Brown Tp. Mut. Ins. Ass'n v. Kress, 65547

• Decision Date: 16 February 1983
• Docket Number: No. 65547,65547
• Parties: BROWN TOWNSHIP MUTUAL INSURANCE ASSOCIATION, Appellee, v. Russell L. KRESS and Kress Manufacturing, Inc., Appellants, and The McCright Agency, Inc., Ronald L. Doyl, and Martin P. Lang, Appellees.
• Court: Iowa Supreme Court

Page 291

330 N.W.2d 291

BROWN TOWNSHIP MUTUAL INSURANCE ASSOCIATION, Appellee, v. Russell L. KRESS and Kress Manufacturing, Inc., Appellants, and The McCright Agency, Inc., Ronald L. Doyl, and Martin P. Lang, Appellees.

No. 65547.

Supreme Court of Iowa.

Feb. 16, 1983.

Rehearing Denied March 10, 1983.

Lloyd E. Humphreys of Humphreys & Associates, Cedar Rapids, for appellants.

James F. Pickens of Pickens, Barnes & Abernathy, Cedar Rapids, for appellee Ins. Ass'n.

William H. Carmichael of Simmons, Perrine, Albright & Ellwood and Donald J. Ibeling, Cedar Rapids, for appellees McCright and Doyl.

Ronald W. Wendt of Nazette, Hendrickson, Marner & Good, Cedar Rapids, for appellee Lang.

Considered by REYNOLDSON, C.J., and LeGRAND, UHLENHOPP, HARRIS and McCORMICK, JJ.

UHLENHOPP, Justice.

This appeal requires us to define the rights and liabilities of an insured and an insurer under a fire policy covering property which the insurer was not statutorily authorized to insure.

Ronald L. Doyl was an agent for The McCright Insurance Agency. Russell L. Kress contacted him in July 1972 about obtaining fire insurance coverage. Doyl visited with Kress at the latter's home to ascertain the type of coverage Kress needed. At that time, Kress was operating a machine shop in the rear portion of his home. Doyl observed tools, supplies, and large industrial-type machines. He learned that Kress had employees and that the shop provided machined parts to Cedar Rapids industries, and he saw the premises as a commercial venture. Doyl told Kress he would have to check with various insurance companies to see if a fire risk could be written for the premises and to ascertain the premiums. Kress was interested in obtaining inexpensive insurance coverage, and Doyl thought Brown Township Mutual Insurance Association (BTM) could provide the lowest premium.

Doyl called Martin P. Lang, BTM's secretary-treasurer, to see if that association could write a policy covering Kress's property for fire loss. Doyl and Lang are in dispute as to what was actually said, but in any event Lang did tell Doyl that a policy could be written and that BTM had written similar policies in the past.

Because of Lang's assurance and BTM's favorable rate, Doyl secured fire insurance coverage for Kress with that association. Attached to Kress's application was an inventory of his equipment. BTM issued a policy to Kress after penciling in the words "and shop" on the application. The policy had a limit of $12,000 on the building and $6000 on household goods, and a blanket limit of $29,500 on personal property.

Kress's business grew. As Kress added machinery and enlarged his facilities, he had Doyl change the insurance three times. The first change increased the blanket personal property limit by $15,000 to $44,500 and the second increased it $2500 to $47,000. The third change shifted the coverage on household goods to blanket personal property coverage, which increased that limit to $53,000. The reason for this change was that Kress moved into a trailer home which was not part of the insured premises.

As Kress's business expanded, he incorporated it to facilitate an application for a Small Business Administration loan. Assets covered by BTM's fire insurance policy were transferred to the newly-created Kress Manufacturing, Inc. (KMI). Kress continued to maintain the insurance, however, in his individual name.

Kress began to experience financial difficulties, and SBA turned down his application for another loan. On December 24 and 25, 1974, Kress's shop and contents were destroyed by fire. Doyl and Lang visited the premises within the next few days, and shortly thereafter an adjuster from BTM's reinsurer, Iowa Mutual Tornado (IMT), also inspected the site. The IMT adjuster advised BTM to pay Kress $12,000 for damage to the building but nothing for damage to personal property. BTM accordingly paid Kress $12,000. Kress filed proof of loss with BTM on the personal property, but BTM did not pay that loss.

On January 19, 1975, BTM cancelled Kress's policy and refunded unearned premiums. BTM retained the premiums for coverage during the period up to and including the fire.

BTM brought the present declaratory judgment action against Kress and KMI seeking to establish that it had no liability under the insurance policy and asking that the sum of $12,000 previously paid be returned. Kress and KMI denied BTM's petition and counterclaimed against BTM for $53,000 additional they claimed was due under the policy. They also sought consequential damages, punitive damages, and attorney fees for delay in payment. Other claims were filed by various parties, which we need not relate.

A separate trial was held with respect to BTM's declaratory judgment action and the counterclaim of Kress and KMI. The trial court denied KMI recovery but found that Kress was entitled to keep the sum of $12,000 already paid and to receive an additional $47,891.34 for loss of personal property. The remaining claims were then separately tried. The trial court denied the counterclaim of Kress and KMI for consequential and punitive damages and attorney fees and their claims against Doyl and The McCright Agency for negligence. The court also denied various claims for indemnification among BTM, Doyl, The McCright Agency, and Lang.

BTM, Kress, and KMI appealed. Doyl, The McCright Agency, and Lang moved to dismiss the appeals as to them, pointing out that Kress and KMI raised no issues against them on appeal. Kress and KMI resisted the motion to dismiss because of potential indemnification rights among BTM, Doyl, McCright, and Lang. At oral argument, however, BTM dismissed all its cross-appeal issues against Doyl, McCright, and Lang including the indemnification issues. Therefore no issues on appeal are directed against Doyl, McCright, and Lang. Their motions to dismiss are granted. See Iowa R.App.P. 14(a)(3). We thus proceed to the issues presented in this court.

The case was tried to the trial court by ordinary proceedings. Its findings have the effect of a jury verdict and will not be disturbed on appeal if they are supported by substantial evidence. Public Finance Co. v. Van Blaricome, 324 N.W.2d 716, 718 (Iowa 1982); State v. Hall, 287 N.W.2d 564, 565 (Iowa 1980).

I. Validity of policy--ultra vires. BTM claims the policy issued to Kress is void because BTM, as a mutual insurance association, was not authorized to write insurance on commercial property; therefore the policy is ultra vires. The only kinds of property which county mutuals may insure are listed in section 518.12 of the Iowa Code of 1981 (the same statute since 1966):

1. Farm property, including residences and other farm buildings and all classes of personal property in connection therewith;

2. Buildings and personal property used in the processing of agricultural products in conjunction with a farming operation;

3. City and suburban residences, including household and personal effects;

4. Churches, schools and community buildings.

The personal property destroyed did not come within these classes.

Kress and KMI claim, however, that BTM is estopped from relying on ultra vires because BTM knew the nature of Kress's business but issued the policy and accepted the premiums anyway.

The testimony at trial on this issue was conflicting. Doyl testified he knew Kress's facilities were commercial in nature and relayed that information to Lang:

Q. On your direct examination you stated you called Martin Lang on or about July 6, 1972 to inquire whether or not Brown Township could write this policy. What did you tell Mr. Lang over the telephone? A. I told him that Russell had contacted me, I had been to his premises and viewed them, told him what his operation consisted of, the size--

Q. It is important from your standpoint that you be very specific. You said you told him what his operation consisted of. Exactly what did you tell Mr. Lang? A. I told him that he had--Russell had a building, he was living in one end, in the other end he had a shop in which he had several large industrial lathes, milling machines, drill presses, etc., and that he was doing piece work for companies here in Cedar Rapids.

Q. What else did you tell him? A. Told him that he had a couple part-time employees. We discussed the size of the building, discussed how we would rate--first of all I told him that the building was not specifically rated, that it was located outside the city limits, and asked him if he would consider writing the risk.

Q. When you were there on the 6th of July did you see everything in front of you? A. You mean did I observe the machines, the building?

Q. Did you do that? A. Yes.

Q. And did you describe what you saw to Mr. Lang on the telephone? A. Yes.

Q. Now you said you described or told him that he was living in one end and had a shop in the other end? A. Yes.

Q. And you also described the size of the building to him, I think you said? A. Yes.

Q. That would be 32 by 60 and 12 by 14? A. Correct.

Q. Did you estimate the percentage of the building used for shop and percentage used for personal dwelling? A. Yes.

Q. Which was what? A. Approximately 80% shop; 20% dwelling.

Q. Did you tell Mr. Lang there was quite a supply of tools and supplies on the premises? A. Yes.

Q. Did you tell him there were five or six large industrial lathes? A. Yes.

Q. Drill presses? A. Yes.

Q. Milling machines? A. Yes.

Q. And other types of machinery? A. Correct.

Q. Did you say anything to Mr. Lang about this was part of a farm or farming operation? A. No.

Q. Do you recall using to Mr. Lang on the phone the words "industrial" or "manufacturing"--excuse me, "commercial" or "industrial"? Do you recall using those words to Mr. Lang on the telephone? A. I am sure I probably used "industrial". Industrial type lathes, in that context, yes.

Q. Did Mr. Lang ask any questions to you concerning your use of the property? A. I can't recall any, no.

Q. Now Mr....