Grinnell Mut. Reinsurance Co. v. Voeltz

• Decision Date: 23 November 1988
• Docket Number: No. 87-1420,87-1420
• Citation: 431 N.W.2d 783
• Parties: GRINNELL MUTUAL REINSURANCE COMPANY, Appellant, v. Andrew D. VOELTZ, Tiara Voeltz, Michael K. Shannon, and Gwen K. Shannon, Individually and as Parents and Next Friends of Kimberly C. Shannon, a Minor, and Kimberly C. Shannon, Appellees.
• Court: Iowa Supreme Court

Page 783

431 N.W.2d 783

GRINNELL MUTUAL REINSURANCE COMPANY, Appellant, v. Andrew D. VOELTZ, Tiara Voeltz, Michael K. Shannon, and Gwen K. Shannon, Individually and as Parents and Next Friends of Kimberly C. Shannon, a Minor, and Kimberly C. Shannon, Appellees.

No. 87-1420.

Supreme Court of Iowa.

Nov. 23, 1988.

Richard G. Hileman of Simmons, Perrine, Albright & Ellwood, Cedar Rapids, for appellant.

Steven K. Warbasse, Cedar Rapids, for appellees Voeltz.

Gary D. McKenrick of Gomez, May, McKenrick & Kelly, Davenport, for appellees Shannon.

Considered by McGIVERIN, C.J., and HARRIS, LAVORATO, NEUMAN, and SNELL, JJ.

LAVORATO, Justice.

The determinative issue in this declaratory judgment proceeding is whether the baby-sitting activities of an insured under a homeowners policy were excluded by the "business pursuit" exclusion of the policy. The district court said they were not and required the insurer to defend and indemnify the insured against a suit for personal injuries suffered by an infant while in the care of the insured. We agree and affirm.

I. Background Facts And Proceedings.

In the latter part of August 1984 Andrew D. Voeltz and Tiara Voeltz made application for a mobile home property and liability policy with Barry L. Langley, an agent for Grinnell Mutual Reinsurance Company. This young married couple, who were both in their late teens in August 1984, had never purchased a homeowners policy. Both had graduated from high school in 1983, and neither had any advanced education.

Grinnell issued the policy which, in part, provided the Voeltzes with general comprehensive personal liability protection. The policy was effective as of August 20, 1984, the date of the application.

Beginning in May 1983 Tiara began baby-sitting Joseph Shannon, the child of Michael K. and Gwen K. Shannon. Gwen is Andrew Voeltz's sister.

In June 1985 Tiara also began baby-sitting Kimberly C. Shannon, a daughter born to the Shannons a month before. Tiara baby-sat the two children as well as cared for her own daughter, Tabby, who was born in December 1983.

Beginning in June 1984 the Shannons paid Tiara, on an as-needed basis, $1.75 per hour. That was later reduced to $1.50 per hour. Tiara's 1984 tax return showed that she received $1775 from baby-sitting--all from the Shannons. Tiara did no advertising and held no license, as one is required only if the number of children cared for exceeds six.

In April 1985 Kimberly, while in Tiara's care, was injured. Kimberly had dirtied her diaper. Rather than just changing the diaper, Tiara decided to give the child a bath. Tiara placed the child in the bathtub while the water was running. She left Kimberly temporarily, and during that brief moment the water became hot enough to cause severe burns over twenty percent of the child's body.

In April 1987 Kimberly's parents, individually and on behalf of Kimberly, brought a negligence action against the Voeltzes seeking to recover for the burn injuries sustained by the child. The Voeltzes notified Grinnell Mutual which in turn denied coverage and then commenced this declaratory judgment action against the Voeltzes and the Shannons. The Shannons were also sued in their capacity as parents and next friends of the minor child. Additionally, the child was sued in her individual capacity.

The declaratory judgment suit seeks a determination that Grinnell Mutual has no obligation to defend or indemnify the Voeltzes because of a "business pursuit" exclusion in the policy. The exclusion provides: "We do not cover bodily injury or property damage arising out of business pursuits of an insured person. But, we will cover activities of that person not ordinarily incident to the business pursuits." The policy pertinently defines "business" as "any full or part-time trade, profession, or occupation."

The district court found that the exclusion was ambiguous, interpreted it against Grinnell Mutual, and concluded that it did not exclude from coverage Tiara's baby-sitting activities. The court then decreed that Grinnell Mutual had an obligation to defend and indemnify the Voeltzes against the pending negligence action. Grinnell has appealed from this decision, contending that the exclusion was not ambiguous and should apply.

We discuss other facts of the case bearing on this issue in connection with our consideration of the applicable legal principles.

II. Scope of Review.

Although this is a declaratory judgment action under Iowa Rule of Civil Procedure 267, we review it as any other judgment. Our scope of review is governed by how the case was tried in district court. See In re Receivership of Mt. Pleasant Bank & Trust Co., 426 N.W.2d 126, 129 (Iowa 1988). This case was tried at law, so our review is on error.

Thus, the district court's findings of fact have the effect of a jury verdict and are binding on us if supported by substantial evidence. Id. We construe these findings broadly and liberally. In case of doubt or ambiguity we construe them to uphold, rather than defeat, the judgment. Kendall/Hunt Publishing Co. v. Rowe, 424 N.W.2d 235, 238 (Iowa 1988). A corollary rule prohibits us from weighing the evidence or the credibility of the witnesses. Hamilton v. Wosepka, 261 Iowa 299, 304, 154 N.W.2d 164, 166 (1967).

Evidence is substantial when a reasonable mind would accept it as adequate to reach the same findings. Evidence is not insubstantial merely because it would have supported contrary inferences. Norland v. Iowa Dep't of Job Serv., 412 N.W.2d 904, 913 (Iowa 1987).

III. Does the Business Pursuit Exclusion Apply?

The issue here is whether the business pursuit exclusion applies. This raises questions regarding interpretation and construction of the exclusion.

Interpretation, the meaning of insurance policy words, is an issue for the court unless it depends on extrinsic evidence or on a choice among reasonable inferences from extrinsic evidence. Construction, the legal effect of a policy, is always a matter of law to be decided by the court. Connie's Constr. Co. v. Fireman's Fund Ins. Co., 227 N.W.2d 207, 210 (Iowa 1975); see also Restatement (Second) of Contracts § 212 (1981). Extrinsic evidence refers to evidence not contained in the policy--evidence other than the words of the policy. See Black's Law Dictionary 529 (5th ed. 1979).

In interpreting an insurance policy we seek to ascertain from its words the intent of the insurer and insured at the time the policy was sold. Because insureds have no say in how a policy is written, we interpret ambiguous policy provisions in their favor. Ambiguity exists if, after the application of pertinent rules of interpretation to the policy words, a genuine uncertainty results as to which one of two or more meanings is the proper one. A corollary to this last rule requires the insurer to define clearly and explicitly any limitations or exclusions to coverage expressed by broad promises. Moncivais v. Farm Bureau Mut. Ins. Co., 430 N.W.2d 438, 441-42 (Iowa 1988).

Because of the disparate bargaining statuses of the parties we interpret an insurance policy from the standpoint of an ordinary person, not a specialist or expert. See Qualls v. Farm Bureau Mut. Ins. Co., 184 N.W.2d 710, 712 (Iowa 1971). This rule is part of the broader concept of reasonable expectations we apply in construction of insurance policies. In Rodman v. State Farm Mutual Automobile Insurance Co., we approved the following articulation of that concept: " 'The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.' " 208 N.W.2d 903, 906 (Iowa 1973) (quoting R.E. Keeton, Insurance Law Basic Text § 6.3(a), at 351 (1971)). In Rodman, the insured had not read the policy. There we refused to extend the principle of reasonable expectations if an ordinary person would not misunderstand his or her coverage from a reading of the policy, unless there are other circumstances attributable to the insurer which caused such expectations. Id. at 908.

Quoting with approval comment f to section 237 of the Restatement (Second) of Contracts, we refined the concept of reasonable expectations in C & J Fertilizer, Inc. v. Allied Mutual Insurance Co. and applied it to the insured's advantage:

Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation.... [A] party who adheres to the other party's standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term ... eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term....

227 N.W.2d 169, 176 (Iowa 1975).

Because this case was tried to the court, the distinction between interpretation and construction becomes important in relation to our scope of review. When, as here, extrinsic evidence is offered for the interpretation of policy words, the court's interpretation if supported by substantial evidence is binding on us. Connie's Constr. Co., 227 N.W.2d at 210. In these circumstances what is intended by a particular policy provision such as an exclusion depends in part on the interpretation of the policy words. Primarily, however, the meaning depends on the understanding of the parties within the context of the transaction. Wohlenhaus v. Pottawattamie Mut. Ins. Ass'n, 407 N.W.2d...