WESTVIEW, INC., AND DUANE VANDER VEEN, Plaintiffs-Appellants, vs. IOWA MUTUAL INSURANCE CO., Defendant-Appellee.
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IN THE COURT OF APPEALS OF IOWA
No. 6-896 / 05-1594
Filed December 28, 2006
WESTVIEW, INC., AND
DUANE VANDER VEEN,
Plaintiffs-Appellants,
vs.
IOWA MUTUAL INSURANCE CO.,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Osceola County, Patrick M. Carr,
Judge.
Plaintiffs appeal the district court’s partial grant of summary judgment and
directed verdict for defendants on their claims of breach of contract, bad faith,
and estoppel against an insurer. AFFIRMED.
Daniel E. DeKoter of DeKoter, Thole & Dawson, P.L.C., Sibley, for
appellants.
Roy M. Irish of Patterson, Lorentzen, Duffield, Timmons, Irish, Becker &
Ordway, L.L.P., Des Moines, for appellee.
Heard by Huitink, P.J., and Mahan and Zimmer, JJ.
2
MAHAN, J.
I.
Background Facts and Proceedings
Westview, Inc. is a corporation engaged in dairy operations and is owned
by Duane Vander Veen and his wife. We will refer to Westview and Vander
Veen together as “Westview.” In 1998 Westview entered into a contract with
Sanborn Building Center, Inc. and Kenneth Vander Stouwe to build a pole barn
for dairy cows. A wind storm knocked over the building before it was completed,
and construction was delayed.
Property damage due to the wind storm
amounted to $41,350. 1
Westview filed suit against Vander Stouwe and Sanborn Building Center
under theories of negligence, breach of contract, and breach of express and
implied warranties. 2 In the negligence claim, Westview alleged Vander Stouwe
failed to properly brace the rafters while the building was being constructed and
this caused the rafters to collapse in the wind storm.
Westview claimed it
suffered consequential damages of more than one million dollars due to lost milk
production as a result of the delay in the construction of the pole barn.
Vander Stouwe had a commercial general liability policy with Iowa Mutual
Insurance Company, with policy limits of one million dollars. Iowa Mutual issued
a reservation of rights letter, stating it was reserving the question of coverage,
except for the direct property damages of $41,350. Iowa Mutual asserted that
1
The construction contract provided, “Owner to carry fire, tornado and other necessary
insurance.” After the wind storm, Westview made a claim against its insurer, Farmers
Mutual Insurance Company, for $41,000, and received this amount.
2
Westview and Sanborn Building Center entered into a settlement agreement, and
Sanborn was dismissed from the suit. Westview received $15,000 in the settlement.
3
most, if not all, of the damages claimed by Westview were outside the coverage
of the policy.
Iowa Mutual agreed to defend Vander Stouwe in the suit and hired the
Fitzgibbons Law Firm of Estherville, Iowa.
An attorney of that firm, Ned
Stockdale, filed a motion for summary judgment based on the economic loss
doctrine. See Determan v. Johnson, 613 N.W.2d 259, 264 (Iowa 2000) (finding
that where a buyer loses the benefit of a bargain because goods are defective,
he should look to contractual remedies, not tort); American Fire & Cas. Co. v.
Ford Motor Co., 588 N.W.2d 437, 439 (Iowa 1999) (noting the economic-loss
doctrine prohibits tort recovery for purely economic losses, consigning such
claims to contract law).
The motion for summary judgment asserted that Westview’s claims for
construction delays and improper construction were not tort claims, but rather
should be considered contract claims. The district court agreed, and granted
summary judgment to Vander Stouwe on the negligence claims. Iowa Mutual
continued to defend Vander Stouwe. 3
Vander Stouwe hired independent counsel, Lloyd Bierma, and entered
into a settlement agreement with Westview, which provided the parties did not
consider the district court’s rulings to be final and binding, especially on the issue
of negligence. In settlement of all claims, Vander Stouwe signed a confession of
judgment for $300,000, but Westview agreed not to collect from him. Vander
3
On behalf of Vander Stouwe, Iowa Mutual offered to settle the case for $43,000, but
Westview rejected this offer.
4
Stouwe assigned his rights against Iowa Mutual to Westview, and Westview was
to attempt to collect the $300,000 from Iowa Mutual.
Westview filed the present suit against Iowa Mutual, raising theories of
(1) breach of contract for failing to pay the $300,000, (2) third-party bad faith
based on the defense of Vander Stouwe, and (3) breach of contract based on a
failure to properly defend Vander Stouwe. Counts II and III were based on the
allegation that Iowa Mutual did not provide an adequate and proper legal defense
to Vander Stouwe because the claims where there was arguably insurance
coverage were dismissed based on the motion for summary judgment. Westview
alleged Iowa Mutual acted in its own best interests and not those of Vander
Stouwe.
Iowa Mutual filed a motion for summary judgment, stating there was no
coverage under the insurance policy for the claims against Vander Stouwe and
so he had nothing to assign to Westview. Westview resisted and filed a motion
for partial summary judgment, stating that under the case of Kelly v. Iowa Mutual
Insurance Co., 620 N.W.2d 637, 644-45 (Iowa 2000), Iowa Mutual should be
required to pay a fair and reasonable settlement demand. Iowa Mutual resisted
plaintiff’s motion for partial summary judgment.
The district court granted Iowa Mutual’s motion for summary judgment and
denied Westview’s motion. The court determined Iowa Mutual would be required
to pay the settlement amount under Kelly, 620 N.W.2d at 645, only if there was
coverage under the insurance policy. The court found the wind storm was an
“occurrence” as that term was defined in the policy. The court further found,
however, that there was no coverage under the policy for certain types of
5
property damage, and Westview’s claims were for these types of property
damage. Because there was no coverage under the policy, Iowa Mutual was not
required to pay the settlement amount, making summary judgment appropriate.
Westview filed a motion pursuant to Iowa Rule of Civil Procedure 1.904(2).
On reconsideration, the district court determined it should not have granted
summary judgment on all three counts in the petition. The court determined
summary judgment was appropriate on Count I, regarding whether Iowa Mutual
should pay the settlement amount.
The court found summary judgment on
Counts II and III, regarding the adequacy of the defense, was not appropriate at
that time. Westview then amended its petition to claim Iowa Mutual should be
estopped to deny coverage based on its prejudicial conduct toward Vander
Stouwe.
The case proceeded to a jury trial on the remaining issues.
Plaintiff
presented the testimony of Bierma, who testified he acted as independent
counsel for Vander Stouwe, but remained in contact with Stockdale, and he had
been aware of the motion for summary judgment.
William Lego, a claims
adjuster for Iowa Mutual, testified he was in contact with Stockdale but he did not
direct the defense of Vander Stouwe. Leonard Bucklin, an attorney called as an
expert, testified the Fitzgibbons Law Firm should have acted solely in the best
interest of Vander Stouwe. Bucklin stated the law firm breached its fiduciary duty
to Vander Stouwe by filing the motion for summary judgment that eliminated the
negligence claims.
Vander Veen testified about his consequential damages
arising from the delay in completion of the pole barn.
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Plaintiff then rested, and Iowa Mutual filed a motion for directed verdict.
The district court granted the motion for directed verdict. The court questioned
whether the actions of the Fitzgibbons Law Firm should be attributable to Iowa
Mutual. The court also determined Stockdale’s motion for summary judgment
was not designed to eliminate coverage under the insurance policy. The court
concluded the actions of Stockdale for the firm did not rise to the level of
actionable conduct. Furthermore, on the estoppel claim, the court determined
there was no evidence of detrimental reliance by Vander Stouwe.
Westview filed a motion for new trial and a motion for leave to amend the
petition to conform to the proof.
The district court denied these motions.
Westview appealed the decisions of the district court.
II.
Summary Judgment
Westview contends the district court should have granted its motion for
partial summary judgment. We review for the correction of errors at law. Iowa R.
App. P. 6.4. Summary judgment is appropriate only when there are no genuine
issues of material fact and the moving party is entitled to judgment as a matter of
law. Iowa R. Civ. P. 1.981(3); Kistler v. City of Perry, 719 N.W.2d 804, 805 (Iowa
2006).
A court should view the record in the light most favorable to the
nonmoving party.
Eggiman v. Self-Insured Co., 718 N.W.2d 754, 758 (Iowa
2006).
Westview’s motion for partial summary judgment was based on the
following provision:
An insurance company cannot use its erroneous belief that it has
no coverage to justify a refusal to settle. At the point in time that
the insurer is faced with a fair and reasonable settlement demand
7
that a reasonable and prudent insurer would pay, the insurer must
either abandon its coverage defense and pay the demand or lose
its right to control the conditions of settlement. If the insurer prefers
to debate coverage and, accordingly, refuses to pay the settlement
demand, the insured is free to either pay the settlement demand or
stipulate to the entry of judgment in the amount of the demand.
The insurer, if found to have coverage, will be liable for the
insured’s settlement if the settlement is found to be fair and
reasonable.
Kelly, 620 N.W.2d at 644-45 (citations and footnotes omitted). Westview asserts
that it entered into a fair and reasonable settlement with Vander Stouwe and
Iowa Mutual, as the insurer, should be liable to pay the amount of the settlement.
Whether Iowa Mutual is liable to pay the amount of the settlement hinges
upon whether Vander Stouwe had coverage under the insurance policy against
Westview’s claims. See id. at 645. The provision in Kelly only applies if the
insurer has an “erroneous belief it has no coverage . . . .” Id. at 644. If in fact
there is no coverage, the insurance company is not liable for a subsequent
settlement by the insured. Id. at 645; see also Talen v. Employers Mut. Cas. Co.,
703 N.W.2d 395, 408 (Iowa 2005) (noting an insurer is liable to pay a settlement
if the insurer provides liability coverage for the third-party tort claim).
Looking at the commercial general liability policy in question, we agree
with the district court’s conclusion that Vander Stouwe was not covered for the
claims made by Westview for consequential damages.
The policy excludes
certain types of property damage, including:
(j) “Property damage” to:
....
(5) That particular part of any real property on which you or
any contractors or subcontractors working directly or indirectly on
your behalf are performing operations, if that “property damage”
arises out of those operations; or
8
(6) That particular part of any property that must be
restored, repaired, or replaced because “your work” was incorrectly
performed on it.
....
(l) “Property damage to “your work” arising out of it or any part of it
and included in the “products-completed operations hazard.”
....
(m) “Property damage” to “impaired property” or property that has
not been physically injured arising out of:
(1) A defect, deficiency, inadequacy, or dangerous condition
in “your product” or “your work”; or
(2) A delay or failure by you or anyone acting in your behalf
to perform a contract or agreement in accordance with its terms.
In particular, we note that Westview was seeking damages based on loss
of use of dairy cows, which were not physically injured in the wind storm, due to a
delay or failure by Vander Stouwe to perform a contract or agreement in
accordance with its terms. Westview points out that exclusion (m) does not apply
to the loss of use of other property, here the cows, arising out of sudden and
accidental physical injury to Vander Stouwe’s product or work “after it has been
put to its intended use.” Here, the pole barn had not been put to its intended use
at the time it was damaged, because it was not yet finished. We conclude there
was no coverage for Westview’s consequential damages claims under the policy.
Westview placed great emphasis in their argument of the existence of an
admission. Westview asserts Iowa Mutual admitted there was “coverage in the
amount of $1 million for all claims of loss based on the legal theory of negligence
. . . .” Iowa Mutual later clarified and amended this admission to provide that the
policy limits were one million dollars for negligence claims. As the district court
noted, Iowa Mutual’s position was understood by the parties from the beginning
of the case–that it was disputing coverage except for the property damage
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directly caused by the wind storm. We determine Iowa Mutual did not admit
there was coverage for all of Westview’s claims.
We conclude Iowa Mutual was not obligated to pay the settlement amount.
See id. at 644-45. We determine the district court properly granted summary
judgment to Iowa Mutual on this issue.
III.
Directed Verdict
Our standard of review on appeal from the grant of a motion for directed
verdict is for correction of errors at law. Mensink v. American Grain, 564 N.W.2d
376, 379 (Iowa 1997). The court should review the evidence in the light most
favorable to the nonmoving party to determine whether a fact issue was
generated.
Dettman v. Kruckenberg, 613 N.W.2d 238, 250-52 (Iowa 2000).
Where substantial evidence does not exist to support each element of a plaintiff’s
claim, the court may sustain the motion. Olson v. Nieman’s Ltd., 579 N.W.2d
299, 313 (Iowa 1998).
A.
Westview claims the district court improperly granted a directed
verdict to Iowa Mutual on its claim of breach of the contract to defend. It asserts
Iowa Mutual had a duty to provide a proper and adequate defense for Vander
Stouwe, and the attorney chosen by Iowa Mutual had a duty to act in Vander
Stouwe’s best interests. Westview relies upon Bucklin’s testimony that defense
counsel had breached the standard of care by filing the motion for summary
judgment without obtaining Vander Stouwe’s informed consent.
A claim by an insured against an insurer for failure to defend may be
assigned to the injured party. Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533
(Iowa 1995). When an insurer assumes the duty to defend, it has control over
10
the defense, and it is required to give proper consideration to the interests of the
insured.
Kooyman v. Farm Bureau Mut. Ins. Co., 315 N.W.2d 30, 33 (Iowa
1982). A covenant of good faith and fair dealing is implied in the duty to defend.
Kelly, 620 N.W.2d at 643. “A covenant is implied in an insurance contract that
neither party will do anything to injure the rights of the other in receiving the
benefits of the agreement.” Loudon v. State Farm Mut. Ins. Co., 360 N.W.2d
575, 578-79 (Iowa Ct. App. 1984) (citation omitted).
We consider:
“Did the insurer exercise that degree of
consideration of the welfare of the insured
professional defender of lawsuits having
investigation, settlement, and trial of the
expected to utilize?”
skill, judgment, and
which it, as a skilled
sole charge of the
suit may have been
Kooyman, 315 N.W.2d at 33 (citation omitted). On the other hand, an insurer’s
“sub-par” investigation and evaluation of a claim does not, standing alone, prove
a claim of bad faith. United Fire & Cas. Co. v. Shelly Funeral Home, Inc., 642
N.W.2d 648, 658 (Iowa 2000). In Iowa a plaintiff must present evidence of an
indifference to or disregard of the interests of the insured. Kooyman, 315 N.W.2d
at 33; Loudon, 360 N.W.2d at 578.
In ruling on the motion for directed verdict, the district court stated:
So when I look at your case on an individualized basis, I
don’t agree with the fundamental premise of Mr. Bucklin which is
that by throwing out the negligence claims, Stockdale threw out the
coverage. . . .
But for today I haven’t heard the kind of evidence that
suggests that Mr. Stockdale threw Vander Stouwe to the wolves or
left him uncovered. There’s no evidence about closing the file,
pulling the pleadings, leaving the case that I’ve heard. I’m sure
there wasn’t such evidence to be had.
So I’ve kind of concluded that the things that you say
Stockdale did that have, one, breached the contract by failing to
11
provide an adequate legal defense as required by the insurance
contract, or by leaving him exposed without any insurance by virtue
of filing this summary judgment motion do not seem to me to rise to
the kind of level that I think our supreme court will say is actionable
conduct in this context.
We concur in the district court’s conclusion that Westview failed to present
sufficient evidence to show bad faith under the insurance policy. Westview did
not present evidence Iowa Mutual acted with indifference or with disregard to
Vander Stouwe’s interests. The motion for summary judgment filed by Stockdale
limited the claims against Vander Stouwe, and was not contrary to his interests.
We find no error in the district court’s grant of the motion for directed verdict on
this issue.
B.
Westview contends the district court erred in directing a verdict on
its third-party bad faith tort claim against Iowa Mutual. This issue is not based on
the implied covenant of good faith and fair dealing which arises from a contract,
which was discussed above. See Harvey v. Care Initiatives, Inc., 634 N.W.2d
681, 684 (Iowa 2001) (noting every contract contains an implied covenant of
good faith). The tort of bad faith arises in situations where the insurer has denied
benefits or has refused to settle a third-party’s claim against the insured within
the policy limits. Vos v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 51 (Iowa
2003). On issues such as that brought here, for bad faith failure to adequately
defend, Iowa does not recognize a third-party bad faith tort action between a
third-party claimant and the tortfeasor’s insurer. See Long v. McAllister, 319
N.W.2d 256, 262 (Iowa 1982).
In ruling on Westview’s posttrial motions after the directed verdict, the
district court concluded, “The species of bad faith claimed by Plaintiffs have not
12
been recognized by any reported decision of an Iowa appellate court.” We find
no error in the district court’s conclusion, and determine a directed verdict was
appropriate on this issue.
C.
Westview contends the district court erred in granting a directed
verdict to Iowa Mutual on its claim of equitable estoppel. Westview asserts Iowa
Mutual should be estopped from denying coverage because in defending Vander
Stouwe it acted in a manner detrimental to his interests. Westview relies upon
Westfield Insurance Co. v. Economy Fire & Casualty Co., 623 N.W.2d 871, 879
(Iowa 2001) (citation omitted), which provides:
When an insurance company assumes the defense of an action,
with knowledge actual or presumed, of facts which would have
permitted it to deny coverage, it may be estopped from
subsequently raising the defense of non-coverage.
The appropriate legal doctrine to apply in such situations is equitable estoppel,
and not estoppel by acquiescence. Westfield, 623 N.W.2d at 880-81.
The elements of equitable estoppel are:
(1) a false representation of
concealment of material facts; (2) lack of knowledge of the true facts on the part
of the actor; (3) the intention that it be acted upon; and (4) reliance thereon by
the party to whom made, to his prejudice and injury. Markey v. Carney, 705
N.W.2d 13, 21 (Iowa 2005).
In ruling on the motion for a new trial, the district court found, “The
required elements of reasonable reliance and actual prejudice were not
established by substantial evidence.”
We find no evidence in the record to
support the elements of equitable estoppel. We determine the district court did
13
not err in granting a directed verdict to Iowa Mutual on the issue of equitable
estoppel.
We affirm the decision of the district court.
AFFIRMED.
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