This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2014).

STATE OF MINNESOTA

IN COURT OF APPEALS

A15-0370

Swanny of Hugo, Inc.,

d/b/a Carpenter’s Steak House, et al.,

Respondents,

vs.

Integrity Mutual Insurance Company,

Appellant.

Filed December 28, 2015

Affirmed

Ross, Judge

Washington County District Court

File No. 82-CV-12-347 

Britton D. Weimer, Jones Satre & Weimer, PLLC, Bloomington, Minnesota (for appellant)

Adina R. Bergstrom, Brenda M. Sauro, Kyle S. Willems, Sauro & Bergstrom, PLLC, 

Oakdale, Minnesota; and

Lucas D. Wilson, Wilson Law, LLC, Minneapolis, Minnesota (for respondent Swanny of 

Hugo, Inc., d/b/a Carpenter’s Steak House)

Considered and decided by Chutich, Presiding Judge; Ross, Judge; and Larkin, 

Judge. 
2

U N P U B L I S H E D O P I N I O N

ROSS, Judge

After fire destroyed Carpenter’s Steak House and Integrity Mutual Insurance 

Company denied business-income coverage, a jury found that the insurer breached the 

insurance policy and the district court rejected the restaurant’s statutory bad-faith denialof-benefits cost-recovery claim under Minnesota Statutes section 604.18 (2014). The 

insurer appeals the judgment on the insurance-contract claim, and the restaurant appeals 

the district court’s denial of its statutory costs claim. We are satisfied that the district court 

either rightly decided the legal issues or that any error was harmless, and we affirm.

FACTS

In early January 2010 Carpenter’s Steak House in Hugo, Minnesota, was destroyed 

by fire. Catherine Anderson solely owns Swanny of Hugo, Inc., which in turn solely owns 

the restaurant, and her son, Michael Anderson, managed the restaurant. Integrity Mutual 

Insurance Company insured the restaurant. The Swanny–Integrity policy covered various 

losses: business personal property; debris and pollutant removal; computers; and structure. 

The policy also provided limitless coverage for the loss of business income (BI) over a 12-

month restoration period. 

Integrity’s claims representative Bree Sweetack called Swanny to discuss the fire 

and loss. Sweetack immediately noted that the building was a total loss. Soon Catherine 

Anderson met with Integrity’s claims representative Chad Bodenheimer. Bodenheimer 

informed Anderson that the restaurant was a total loss and that Swanny would be covered 

by the policy’s BI-loss provisions. Integrity allocated a payment reserve of over $50,000 
3

for BI, and it also allocated the maximum reserves for the structure and the other coverage 

categories.

Swanny submitted a proof-of-loss statement to Integrity on January 28, 2010, for 

the restaurant structure. Six weeks later Integrity sent a letter confirming that it received 

Swanny’s statement and expressly rejecting any statements declaring the value of the loss. 

The letter also informed Swanny that it was holding payment until it completed its fire 

investigation. 

Swanny sent Integrity a claim for BI based on a calculation of $164,772 prepared 

by public adjustor Paul Norcia. Integrity retained accountant Christian Fox to review 

Swanny’s BI claim. Integrity’s investigation into possible arson and fraud lasted more than 

100 days. During the investigation period, Swanny attempted unsuccessfully to open 

another restaurant. Although Swanny had successfully negotiated a lease, it lacked the 

funds to complete the deal. Integrity eventually made policy-limit payments for damages 

to the restaurant structure, business personal property, computer, and for the cost of debris 

and pollutant removal. But it paid Swanny nothing for BI after Fox finished his report in 

December 2010, concluding that Swanny had no BI loss. 

Swanny sued Integrity, claiming that Integrity breached the policy by denying BI 

coverage and by failing to timely cover the other categories. A jury found that Integrity 

breached the policy by failing to timely pay coverages and by refusing BI coverage 

altogether. It awarded Swanny $275,000 in damages for BI loss and $859,500 in 

consequential damages. 
4

Integrity moved for a new trial and judgment as a matter of law. The district court 

took the motions under advisement and conducted a hearing on Swanny’s statutory claim 

of bad-faith claim-denial. After the hearing the district court denied Integrity’s motions and 

rejected Swanny’s statutory claim. It deemed Integrity’s arguments unpersuasive and 

reasoned that Swanny had not shown that Integrity lacked a reasonable basis for denying 

the BI claim.

Both parties challenge the district court’s decision on appeal. 

D E C I S I O N

Integrity asserts that (1) consequential damages are not permissible here as a matter 

of law; (2) the district court misinterpreted the jury’s verdict and double counted the BI 

award; (3) preverdict interest on the consequential damages award should have been 

calculated from the date the damages were incurred rather than the date the complaint was 

served; and (4) Swanny failed to produce sufficient evidence to support the award of BI 

damages. We will address each of these issues before turning to Swanny’s related appeal 

challenging the denial of its bad-faith claim. 

I

Integrity challenges the district court’s decision denying its motion for judgment as 

a matter of law. The denial of a motion for judgment as a matter of law presents a legal 

question, which we review de novo. Gilbertson v. Leininger, 599 N.W.2d 127, 130 (Minn.

1999). Integrity specifically maintains that the consequential-damages award is in error, 

and it rests on four arguments: the holding of Olson v. Rugloski, 277 N.W.2d 385 (Minn. 

1979), contradicts the award; consequential damages were not reasonably foreseeable at 
5

the time the parties entered the contract; Swanny failed to specifically plead consequential 

damages as required by Minnesota Rule of Civil Procedure 9.07; and the district court 

improperly permitted Swanny to present a claim for negligent claims-handling. We address 

each argument. 

The rule in Olson allows for consequential damages in this case.

Integrity presents various arguments based on Olson, which held that consequential 

damages may arise from the breach of an insurance contract. Integrity first argues that 

Olson limits consequential damages based on the breach of an insurance contract to badfaith refusal to pay. It asserts that bad faith in the context of breach of an insurance contract 

means a “willful, wanton, and malicious” refusal to make payment. Integrity reads Olson

too restrictively. The Olson opinion twice includes the phrase “willful, wanton, and 

malicious,” and neither is in the holding or reasoning. The phrase first appears in the 

beginning of the opinion as an introduction to the case’s procedural history. Id. at 386. And 

it appears again in a summary of the trial court’s findings. Id. at 387. We do not agree that 

these references condition the award on a finding of the insurer’s willful, wanton, and 

malicious motives. We look instead to Olson’s expressly stated holding for the rule of law 

that the supreme court applied in that case and that we will apply:

The insurer is obligated to pay when the insured suffers a loss 

covered by the policy. When the insurer refuses to pay or 

unreasonably delays payment of an undisputed amount, it 

breaches the contract and is liable for the loss that naturally and 

proximately flows from the breach. 

Id. at 387–88. If the Olson court were relying on the “willful, wanton, and malicious” 

nature of the insurer’s actions, rather than on its “unreasonabl[eness],” it would not have 
6

so broadly stated its proposition of law. Given that the supreme court declared that the 

award is suited to cover unreasonable delays, not willful or malicious delays, we see no bar 

for the award here.

We are not persuaded otherwise by Integrity’s reliance on Mattson Ridge, LLC v. 

Clear Rock Title, LLP, 824 N.W.2d 622 (Minn. 2012). Integrity highlights the following 

footnote in Mattson Ridge:

Although unnecessary to our decision here, we note that it

appears that [the insurer] did not exhibit the type of “willful, 

wanton, and malicious” behavior present in Olson: an 

unreasonable failure to pay an undisputed amount of benefits 

to the insured.

Id. at 630 n.2. The Mattson Ridge footnote does not declare that a finding of willful, 

wanton, and malicious behavior is necessary for an award for damages arising from

delayed payment. It instead inferred that the unreasonable refusal to pay the undisputed 

amount in Olson was itself willful, wanton, and malicious behavior. Given the finding that 

Integrity unreasonably delayed the payment here, the Mattson Ridge footnote does not 

advance its position. 

Integrity also argues that Olson requires that an insured must prove that the insurer 

conditioned payment on an unreasonable demand before becoming eligible for 

consequential damages. It is true that Olson involved an unreasonable demand by the 

insurer, but again, the rule articulated and applied in that case is not so narrowly presented. 

See Olson, 277 N.W.2d at 387–88. Integrity cites no case applying Olson in this narrow 

fashion, and we are aware of none.
7

Integrity next argues that Olson does not allow for consequential damages in this 

case because the coverage amount was disputed. Integrity correctly observes that Olson

declares that the award may be appropriate “[w]hen the insurer refuses to pay or 

unreasonably delays payment of an undisputed amount.” Id. (emphasis added). This is a 

close issue, but we are satisfied that the jury was presented with sufficient evidence to 

support its determination under this standard. Immediately after the fire, Integrity claims 

adjustor Bodenheimer informed Swanny that the building was a total loss and that Swanny 

would be covered under the BI provision of the policy. After Swanny submitted a proofof-loss statement to Integrity in January 2010, it took six weeks for Integrity even to 

acknowledge it received the statement. Although Integrity announced that it would 

withhold payments until after it completed its investigation, the jury heard from Swanny’s 

expert that no fraud indicators were ever present and that it was “very clear” as early as 

mid-January 2010 that the coverage would reach the policy limits. There was sufficient 

evidence from which the jury could find that the coverage amounts were not effectively or 

genuinely in dispute for a significant majority of the payment-delay period. 

Consequential damages were foreseeable at the time the contract was made. 

Integrity argues that consequential damages are not available here because the 

damages were not foreseeable at the time of contracting. It has been long established that 

Minnesota follows the rule of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854). 

See Paine v. Sherwood, 21 Minn. 225, 232 (1875) (adopting the Hadley rule). This rule 

provides that consequential damages for breach-of-contract claims are generally prohibited 

unless the damages are “those arising naturally from the breach or those which can 
8

reasonably be supposed to have been contemplated by the parties when making the contract 

as the probable result of that breach.” Lassen v. First Bank Eden Prairie, 514 N.W.2d 831, 

838 (Minn. App. 1994). In other words, consequential damages are available only if they 

were contemplated or “reasonably foreseeable.” Id. Whether damages were reasonably 

foreseeable when the contract was made is a question of fact. Id. 

The jury was properly instructed as to this foreseeability requirement. Because the 

jury awarded consequential damages, it necessarily determined that the damages were 

foreseeable when the parties entered the contract. Viewing the evidence in the light most 

favorable to the verdict, we will not disturb the jury’s finding unless no reasonable mind 

would find as the jury did. Reedon of Faribault, Inc. v. Fid. & Guar. Ins. Underwriters, 

Inc., 418 N.W.2d 488, 491 (Minn. 1988). 

Swanny presented enough evidence of foreseeability to sustain the jury’s verdict. 

Michael Anderson testified that when the policy began he believed that the BI coverage 

would protect the flow of the business following a catastrophic event. Insurance expert 

Elliott Flood opined that an insurance company would have known that failure to make 

timely payments could prevent a business from reopening. Integrity’s assertion that it 

lacked prior knowledge of Swanny’s specific financial vulnerability is also unavailing 

because the jury can hold a defendant liable for damages that a reasonable person ought to 

have foreseen as likely to result from a breach. Franklin Mfg. Co. v. Union Pac. R.R. Co., 

311 Minn. 296, 298, 248 N.W.2d 324, 325 (1976). We are satisfied that the damages 

awarded here arise naturally from the breach or can “reasonably be supposed to have been 

contemplated by the parties when making the contract.” Lassen, 514 N.W.2d at 838.
9

Swanny specifically pleaded consequential damages as required by Minnesota Rule of 

Civil Procedure 9.07.

Integrity argues that Swanny failed to specifically plead consequential damages. 

Whether specificity is required is a question of law that we review de novo. DeRosier v. 

Util. Sys. of Am., Inc., 780 N.W.2d 1, 4 (Minn. App. 2010). Pleadings generally require 

only “a short and plain statement of the claim” and “a demand for judgment for the relief 

sought.” Minn. R. Civ. P. 8.01. But special damages must be “specifically stated.” Minn. 

R. Civ. P. 9.07. Special damages are the natural but not necessary result of a wrongful act. 

Smith v. Altier, 184 Minn. 299, 300, 238 N.W. 479, 479 (1931). Consequential damages 

are commonly called special damages and therefore must be pleaded according to rule 9.07.

See DeRosier, 780 N.W.2d at 4. The purpose of the special pleading rule is to provide the 

opposing party with notice of matters that may not necessarily be known to it. See Smith, 

184 Minn. at 300–301, 238 N.W. at 479–80. In the context of consequential damages for 

breach of contract, the plaintiff must plead facts that the parties knew the risk of 

consequential damages at the time the contract was formed. Liljengren Furniture & 

Lumber Co. v. Mead, 42 Minn. 420, 422, 44 N.W. 306, 307 (1890).

Integrity argues that Swanny’s pleadings do not satisfy rule 9.07. Swanny’s 

complaint defeats the argument. The complaint expressly states that Swanny was seeking 

“additional foreseeable consequential damages” arising from Integrity’s failure to make 

timely payment. The complaint includes other particulars that defeat Integrity’s argument: 

20. As a result of Integrity’s intentional failure and refusal 

to make payments under the Policy’s Business Income and 

Extra Expense provisions, the Plaintiffs have incurred debt, 

were unable to keep their restaurant business in operation, and 
10

have suffered unnecessary humiliation and loss—all harms 

that Plaintiffs intended to avoid, in the event of a catastrophic 

event, when they purchased the Policy from Integrity. . . .

. . . .

22. Defendant Integrity was aware that Plaintiffs used the 

Premises, insured under the above-described Policy, as a 

commercial property, and that Plaintiffs would be damaged by 

any delays or refusal in payments for their losses, thereby 

preventing Plaintiffs from restoring or replacing the Premises 

to its intended use and value as a restaurant.

(emphasis added).

The complaint notified Integrity that Swanny sought consequential damages, 

satisfying rule 9.07.

Swanny did not try a negligent claims-handling case. 

Integrity argues that the district court improperly allowed Swanny to try a negligent 

claims-handling claim. Minnesota does not recognize a private cause of action for negligent 

claims-handling under the Unfair Claims Practices Act. Morris v. Am. Family Mut. Ins. 

Co., 386 N.W.2d 233, 238 (Minn. 1986). At the outset of trial, the district court ruled that 

Swanny’s experts were prohibited from mentioning specific provisions of the act and that 

claims-handling practices would be admissible for the limited purpose of showing that 

Integrity’s actions fell outside industry custom. Swanny followed the court’s ruling. 

Swanny never argued for damages based on the act or negligent claims-handling. 

Integrity’s argument on appeal is unsupported.
11

II

Integrity argues that the district court erroneously interpreted the jury’s special 

verdict form and double counted the award for BI damages. We will liberally construe a

special verdict form, giving effect to the intention of the jury and harmonizing all findings 

if we can. Daly v. McFarland, 812 N.W.2d 113, 125 (Minn. 2012). A district court faced 

with a potentially inconsistent special verdict may either exercise its own interpretive 

powers or, if it concludes that the jury’s conclusion must be altered as a matter of law, it 

may partially direct a verdict. Id. We will give “broad discretion to any interpretive choice 

made by the district court.” Id. at 126. And “[i]f the answers to special verdict questions 

can be reconciled on any theory, the verdict will not be disturbed.” Id. (quotation omitted). 

We are satisfied that the district court reconciled the verdict answers on a reasonable 

theory.

The jury’s responses to the special verdict form were, in relevant part, as follows: 

6. Did Defendant Integrity’s denial of business income loss 

coverage to Plaintiffs or the timing of that decision breach 

the insurance contract?

Answer: Yes

7. Did Plaintiffs sustain any business income loss during the 

period of restoration?

Answer: Yes

8. If you answered “Yes” to Question 7, then answer this 

question: How much business income loss did Plaintiffs 

sustain during the period of restoration?

Answer: $275,000
12

9. If you answered “yes” to any of Questions 1, 2, 3, 4, 5, or 

6, then answer this question: Was/were Defendant 

Integrity’s breach(es) of the insurance contract a direct 

cause of damage to Plaintiffs?

Answer: Yes

10. If you answered “Yes” to Question 9, then answer this 

question: What amount of money will fairly and adequately 

compensate Plaintiffs for damage directly caused by 

Defendant Integrity’s breach(es) of the insurance contract?

Answer: $859,500

The district court interpreted the jury’s $275,000 BI award to be separate from the 

$859,500 award. It therefore saw the $859,500 award as representing solely consequential 

damages. So it added the awards together for a total of $1,134,500. 

Integrity argues that the jury intended the $859,500 amount to constitute its entire 

award, of which, the $275,000 BI award was merely a part. It maintains that by adding the 

two figures together the district court effectively double counted the BI award. The 

argument is not without merit, but we do not consider it to represent the only reasonable 

interpretation. Question 10 does not clearly request the jurors to provide a total amount. In 

interpreting the jury’s answers, the district court reasoned that, throughout the litigation, 

“Integrity agreed with [Swanny] that consequential damages and BI loss were separate and 

distinct, and made various legal arguments grounded in that concept.” The jury was 

presented evidence and argument relating to two distinct types of damages, lending support 

to the district court’s interpretive rationale. We recognize that the district court’s 

explanation is not the only reasonable one and that Integrity’s argument has some weight. 
13

But because the district court expressed and relied on a reasonable interpretive theory to 

explain the verdict, its conclusion does not reflect an abuse of discretion. 

III

Integrity argues that the district court erred by granting preverdict interest on the 

consequential damages award from the date the complaint was served rather than the date 

the damages were incurred. This issue requires us to interpret a statute, triggering our de 

novo review. Swenson v. Nickaboine, 793 N.W.2d 738, 741 (Minn. 2011). The legislature 

has provided a statutory right to preverdict interest on money judgments. Minn. Stat. 

§ 549.09 (Supp. 2015). The general rule is that “preverdict . . . interest on pecuniary 

damages shall be computed . . . from the time of the commencement of the action.” Id., 

subd. 1(b). An exception to the rule requires interest on special damages to accrue from the 

time those damages were incurred if that time was later than the commencement of the 

action. Id. This exception applies if either party served a written settlement offer. Id.

Integrity made a written settlement offer in May 2013. The exception for special 

damages therefore applies, and the preverdict interest should accrue from the date the 

damages were incurred if later than the commencement of the action. Integrity is therefore 

correct that the district court erred by not considering the special-damages exception in its 

order granting entry of preverdict interest. Nevertheless, this error was harmless. Our 

review of the record informs us that any consequential damages must have accrued before 

the initial complaint was filed on December 30, 2011. We therefore affirm the entry of 

preverdict interest accruing from that date. 
14

IV

Integrity argues that Swanny failed to introduce evidence of BI damages sufficient 

to sustain the verdict. We will not disturb a verdict so long as it is reasonably supported by 

competent evidence. Gillespie v. Klun, 406 N.W.2d 547, 554–55 (Minn. App. 1987), 

review denied (Minn. Aug. 19, 1987). The policy here defines BI as: (1) net profit or loss 

that would have been earned or incurred if no physical loss or damage occurred; and 

(2) continuing normal operating expenses incurred, including payroll. The parties 

contested at trial how the policy calculates BI. Swanny relied on the testimony of two 

experts to support its theory. Public adjustor Norcia estimated that the BI loss could reach 

$164,772. Flood testified that even under Integrity expert Fox’s methodology BI loss 

would result. Although the jury awarded $275,000 in BI damages (a figure above Norcia’s 

estimated amount), Norcia also testified that his calculation was “conservative,” thus 

giving the jury a basis for awarding an amount above his estimate. Integrity also does not 

attempt to argue that this amount is excessive and could only be the product of passion or

prejudice, see Flanagan v. Lindberg, 404 N.W.2d 799, 800 (Minn. 1987), nor do we 

believe that to be the case here. We therefore find the verdict to be reasonably supported 

by the evidence. 

V

In its related appeal, Swanny challenges the district court’s denial of its posttrial 

bad-faith claim. A district court may award taxable costs for the bad-faith denial of firstparty insurance claims. Minn. Stat. § 604.18. To be eligible for this remedy, the insured 

must establish two elements: that the insurer lacked a reasonable basis to deny the benefits 
15

and either that the insurer knew about the lack of a reasonable basis or it recklessly 

disregarded the lack of reasonable basis to deny the benefits. Id., subd. 2(a). There is no 

Minnesota caselaw defining reasonableness under the statute, but a majority of states with 

similar bad-faith statutes have adopted a “fairly debatable” standard for evaluating an 

insurer’s denial of benefits. Friedberg v. Chubb & Son, Inc., 800 F. Supp. 2d 1020, 1025 

n.1 (D. Minn. 2011).

The district court determined that the first prong of section 604.18 was not satisfied 

here because the BI claim was fairly debatable and Integrity had a reasonable basis for 

denying the claim for that category of loss. Reasonableness generally is a question of fact. 

See Mullins v. Churchill, 616 N.W.2d 764, 768 (Minn. App. 2000), review denied (Minn. 

Nov. 15, 2000). We review a district court’s fact findings for clear error. Goldman v. 

Greenwood, 748 N.W.2d 279, 284 (Minn. 2008). Findings of fact are clearly erroneous if 

they produce the firm conviction on appeal that a mistake was made. Fletcher v. St. Paul 

Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999). Swanny argues unpersuasively that the 

district court erred because it failed to consider the entirety of the evidence. The district 

court found the BI claim to be fairly debatable based on the different opinions reached by 

the parties’ experts as to how the BI provision functions, the different opinions as to what 

sales data should be used to calculate BI loss, and the conflicting results in the calculation 

of BI loss. It also found that Integrity had a reasonable basis to deny the claim because its 

understanding of the policy language differed from Swanny’s and because Fox’s analysis 

indicated that Swanny was not entitled to BI payments. We are satisfied that the district 

court adequately considered the evidence before reaching these conclusions. And because 
16

there is reasonable evidence supporting the district court’s findings, the court did not 

clearly err by denying Swanny’s bad-faith claim. We observe that other states with badfaith statutes similar to Minnesota’s require the insurer to conduct a proper investigation to 

have a reasonable basis for denying a claim. See, e.g., Anderson v. Cont’l Ins. Co., 271 

N.W.2d 368, 377 (Wis. 1978). But because the district court rightly concluded that Swanny 

failed to show that the investigation here was improper, we do not consider whether section 

604.18 imposes an investigation requirement. 

Affirmed.