
breach of contract, negligent misrepresentation, and violation of Minnesota’s
consumer fraud statutes.1 Each of the claims is based on the notion that the company
misrepresented the replacement cost of the property, which caused the Nelsons to pay
excessive premiums. The district court2 granted summary judgment in favor of
American Family. Having jurisdiction under 28 U.S.C. § 1291, we affirm.
I. Background
In 1990, the Nelsons moved into a newly built lake home in Monticello,
Minnesota. They purchased a Gold Star Homeowners Insurance Policy from their
long-time American Family agent, Ron Baker. The Policy covers loss or damage to
their home (“Coverage A”) and personal property (“Coverage B”). The Nelsons
chose the Gold Star Policy because it is a replacement policy that covers the total loss
1
The original complaint also included claims of unjust enrichment or, in the
alternative, negligence per se. The district court granted American Family’s motion
to dismiss these claims. The Nelsons did not appeal the dismissal, and these claims
are not before the court.
2
The Honorable Susan R. Nelson, United States District Judge for the District
of Minnesota.
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of their property up to 120% of the Coverage A amount as long as they insure their
house and detached garage to a minimum of 100% of the replacement cost.
American Family uses a third-party software tool, 360Value, as its “residential
building cost guide” under the Policy. 360Value is software designed to generate
replacement cost estimates. When an insured purchases a policy from American
Family, the agent collects information about the home, including square footage, age,
foundation type, exterior type, number and size of rooms, type of fixtures, and
number of doors and windows. 360Value also uses a “Quality Grade” field, which
refers to the caliber of the home and its various components, to price individual
components used in the building’s construction. Users select from grades of
economy, standard, above average, custom, or premium. Once the user enters all of
the information into 360Value, the program generates an estimate of the home’s
replacement cost.
The Nelsons’ Policy explains that the replacement cost of the home can change
over time and that it is the insured’s responsibility to make certain that the
replacement cost in the renewed policy is accurate. Specifically, the Policy provides
that each year when the Policy renews, American Family “will increase the insurance
. . . at the same rate as the increase in the Residential Building Cost Index” to adjust
for inflation. The Nelsons are also required to notify American Family when
remodeling or additions to the house would increase the replacement cost value by
$5,000 or more. The Gold Star endorsement goes on to state:
Our residential building cost guide may be used to develop an estimated
replacement cost based on general information about your dwelling. It
is developed from researched costs of construction materials and labor
rates. This is the minimum amount for which to insure your dwelling.
The actual cost to replace your dwelling may be different. We do not
guarantee that this figure will represent the actual cost to replace your
dwelling. You are responsible for selecting the appropriate amount of
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coverage. You may wish to obtain a detailed replacement cost appraisal
or estimate from a contractor. You may select a coverage amount equal
to that appraised value or that cost of construction, if the amount is
greater than the replacement cost as estimated by our residential
building cost guide, and we agree to that amount.
When they first moved into the home, the Nelsons purchased a policy that
provided that the full replacement cost was $150,000. By 2006, inflation had pushed
the replacement cost estimate provided by American Family to $240,200. Prior to
December 2006, American Family gave the home a Quality Grade of “standard” when
inputting data into the 360Value software.
In December 2006, Baker apparently changed the Quality Grade from
“standard” to “above average,” generating a new 360Value report on the Nelsons’
home with a replacement cost estimate of $379,841.97. In January 2007, Baker sent
the Nelsons a letter and declaration page informing them that the Coverage A amount
would increase to $380,000 starting at the next renewal. The increase in coverage
took effect in February 2007. In the following years, full replacement cost coverage
on the home rose—due to inflation—to the following amounts: $427,500 in 2008,
$439,000 in 2009, and $450,900 in 2010. During these years, the Nelsons never
complained about the amount of coverage on their home or the cost of their
premiums.
In 2009, American Family employed Millennium Information Services
(“Millennium”) to conduct exterior-only surveys of insured properties to determine
if any were overinsured or underinsured. Millennium’s task was to complete a survey
of each property and use the information from the survey to generate a replacement
cost estimate report on 360Value (collectively, the “Millennium Reports”). American
Family expected agents to review each Millennium Report, assess whether the current
coverage amount was accurate, and, if necessary, discuss coverage with the insured.
An underwriter would also review the file when Coverage A was less than 95% of the
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Millennium Report’s estimated replacement cost or coverage exceeded the estimate
by 50% or more.
In September 2010, Millennium performed an exterior-only survey of the
Nelsons’ home. Millennium determined that the Quality Grade of the home was
“standard” and ran a 360Value report that estimated the replacement cost at
$315,023.55. In December 2010, after reviewing the Nelsons’ Millennium Report,
an unidentified American Family representative determined that the amount of
Coverage A on the home at that time—$450,000—was acceptable. Because the
Millennium Report suggested that replacement cost coverage in 2010 was in excess
by 43%, underwriter review was not triggered.
In January 2011, American Family sent the Nelsons a renewal declarations
page listing an estimated replacement cost of $454,500. In February, Mr. Nelson
called Baker and made the first complaint that the replacement coverage on the home
was too high. Baker agreed to meet with the Nelsons in their home the next day to
discuss the complaint. At the end of the meeting, Baker crossed out the Coverage A
amount and wrote in $315,000, never mentioning the Millennium Report.3 Mr.
Nelson testified that when he asked Baker how he came up with the figure, Baker
replied “I just know,” attributing this insight to his years in the business. American
Family’s records indicate that on March 7, 2011, Coverage A was reduced to
$315,000, which was “OK . . . PER 12-05-10 MILL SURVEY INFO.” When
American Family refused to refund the alleged overcharges from 2007 to 2010, the
Nelsons brought this action.
3
The Nelsons did not see or know about the Millennium Report until after the
commencement of this action.
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II. Discussion
A district court’s grant of summary judgment is reviewed de novo, “viewing
all evidence and drawing all reasonable inferences in favor of the nonmoving party.”
Odom v. Kaizer, 864 F.3d 920, 921 (8th Cir. 2017) (quoting Jones v. Frost, 770 F.3d
1183, 1185 (8th Cir. 2014)). Summary judgment is appropriate when there are no
genuine issues of material fact and the movant is entitled to judgment as a matter of
law. Id. (citing Jones, 770 F.3d at 1185). “Where the record taken as a whole could
not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine
issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986) (quoting First Nat’l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253,
289 (1968)).
A. Breach of Contract
The Nelsons assert that American Family had a contractual obligation “to state
an accurate estimate of replacement cost in its policy renewal contracts” and that it
breached its obligation. Under Minnesota law, a breach-of-contract claim has four
elements: “(1) formation of a contract; (2) performance by plaintiff of any conditions
precedent; (3) a material breach of the contract by defendant; and (4) damages.” Gen.
Mills Operations, LLC v. Five Star Custom Foods, Ltd., 703 F.3d 1104, 1107 (8th
Cir. 2013) (quoting Parkhill v. Minn. Mut. Life Ins. Co., 174 F. Supp. 2d 951, 961 (D.
Minn. 2000)). “In a breach-of-contract action against an insurance company, the
plaintiff has the burden to prove that the insurer violated the terms of its insurance
policy.” Glass Serv. Co. v. Progressive Specialty Ins. Co., 603 N.W.2d 849, 852
(Minn. Ct. App. 2000) (citing D.H. Blattner & Sons, Inc. v. Firemen’s Ins. Co. of
Newark, 535 N.W.2d 671, 675 (Minn. Ct. App. 1995)).
Nothing in the Policy imposes on American Family a contractual obligation to
make objectively reasonable or accurate replacement cost estimates. The relevant
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policy provisions allow for an increase in replacement cost for inflation or home
improvements, but no provision prohibits increases made for some other reason. Nor
does American Family promise in the Policy that its replacement cost estimates will
be accurate. To the contrary, the Gold Star endorsement explicitly places the burden
on the policyholder to ensure that the appropriate amount of coverage is purchased:
The actual cost to replace your dwelling may be different. We do not
guarantee that this figure will represent the actual cost to replace your
dwelling. You are responsible for selecting the appropriate amount of
coverage.
Despite the policy language, the Nelsons now claim that the contract
necessarily incorporates a duty created by Minnesota statutes. The Policy states that
“[i]f any part of this policy is contrary to a law of the state in which the described
property is located, [American Family] agree[s] to alter that part of [the] policy and
make it conform with that state law.” Minn. Stat. § 65A.01, subd. 3, the Minnesota
standard fire insurance policy, requires that every policy state certain specified
provisions and subject matter in a particular wording and order, including “the
insurable value(s) of any building(s) or structure(s) covered by the policy or its
attached endorsements.” Minn. Stat. § 65A.09, subd. 1, prohibits knowingly issuing
a policy in excess of replacement cost and penalizes violators by requiring them to
“forfeit to the state . . . double the premium collected on the policy.” The Nelsons
argue that these statutes create a contractual obligation to provide accurate
replacement cost estimates.
We decline to incorporate a statutory duty into the Policy where the contractual
provisions about replacement cost are unambiguous and where the relevant insurance
statutes do not create a private right of action. See Palmer v. Ill. Farmers Ins. Co.,
666 F.3d 1081, 1086 (8th Cir. 2012) (affirming dismissal of breach-of-contract claims
alleging violation of an automobile insurance statute because the claims were an
“attempt to circumvent Minnesota’s administrative remedies and create a private right
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of action when the legislature has not”); Burgmeier v. Farm Credit Bank of St. Paul,
499 N.W.2d 43, 47 (Minn. Ct. App. 1993) (provision that the contract was “subject
to” the Farm Credit Act—which lacks a private right of action—was “insufficient to
create rights or obligations in the parties, and cannot support a breach of contract
action”). Because American Family lacked a contractual obligation to provide the
Nelsons with accurate replacement cost estimates, the Nelsons’ breach-of-contract
claim cannot survive summary judgment.
B. Negligent Misrepresentation
The Nelsons also assert that American Family negligently misrepresented the
replacement cost of their home in policy renewal documents. Under Minnesota law,
to prevail on their negligent misrepresentation claim, the Nelsons must establish: “(1)
a duty of care owed by the defendant to the plaintiff; (2) the defendant supplie[d]
false information to the plaintiff; (3) justifiable reliance upon the information by the
plaintiff; and (4) failure by the defendant to exercise reasonable care in
communicating the information.” Williams v. Smith, 820 N.W.2d 807, 815 (Minn.
2012).
We need not decide whether American Family owed the Nelsons a duty of care
requiring objectively reasonable replacement cost estimates nor whether American
Family breached that duty. Regardless of any breach of duty, no genuine dispute
exists as to justifiable reliance upon the estimates. As discussed above, the Policy
expressly states that American Family does not guarantee its replacement cost
estimate will be the actual replacement cost in the event of a covered loss and that it
is up to the policyholder to select the proper amount of coverage. The Policy also
suggests that the policyholder “obtain a detailed replacement cost appraisal or
estimate from a contractor.” Under these circumstances, the Nelsons cannot show
justifiable reliance upon American Family’s replacement cost estimates, and summary
judgment was proper on their negligent misrepresentation claim.
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C. Consumer Fraud
The final issue on appeal is whether the district court erred in granting
summary judgment for American Family on the Nelsons’ claim under Minnesota’s
Consumer Fraud Act (“MCFA”). The MCFA prohibits the use of “any fraud, false
pretense, false promise, misrepresentation, misleading statement or deceptive
practice, with the intent that others rely thereon in connection with the sale of any
merchandise.” Minn. Stat. § 325F.69. Minn. Stat. § 8.31, subd. 3a, creates a private
cause of action for a violation of the MCFA. To prevail, a plaintiff must demonstrate
that (1) the defendant engaged in conduct prohibited by the statute; (2) the plaintiff
relied upon the representations (there is no requirement, however, that the reliance
be justifiable); and (3) the plaintiff was damaged thereby. Group Health Plan, Inc.
v. Philip Morris Inc., 621 N.W.2d 2, 12 (Minn. 2001). See also Wiegand v. Walser
Auto. Grps., Inc., 683 N.W.2d 807, 812–13 (Minn. 2004) (internal citations omitted)
(“We held in Group Health that reliance is a component of the causal nexus
requirement for a private consumer fraud class action under Minn. Stat. § 8.31, subd.
3a. But a private consumer fraud class action does not necessarily require the
justifiable reliance standard of common law fraud.”).
American Family’s policy notified the Nelsons that replacement cost value was
based on a “residential building cost guide.” The unambiguous policy terms
provided: (1) the replacement cost estimate was not guaranteed to be accurate; (2) the
policyholders were responsible for selecting the appropriate amount of coverage; and
(3) the policyholders may consider obtaining their own replacement cost appraisal or
estimate from a contractor. The protections the Nelsons argue American Family
failed to provide—a lower replacement cost estimate and refund for purported
overcharges from 2007 to 2010—are not among the protections for which the Nelsons
bargained by agreeing to the terms of the Gold Star Policy. The Nelsons can point
to no promise, misrepresentation, or false statement made by American Family, let
alone one that they relied upon, justifiably or unjustifiably, in deciding to purchase
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or renew the Policy. Any claim that the replacement cost estimate was a false
statement is contrary to the express provision of the Policy that clearly states that the
estimate may or may not be correct and that the insured should independently verify
the proper amount of coverage.
It is also noteworthy that the Nelsons never presented any evidence that the
replacement estimates for the years 2007 to 2010 were false. This failure to develop
an appropriate record is fatal. Without any evidence of a misrepresentation or false
statement that the Nelsons relied on, there is insufficient evidence to create a
submissible case that American Family violated the MCFA. See In re St. Jude Med.,
Inc., 522 F.3d 836, 839 (8th Cir. 2008) (reiterating that even after Group Health, a
plaintiff who alleges damages caused by deceptive, misleading, or fraudulent
statements must establish both causation and reliance). Summary judgment was
proper on the Nelsons’ MCFA claim.
III. Conclusion
For the foregoing reasons, we affirm the judgment of the district court.
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