Grinnell Mut. Reinsurance Co. v. Jungling, No. 00-1474.

• Court: United States State Supreme Court of Iowa
• Writing for the Court: LAVORATO, Chief Justice.
• Citation: 654 N.W.2d 530
• Decision Date: 18 December 2002
• Docket Number: No. 00-1474.
• Parties: GRINNELL MUTUAL REINSURANCE COMPANY, Appellant, v. Henry C. JUNGLING, Jr., and Jungling Farms, Inc., Appellees.

654 N.W.2d 530

GRINNELL MUTUAL REINSURANCE COMPANY, Appellant,
v.
Henry C. JUNGLING, Jr., and Jungling Farms, Inc., Appellees

No. 00-1474.

Supreme Court of Iowa.

December 18, 2002.

654 N.W.2d 533

Douglas A. Haag of Patterson, Lorentzen, Duffield, Timmons, Irish, Becker & Ordway, L.L.P., Des Moines, for appellant

H. Richard Smith and David Swinton of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellees.

LAVORATO, Chief Justice.

Grinnell Mutual Reinsurance Company (Grinnell) appealed from a district court declaratory ruling that the company was obligated to indemnify its insured, Henry C. Jungling, Jr., under a personal excess liability policy for a settlement payment Jungling's corporation made in a fraud suit against Jungling and his corporation. Grinnell contended that the district court erred in concluding that (1) the terms of the policy provided coverage, (2) public policy did not bar coverage, (3) Jungling was legally excused from complying with the notice provisions of the policy, and (4) Grinnell was obligated to fully indemnify Jungling.

We transferred the case to the court of appeals, which reversed, concluding that public policy barred coverage. On further review, we vacate the court of appeals decision, affirm in part and reverse in part the district court judgment, and remand the case with directions.

I. Background Facts.

In February 1993, William J. Steckel and Natalie M. Steckel purchased a dairy farm in Butler County, Iowa from Jungling Farms, Inc. In January 1995, the Steckels sued Henry C. Jungling, Jr. and Jungling Farms, Inc., seeking compensatory and punitive damages. The suit alleged fraudulent misrepresentation and fraudulent nondisclosure (hereinafter "the Steckel suit").

On the date the Steckel suit was filed, Henry C. Jungling, Jr. owned a personal excess liability policy (excess policy) and underlying auto liability, recreational vehicle, and homeowners' policies, all issued by Grinnell. The excess policy was in force from January 1992 until January 1998. Jungling Farms, Inc. was an additional insured under the policy from January 1992 until January 1994 and then again after December 15, 1995.

A jury in the Steckel suit found Jungling and his corporation jointly and severally liable on the Steckels' fraudulent misrepresentation and fraudulent nondisclosure claims. The jury awarded the Steckels $323,300 in compensatory damages. The district court refused to submit the punitive damages claim to the jury. Jungling and the corporation appealed and the Steckels cross-appealed. We transferred the case to the court of appeals, which affirmed the compensatory damage award but reversed and remanded for trial on the punitive damages issue.

While the application for further review was pending in our court, the parties settled. Jungling and his corporation agreed to pay the Steckels $465,000 in settlement. Grinnell contributed $50,000 toward the settlement, without waiving its legal rights to address the issue of coverage later.

Following the settlement, Jungling made a demand pursuant to the terms of his

654 N.W.2d 534

excess policy for payment of $344,400 (settlement amount of $465,000, minus Grinnell's $50,000 contribution, and minus $70,600 representing return of payments made by the Steckels on the contract of sale which were not part of the "loss" within the terms of the excess policy). Demand was also made for attorneys' fees and expenses incurred in defense and settlement of the Steckel suit

II. The Declaratory Judgment Action.

In July 1998, Grinnell filed a petition for declaratory judgment against Jungling and the corporation, asking the district court to declare that Grinnell was not required to pay any part of the $344,400 demand. Later, Grinnell and both defendants filed separate motions for summary judgment.

In its ruling on the motions for summary judgment, the district court found there were genuine issues of material fact on whether Jungling properly notified Grinnell of the Steckel suit, as required by the terms of the excess policy, and whether his alleged failure to give such notice prejudiced Grinnell.

Additionally, the court rejected Grinnell's argument that the excess policy could be construed to exclude intentional acts. The court also ruled that "public policy does not mandate that insurance companies not pay for the intentional acts of their insureds." The court concluded that the excess policy did provide coverage for the claims asserted in the underlying litigation and the losses incurred in settling the litigation, including compensatory and punitive damages.

Responding to Grinnell's Iowa Rule of Civil Procedure 1.904(2) (formerly rule 179(b)) motion, the district court concluded that the excess policy did not provide coverage for damages arising out of the intentional acts of the defendant corporation. The court reasoned that coverage for the corporation, an additional insured, was limited due to an intentional acts exclusion found in the underlying farm policy.

Later, the notice issues were tried to the court. Following a bench trial, the district court found that Jungling did not substantially comply with the notice provision of the excess policy. However, the court further found that Jungling proved his failure to comply was legally excused. Finally, the court found that Grinnell did not show that the delayed receipt of notice of the Steckel suit prejudiced it. The court therefore concluded that Grinnell was obligated to indemnify Jungling for the $344,400 demand plus attorney fees, interest and costs.

Grinnell appealed and we transferred the case to the court of appeals. Grinnell raised the following issues: (1) by the terms of the excess policy, Jungling's intentional and premeditated fraud was not covered; (2) it is contrary to public policy to require an insurer to pay a loss caused by the policyholder's fraud and deceit; (3) Jungling's noncompliance with the notice provisions of the excess policy was not legally excused and resulted in prejudice to Grinnell; and (4) Grinnell should not be required to fully indemnify Jungling because the settlement was paid by the defendant corporation, which the district court had previously determined was not covered under the terms of the excess policy.

The court of appeals reversed on public policy grounds. In view of this conclusion, the court of appeals concluded it was not necessary to address Grinnell's other issues and held that Grinnell was not obligated to reimburse Jungling for the $344,400 demand.

654 N.W.2d 535

We granted Jungling's application for further review

III. Scope of Review.

The district court resolved the coverage and public policy issues in its ruling on the parties' motions for summary judgment. Our review of summary judgment rulings is at law. Iowa R.App. P. 6.4; Hofco, Inc. v. National Union Fire Ins. Co. of Pittsburgh, 482 N.W.2d 397, 400 (Iowa 1992).

Summary Judgment is appropriate under Iowa Rule of Civil Procedure 1.981 only when the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Id. A fact question arises if reasonable minds can differ on how the issue should be resolved. Id. No fact question arises if the only conflict concerns legal consequences flowing from undisputed facts. Id. Summary judgment is therefore appropriate in these circumstances. Id.

The district court addressed the notice-related issues in its ruling on the petition for declaratory judgment. Because the parties tried the case at law, our review is for correction of errors at law. Pursell Constr., Inc. v. Hawkeye-Security Ins. Co., 596 N.W.2d 67, 69 (Iowa 1999).

On our review, we determine the sufficiency of the evidence in the light most favorable to the district court's findings whether or not the evidence was contradicted, and we will not weigh the evidence or pass on the credibility of the witnesses. Beeck v. Aquaslide `N' Dive Corp., 350 N.W.2d 149, 154 (Iowa 1984); Henschel v. Hawkeye-Security Ins. Co., 178 N.W.2d 409, 415 (Iowa 1970). The court's findings are binding on us if substantial evidence supports those findings. Beeck, 350 N.W.2d at 154. Substantial evidence supports a finding of fact if one may reasonably infer the finding from the evidence. Id.

IV. The Coverage Issue.

Grinnell first cites to the insuring clause of the excess policy to support its argument that the terms of the policy provide no liability coverage for Jungling's intentional acts. The language of that clause provides:

We will pay on behalf of the insured person for loss in excess of the applicable underlying limits or retained limit which is from personal injury or property damage occurring during the policy period.

(Emphasis added.)

Then Grinnell points to the term "occurring," which it argues is a derivative of the term "occurrence." "Occurrence" is defined in the policy as follows:

"Occurrence" includes all personal injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions.

(Emphasis added.)

Grinnell's argument proceeds as follows. Use of the term "includes," rather than "means," renders the definition a partial definition of the term "occurrence." Therefore, the court should look to the dictionary definition of the term to ascertain its "ordinary meaning." The dictionary meaning of "occurrence" is "any incident or accidental event" and "any incident or event, especially one that happens without being designed or expected." The New Webster's Dictionary 576 (1971). Because Jungling's fraudulent actions were by design, and not accidental, the loss is not one that resulted from an "occurrence" within the meaning of the excess policy.

654 N.W.2d 536

"Construction of an insurance policy—the process of determining its legal effect—is a question of...