Johnston Equipment Corp. of Iowa v. Industrial Indem.

• Decision Date: 22 July 1992
• Docket Number: No. 91-742,91-742
• Citation: 489 N.W.2d 13
• Parties: JOHNSTON EQUIPMENT CORPORATION OF IOWA, Appellant, v. INDUSTRIAL INDEMNITY, Appellee, and Custom Stainless Equipment Company, Inc.; Thomas A. Corrill; Sherry Corrill; and Thomas A. Corrill, as Father and Next Friend of Stacy Corrill and Cyndi Corrill, Defendants. Thomas A. CORRILL, Sherry Corrill, and Thomas A. Corrill, As Father and Next Friend of Stacy Corrill and Cyndi Corrill, Appellants, v. INDUSTRIAL INDEMNITY, Appellee, and Custom Stainless Equipment Company, Inc., Defendant.
• Court: Iowa Supreme Court

Page 13

489 N.W.2d 13

JOHNSTON EQUIPMENT CORPORATION OF IOWA, Appellant, v. INDUSTRIAL INDEMNITY, Appellee and Custom Stainless Equipment Company, Inc.; Thomas A. Corrill; Sherry Corrill; and Thomas A. Corrill, as Father and Next Friend of Stacy Corrill and Cyndi Corrill, Defendants Thomas A. CORRILL, Sherry Corrill, and Thomas A. Corrill, As Father and Next Friend of Stacy Corrill and Cyndi Corrill, Appellants, v. INDUSTRIAL INDEMNITY, Appellee and Custom Stainless Equipment Company, Inc., Defendant.

No. 91-742.

Supreme Court of Iowa.

July 22, 1992.

Gregory W. Landry, and Robert K. DuPuy of LaMarca & Landry, P.C., West Des Moines, for appellants Thomas A. Corrill and Sherry Corrill.

John F. Lorentzen of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C., Des Moines, for appellant Johnston Equipment Corp. of Iowa.

David L. Phipps, and Kevin M. Reynolds of Whitfield, Musgrave & Eddy, Des Moines, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, P.J., and LARSON, SCHULTZ and ANDREASEN, JJ.

HARRIS, Justice.

Many insurance lawsuits involve claims of coverage, notwithstanding a missing provision in the policy. This dispute is the converse of the usual claim. Here the company contends that, because the parties so agreed, there should be no coverage for a products liability claim. We agree that there should be no coverage, even though no clear policy provision excluded it, and even though, through mistake, an endorsement excluding coverage was omitted from the policy.

On our de novo review of this equitable action, we find the following. Charles Corrill, a worker at a Denison, Iowa, packing plant, was injured when his hand was caught in a tilt dumper manufactured by Custom Stainless Steel Equipment Co., Inc. (Custom Stainless) and sold to the plant by Johnston Equipment Corporation of Iowa (Johnston). Corrill was joined in the suit by family members interested through him, though for simplicity the Corrills will be referred to in the singular. Corrill sued Custom Stainless and Johnston. Johnston filed a cross-claim seeking indemnity against Custom Stainless.

Industrial Indemnity had issued an insurance policy to Custom Stainless, which included comprehensive general liability coverage for the period in question. Both Custom Stainless and Industrial Indemnity were California corporations and the insurance policy was issued there. The parties stipulated that California law controls this litigation except that Iowa law applies to matters of evidence and with regard to the statute of limitations on a claim for reformation.

Under a reservation of rights, Industrial Indemnity at first proceeded to defend Custom Stainless, both against Corrill's suit, and against Johnston's cross-claim. Partway into the litigation it indicated it believed the policy provided no coverage and thereafter ceased defending.

Custom Stainless, Johnston, and Corrill reached a settlement under which Johnston paid Corrill $45,000. Johnston then obtained a default judgment against Custom Stainless for the $45,000 settlement paid to Corrill and for $54,552.36 in defense costs. Corrill obtained a default judgment against Custom Stainless totaling $1,454,996.

Johnston brought this declaratory judgment action against Industrial Indemnity and Corrill, requesting an adjudication that the policy covered liability for Corrill's injury. Corrill requested the same adjudication in a cross-claim against Industrial Indemnity.

The trial court concluded that, because of a mistake, a "product hazard exception" endorsement, which would have excluded coverage for product liability claims, was not included in the policy. The court nevertheless decided this omission did not mean the policy included products hazard coverage. Instead the court concluded that the policy did not provide coverage, a holding with which, for reasons to be explained, we disagree. The court rejected Industrial Indemnity's claim that the policy should be reformed by reason of mutual mistake, finding the burden to establish grounds for reformation had not been met. We also disagree with this holding. In other words, we hold that the policy did provide coverage, but should be reformed so as to exclude it.

I. The policy first provided for typical comprehensive liability coverage. ¹ Following this general description of coverage are sixteen listed exclusions. No exclusion was listed for bodily injury or property damage caused by the insured's products. Morris v. Atlas Assurance Co., 158 Cal.App.3d 8, 12, 204 Cal.Rptr. 95, 97 (1984), interpreted a homeowners policy that included "comprehensive personal liability" coverage. The California court stated that insurance policies are to be interpreted broadly, to afford the greatest possible protection to the insured. Id. at 13, 204 Cal.Rptr. at 97. Exclusions in the policy, however, are interpreted narrowly against the insurer. Id. The exclusions must conspicuously, plainly and clearly appear in the policy. Cal-Farm Ins. Co. v. TAC Exterminators, 172 Cal.App.3d 564, 577, 218 Cal.Rptr. 407, 414 (1985). This generic rule is also applied in Iowa. A.Y. McDonald Indus., Inc. v. Insurance Co. of N. Am., 475 N.W.2d 607, 619 (Iowa 1991) (insurer should clearly and explicitly define any limitations or exclusions).

The declaration page for the policy in this case provided that the "only coverage afforded is that contained on those coverage parts and endorsements listed ... which are preceded by a form number." The declaration page listed types of coverage and by key number identified those purchased by the insured. The key number for "comprehensive general" coverage was included. Under the cited generic rule coverage was provided for this claim under the general comprehensive provision.

II. Overwhelming evidence supports Industrial Indemnity's claim that there was never any intent by either Custom Stainless or Industrial Indemnity for the policy to cover products liability risks. This was made clear when Industrial Indemnity undertook to provide the coverage. Acting on this knowledge, Custom Stainless obtained the coverage from another company at a cost of $23,558.09. ² The real dispute in the case involves Industrial Indemnity's contention that if, as we have found, the policy did provide products liability coverage, then the court should reform the policy to match the intentions of the parties.

Before addressing this contention it is necessary to consider threshold questions of (a) preservation of error and (b) waiver.

A. Preservation of error.

Because the trial court found there was no coverage in the policy, Industrial Indemnity did not feel obliged to, and did not, cross-appeal from the trial court's holding on the reformation issue. Corrill and Johnston Equipment contend the reformation issue was thereby waived. See Becker v. Central States Health & Life Co., 431 N.W.2d 354, 356 (Iowa 1988) ("Failure to cross-appeal on an issue decided adversely ... forecloses ... raising the issue on appeal."). We think the issue was preserved. Although Becker, and certain of our other opinions, contain language to the contrary, we now hold that a successful party need not cross-appeal to preserve error on a ground urged but ignored or rejected in trial court. This is because a party need not, in fact cannot, appeal from a favorable ruling. Wassom v. Sac County Fair Ass'n, 313 N.W.2d 548, 549 (Iowa 1981).

The rule in Wassom is not inconsistent with the canon that issues must ordinarily be presented to and passed upon by the trial court before they can be raised and decided on appeal. State Farm Mut. Auto. Ins. Co. v. Pflibsen, 350 N.W.2d 202, 207 (Iowa 1984). The canon is a corollary to the requirement under Iowa rule of civil procedure 179(b) that a rule 179(b) motion to enlarge or amend is necessary for preservation when a trial court fails to resolve a matter properly submitted. Id. at 206.

Notwithstanding our past holding to the contrary, we think the preservation requirement ordinarily should apply only to an unsuccessful party. Our cases are legion which hold that a trial court may be affirmed on grounds upon which it does not rely. See, e.g., Midwest Management Corp. v. Stephens, 353 N.W.2d 76, 78 (Iowa 1984). We think it is entirely appropriate for a successful, as distinguished from an unsuccessful, party to urge affirmance on such a basis. Our contrary holdings in Becker and Fjelland v. Wemhoff, 249 N.W.2d 634, 638 (Iowa 1977), are overruled. We reject the contention that error was not preserved.

B. Waiver.

Corrill and Johnston Equipment also assert that, assuming the issue is preserved for appeal, Industrial Indemnity waived the issue of reformation by failing to include that legal ground in the letter reserving its right to deny coverage. According to California law any potential defenses known to an insurer not specifically included in a reservation-of-rights letter are waived. See Intel Corp. v. Hartford Accident & Indem. Co., 692 F.Supp. 1171, 1180 (N.D.Cal.1988) (exclusion not mentioned in denial of coverage was waived); Foremost Ins. Co. v. Wilks, 206 Cal.App.3d 251, 258, 253 Cal.Rptr. 596, 600 (1988). Prejudice is irrelevant to a claim of waiver, which requires only a conscious relinquishment of a known right. Waiver cases in this respect differ from estoppel claims, which do require a showing of prejudice. Miller v. Elite Ins. Co., 100 Cal.App.3d 739, 753-54, 161 Cal.Rptr. 322, 330 (1980).

There is a second footing for the waiver contention. It is also claimed that Industrial Indemnity waived the defense of reformation by failing to reform the policy within a reasonable time after it allegedly became aware that the policy lacked an exclusion for products liability. See Verex Assurance, Inc. v. John Hanson Sav. & Loan Ass'n, 816 F.2d 1296, 1302-03 (9th Cir.1987) (right to rescind insurance policy may be waived by failure to rescind policy after grounds for doing so are discovered or facts put...