Carl Budny v. Memberselect Insurance Company ( 2017 )

IN THE COURT OF APPEALS OF IOWA
No. 16-1189
Filed January 11, 2017
CARL BUDNY,
Plaintiff-Appellant,
vs.
MEMBERSELECT INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Johnson County, Christopher L.
Bruns, Judge.
Insured appeals from district court’s order granting summary judgment to
insurer in policy dispute. AFFIRMED.
L. Craig Nierman of Nierman Law, P.L.C., Coralville, for appellant.
Matthew J. Nagle and Cassandra C. Wolfgram of Lynch Dallas, P.C.,
Cedar Rapids, for appellee.
Considered by Danilson, C.J., and Doyle and McDonald, JJ.
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MCDONALD, Judge.
Carl Budny appeals from the district court’s order granting summary
judgment in favor of MemberSelect Insurance Co. (MemberSelect). Budny
claims the district court erred in granting summary judgment.
I.
On or around August 11, 2014, Budny purchased homeowners insurance
from AAA Insurance, a MemberSelect company. He was given the option to
purchase several riders. Budny purchased two riders, “H-290: Personal Property
Replacement Cost,” and “H-500: Protection Plus Homeowners Package.” The
latter also included within it “H-210: Special Jewelry and Furs Coverage.” There
were approximately twenty riders Budny did not select, including, relevantly, “H-
95: Sewer, Drain and Sump Water Backup Coverage.” Budny subsequently
renewed his coverage in August 2015.
Budny’s insurance policy provides:
13. [We cover direct physical loss caused by] [a]ccidental
discharge or overflow of water or steam from within a plumbing,
heating, air conditioning or automatic fire protection sprinkler
system or domestic appliance.
We will not cover loss:
a. to the system or appliance from which the water or steam
escapes;
b. caused by or resulting from freezing;
c. caused by or resulting from water or any other substance
from outside the residence premises plumbing system
that enters the dwelling or additional structure through
household sewers, drains or drainage fixtures or a sump
pump, sump pump well or any other system designed to
remove subsurface water which is drained from the
foundation area; or
d. water or any other substance originating from inside the
dwelling or additional structure which escapes the
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plumbing system through a floor drain inside the dwelling
or additional structure.
Additionally, under the heading “EXCLUSIONS,” the policy provides:
3. [We will not cover loss which consists of or is caused by]
[w]ater damage, meaning:
a. flood, surface water, waves, storm surge, tidal water,
tsunami, seiche or overflow of a body of water from any
source. We do not cover spray from any of these,
whether or not driven by wind; or
b. water or any other substance from outside the residence
premises plumbing system that enters the dwelling or
additional structure through household sewers, drains or
drainage fixtures or a sump pump, sump pump well or
any other system designed to remove subsurface water
which is drained from the foundation area; or
c. water or any other substance originating from inside the
dwelling or additional structure which escapes the
plumbing system through a floor drain inside the dwelling
or additional structure; or
d. water or any other substance originating from any source
on or below the surface of the ground. This includes
water which exerts pressure on or flows, seeps or leaks
through any part of a building or an additional structure,
sidewalk, driveway, foundation or swimming pool.
The H-95 rider Budny did not purchase provides:
We will pay for accidental direct physical loss to covered
property described below caused by:
1. water or any other substance from outside the residence
premises plumbing system that enters the dwelling or
additional structure through household sewers, drains or
drainage fixtures or a sump pump, sump pump well or
any other system designed to remove subsurface water
which is drained from the foundation area; or
2. water or any other substance originating from inside the
dwelling or additional structure which escapes the
plumbing system through a floor drain inside the dwelling
or additional structure.
In November 2015, sewage backed up into Budny’s basement, causing
water damage. He reported the damage to his insurance agent, Marty Lee, on
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November 19. According to Budny, Lee (or Lee’s staff) told Budny the loss was
covered. Lee denied making such a representation. Budny hired ServPro to
clean and restore the basement. According to Budny, he hired ServPro based
on Lee’s representation.
On December 14, the insurance company denied Budny’s claim, citing the
EXCLUSIONS paragraph. On January 12, 2016, Budny filed the instant petition,
asserting claims for breach of contract, waiver, promissory estoppel, unjust
enrichment, reasonable expectations, implied warranty, and bad faith. The
district court granted MemberSelect’s motion for summary judgment, and Budny
filed a timely notice of appeal.
II.
We review the district court’s grant of summary judgment for correction of
errors at law. See Boelman v. Grinnell Mut. Reins. Co., 826 N.W.2d 494, 500
(Iowa 2013). Summary judgment should be granted only “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” Iowa R. Civ.
P. 1.981(3). The court views the summary judgment record in the light most
favorable to the party resisting the motion for summary judgment and “indulge[s]
in every legitimate inference that the evidence will bear in an effort to ascertain
the existence” of a genuine issue of material fact. Crippen v. City of Cedar
Rapids, 618 N.W.2d 562, 565 (Iowa 2000). If the summary judgment record
shows that the “resisting party has no evidence to factually support an outcome
determinative element of that party’s claim, the moving party will prevail on
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summary judgment.” Wilson v. Darr, 553 N.W.2d 579, 582 (Iowa 1996). In
addition, summary judgment is correctly granted where the only issue to be
decided is what legal consequences follow from otherwise undisputed facts. See
Emmet Cty. State Bank v. Reutter, 439 N.W.2d 651, 653 (Iowa 1989).
III.
A.
Budny contends MemberSelect waived any policy defenses when Lee told
Budny the claim was covered. Waiver is “the voluntary or intentional
relinquishment of a known right.” Scheetz v. IMT Ins. Co., 324 N.W.2d 302, 304
(Iowa 1982). The essential elements of waiver are the existence of a right, actual
or constructive knowledge of the right, and an intention to relinquish the right.
See IMT Ins. Co. v. Paper Sys., Inc., No. 00-373, 2001 WL 98545, at *3 (Iowa Ct.
App. Feb. 7, 2001).
Whether Lee represented to Budny that his claim would be covered is a
disputed fact. But it is not a material one. See, e.g., Iowa Arboretum, Inc. v.
Iowa 4-H Found., 886 N.W.2d 695, 701 (Iowa 2016) (“Summary judgment is
appropriate when there is no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law.”). Even if we assume, viewing the
record in the light most favorable to the nonmoving party, Lee did make such a
statement, Budny cannot prevail. Lee lacked the authority to waive the clear
dictates of the policy, including the provision stating, “No change or waiver may
be effected in this policy except by endorsement issued by us.” Budny contends
otherwise, citing several cases. See Carver v. Preferred Accident Ins. Co. of
N.Y., 256 N.W. 274, 276 (Iowa 1934); Ruthven v. Am. Fire Ins. Co., 71 N.W. 574,
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575 (Iowa 1897); Stevens v. Citizens’ Ins. Co., 29 N.W. 769, 770–71 (Iowa
1886). However, each of those cases deals with notice provisions of the
insurance policy, viz. technical defenses and procedural issues. In Iowa, “the
doctrine of waiver or estoppel cannot be successfully invoked to create a liability
for benefits not contracted for at all.” Westfield Ins. Cos. v. Econ. Fire & Cas.
Co., 623 N.W.2d 871, 879 (Iowa 2001) (collecting cases). The district court
concluded Budny’s breach-of-contract claim failed as a matter of law because the
policy specifically excluded coverage of the claim. Budny has not appealed that
issue. Under the circumstances, waiver cannot create liability for coverage not
part of the policy. The district court did not err in granting summary judgment on
this claim.
B.
Budny makes a related promissory-estoppel claim, arguing Lee’s
representation along with Budny’s detrimental reliance thereon entitles Budny to
relief. “The theory of promissory estoppel allows individuals to be held liable for
their promises despite an absence of the consideration typically found in a
contract.” McKee v. Isle of Capri Casinos, Inc., 864 N.W.2d 518, 532 (Iowa
2015). “Promissory estoppel requires a party to prove ‘(1) a clear and definite
oral agreement; (2) proof that plaintiff acted to his detriment in reliance thereon;
and (3) a finding that the equities entitle the plaintiff to this relief.’” Id. (citation
omitted).
Budny’s claim fails on all three counts. First, there was no “clear and
definite” oral agreement for services Budny did not contract for. Indeed, as
explained above, such an agreement would be contrary to Iowa law. See
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Westfield, 623 N.W.2d at 879. And given the dispute on this issue, we fail to see
how any such agreement would have been “clear and definite.” See Ziskovsky v.
Ziskovsky, No. 13-0360, 2014 WL 69620, at *4 (Iowa Ct. App. Jan. 9, 2014)
(finding no meeting of the minds where parties to alleged contract could not
articulate what contract terms were). Second, Budny cannot prove he acted to
his detriment in reliance on Lee’s representation. Budny argues he would not
have hired ServPro but for Lee’s statements to him. Even viewing the record in
the light most favorable to Budny, we find this unlikely. Budny had raw sewage
in his basement. If he did not hire ServPro, he would have hired someone else.
Whatever difference in expense might have resulted is not sufficient to satisfy
this element. See Gaia House Mezz L.L.C. v. State St. Bank & Tr. Co., 720 F.3d
84, 92 (2d Cir. 2013) (requiring “substantial” detriment); Harris Constr. Co. v.
GGP-Bridgeland, L.P., 698 F. Supp. 2d 723, 726 n.5 (S.D. Tex. 2010) (requiring
a showing one “materially” changed his position); Peluso v. Kistner, 970 A.2d
530, 533 (Pa. Commw. Ct. 2009) (requiring “substantial” change in position).
Third, we would not necessarily say the equities favor Budny’s relief. He
contracted for certain services and now seeks additional ones he opted not to
buy. While his situation is unfortunate, it would be inequitable to force insurers to
provide coverages policyholders request ex post. “We will not strain the words or
phrases of the policy in order to find liability that the policy did not intend and the
insured did not purchase.” Amish Connection, Inc. v. State Farm Fire & Cas.
Co., 861 N.W.2d 230, 236 (Iowa 2015). Inherent in most insurance coverage is
the risk of damage not covered by the policy. The district court did not err in
granting summary judgment on this claim.
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C.
Budny argues it was error to dismiss his claim of implied warranty
because there was a factual dispute as to the intended purpose of his insurance
purchase.
Insurance policies in Iowa come with an implied warranty. See Farm
Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d 104, 110 (Iowa 1981). To
recover on a theory of implied warranty, an insured must show “(1) that the
insurer had reason to know the particular purpose for which the policy is
purchased; (2) that the insured relied upon the company’s skill or judgment in
furnishing such coverage; and (3) that the resulting implied warranty was
breached.” Id. “Whether or not such a warranty arises is usually a question of
fact to be determined from the circumstances of the parties’ negotiations.” Id. A
“particular purpose” differs from an ordinary purpose “in that it envisages a
specific use by the buyer which is peculiar to the nature of his business whereas
the ordinary purposes for which goods are used are those envisaged in the
concept of merchantability and go to uses which are customarily made of the
goods in question.” Id. A “particular purpose” thus “respond[s] to a particular
need.” Id.We find no error in the district court’s dismissal of this claim. First, the
coverage Budny seeks was excluded by the plain language of the policy. There
was a rider available to provide the coverage Budny sought. He did not
purchase this rider in 2014 or when he renewed his policy in 2015. The law of
implied warranty cannot be used to create coverage for risk specifically excluded
by the policy. Second, a “‘particular purpose’ differs from the ordinary purpose
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for which the goods are used in that it envisages a specific use by the buyer
which is peculiar to the nature of his business.” Id. “To give rise to an implied
warranty, the furnishing of the policy must respond to a particular need;
furnishing it for general purposes is not enough.” Id. There is nothing in the
summary judgment record supporting the inference Budny purchased the policy
for a particular purpose distinct from those of other persons purchasing
homeowners insurance. To hold the implied warranty created coverage where
specifically excluded by the policy would mean “there would be virtually no limits
of exposure to liability” and the “policy would be merely a framework of coverage
to be filled in as occurrences arose.” Id. at 112. The result is untenable.
D.
Finally, Budny asserts MemberSelect acted in bad faith. The elements of
bad faith are (1) the insurer lacked a reasonable basis for denying the claim and
(2) it knew or had reason to know it lacked a reasonable basis. See Galbraith v.
Allied Mut. Ins. Co., 698 N.W.2d 325, 328 (Iowa 2005). A reasonable basis
exists for denial of policy benefits if the insured’s claim is fairly debatable either
on a matter of fact or law. See Sampson v. Am. Standard Ins. Co., 582 N.W.2d
146, 149 (Iowa 1998). “A claim is ‘fairly debatable’ when it is open to dispute on
any logical basis.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473
(Iowa 2005). “Stated another way, if reasonable minds can differ on the
coverage-determining facts or law, then the claim is fairly debatable.” Id.MemberSelect had a reasonable basis for denying the requested
coverage—to wit, that Budny did not contract for said coverage. The district
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court held Budny did not contract for the coverage. Budney has not appealed the
issue. The district court did not err in granting summary judgment on this issue.
IV.
It was not error for the district court to grant summary judgment on all
claims. For the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED.