may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
STATE OF MINNESOTA
IN COURT OF APPEALS
Sentinel Management Company, et al.,
Kellogg Square Partnership,
Aetna Casualty and Surety Company, et al.,
New Hampshire Insurance Company,
Filed July 27, 1999
Hennepin County District Court
File No. 941429
Paul W. Mollica, Meites, Mulder, Burger & Mollica, 208 South LaSalle Street, Suite 1410, Chicago, IL 60604 (for appellants Sentinel Management et al.)
Lawrence A. Moloney, Norman M. Abramson, Doherty, Rumble & Butler, P.A., 3500 Fifth Street Towers, 150 South Fifth Street, Minneapolis, MN 55402; and
Paul W. Mollica, Meites, Mulder, Burger & Mollica, 208 South LaSalle Street, Suite 1410, Chicago, IL 60604 (for respondent Kellogg Square)
James T. Ferrini, Clausen Miller P.C., 10 South LaSalle Street, Chicago, IL 60603; and
Eric J. Magnuson, Rider Bennett Egan & Arundel, 2000 Metropolitan Centre, 333 South Seventh Street, Minneapolis, MN 55402; and
Thomas A. Pearson, Cronan Pearson Quinlivan, 1400 Foshay Tower, 821 Marquette Avenue Square, Minneapolis, MN 55402 (for respondents Aetna et al.)
James T. Ferrini, Clausen Miller P.C., 10 South LaSalle Street, Chicago, IL 60603; and
Eric J. Magnuson, Rider Bennett Egan & Arundel, 2000 Metropolitan Centre, 333 South Seventh Street, Minneapolis, MN 55402; and
Thomas A. Pearson, Cronan Pearson Quinlivan, 1400 Foshay Tower, 821 Marquette Avenue Square, Minneapolis, MN 55402 (for appellant New Hampshire)
Considered and decided by Schumacher, Presiding Judge, Amundson, Judge, and Schultz, Judge.[*]
Appellant New Hampshire Insurance Company challenges the jury verdict in favor of respondent Kellogg Square Partnership, arguing that the district court abused its discretion by failing to grant New Hampshire's motion for judgment notwithstanding the verdict or a new trial. On cross-appeal, Sentinel Management Company, Ballantrae Associates, Chancellor Manor, Colonial Village, Equinox Properties, Sentinel II Limited Partnership, Oak Grove Towers Associates, Gateway Investors, Ltd., Stagecoach Company, Skyline Towers Company, and Woodmere Associates (collectively Sentinel) challenge the district court's dismissal of its breach of insurance contract claim regarding ten buildings other than Kellogg Square. We affirm.
From January 1, 1991, to January 1, 1993, New Hampshire insured Sentinel against all risks of loss to its rental properties, including Kellogg Square. Sentinel purchased "all-risk" first-party coverage from New Hampshire that covered direct physical loss to the properties during the policy period.
In 1991, Sentinel employed PSI/Hall-Kimbrell to conduct a full building survey of Kellogg Square. The results of that survey indicated that ceiling material found in the Kellogg Square building included asbestos-containing materials (ACMs). Undisturbed ACMs do not create an immediate hazard to public health. Early in 1992, however, Sentinel's consultants informed Sentinel that asbestos fibers are released by building maintenance, repair, or renovation activities that disturb the ACMs. On July 1, 1992, Richard Hatfield, a consultant who deals with ACMs, performed an inspection of eight apartments, two hallways and a mechanical room. After a visual inspection during which he noticed that some of the ACMs had been disturbed, Hatfield conducted "dust testing" in Kellogg Square, taking six samples. Upon subsequent analysis, four of the samples indicated that substantial concentrations of asbestos fibers had been released from the ceilings.
After determining that ACMs existed in Kellogg Square, Sentinel attempted to ascertain whether there were similar ACMs in its other buildings constructed between 1962 and 1978. In late 1992, Nova Environmental Services, Inc. issued reports confirming that ten of Sentinel's other properties contained ACMs. Nova did not conduct scientific tests to determine whether asbestos had been released in any of the buildings other than Kellogg Square. Sentinel became aware, however, that the same activities that disrupted the ACMs at Kellogg Square were undertaken in the other buildings. Work orders indicate that the ceiling materials in the other buildings were disrupted during the policy period.
Sentinel brought suit against New Hampshire and other insurance carriers in 1994, claiming that it had suffered a direct physical loss from the release of the asbestos fibers and the resulting contamination of the buildings. On summary judgment, the district court dismissed Sentinel's claims against the insurers other than New Hampshire, finding that coverage was triggered during the period of New Hampshire's policy. The district court also denied New Hampshire's second motion for summary judgment, finding that there were material issues of fact as to the New Hampshire policy's coverage of the alleged asbestos contamination. On appeal, this court affirmed the district court's denial of New Hampshire's second motion for summary judgment. Sentinel Mgmt. Co. v. New Hampshire Ins. Co., 563 N.W.2d 296, 299-302 (Minn. App. 1997) (Sentinel I).
Prior to trial, in October 1997, New Hampshire sought an order in limine precluding Sentinel from introducing evidence concerning the mere presence of ACMs in any of the buildings and evidence of the damage resulting from the release of asbestos fibers that manifested itself subsequent to the policy period. On December 11, 1997, the district court effectively dismissed Sentinel's claims on the buildings other than Kellogg Square, finding that there was no evidence that there was "a manifestation of loss to those ten properties [other than Kellogg Square] during the policy period."
At the Kellogg Square trial, Sentinel presented evidence that Kellogg Square building manager Alessandro Bernardi became aware that there were ACMs in the Kellogg Square property in 1991. Al Birr, the chief engineer at Kellogg Square, testified that, according to work orders, the kinds of disturbances that result in the release of asbestos fibers were common throughout the building during that period. Sentinel also presented the expert witness testimony of Hatfield, who explained the significance of the four dust samples that he took from Kellogg Square in 1992. According to Hatfield, those samples indicated heavy contamination. Dr. Arthur Frank, an expert for Sentinel, stated that released asbestos structures present a hazard to human health.
Regarding damages, Sentinel presented the testimony of Christopher Weggeman, a managing principal at the environmental engineering firm of Dames & Moore. According to Weggeman, the total cost of removing the ACMs from Kellogg Square would be $4,474,404.08. In his testimony, Weggeman stated that containment strategies, such as encapsulation, operation and maintenance plans, and HEPA vacuuming would not address future contamination.
The jury returned a verdict in favor of Sentinel, finding that Kellogg Square sustained a direct physical loss that was discovered between January 1, 1992, and January 1, 1993. The jury awarded damages in the amount of $4,474,404.08.
The district court denied Sentinel's motion for a new trial on the claims regarding the other ten buildings. In addition, the district court denied New Hampshire's motion for judgment notwithstanding the verdict or a new trial. On appeal, New Hampshire argues that the district court erroneously denied its motion for JNOV or a new trial because (1) the district court erroneously admitted expert opinion testimony that Kellogg Square was contaminated, (2) the district court improperly instructed the jury, (3) the evidence was insufficient to establish that the Kellogg Square property sustained direct physical loss, (4) the jury's award was impermissibly based on the 'mere presence' of ACMs, and (5) the district court improperly awarded prejudgment interest. On cross-appeal, Sentinel argues that the district court erroneously dismissed its claims regarding the other ten buildings.
1. Sentinel challenges the district court's December 11, 1997, dismissal of its claims regarding the buildings other than Kellogg Square. According to Sentinel, the district court erroneously concluded that Sentinel "failed to show that there was a manifestation of the covered loss during the policy period." The district court dismissed the claims on the other ten buildings, stating that there was no "scientifically reliable" evidence that asbestos was released in those buildings.
Although the viability of Sentinel's claims regarding the other ten buildings technically arose in the context of a motion in limine, the district court treated the motion as one for summary judgment. On appeal from summary judgment, the appellate court asks whether there are any issues of material fact and whether the lower court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). The reviewing court views the evidence in the light most favorable to the nonmoving party. Offerdahl v. University of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn. 1988). When there is no dispute of material fact, an appellate court applies a de novo standard of review to determine whether the lower court erred in its application of law. Dean v. American Family Mut. Ins. Co., 535 N.W.2d 342, 343 (Minn. 1995).
Generally, an "all-risk" insurance policy
is to be considered as creating a special type of coverage extending to risks not usually covered under other insurance, and recovery under an "all-risk" policy will, as a rule, be allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage.
13A George E. Couch, Couch on Insurance 2d § 48:141 (rev. ed. 1982); accord Adams-Arapahoe Sch. Dist. No. 28-J v. Continental Ins. Co., 891 F.2d 772, 774 (10th Cir. 1989). In first-party insurance cases, no damage or injury of any kind has taken place until manifestation. Prudential-LMI Commercial Ins. v. Superior Court, 798 P.2d 1230, 1246 (Cal. 1990). Rather, the claim "lies dormant until it later causes appreciable injury." Id. (citing Ins. Co. of N. Am. v. Forty-Eight Insulations, 633 F.2d 1212, 1222 n.18 (6th Cir. 1980)). Manifestation occurs when "appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered." Prudential, 798 P.2d at 1247 (cited with approval in O'Reilly v. Allstate Ins. Co., 474 N.W.2d 221, 223 (Minn. App. 1991)).
In this case, Sentinel seeks recovery for the release of asbestos fibers and the resulting contamination, not for the mere presence of ACMs in the properties. Cf. Leafland Group-II v. Insurance Co. of N. Am., 881 P.2d 26, 28 (N.M. 1994) (holding mere presence of ACMs did not constitute fortuitous loss because loss existed when insured purchased building). In Sentinel I, this court determined that such a loss, if proven, was recoverable under the New Hampshire policy. 563 N.W.2d at 299-302. In order to survive summary judgment, Sentinel must present evidence creating genuine issues of material fact on two issues: (1) that appreciable damage occurred during the policy period, and (2) the damage was or should have been known to the insured, such that a reasonable insured would have been aware that his notification duty under the policy has been triggered. Prudential, 798 P.2d at 1247.
In its efforts to satisfy the Prudential manifestation test's first requirement, Sentinel presented no evidence that any of the other ten buildings were scientifically tested during the policy period for asbestos contamination. Rather, Sentinel presented evidence that similar ACMs were found throughout Kellogg Square and the other ten buildings. Sentinel also set forth evidence that many normal maintenance activities disturb ACMs and cause the release of asbestos fibers. Such activities took place to some degree in Kellogg Square and each of the other buildings. Finally, in 1992, Sentinel confirmed that samples taken from Kellogg Square were indicative of asbestos contamination. From these pieces of evidence, Sentinel argues, a jury could reasonably conclude that maintenance activities undertaken in the other ten buildings disturbed ACMs and caused the release of asbestos fibers just as they did in Kellogg Square.
As one of Sentinel's scientific experts acknowledged, however, the "only way to definitively establish that asbestos is present in a * * * sample of dust is to perform a microscopic analysis of [the] material specifically designed to detect asbestos minerals." Due to the lack of scientific evidence, we conclude the trial court was correct in determining that the available evidence was too speculative to support Sentinel's claim that its buildings other than Kellogg Square were contaminated during the policy period. See Nicollet Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995) (holding speculation and general assertions are not sufficient to create genuine issue of material fact for trial).
Because the evidence presented by Sentinel was not sufficient to create a genuine issue of material fact regarding the existence of asbestos contamination in the buildings other than Kellogg Square during the policy period, we need not determine whether Sentinel presented evidence to support its claim that contamination was or should have been known to Sentinel during the policy period.
2. New Hampshire challenges the district court's denial of its motion for JNOV or a new trial, arguing that Sentinel failed to prove "direct physical loss" as defined by this court and the relevant caselaw. A party can obtain JNOV when the jury verdict has no reasonable support in fact. Minn. R. Civ. P. 50.02. The standard of review for the denial of a motion for JNOV is de novo. Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998). An appellate court must consider the evidence in the light most favorable to the prevailing party and may not set the verdict aside if it can be sustained on any reasonable theory of the evidence. Id.
In the alternative to JNOV, a party may obtain a new trial where the verdict is not justified by the evidence. Minn. R. Civ. P. 59.01(g). The decision to grant a new trial lies within the sound discretion of the trial court and will not be disturbed absent a clear abuse of that discretion. Halla Nursery, Inc. v. Baumann-Furrie & Co., 454 N.W.2d 905, 910 (Minn. 1990). On appeal from a denial of a motion for a new trial, the verdict must stand unless it is manifestly and palpably contrary to the evidence, viewed in a light most favorable to the verdict. Zumberge v. Northern States Power Co., 481 N.W.2d 103, 110 (Minn. App. 1992), review denied (Minn. Apr. 29, 1992).
Sentinel's all-risk policy provides indemnity against "all risks of direct physical loss." As this court found in Sentinel I, contamination by asbestos may constitute a direct, physical loss to property under an all-risk insurance policy if it is fortuitous. 563 N.W.2d at 299-300. Such a direct physical loss is fortuitous if "the outcome of the event * * * [is not] known in advance by the insured." Id. at 299 (quotation omitted). Additionally, a loss due to asbestos contamination is covered if it ensues from normal wear and tear. Sentinel I, 563 N.W.2d at 301-02. In sum, Sentinel's loss due to contamination is covered under the New Hampshire policy if the contamination seriously impaired or destroyed the property's function. Id. at 300.
New Hampshire's first challenge to the jury's finding of liability rests on the district court's admission of Hatfield's testimony regarding the contamination of the Kellogg Square property. According to New Hampshire, the scientific community does not generally accept the extrapolation used by Hatfield to form his expert opinion that Kellogg Square was contaminated by the release of asbestos fibers. Evidentiary rulings, including a decision to exclude expert testimony, lie within the sound discretion of the trial court. Benson v. Northern Gopher Enters., Inc., 455 N.W.2d 444, 445-46 (Minn. 1990). District courts are afforded wide latitude in determining whether there is sufficient foundation upon which an expert may state an opinion. Id.
Minn. R. Evid. 702 states that an expert may testify "[i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue." Minnesota has adopted the Frye standard, which requires that
"the thing from which the [expert testimonial] deduction is made must be sufficiently established to have gained general acceptance in the particular field in which it belongs."
State v. Mack, 292 N.W.2d 764, 767 (Minn. 1980) (quoting Frye v. United States, 293 F. 1013, 1014 (D.C. Cir. 1923)). The supreme court stated the rule succinctly in State v. Anderson, 379 N.W.2d 70 (Minn. 1985): "The scientific technique on which expert testimony is based must be scientifically reliable and broadly accepted in its field." Id. at 79 (citations omitted). The test, then, requires neither unanimity nor acceptance outside its particular field. The Daubert test accepted by the federal courts also has persuasive value in Minnesota courts. See Fairview Hosp. & Health Care Servs. v. St. Paul Fire & Marine Ins. Co., 535 N.W.2d 337, 340 n.4 (Minn. 1995) (noting with approval a district court's use of the Daubert formulation). In Daubert v. Merrell Dow Pharms., 509 U.S. 579, 113 S. Ct. 2786 (1993), the Supreme Court noted Frye's "general acceptance" formulation in federal courts had been superseded by the rules of evidence and held that the trial court must determine scientific validity of a theory or test. 509 U.S. at 592-93, 113 S. Ct. at 2796.
New Hampshire argues that Hatfield's extrapolation theory is neither reliable nor generally accepted because it relies on only four positive samples to reach the conclusion that a 450 unit building was contaminated. According to New Hampshire, such an inductive extrapolation is illogical and unreliable. Certainly, the reliability of the testimony presented by Hatfield would be improved if he had taken samples in more than five rooms. Hatfield's testimony was not based solely on the chemical analysis of dust samples, however. He also visually inspected the ACMs located throughout the property and reviewed the work orders describing disturbances to the ACMs. Faced with similar situations, other jurisdictions have rejected the argument that the dust sampling techniques used by Hatfield are unreliable. See United States Gypsum Co. v. Mayor & City Council of Baltimore, 647 A.2d 405, 423-24 (Md. 1994) (holding that process of dust sampling and extrapolation techniques used to estimate contamination levels in entire building are generally accepted in field); United States Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226, 1240 (Ill. App. Ct. 1994) (stating that, although Hatfield possessed only an undergraduate degree, he had sufficient experience examining different structures containing ACMs, evaluating potential risk posed by ACMs and recommending various courses of action), review denied, 649 N.E.2d 426 (Ill. 1995). We find that the weaknesses in Hatfield's testimony were relevant to the weight of the evidence, not its admissibility. Accordingly, the district court did not abuse its discretion in admitting Hatfield's expert testimony.
New Hampshire also challenges the jury instructions, arguing that the district court's jury instructions allowed the jury to find that Kellogg Square suffered a direct physical loss without finding that the function of the property was seriously impaired or destroyed. According to New Hampshire, those instructions were contradictory and contravened the law of the case as stated in Sentinel I.
In Sentinel I, this court determined that loss caused by the release of asbestos fibers was covered by the New Hampshire policy if the building's function was seriously impaired or destroyed by the contamination. 563 N.W.2d at 300. Based on that language, the district court instructed the jury as follows:
Sentinel must prove by the greater weight of the evidence that contamination of Kellogg Square by released asbestos fibers created a hazard to human health or seriously impaired or destroyed the function of the property.
When answering the questions posed on the special verdict form, the jury determined that Sentinel proved by the greater weight of the evidence that "Kellogg Square sustained a direct physical loss." The jury also found that "the direct physical loss at Kellogg Square created a hazard to human health." The jury found, however, that Sentinel did not prove that "the direct physical loss at Kellogg Square seriously impaired or destroyed the function of the property."
As New Hampshire accurately points out, this court's language in Sentinel I required Sentinel to prove that the function of the Kellogg Square property was seriously impaired or destroyed. It is equally clear that the jury instructions utilized by the district court did not constitute a verbatim recitation of the language used by this court in Sentinel I. In the previous appeal, this court did not explicitly state that a direct physical loss could be established merely by showing the creation of a hazard to human health. This court did indicate, however, that a functional impairment could be proved by evidence of a health hazard. See id., at 300 (holding that summary judgment not appropriate, in part, because Sentinel presented evidence that asbestos contamination created health hazard).
We find that the jury instructions were not inconsistent with this court's previous opinion. A principal function of any living space it to provide a safe environment for the occupants. If rental property is contaminated by asbestos fibers and presents a health hazard to the tenants, its function is seriously impaired. In essence, the special verdict form asked the jury the same question in two different forms, i.e., whether the function of the property was impaired. An affirmative answer to either question would have supported a verdict in favor of Sentinel. In this way, the jury instructions simply allowed the jury to find that the property's function was impaired by a health hazard and were not contrary to relevant precedent.
New Hampshire argues that the evidence presented was not sufficient to support the jury's finding of liability. Specifically, New Hampshire contends that the unreliability of Hatfield's scientific opinion prevented it from supporting a factual finding of contamination and that Sentinel presented no evidence of a health hazard.
Because we find that Hatfield's testimony was admissible, the record clearly supports a finding of contamination. Neither this court nor the district court is in a position to second-guess the jury's credibility determination. State by Humphrey v. Briggs, 488 N.W.2d 811, 816 (Minn. App. 1992) (noting that witness credibility is issue for jury to determine), review denied (Minn. Sept. 15, 1992). Accordingly, New Hampshire's sufficiency argument is not persuasive regarding the contamination of the property.
New Hampshire challenges the jury's award of damages, contending that the jury's award was based on the 'mere presence' of ACMs, not the loss suffered during the policy period. A jury verdict should not be overturned on appeal unless the record does not reasonably support it. Roemer v. Martin, 440 N.W.2d 122, 124 (Minn. 1989).
Sentinel did not seek recovery for the mere presence of ACMs in Kellogg Square's construction. Sentinel I, 563 N.W.2d at 299-300. Instead, Sentinel sought to remedy the loss caused by the release of asbestos particles during the policy period. Id. This court in Sentinel I was careful to distinguish between the damage to the ACMs (excluded from coverage by the 'wear and tear' exception) and the release of asbestos particles (covered by the policy's 'ensuing loss' clause). Id. at 299 (stating that "Sentinel * * * seeks proceeds to remove asbestos fibers released from the ACMs by extraneous forces, not replacement value for the ceilings and walls").
At trial, Sentinel presented evidence that, when disturbed by maintenance activities, the ACMs presented a hazard to human health. In his testimony, Birr stated that asbestos fibers were released from the ACMs during the policy period. Sentinel also presented testimony that the released fibers were continuously circulated in the air of the Kellogg Square property where they could be inhaled. Finally, Weggeman, an expert called by Sentinel, testified that the appropriate remedy in this case was removal of the ACMs that would cost $4,474,404.08. Based on this testimony, the jury's damage award was reasonably supported by the record. See Barrera v. Muir, 553 N.W.2d 104, 107 (Minn. App. 1996) (stating that jury verdict will not be reversed unless it is palpably contrary to the evidence), review denied (Minn. Oct. 29, 1996).
Additionally, New Hampshire challenges the district court's award of prejudgment interest. The award of interest lies within the sound discretion of the district court as a matter of just compensation and will not be disturbed absent an abuse of that discretion. See McKay's Family Dodge v. Hardrives, Inc., 480 N.W.2d 141, 148-49 (Minn. App. 1992) (holding that district court did not abuse discretion in award of prejudgment interest), review denied (Minn. Mar. 26, 1992).
The relevant statutory language states that the
prevailing party shall receive interest on any judgment or award from the time of commencement of the action or a demand for arbitration, or the time of a written notice of claim.
Minn. Stat. § 549.09, subd. 1(b) (1998). Section 549.09, subd. 1(b)(2) prohibits prejudgment interest on future damages. Because the jury's award was properly based on the loss incurred during the policy period, the district court did not abuse its discretion in awarding prejudgment interest.
[*] Retired judge of the district court, serving as judge of the Minnesota Court of Appeals pursuant to Minn. Const. art. VI, § 10.