First Newton Nat. Bank v. General Cas. Co. of Wisconsin, 87-700
| Decision Date | 15 June 1988 |
| Docket Number | No. 87-700,87-700 |
| Citation | 426 N.W.2d 618 |
| Parties | FIRST NEWTON NATIONAL BANK, Appellee, v. GENERAL CASUALTY COMPANY OF WISCONSIN, General Casualty Company of Illinois, and Regent Insurance Company, Appellants, Travelers Insurance Company, Defendant. |
| Court | Iowa Supreme Court |
Jack W. Rogers, Des Moines, for appellants.
Robert M. Austin, Minneapolis, Minn., and Richard E.H. Phelps II, Newton, for appellee.
Considered by McGIVERIN, C.J., and LARSON, CARTER, LAVORATO, and ANDREASEN, JJ.
In this declaratory judgment action we must decide whether the district court properly found that the appellant insurance companies have potential liability in a lawsuit against a policyholder, the First Newton National Bank, and therefore have a duty to defend the bank on all counts in that suit. First Newton was sued with other parties for alleged misconduct in the financing of two distressed farms.
The appellants here are the General Casualty Company of Wisconsin and the Regent Insurance Company. 1 They argue, in effect, that potential liability does not exist because the alleged acts and injuries over which First Newton is being sued did not take place during the effective period of their policies and were not covered by the policies in any event. They also contend that a duty to defend First Newton on one count does not give rise to such a duty on all counts.
We hold that the appellants were properly found to have potential liability and, therefore, a duty to defend First Newton on all counts. Accordingly, we affirm the district court's judgment.
A. The underlying lawsuit. This case arose because the First Newton National Bank was sued by the original owners of properties on which mortgages were executed in return for substantial loans. These plaintiffs were members of the Iske and the Nearmyer families. Each family owned a farm, and these farms were incorporated, the Iskes' on September 25, 1980, and the Nearmyers' on January 11, 1984. The family members were the stockholders of each corporation.
In their petition against First Newton and other parties, the Iskes and the Nearmyers allege the following facts.
Iske Farms, Inc., had had difficulty meeting its financial obligations for some time prior to 1983. The Iskes learned of a local doctor, Bernhard G. Wiltfang, who, with his wife Bernadine, owned Beef Barons, Inc. Dr. Wiltfang, they were told, was interested in financing distressed farms.
On August 24, 1983, the Iskes entered into an agreement with Wiltfang under which they were to sell all of their personal assets to Iske Farms and then transfer all of the stock in Iske Farms to Beef Barons. In return, Wiltfang agreed to obtain financing that would pay Iske Farms' debts and provide working capital for the farming operations. The Iskes also entered into an option agreement with Beef Barons on the same date to allow them to buy back the Iske Farms stock when the corporation became financially secure.
Shortly thereafter, Wiltfang mortgaged the real and personal property of Iske Farms to the First Newton National Bank in return for a loan of $525,000. Of this money, Wiltfang used $400,000 to pay only some of Iske Farms' debts. He also executed a check in the amount of $55,000 to Beef Barons and another for $10,000 to the loan broker who had told the Iskes about him. Both payments were made without the Iskes' knowledge.
Through January 1984 Wiltfang collected all income from the farming operations but did not, despite his alleged promises, buy any additional livestock or provide additional capital. By this time, only $700 of the loan money was left. On January 16 Wiltfang told the Iskes that they would have to make the first loan payment of $26,000 to First Newton. On January 17 Wiltfang, on behalf of Beef Barons, notified the Iskes that the corporate assets of Iske Farms were being liquidated. Later that year, beginning on June 21, he directed the removal of personal property from the premises of Iske Farms and, on July 5, caused Iske Farms to sell all of its property to Beef Barons for a nominal amount.
The Nearmyers' transactions with Wiltfang followed a similar pattern, except that they already owed First Newton $142,000 when they met him. At that time the bank had instituted foreclosure proceedings against them.
In late 1983, after the foreclosure proceedings had begun, a First Newton officer told the Nearmyers about Wiltfang's interest in financing farms. After meeting with him, the Nearmyers formed a corporation on January 11, 1984 and transferred all of the Nearmyer real and personal farm property to it. All stock in the newly formed Nearmyer Acres, Inc., was immediately transferred to Beef Barons, and an option agreement similar to the Iskes' was also executed.
Wiltfang then mortgaged Nearmyer Acres' real and personal property to First Newton in return for a loan of $336,000. As he had with the Iskes, Wiltfang paid only some of the Nearmyer debts and disbursed a substantial amount, $36,600, to himself. In addition, about $9900 was paid to First Newton for various fees. These payments were made without the Nearmyers' knowledge.
Wiltfang again took no action to increase the cash flow of the farm. On July 3, 1984, Beef Barons and Nearmyer Acres gave the Nearmyer family notice that the Nearmyer Acres corporate assets would be liquidated. Nearmyer Acres commenced a replevin action on November 16 to gain immediate possession of the farm property.
Finally, on December 18, 1984, First Newton initiated foreclosure proceedings against the Iskes and the Nearmyers. On January 4, 1985, the Iskes and the Nearmyers simultaneously filed, with their answers and counterclaims in the foreclosure actions, a separate petition at law that alleged the facts described above. 2
In their petition the Iskes and the Nearmyers made several allegations concerning First Newton. Count I of the petition alleges fraud against all defendants, including First Newton.
Count II, entitled "Negligent Misrepresentation," claims First Newton made false and misleading statements to the Iskes and the Nearmyers; failed to disclose material facts; failed to exercise reasonable care in explaining the stock purchase/option agreement and in drafting the documents; and was negligent in explaining the transaction and in failing to disclose material facts. The bank's negligence is alleged to have been the proximate cause of the Iskes' and the Nearmyers' damages.
Counts III and IV contend that the defendants, including First Newton, violated the Iowa Uniform Securities Act. Count V alleges constructive fraud against the defendants. Counts VI and VII are apparently not directed toward First Newton. As to these causes of action, the petition claims damages for emotional distress, loss of real and personal property, loss of the farming businesses and profits, and the actual or threatened loss of the families' homes.
B. The insurance policies. First Newton was insured by the Travelers Insurance Company 3 from February 22, 1983 to February 24, 1984 and by the appellants from February 22, 1984 to February 22, 1985. The Travelers policy, which is not at issue in this appeal, provided comprehensive liability coverage.
The appellants issued two policies to First Newton. One policy provided comprehensive liability coverage and was called a "special multi-peril policy." The other, a "commercial umbrella liability policy," provided comprehensive general liability coverage for liability in excess of the amount covered by the multi-peril policy.
The multi-peril policy states that
[t]he company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
a. bodily injury or
b. property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent....
The policy defines "property damage" as
(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period....
"Bodily injury" means "bodily injury, sickness or disease sustained by any person which occurs during the policy period." "Occurrence" is defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."
The "extended liability coverage endorsement" portion of this policy provides that
[t]he company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies, sustained by any person or organization and arising out of the conduct of the named insured's business, within the policy territory, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury, even if any of the allegations of the suit are groundless, false or fraudulent....
A "personal injury" includes "wrongful entry or eviction or other invasion of the right of private occupancy."
The umbrella policy affords indemnification to the insured
for all sums which the insured shall be obligated to pay by reason of the liability ... imposed upon the insured by law ... for ultimate net loss on account of:
(a) personal injuries ...,
(b) property damage ...
caused by or arising out of each occurrence happening anywhere in the world, during the policy period.
The insurer again agrees to defend the insured in...
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