Court Rules Tenant Can’t Claim Total Loss for Pre-Fire Improvements

A Minnesota Court of Appeals decision has denied a cellphone repair business’s claim for total-loss coverage on tenant improvements following a devastating fire. Galaxy Wireless, which leased retail and basement space in the former Roberts Shoes building in Minneapolis, claimed $445,000 in improvements after a three-alarm fire destroyed the building in May 2018. However, the court ruled that under Minnesota law, total-loss coverage only applies to buildings, not tenant improvements within leased spaces.

Galaxy Wireless, which sold and repaired cellphones, began its lease in January 2015. The building was destroyed by the fire, and Galaxy Wireless submitted a claim to Western National Mutual Insurance Company, which included tenant improvements such as bathroom fixtures, ceilings, doors, walls, windows, electrical work, and HVAC systems. The business claimed it spent $445,000 on these improvements but could not provide receipts or invoices, alleging they were destroyed in the fire. The owner could only produce photographs as evidence.

Western National Mutual Insurance Company denied the claim, citing "material misrepresentations" in Galaxy’s tenant improvements and business personal property claims. They found that some of the claimed damage was intentionally inflicted and noted discrepancies in the number of lost cellphones.

Galaxy Wireless sued Western for breach of the insurance contract. During a jury trial in January 2023, the jury awarded Galaxy a total of $2,479,000, including $100,000 for tenant improvements. This amount was less than the $445,000 claimed, reflecting skepticism about the claimed expenses.

Western appealed the decision, arguing that Minnesota law does not support total-loss coverage for tenant improvements. The Court of Appeals agreed, citing Minnesota Statute § 65A.08, which mandates total-loss coverage for buildings but not for tenant improvements. The court ruled that Galaxy Wireless’s insurance policy with Western clearly stated that tenant improvements should be valued based on replacement cost or a proportion of the original cost.

The court rejected Western’s argument that the $100,000 awarded for tenant improvements was speculative, acknowledging that some improvements were indeed made by Galaxy Wireless, even if not to the extent claimed.

Chief Judge Susan Segal concluded that while Galaxy Wireless was not entitled to the policy limit of $500,000 for tenant improvements, the jury’s award of $100,000 was justified based on the evidence presented.