Luigi's, Inc. v. United Fire & Cas. Co.
| Decision Date | 14 May 2021 |
| Docket Number | No. 19-1669,19-1669 |
| Citation | 959 N.W.2d 401 |
| Parties | LUIGI'S, INC., Appellee, v. UNITED FIRE AND CASUALTY COMPANY, Appellant. |
| Court | Iowa Supreme Court |
Matthew G. Novak and Stephanie L. Hinz of Pickens, Barnes & Abernathy, Cedar Rapids, for appellant.
Peter C. Riley and Hugh G. Albrecht of Tom Riley Law Firm, P.L.C., Cedar Rapids, for appellee.
Luigi's restaurant in Oelwein, Iowa, has been in operation since the late 1950s. In November 2016, a fire broke out in the restaurant's kitchen that resulted in a total loss of the building and its contents. Luigi's insurance policy with United Fire and Casualty Company (United Fire) provided coverage for the building based on its "actual cash value" with a limit of insurance of $550,000. The policy provided two ways to determine the actual cash value:
The method described in the first subsection is sometimes referred to as a "market approach" and the method in the second as a "cost approach."
United Fire's adjuster, Dan Fasse, retained an independent real estate appraisal company, Rally Appraisal, to determine the building's actual cash value. Rally employee Jim Herink, a certified general real property appraiser, believed a market approach to be the appropriate method to determine the property's value. Herink (and an associate real estate appraiser who worked with him) inspected the Luigi's property and then searched for comparable sales of similar properties in similar markets. Citing to four restaurants in the area it believed were comparable to Luigi's, Rally issued an appraisal report that concluded the actual cash value of the Luigi's building immediately prior to the fire was $242,000.
Fasse sent the appraisal report to Luigi's, along with a check for $234,500 (representing the $242,000 appraised value less the policy's deductible and advance payments). Luigi's owner orally rejected the valuation, telling Fasse that the comparable properties Herink used in his appraisal weren't comparable and that truly comparable properties didn't exist. Fasse followed up with a letter acknowledging that Luigi's rejected the valuation and informing Luigi's that it could contest the appraisal by hiring its own appraiser at its own cost or by invoking its appraisal process right set forth in the insurance policy.
Luigi's invoked its right to the appraisal process. The policy's appraisal process required Luigi's and United Fire each to select an appraiser. The appraisers, in turn, would select a neutral umpire. If the appraisers failed to agree on a valuation, they would submit their differences to the umpire. A decision agreed to by any two of the three would be binding on Luigi's and United Fire. The policy holds the parties responsible for their own fees or costs associated with the appraisal process.
For the appraisal process, United Fire continued with Herink as its appraiser. Luigi's retained Globe Midwest Adjustors International. Globe Midwest assigned its employee Charles Sorrell, an insurance appraiser, to the matter. Sorrell in turn retained an independent real estate appraiser (since Sorrell was not a real estate appraiser) named Keith Westercamp to assist him on the matter.
Sorrell in his appraisal used a cost approach (not a market approach as did Herink) and concluded the actual cash value of the Luigi's building immediately prior to the fire was $1,030,000. This figure included just over $900,000 for the structure and $122,767.62 for "furniture, fixtures and equipment." Herink's appraisal (which valued the building at $242,000) didn't value and didn't address any other property or fixtures within the building.
On June 22, 2017, the umpire conducted the appraisal hearing with Sorrell and Westercamp (for Luigi's) and Herink (for United Fire). At its conclusion, all three signed an appraisal award letter establishing the loss amount at $502,000. This number consisted of a value for the building of $380,000 and a value for furniture, fixtures, and equipment of $122,000.
When he learned the result of the appraisal hearing, a displeased Fasse quizzed Herink about the basis for the numbers in the award. Fasse complained to Herink that the furniture, fixtures, and equipment were either duplicative of amounts already factored into the building valuation or already paid by United Fire under a separate provision of the policy covering business personal property. Fasse called Herink's supervisor at Rally to complain. Fasse advised Rally that Herink's mistake appeared to him a professional error, and Fasse thus requested Rally's errors and omission insurance policy information.
On June 23, with Fasse's approval, Herink sent a letter to the umpire complaining that the appraisal hearing exceeded its scope in determining loss amounts beyond the actual cash value of the real estate. Herink sought to withdraw his signature from the award letter that he'd signed the day before, contending that he felt "coerced" to sign the award, that "furniture, fixtures and equipment" were covered under the separate business personal property coverage in the policy (and that Sorrell "misled" him on this point), and that the personal property amount lacked a professional appraisal.
On June 27, the umpire called Sorrell and asked if Luigi's wished to consider reopening the appraisal hearing. The next day, Sorrell sent a short email declining any further action and stating that the appraisal award had been "agreed upon and signed" by all three participants at the hearing. In response, Rally's owner sent Sorrell a short email stating, "Thanks for the information, but we would like you to reconsider because this is likely heading towards a lawsuit." Two days later, Luigi's lawyer sent a letter to United Fire demanding immediate payment of the $502,000.
Meanwhile, under the policy, Luigi's still needed to provide United Fire with a sworn statement and proof of loss for its insurance claim. Luigi's provided them on June 29. These materials list (consistent with the appraisal hearing award) the loss amount at $502,000. Under the policy, having now received the sworn statement and proof of loss, United Fire had thirty days from the appraisal hearing—until July 22—to make its payment. On July 12, United Fire paid the $502,000 award in full.
Eight months later, Luigi's sued United Fire for breach of contract and bad faith, and included a request for punitive damages based on United Fire's failure to pay the $550,000 building coverage limit and for its actions after the appraisal hearing. During the jury trial in July 2019, United Fire moved for a directed verdict and for dismissal of all claims at the close of Luigi's case-in-chief and again after the submission of all the evidence. The district court denied the motions. United Fire also objected to several of the district court's instructions to the jury.
The jury returned a verdict in Luigi's favor on the breach of contract claim and awarded $48,000 in damages—the difference between the $550,000 building coverage limits and the $502,000 appraisal award. The jury also returned a verdict in Luigi's favor on its bad-faith claim and awarded $40,989.25 in damages for the fees Luigi's incurred in the appraisal process to pay Globe Midwest and Sorrell, and $751.71 for Luigi's legal fees for the June 29 demand letter and related work. The jury also awarded Luigi's $30,000 in punitive damages. United Fire filed a posttrial motion for judgment notwithstanding the verdict or, in the alternative, for a new trial. The district court denied these motions as well.
On appeal, United Fire argues that Luigi's loss was completely resolved through the appraisal process and that the district court erred in denying the motion for directed verdict on the alleged delay in paying the claim. Stated differently, United Fire contends Luigi's invocation of the appraisal process, and United Fire's timely payment of the appraisal award, requires the court's dismissal of Luigi's claims as a matter of law, and that Luigi's failed to prove bad faith for any actions after the appraisal hearing.
We review the district court's ruling on a motion notwithstanding the verdict to correct legal error. Iowa R. App. P. 6.907. We consider the facts in a light most favorable to Luigi's as the nonmoving party. Id. r. 6.904(3)(b ); Royal Indem. Co. v. Factory Mut. Ins. , 786 N.W.2d 839, 846 (Iowa 2010).
Luigi's argues that we shouldn't consider the substance of United Fire's appeal on the breach of contract issue because it failed to preserve error. A party ordinarily needs to raise and the district court needs to decide an issue before we address its merits on appeal. Meier v. Senecaut , 641 N.W.2d 532, 537 (Iowa 2002). Luigi's asserts that United Fire's argument to the district court centered on insufficiency of the evidence and didn't delve into the argument it presses in this appeal about the conclusiveness of the appraisal process and United Fire's related timely payment of the appraisal award.
But Luigi's contention doesn't square with the district court transcript. United Fire argued repeatedly that "the construction of that policy is an issue for the Court as a matter of law" and that the district court could...
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