This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).








Jeffrey Scott Sather, et al.,


State Farm Fire & Casualty Insurance Company,

an Illinois Corporation,



Filed March 12, 2002


Anderson, Judge


Hennepin County District Court

File No. CT0016572


Vincent W. King, Vincent W. King, P.A., Suite 900, 310 Fourth Avenue South, Minneapolis, MN 55415 (for appellants)


Scott M. Rusert, Flynn & Gaskins, LLP, Suite 2900, 333 South Seventh Street, Minneapolis, MN 55402 (for respondent)


            Considered and decided by Anderson, Presiding Judge, Crippen, Judge, and Foley, Judge.*


U N P U B L I S H E D  O P I N I O N



This appeal stems from a homeowner’s insurance-policy-coverage claim.  Appellants challenge the district court’s summary-judgment ruling for respondent, contending that (a) the policy should cover mold, construction-cost estimates, and financing expenses; (b) disputed material facts and various procedural defects preclude summary judgment; and (c) appellants’ tort, bad-faith, and consumer-fraud-act claims are viable.  We affirm. 


Respondent State Farm issued a homeowner’s policy to appellants, the Sather family, insuring their dwelling for $377,600, their personal property for $283,200, and providing unlimited coverage for loss of use.  The policy provided that the insured must file a claim within two years of a triggering occurrence, and the policy specifically excluded coverage for mold damage.  The policy also required that the insureds make reasonable and temporary repairs to protect the property, keep accurate expenditure records, and submit damage bills to the insurer.  If the insured and the insurer disagreed about the amount of loss, each could demand a separate appraisal and pay the cost of the appraisal. 

            In June 1998, storms damaged appellants’ home, and respondent began inspections and issued an initial payment in July.  Respondent’s claims adjuster inspected appellants’ home twice; during both inspections, she noticed mold and told appellants to dry the house thoroughly before making repairs.  By November 1998, respondent had paid appellants $63,107.51, but only drying and demolition had occurred.  Respondent told appellants that each payment was not a final payment. 

            The parties do not agree why the drying-and-repair process was still incomplete in November 1998.  Appellants argue that respondent delayed in preparing timely or complete loss estimates; respondent claims that appellants did not provide it with contracting bids to perform the work.  Appellants claim that respondent promised to supply a detailed estimate of the damage, but it is undisputed that respondent told appellants to get their own appraisal.  Appellants eventually hired an independent appraiser who raised the damage estimate to $164,661.74 and charged $11,375 for the appraisal. 

            In August 1999, appellants claimed that the occurrence caused an increase of $9,701.12 in interest charges on a pre-existing construction loan and the loss of a lower interest rate on permanent home financing amounting to $11,270.  Appellants also sought reimbursement for the appraisal fees and finance charges as additional living expenses.  In September 1999, respondent denied these claims. 

In early 2000, appellants discovered a significant mold problem in their home.  In June 2000, respondent agreed to pay $37,917.31 to help reduce the mold.  In December 2000, appellants left their home due to the mold, claiming numerous physical injuries.  Respondent has denied all of appellants’ claims for mold-related damage and injury, even though it did make the June payment. 

            In June 2000, appellants sued respondent for breach of contract, fraud/negligent misrepresentation, negligence, bad faith, and consumer-fraud-act violations.  By then, respondent had paid appellants $398,914.71 in insurance benefits.  The district court granted summary judgment for respondent, dismissing all of appellants’ claims. 



            When “matters outside the pleading are presented to and not excluded by the court,” a motion to dismiss for failure to state a claim may be treated as one for summary judgment.  Minn. R. Civ. P. 12.02.  On appeal from summary judgment, this court examines whether there are any genuine issues of material fact and whether the lower court erred in its application of the law.  Cummings v. Koehnen, 568 N.W.2d 418, 420 (Minn. 1997).


The construction of an insurance contract is reviewed de novo by this court.  Jenoff, Inc. v. N.H. Ins. Co., 558 N.W.2d 260, 262 (Minn. 1997).  In construing an insurance contract, the parties’ intention is the overriding concern and should be determined by the entire contract’s language.  Bobich v. Oja, 258 Minn. 287, 294, 104 N.W.2d 19, 24 (1960).  The insured bears the burden of proving coverage and the applicability of an exception to an exclusion.  SCSC Corp. v. Allied Mut. Ins. Co.,536 N.W.2d 305,314 (Minn. 1995). 

A.     Coverage for Mold Damage

Appellants argue that the policy, although excluding coverage for mold damage, is ambiguous and that because respondent made a payment for mold remediation, the exclusion was waived.  The policy provides:

We do not insure for any loss to the property described in Coverage A [dwelling] which consists of, or is directly and immediately caused by, one or more of the perils listed in items a. through o. below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these:


* * * *


* * * mold, fungus or wet or dry rot * * * .


The plain language of the policy provision supports the district court’s interpretation that the policy excludes coverage for mold-related damage.  Appellants acknowledge in their brief that “estoppel cannot be used to create coverage where none exists.”  See Shannon v. Great Am. Ins. Co., 276 N.W.2d 77, 78 (Minn. 1979) (“The doctrine of estoppel may not be used to enlarge the coverage of an insurance policy.” (citation omitted)).  Despite this acknowledgement, they argue reliance on respondent’s past mold-remediation payment and “assurances.”  But appellants do not specify what assurances respondent made, and the record does not show that respondent promised to pay for further mold remediation.  The district court properly concluded that mold damage was an excluded loss.

            Further, appellants argue that personal property damaged by mold might be covered.  But appellants did not make this argument before the district court, and such arguments will not be heard on review.  See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988).  Moreover, appellants never submitted any mold-related personal-property claims to respondent within the policy’s two-year limit.

B.    Coverage for Additional Financing Costs

Appellants contend that their increased mortgage rates and construction-loan costs are a direct result of the occurrence, and thus the “loss of use” provision should apply.  Because of the storm and respondent’s delay in paying losses, appellants argue that they had to delay the closing date on their mortgage, resulting in the loss of favorable financing and the extension of their construction loan.  The policy language covering “additional living expenses” provides:

When a Loss Insured causes the residence premises to become uninhabitable, we will cover the necessary increase in cost you incur to maintain your standard of living for up to 24 months. 


The plain language of the provision supports the district court’s interpretation that appellants’ claimed losses were not dependent on an uninhabitable home.  The lower mortgage rate would not have taken effect until three months after the storm damage.  Thus, paying appellants the amount they claim they lost would not restore them to their pre-occurrence position because they had not yet obtained the lower rate.  Further, appellants cite no authority justifying reimbursement for increased mortgage and finance costs suffered after a loss, and generally “the interest paid to a third person is not a recoverable item of damage sustained by the insured.”  12 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 178:23, at 178-30 (3d. rev. ed. 1998).

C.    Coverage for Construction-Cost Estimate

Respondent refused to pay for the $11,375 estimate performed by appellants’ appraiser.  The policy provides:

If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. * * * Each appraiser shall be paid by the party selecting that appraiser.


The plain language of the provision states that the parties must bear the cost of their own appraisers, and the record does not support the contention that the parties “contracted” for appellants to conduct respondent’s estimates.

D.    Coverage for Claims Brought Two Years after the Occurrence

Appellants claim that the “loss of use” provision, which grants insurance for 24 months of additional living expenses, should provide them with 24 months of aggregate living expenses and not expire 24 months after the loss. 

When a Loss Insured causes the residence premises to become uninhabitable, we will cover the necessary increase in cost you incur to maintain your standard of living for up to 24 months.  Our payment is limited to incurred costs for the shortest of: (a) the time required to repair or replace the premises; (b) the time required for your household to settle elsewhere; or (c) 24 months. 


The provision’s plain language and the context of the 24-month provision make it clear that coverage for additional living expenses terminates 24 months after the triggering occurrence.  Appellants’ argument that the 24 months can be spread over many years by aggregating some but not all months in a year is a strained, and incorrect, interpretation of the policy provision. 


Appellants argue that summary judgment should not have been granted because “adjustment of our personal property losses is incomplete,” “[w]e are still negotiating with contractors who performed work to repair the storm damage to our home,” and “we have submitted an additional living expense claim to State Farm.”  

In opposing summary judgment, “general assertions” are not enough to create a genuine issue of material fact.  Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995).  Conflicts in evidence, though presented by affidavit, are to be resolved by the district court, and the rule that on appeal evidence must be viewed “in the light most favorable to the prevailing party applies to evidence presented by affidavit submitted in support of and in opposition to motions.”  Straus v. Straus, 254 Minn. 234, 235, 94 N.W.2d 679, 680 (1959).

The record shows that no material factual issues relating to covered claims precluded summary judgment for respondent.  For example, appellants argue that their “home continues to be contaminated with mold.”  But the district court found, and we agree, that appellants’ insurance policy specifically excluded mold damage.  Thus, we do not consider appellants’ mold-related claims.

The district court also found that appellants had adequate time to conduct discovery on claims not related to the mold, yet appellants submitted no evidence of outstanding, covered claims.  At the time of this litigation, appellants had not raised any non-mold-related claims.  Because appellants do not point to any evidence of unpaid, covered claims that they submitted to respondent, no factual issues preclude summary judgment.

Appellants also argue that procedural errors should have precluded summary judgment for respondent.  At every stage of the proceedings, the court must disregard any error or defect that does not affect the substantial rights of the parties.  Minn. R. Civ. P. 61. 

Appellants first contend that respondent’s summary-judgment motion failed to contain a recitation of undisputed facts as required by Minn. R. Gen. Pract. 115.03(d)(3).  But respondent’s motion did not need to recite undisputed facts because respondent argued that appellants’ allegations, even if true, did not state a claim for relief.  Appellants therefore suffered no prejudice from respondent’s failure to recite explicitly the undisputed facts. 

            Appellants also argue that respondent blocked their attempts to obtain discovery by objecting to questions during the deposition of respondent’s claims adjuster in a separate case.  Appellants, however, neither moved to compel the claims adjuster to answer their questions nor sought to depose respondent’s claims adjuster pursuant to this litigation. 

Finally, appellants claim that they needed more time for discovery.  But the court found that (1) appellants submitted no evidence regarding what remedial repairs respondent prevented or delayed; (2) appellants submitted no non-mold-related damage claims over two-years old; and (3) appellants had adequate time to obtain discovery between the filing of the complaint and the summary-judgment motion.  In fact, appellants had eight months—between serving respondent in June 2000, and respondent’s summary-judgment motion in February 2001—to conduct discovery but did not do so.  There is no evidence in the record of discovery conducted by appellants and no request for a continuance.  Appellants’ claims of procedural error are without merit. 


            On appeal from a dismissal for failure to state a claim, we consider “whether the complaint sets forth a legally sufficient claim for relief.”  Cherne Contracting Corp. v. Wausau Ins. Cos., 572 N.W.2d 339, 342 (Minn. App. 1997) (quotation omitted), review denied (Minn. Feb. 19, 1998).  A determination of a claim’s viability presents a question of law that this court reviews de novo.  Id. 

A. Appellants’ Tort Claims

Appellants claim that respondent committed fraud/negligent misrepresentation and negligence because (1) respondent had superior knowledge of the storm damage and was in a fiduciary position to appellants; (2) respondent acted negligently by failing to provide money to dry out the premises to reduce the mold and by not communicating with appellants; and (3) as a result, appellants suffered personal injuries and property damage.  Appellants further argue that respondent breached a legal duty by observing mold during an inspection but failing to pay for its remediation. 

A party may not recover tort damages for a breach of contract, absent an exceptional case where the breach “constitutes or is accompanied by an independent tort.”  Wild v. Rarig, 302 Minn. 419, 440, 234 N.W.2d 775, 789 (1975) (citations omitted).  Failure to pay an insurance claim is not a tort.  Saltou v. Dependable Ins. Co., 394 N.W.2d 629, 633 (Minn. App. 1986). 

            No evidence in the record suggests that respondent acted fraudulently, and appellants have only alleged a failure to pay, which is not a tort.  The record shows that respondent’s claims adjuster told appellants to dry the premises thoroughly before making repairs.  Thus, respondent did not fail to communicate with appellants.  Further, appellants have not alleged any special relationship, independent of the contract, which would give rise to a legal duty.  Although respondent paid for some mold remediation, it had no duty to do so under the contract, and its refusal to make subsequent payments does not constitute negligence. 

            B. Appellants’ Bad-Faith Claim

            Appellants argue that the district court erred by concluding that respondent did not act in bad faith.  An insurer and its insured owe correlative duties of good faith in their dealings with each other.  Buysse v. Baumann-Furrie & Co., 448 N.W.2d 865, 873 (Minn. 1989).  But bad-faith refusal to pay a first-party claim is not actionable, absent an independent tort.  See Haagenson v. Nat’l Farmers Union Prop. & Cas. Co., 277 N.W.2d 648, 652 (Minn. 1979). 

The district court found that appellants produced no evidence that respondent hindered appellants’ remediation work and that an assertion of contract rights does not constitute bad faith.  Appellants are the complaining party and here offered no evidence of bad faith.  For example, appellants provide an affidavit claiming that respondent’s claims adjuster refused to pay for (1) an appraisal; (2) additional financing; (3) mold damage; and (4) other, unspecified claims.  But failure to pay a claim can only constitute a breach of contract.

Appellants also cite third-party insurance cases discussing bad faith, whereas this case involves a first-party insurance claim.  For example, appellants argue that Saltou supports their bad-faith claim.  But there, the insureds alleged that the insurer in a third-party insurance situation (1) maliciously delayed payment to the insureds; (2) issued a check for substantially less than was due; and (3) issued checks payable jointly to the insured and a lienholder of the insured.  Saltou, 394 N.W.2d at 631-32.  But the court found no basis for extracontractual damages.  Id. at 633.  Here, in contrast, respondent has paid appellants for all submitted, covered claims, and respondent has even paid for some uncovered mold damage. 

Overall, respondent paid appellants $398,914.71 as a result of their loss and denied payment only for disputed claims relating to mold damage, additional financing costs, and construction-cost estimates.  In fact, each payment to appellants was specified as not final, and appellants have not submitted any covered claims to respondent that have not been paid.  Finally, we stress that refusal to pay a claim—even if done in bad faith—merely constitutes breach of contract and not an independent tort.  The district court did not err by rejecting appellants’ bad-faith claim. 

C. Appellants’ Consumer-Fraud Claim

            When the district court grants summary judgment based on the application of a statute to undisputed facts, the result is a legal conclusion, reviewed de novo by this court.  Lefto v. Hoggsbreath Enters., 581 N.W.2d 855, 856 (Minn. 1998).  Appellants argue that they have a claim against respondent under Minn. Stat. § 325F.69 (2000).  In their complaint, appellants asserted:

Pursuant to and during the operation of the Policy, State Farm represented, assured, promised and warranted that it would promptly assist in the evaluating, processing and tendering full reimbursement for submitted claims arising from the Insured Occurrence and, in concert with the foregoing, approve contractors to be hired that would effectuate the required repairs to the Insured Premises. 


The Minnesota Consumer Fraud Act provides:


The act, use, or employment by any person 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, whether or not any person has in fact been misled, deceived, or damaged thereby, is enjoinable as provided herein.


Minn. Stat. § 325F.69, subd. 1.

A plain reading of the statute suggests that appellants’ claim fails.  To state a claim under the statute, appellants would have to prove that respondent fraudulently sold them the insurance policy, because the statute could only apply in connection with the purchase of the policy.  See, e.g., Banbury v. Omnitrition Int’l, Inc., 533 N.W.2d 876, 882 (Minn. App. 1995) (holding that statute does not apply to suit brought by distributor against manufacturer when suit involved misrepresentations regarding the distributor relationship and not the sale of merchandise).  Appellants’ allegations do not establish that respondent acted fraudulently when selling them the insurance policy.  At best, appellants have only alleged breach of contractual obligations.  Appellants allege no facts establishing a claim under the consumer fraud act.  The district court properly dismissed appellants’ claim. 


* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.