Continental Ins. Co. v. Bones

• Decision Date: 08 July 1999
• Docket Number: No. 97-2034.,97-2034.
• Citation: 596 N.W.2d 552
• Parties: CONTINENTAL INSURANCE COMPANY, Appellant, v. Calvin BONES and Audrey Bones, Appellees. Calvin Bones and Audrey Bones, Appellees, v. Continental Insurance Company, Appellant.
• Court: Iowa Supreme Court

596 N.W.2d 552

CONTINENTAL INSURANCE COMPANY, Appellant, v. Calvin BONES and Audrey Bones, Appellees.

Calvin Bones and Audrey Bones, Appellees, v. Continental Insurance Company, Appellant.

No. 97-2034.

Supreme Court of Iowa.

July 8, 1999.

Joseph A. Happe and Patrick D. Smith of Huber, Book, Cortese, Happe & Brown, P.L.C., Des Moines, for appellant.

Philip Willson of Willson & Pechacek, P.L.C., Council Bluffs, for appellees.

Considered by McGIVERIN, C.J., and LARSON, CARTER, SNELL, and TERNUS, JJ.

TERNUS, Justice.

Appellees, Calvin and Audrey Bones, were sued when they refused to honor their contractual guarantee of their son's lease obligations, resulting in the eviction of their son's co-tenant from the premises. The Bones seek coverage from their homeowners insurer, appellant, Continental Insurance Company, for the lawsuit filed against them by the co-tenant.

The district court granted summary judgment to the Bones, finding coverage for one of the claims of the co-tenant entitled "wrongful eviction" because that tort was included within the policy's coverage of personal injury. Simultaneously, the court denied Continental's motion for summary judgment. Our review of the undisputed facts underlying the court's rulings reveals that the claims made against the Bones are based on their breach of contract, not their commission of the tort of wrongful eviction. We also reject the Bones' claim that the co-tenant's loss of use of the leased premises constituted "property damage" as that term is defined in the Continental policy. Therefore, we reverse the district court's rulings on the parties' summary judgment motions and remand for entry of a declaratory judgment in favor of Continental.

I. Background Facts and Proceedings.

The parties agree that the material facts are undisputed.

A. Contractual agreements. This coverage dispute has its genesis in a lease agreement between the Bones' son, Gordon, and Bernard Bunning. In July 1995, Gordon and Bunning signed a five-year lease with Sunriver Business Venture, Ltd. for the rental of a commercial building in California. Gordon planned to operate a law office out of part of the building; Bunning was an accountant and intended to use his portion of the premises for an accounting office. Gordon and Bunning agreed to divide the rent and associated expenses.

Because Gordon's credit situation was insufficient to enter into a long-term commercial lease, his parents provided Bunning with a personal guarantee wherein they agreed to establish a $50,000 line of irrevocable credit. The Bones did in fact obtain an irrevocable letter of credit from Firstar Bank of Iowa. The purpose of the letter of credit was to protect Bunning in the event of a default by Gordon on his lease obligations.

B. Breach of the contractual agreements. Subsequent to the execution of the lease, Gordon established a partnership with two other attorneys, David G. Knitter and Timothy J. Lopez. This partnership operated from the leased space and purportedly assumed Gordon's lease obligations. The relationship between Gordon and his new partners soured rather quickly, however, and Gordon was expelled from the partnership in August 1996.

When the October 1996 rent became due, neither Gordon nor his former partners paid their half of the rent. Bunning tendered his share to Sunriver, but this partial payment was insufficient to prevent Sunriver from serving Bunning with a three-day notice to pay the rent or surrender the premises. When payment was not forthcoming, Sunriver declared the lease terminated and filed an unlawful detainer action against Bunning, Gordon, Bones, and all persons claiming an interest in the property under them.

Upon the filing of the unlawful detainer action, Bunning attempted to have the Bones pay Gordon's overdue rent pursuant to the guarantee agreement. He also sought to draw on the letter of credit. The Bones refused to honor their guarantee and obtained an ex parte injunction preventing Bunning from drawing on the letter of credit.

In the meantime, Sunriver was successful in its unlawful detainer action and obtained a writ of possession against the lessees. Bunning was thus evicted from the premises for failure to pay rent.

C. The underlying suit for which coverage is sought. After his eviction from the leased premises, Bunning filed a complaint in the California state courts naming Gordon, and his parents, among others, as defendants. Six causes of action were alleged against the Bones, but they rest their claim of coverage on only one of the six. The relevant claim is captioned "Wrongful Eviction Against All Named Defendants Except FIRSTAR BANK OF IOWA." We will review the allegations of the complaint in more detail in our later discussion of the issues.

The Bones demanded that Continental defend them in the California action, asserting the liability coverage of their homeowners policy encompassed the claim entitled "wrongful eviction." Continental declined to defend and denied coverage.

D. The insurance policy. Because the dispute between the parties to this insurance contract turns on whether the complaint alleges property damage or personal injury, we will review only the policy provisions pertinent to these issues. The insuring agreement of the Continental policy obligates the insurer to defend any suit brought against the insureds for "personal injury" or "property damage" and to pay on behalf of the insureds claims for which they "are legally liable." The policy defines the term "property damage" to mean "physical injury to or destruction of real property or tangible personal property including loss of use of the property." (Emphasis added.) The term "personal injury" is defined as an "injury arising out of one or more of the following offenses: libel, slander, false arrest, wrongful eviction...." (Emphasis added.)

E. Declaratory judgment action. Continental brought this declaratory judgment action in the Iowa district court, asking the court to hold that it had no duty to defend or indemnify the Bones for the claims asserted against them by Bunning. The Bones filed a counterclaim, seeking a declaratory judgment that Continental did have a duty to defend and indemnify them with respect to the claims made in the California lawsuit.

The Bones filed a motion for summary judgment claiming that coverage was provided for the wrongful eviction claim under two theories: (1) the wrongful eviction claim encompassed a claim for "loss of use" within the meaning of the policy definition of property damage; and (2) this cause of action was included within the policy definition of personal injury. Continental filed its own motion for summary judgment and argued that the wrongful eviction claim was really a breach-of-contract claim that did not fall within the policy definitions of either property damage or personal injury. The district court granted the Bones' motion and denied Continental's motion. Continental appealed.

II. Scope of Review.

Our review of a ruling on summary judgment is for the correction of errors of law. See DeLaMater v. Marion Civil Serv. Comm'n, 554 N.W.2d 875, 877 (Iowa 1996). The party seeking summary judgment must establish that there are no genuine disputes with respect to material facts and that it is entitled to judgment as a matter of law. See Iowa R. Civ. P. 237(c).

In the case before us, the parties agree that the material facts are not in dispute. The determinative issue is whether the undisputed facts give rise to coverage under the Continental policy. This issue, in turn, depends on whether the claim entitled "wrongful eviction" falls within the policy's definition of "property damage" or "personal injury." Because the parties have offered no extrinsic evidence on the meaning of the policy language at issue, interpretation of this language is a question of law for the court. See Tropf v. American Family Mut. Ins. Co., 558 N.W.2d 158, 159 (Iowa 1997).

III. General Principles of Insurance Contract Interpretation.

We have recently summarized the rules that guide our interpretation of insurance policies:

"The intent of the parties controls. We determine the parties' intent from the language of the policy, unless the policy is ambiguous. Ambiguity exists when, after application of principles of contract interpretation, a genuine uncertainty remains as to which one of two or more meanings is the proper one. A mere disagreement between the parties as to the meaning of policy language does not establish an ambiguity. Only when the policy language is susceptible to two reasonable interpretations do we find an ambiguity."

We give policy language its plain and ordinary meaning and do not indulge in a strained or unnatural interpretation merely to find ambiguity.

Id. (citation omitted) (quoting Kibbee v. State Farm Fire & Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994)). These are the principles we apply as we interpret the homeowners policy issued by Continental to the Bones.

IV. Property Damage.

As mentioned above, the policy defines property damage as "physical injury to or destruction of real property or tangible personal property including loss of use of the property." The Bones claim that because Bunning's eviction from the premises resulted in his loss of use of the real estate, he has alleged property damage for which the policy provides coverage. They make no claim that any real or personal property was physically injured or destroyed.

Whether the loss of use of property must be caused by the property's physical injury or destruction in order to fall within the policy definition of property damage is an issue of first impression for this court.¹ In fact, very few courts have addressed this issue with respect to the policy language before us, and those courts have reached differing results. Compare Coulter v. CIGNA Prop. & Cas. Cos., 934 F.Supp. 1101, 1121-22 (N.D.Iowa 1996) (holding loss-of-use damages must arise from physical damage...