Boelman v. Grinnell Mut. Reinsurance Co.
| Decision Date | 01 February 2013 |
| Docket Number | No. 11–0570.,11–0570. |
| Citation | 826 N.W.2d 494 |
| Parties | Dale BOELMAN and Nancy Boelman, Appellees, v. GRINNELL MUTUAL REINSURANCE COMPANY, Appellant. |
| Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Douglas A. Haag of Patterson Law Firm, L.L.P., Des Moines, for appellant.
Bruce J. Toenjes of Nelson & Toenjes, Shell Rock, for appellees.
Eldon L. McAfee and Erin C. Herbold of Beving, Swanson & Forrest, P.C., Des Moines, for amicus curiae Iowa Pork Producers Association.
This appeal involves the question of whether an insurance policy provides coverage to a custom farming operation. Both parties filed motions for summary judgment. The district court overruled the insurance company's motion for summary judgment. The district court granted the insureds' motion for summary judgment and entered judgment for the insureds based on the reasonable expectations doctrine. The court of appeals affirmed the district court's judgment on alternative grounds, concluding the insurance policy was ambiguous and construing the ambiguity in favor of the insureds to find coverage. On further review, we conclude the policy is not ambiguous, and as a matter of law, the policy does not provide coverage. Additionally, we find there is no genuine issue of material fact as to the application of the reasonable expectations doctrine, and as a matter of law, the doctrine does not apply. Therefore, we vacate the decision of the court of appeals, reverse the judgment of the district court, and remand the case to the district court with instructions to enter judgment in favor of the insurance company on its motion for summary judgment.
The facts giving rise to this action are not in dispute. Dale and Nancy Boelman are farmers in Butler County. Their farming operation involves contract-feeding nursery hogs for others until the hogs are fattened and ready for market. Under one such arrangement, the Boelmans agreed to raise hogs owned by Budke Farms. A contractor, Schneider's Milling, Inc., organized the arrangement. A “Sew Nursery Agreement” defined the Boelman's obligations.
Pursuant to that agreement, the Boelmans fed, cared for, and managed the hogs supplied to them. They also were required to furnish all insurance on the building and hogs, specifically for suffocation of the animals. Meanwhile, Schneider's Milling provided the feeder hogs, oversaw the farm's management, paid for feed and medications, and compensated Dale for his efforts at $81,600 per year.
On October 4, 2008, the Boelmans had approximately 1254 nursery hogs on their farm. Of those, 535 hogs suffocated to death in the Boelmans' building. The deaths occurred when Dale was cleaning out the manure basins. It is undisputed that the hogs were in the exclusive care, custody, or control of the Boelmans at that time. The Boelmans were required to exercise such control over the hogs pursuant to the “Sew Nursery Agreement.”
A. The Farm-Guard Policy. Approximately two years prior to the hog loss, on or about August 1, 2006, the Boelmans purchased a Farm-Guard policy from the First Maxfield Mutual Insurance Association (First Maxfield). Grinnell Mutual Reinsurance Company (Grinnell Mutual) reinsured the policy. Dale and Nancy Boelman are the named insureds. It is undisputed that the policy was in effect when the hog casualties occurred in October 2008.
Subsequent to the hog loss, the Boelmans filed a claim with Grinnell Mutual to recover under their Farm-Guard policy. Grinnell Mutual denied the claim. The Boelmans borrowed funds and compensated Budke Farms for the casualty expenses totaling $24,075. The Boelmans then sued First Maxfield and Grinnell Mutual for breach of contract.
The Farm-Guard policy provides protection for property damage. It does so through five different types of coverage. This appeal concerns the Boelmans' liability to the public for property damage under Coverage A and liability for damage to other's property pursuant to Coverage A-1.
Both Coverage A and A-1 adopt the same definition of property damage. The definition of property damage used throughout the policy is as follows:
15. “Property damage” means the physical injury to or destruction of tangible property. “Property damage” does not include loss of use unless the property has been physically injured or destroyed.
Under Coverage A, which protects the insured against liability to the public, the insurance company will pay up to the policy limits for “any one loss which any ‘insured person’ becomes legally obligated to pay as damages because of ... ‘property damage’ covered by this policy.” Grinnell Mutual covers $100,000 per loss occurrence, with a $200,000 annual aggregate. The policy, however, precludes recovery under Coverage A in the following circumstance:
5. “We” do not cover “property damage” to property rented to, leased to, occupied by, used by, or in the care, custody or control of any “insured person” or any persons living in the household of an “insured person”....
(Emphasis added.)
Coverage A-1 protects the insured from “any one loss for ‘property damage’ to property owned by others in the care of any ‘insured person.’ ” Grinnell Mutual compensates the insured for a loss at $1000 per occurrence. However, the following exclusion specifically applies to Coverage A-1:
2. “We” will not pay for “property damage” arising out of “ custom farming.”
(Emphasis added.) The policy defines custom farming as: “any activity arising out of or connected with ... [the] care or raising of ‘livestock’ ... by any ‘insured person’ for any other person or organization in accordance with a written or oral agreement.” The policy states livestock includes hogs.
In addition to these coverage-specific exclusions, the Farm-Guard policy also includes general exclusions that are applicable “UNDER ANY OF THE COVERAGES.” Among those are two relevant provisions: one excluding recovery for property damage arising from the care, custody, or control of another's property and one for custom farming. The provisions are as follows:
5. “We” do not cover “bodily injury” or “property damage” arising out of any premises:
....
d. in the care, custody or control of any “insured person”; which is not an “insured premises”....
6. “We” do not cover “bodily injury” or “property damage” arising out of:
a. “custom farming” operations of any “insured person” if the “total gross receipts” from all “custom farming” exceed $2000 in the twelve months of the prior calendar year....
(Emphasis added.)
B. Custom Feeding Endorsement. The parties modified the basic Farm-Guard policy through several endorsements. Pertinent to this dispute is the Custom Feeding Endorsement. It is clear the parties intended and understood the endorsement changed the coverage under the policy. The endorsement's caption states in bold and capital letters, surrounded by a box border: “PLEASE READ THIS ENDORSEMENT CAREFULLY, AS IT MODIFIES THE POLICY.”
The endorsement operates to modify the general exclusion under section 6(a) regarding custom farming. The endorsement provides:
EXCLUSIONS
UNDER ANY OF THE COVERAGES
....
In consideration of the premium charged, exclusion 6.a. under this section of the policy does not apply if:
1) the “bodily injury” or “property damage” arises from the activities of care or raising of “livestock” or “poultry” by any “insured person” for any other person or organization in accordance with a written or oral agreement; and
2) your “total gross receipts” for the prior calendar year from the activities described in paragraph 1) do not exceed the amount of gross receipts as stated on “your” declaration page or are:
(Please check box that applies)
[x] not more than $150,000
(Emphasis added.)
C. Proceedings. Following denial of their claim, the Boelmans filed their petition for breach of contract against First Maxfield under the Farm-Guard policy. The Boelmans amended their petition to include Grinnell Mutual as a defendant. In their petition, the Boelmans sought damages in the amount of $24,075 plus actual interest at 7.5% and litigation costs.
Grinnell Mutual answered and counterclaimed, seeking a declaratory judgment that the Farm-Guard policy does not cover the Boelmans' claim. Specifically, Grinnell Mutual alleged Coverage A, which protects against liabilities to the public, does not apply because the property damage occurred while the hogs were in the Boelmans' care, custody, or control. Grinnell Mutual refers to the specific care, custody, or control exclusion under Coverage A. Second, they denied the claim pursuant to Coverage A-1 (damage to property of others), citing Exclusion 2 pertaining to custom farming.
The Boelmans subsequently dismissed their claim against First Maxfield without prejudice. Both Grinnell Mutual and the Boelmans then filed cross motions for summary judgment. Grinnell Mutual asserted there was no genuine issue as to any material fact and that as a matter of law, the hog loss was not covered under the policy. The Boelmans countered that the endorsement insured the loss.
The district court granted the Boelmans' motion for summary judgment. The district court employed the reasonable expectations doctrine to conclude the Boelmans reasonably expected the endorsement to protect all activities in their custom farming operation, not just those specifically arising under the custom farming exception in general exclusion 6(a). Accordingly, the district court held the Boelmans could recover, despite the care, custody, or control exclusion. Moreover, the district court held denying coverage would thwart the insurance transaction's purpose of protecting custom farming through the endorsement.
Grinnell Mutual appealed. The court of appeals affirmed the district court ruling. The court of appeals found the policy was ambiguous based on the two interpretations proffered by the parties and did not conduct an analysis under the reasonable expectations doctrine. The court of appeals construed the ambiguity in favor...
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