Beware the Snares of Township Mutual Policies

What’s a Township Mutual?

Township Mutuals are insurance companies are small scale insurance companies that offer insurance coverage, often in connection with a larger “statewide mutual” to different types of businesses and people throughout Minnesota.  While these companies are small, their impact is big!  In, 2017 there were 83 township mutual companies operating in the state writing over $88 million dollars in premium and paying out $31.8 million dollars in claims.[1]

Township Mutuals insure a variety of businesses and people throughout the state including churches, agricultural operations including dairy farms and hog operations, and those living in outstate Minnesota.  The insurance coverage they offer impacts some of the hardest working citizens of our state.  What many of these policyholders many not understand, however, is that the coverage offered under these policies is very different than a “typical” insurer like State Farm or American Family insurance,  or even a “statewide” mutual company like North Star Mutual or Badger Mutual insurance. As with all things, the devil is in the details.

How do township mutual differ?

These insurers have their own special protection under Minnesota law.  Minnesota Statute Chapter 67A spells out the rights and regulations that apply to these insurance companies—including the fact that many insurance laws of the state do not apply to them. They tend to be smaller in size, limited by geographical location, and run by local “boards” rather than corporate gurus and executive administrations. Sounds good right?  It has that “small town” feel that comes part and parcel with the idea of anything “township”.   Yet, there is a trade-off for this small-town business approach.   These companies are limited in the type of insurance they can offer, who they can offer it to, and are not required to meet a number of coverage standards that other bigger insurers must meet.

Limited Types of Damage

Township Mutuals can only insure certain kinds of losses: “fire, lightning, explosion, flood, earthquake, theft, vandalism, collapse, upset, overturn, collision, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, breakage of glass, weight of ice, snow or sleet, freezing, leakage of water or other substance, electrical power interruption or electrical breakdown from any cause.”  Minn. Stat. 67A.13.  There are some additional special provisions for damage to livestock: “electrocution by electrical currents artificially generated, attack by dogs or wild animals, drowning, accidental shooting, loading or unloading, or collision or overturn of conveyances, and consequential losses as a result of damage from any of the perils listed except public liability.”  Minn. Stat. 67A.13.

Limited Types of Property

Additionally, these insurance companies can only insure “qualified” property—meaning only property used for certain purposes: “dwellings, household goods, appurtenant structures [like garages and storage sheds], farm buildings, farm personal property, churches, church personal property, county fair buildings, community and township meeting halls and their usual contents.”  Minn. Stat. 67A.14. These insurers can also provide coverage to “secondary property” – meaning real property (buildings) or personal property (all the stuff located inside of someone’s home or building) but only if the company covers the “qualified property”, meaning the home, farm buildings, etc., where that stuff is located 67A.14.  There is also a monetary cap on how much the secondary property can be insured for, however. 67A.14.

Limited Laws Apply

One of the biggest differences between a township mutual and a “typical” insurer is that they are excluded from many of the routine regularly rules of the State of Minnesota, including the Fair Claims Practices Act (Minn. Stat. Ch. 72A) and Minn. Stat. §604.18 that allows an insured, under the right circumstances, to pursue a claim for bad faith.  Minn. Stat. §§ 67A.25 & 604.18.  The impact of being exempt from these laws can have a real-life impact on a policyholder that has trouble with their claim.  For instance, even if a policyholder has the best case on the planet for a bad faith claim against a Township Mutual company, they can never bring one.  It is simply not allowed.

This law also exempts Township Mutual from including in their policies specific language that other insurers must include under Minnesota insurance laws, including Minnesota Statute Ch. 65A that govern policies that cover fire and hail.  For example, 65A.01 says that an insurer covering fire must allow the policyholder 2 years from the date of a loss to bring a lawsuit.  Township Mutual insurers do not have to follow that rule, and typically only allow 1 year from the date of a loss for a lawsuit to be brought.  The failure of a policyholder to start a lawsuit within that time, may result in the insured losing all of his or her rights or being forced into a legal battle to try and recover on a claim that is rightfully owed and should be paid.  In some cases, the policyholder does not even know there was a 1-year deadline, but that has not stopped some Minnesota courts from determining that the policyholder’s rights were gone.

While each case needs to be determined on its own facts and own merits, the best defense is a good offense. Seek out legal advice early once a Township Mutual starts delaying payment of your claim or offering you less than you deserve to recover.

[1] http://mn.gov/commerce-stat/pdfs/township-mutuals.pdf (last visited 3-8-19).