Michele M. Pitts v. Farm Bureau Life Insurance Company and Donald Schiffer

IN THE SUPREME COURT OF IOWA
No. 11–0117
Filed July 6, 2012
MICHELE M. PITTS,
Appellant,
vs.
FARM BUREAU LIFE INSURANCE
COMPANY and DONALD SCHIFFER,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Dubuque County,
Monica L. Ackley, Judge.
Plaintiff seeks further review of the court of appeals decision
affirming a district court order granting defendants’ motion for summary
judgment and dismissing her negligence and negligent misrepresentation
claims. DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED AND CASE REMANDED.
Christopher C. Fry of O’Connor & Thomas, P.C., Dubuque, for
appellant.
Terri L. Combs, Nicole Nicolino Nayima, and Ryan P. Howell of
Faegre Baker Daniels, Des Moines, for appellees.
2
ZAGER, Justice.
This case requires us to determine whether a life insurance agent
owes a duty of care to the intended beneficiary of a life insurance policy.
Additionally, we must decide whether a life insurance agent can be liable
for negligent misrepresentation when he provides information to the
insured and the intended beneficiary regarding the beneficiary
designation listed on the life insurance policy. If we determine that an
intended beneficiary is owed a duty of care and that a life insurance
agent providing information regarding the identity of a beneficiary is a
proper defendant in a negligent misrepresentation action, then we must
determine whether there is a genuine issue of material fact that would
preclude summary judgment. For the reasons set forth below, we find
that a life insurance agent owes a duty of care to an intended beneficiary
of a life insurance policy and that a life insurance agent can be liable for
negligent misrepresentation. Since we also determine that genuine
issues of material fact exist in this case, summary judgment should not
have been granted.
I. Factual Background and Proceedings.
Pursuant to a stipulation and order entered in 1989, Thomas Pitts
(Tom) became responsible for child support payments for the benefit of
his daughter, Jamie Pitts, born April 28, 1987. As part of his support
obligation, Tom was required to maintain $35,000 of life insurance
payable to his daughter for as long as his child support obligation
continued. Unless the child was still in high school, or pursuing further
postsecondary education, this support obligation would end in April of
2005.
In 1993, Tom and the plaintiff, Michele Pitts (Michele), were
married. That same year, they met with Donald Schiffer, an agent for
3
Farm Bureau Life Insurance Company (Farm Bureau), to discuss life
insurance. Tom and Michele were interested in purchasing a life
insurance policy that would satisfy Tom’s child support obligation and
provide a benefit to Michele if she were to survive Tom. Tom purchased a
life insurance policy from Farm Bureau, and on August 30, 1993, Tom
signed a beneficiary designation listing Tom’s daughter as the primary
beneficiary for the first $50,000 in proceeds and listing Michele as the
beneficiary of the “balance of [the] proceeds, if any.” On December 28,
1995, Tom completed and filed a new beneficiary designation form. After
the change, Tom’s daughter was the primary beneficiary of the first
$35,000 of life insurance proceeds, and the balance was to be paid to
Michele if she survived Tom. 1 A final written change of beneficiaries was
made on August 13, 1996, but the terms of that change are illegible.
However, Michele does not allege that the August 13 change removed
Jamie as the primary beneficiary of the first $35,000 in proceeds.
According to Schiffer, this was the last change in beneficiary designation
that Tom made, and neither party has produced any other written
documentation regarding a subsequent change in beneficiary.
According to Michele, shortly after Tom’s support obligation ended
in April 2005, Tom asked Schiffer to change the beneficiary designation
on the life insurance policy so that his daughter would no longer be the
primary beneficiary of the first $35,000 of insurance proceeds. Michele
“believe[d] Tom filled out paperwork to complete this change, but [she
did] not know what he did with the paperwork.” Michele claims that on
separate occasions Schiffer told her and Tom that Tom’s daughter was no
longer listed as a beneficiary under the policy and that Michele was now
1It is unclear if this beneficiary designation was effective as it does not show that
it was recorded at the home office of Farm Bureau.
4
the sole beneficiary. These exchanges occurred in person and over the
telephone.
After Tom passed away in November 2007, Michele went to
Schiffer’s office to fill out the paperwork needed to claim the proceeds of
the life insurance policy. Schiffer allegedly told Michele, in the presence
of her parents, that she would be receiving the full amount of Tom’s life
insurance proceeds—about $108,000. While she was in the office,
Schiffer’s telephone rang, and she heard him say, “Are you sure?” and
“Tom and I always talked about percentages for the kids.” After he hung
up the telephone, Schiffer informed Michele that Tom’s daughter was still
the primary beneficiary for the first $35,000 in insurance proceeds and
as a result, Michele would only receive about $74,000.
On November 25, 2009, Michele filed suit against Schiffer and
Farm Bureau. 2 Her claim against Schiffer alleged negligence and
negligent misrepresentation, and the claim against Farm Bureau alleged
liability under the doctrine of respondeat superior. 3 Farm Bureau moved
for summary judgment. Farm Bureau claimed it was entitled to
summary judgment on the negligence claim because the policy required
any change in beneficiary to be in writing and signed by the owner.
Since Michele had not provided any evidence of such a writing, Farm
Bureau was under no duty to change the beneficiary. Farm Bureau also
argued that it did not owe a duty to Michele because she was not the
policyholder, and therefore any claim of negligence or negligent
2From this point on, unless Schiffer’s individual actions are being discussed,
“Farm Bureau” refers collectively to Schiffer and Farm Bureau.
3The original complaint also alleged a breach of fiduciary duty, which was
dismissed in the district court’s order granting Farm Bureau’s motion for summary
judgment. Pitts has not appealed this ruling, and therefore we will not consider the
alleged breach of fiduciary duty.
5
misrepresentation failed as a matter of law. Farm Bureau also argued
Schiffer was not in the business or profession of supplying information
for the guidance of another in an advisory capacity and therefore, as a
matter of law, could not be liable for negligent misrepresentation.
Finally, Farm Bureau claimed that Michele had not come forward with
admissible evidence that she was the intended beneficiary of the first
$35,000 in insurance proceeds.
The district court found that “[i]t [was] undisputed that Mr. Pitts
did not execute a written request to make Plaintiff the primary
beneficiary” and therefore Schiffer’s failure to remove Tom’s daughter as
a beneficiary “was not a product of negligence, but rather resulted from
his lack of authority to remove [her] as the primary beneficiary without
Thomas Pitts’ written request.” The district court then granted Farm
Bureau’s motion for summary judgment in its entirety and dismissed the
case.
Pursuant to Iowa Rule of Civil Procedure 1.904(2), Michele filed a
motion to enlarge the findings of fact and conclusions of law. Michele
claimed that as the intended beneficiary of the policy, Schiffer owed her a
duty of care. Michele also claimed there were disputed issues of material
fact that precluded entry of summary judgment. Specifically, Michele
claimed that Schiffer told her, her husband, and her parents that she
was the sole beneficiary on the policy. Based on these statements,
Michele claimed a jury could reasonably find in her favor on the
negligence and negligent misrepresentation claims. The district court
denied the motion, and Michele appealed. We transferred the case to the
court of appeals, which affirmed the district court. Michele sought
further review, which we granted.
6
II. Standard of Review.
The district court granted Farm Bureau’s motion for summary
judgment. “We review a district court’s grant of a motion for summary
judgment for errors of law.” Seneca Waste Solutions, Inc. v. Sheaffer Mfg.
Co., 791 N.W.2d 407, 410–11 (Iowa 2010). A court should grant
summary judgment
“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.”
Id. at 411 (quoting Iowa R. Civ. P. 1.981(3)). In other words, summary
judgment is appropriate “if the record reveals a conflict only concerns the
legal consequences of undisputed facts.” City of Cedar Rapids v. James
Props., Inc., 701 N.W.2d 673, 675 (Iowa 2005) (citations and internal
quotation marks omitted). When reviewing a court’s decision to grant
summary judgment, “we examine the record in the light most favorable
to the nonmoving party and we draw all legitimate inferences the
evidence bears in order to establish the existence of questions of fact.”
Kragnes v. City of Des Moines, 714 N.W.2d 632, 637 (Iowa 2006). We
also note that the court should only consider “such facts as would be
admissible in evidence” when considering the affidavits supporting and
opposing summary judgment. Iowa R. Civ. P. 1.981(5); see also Kern v.
Palmer Coll. of Chiropractic, 757 N.W.2d 651, 656 n.3 (Iowa 2008);
McCarney v. Des Moines Register & Tribune Co., 239 N.W.2d 152, 157
(Iowa 1976).
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III. The District Court’s Ruling.
The district court held Tom’s oral statements were insufficient to
impose a duty on Schiffer to change the beneficiary of the policy.
Specifically, the district court stated,
It is undisputed that Mr. Pitts did not execute a written
request to make Plaintiff the primary beneficiary. Thomas
Pitts knew the procedures that he must follow to make
Plaintiff the sole beneficiary, as he had previously changed
his beneficiary designation under those terms on two
separate occasions. Thus Defendant Schiffer’s failure to act
was not a product of negligence, but rather resulted from his
lack of authority to remove [Tom’s daughter] as the primary
beneficiary without Thomas Pitts’ written request.
The district court then granted Farm Bureau’s motion for summary
judgment and dismissed the entire case.
The district court erred when it granted summary judgment on all
of plaintiff’s claims. Michele was not claiming that Tom followed the
proper procedures and that the beneficiary had actually been changed.
She was claiming that, despite the beneficiary designation, Tom intended
her to be the sole beneficiary of his policy. According to her petition,
Schiffer’s negligence and negligent misrepresentations led to Tom’s
daughter remaining as the primary beneficiary on a portion of the
proceeds of Tom’s life insurance at the time of his death, which caused
her to lose $35,000 in life insurance proceeds. The question presented
by this case is not as simple as whether Tom’s oral expression of his
desire to change the beneficiary on his policy was effective or whether it
gave Schiffer the authority to change the beneficiary. The questions are
whether Schiffer was negligent in responding to Tom’s oral request, if
made, and whether Schiffer made negligent misrepresentations after
allegedly receiving Tom’s oral request.
8
We therefore reverse the district court’s grant of summary
judgment on the ground stated in its initial judgment. If we reverse a
district court’s decision to grant summary judgment on one ground,
however, we may still affirm the ruling on alternative grounds raised but
not ruled on below and subsequently urged on appeal. Kern, 757 N.W.2d
at 662. The district court granted Farm Bureau’s motion for summary
judgment based solely on the fact that there was no evidence of a written
request to change beneficiaries. Having concluded summary judgment
on that ground was in error, we must now turn to the other grounds
raised below to determine if they will support granting Farm Bureau’s
motion for summary judgment.
IV. Michele’s Negligence Claim.
Michele alleged that Schiffer owed both her and Tom a duty to use
reasonable professional skill. According to Michele, Schiffer breached
that duty by “failing to take action to change the beneficiary designation
upon Thomas J. Pitts’s request,” “failing to deliver the necessary
paperwork to Thomas J. Pitts to effectuate a change in the beneficiary
designation after [his] request to make a change,” and “failing to display
a degree of skill reasonably or ordinarily necessary in performing as an
agent in the insurance business.” These failures resulted in Michele not
being designated as the primary beneficiary for all of the proceeds of
Tom’s policy.
A. Did Schiffer Owe Michele a Duty of Care? Farm Bureau
claimed that Michele was not the beneficiary, that Schiffer only owed a
duty to Tom, and that he did not owe a duty to Michele since no agent–
insured relationship existed between Schiffer and Michele. 4 The district
4Farm Bureau has not argued on appeal that the economic loss rule creates a
bar to recovery in this case. The economic loss rule is based on “[t]he well-established
general rule . . . that a plaintiff who has suffered only economic loss due to another’s
9
court did not discuss duty but simply stated that, “Schiffer’s failure to
act was not a product of negligence, but rather resulted from his lack of
authority to remove [Tom’s daughter] as the primary beneficiary without
Thomas Pitts’ written request.” The court of appeals affirmed the grant
of summary judgment, finding there is no “duty owed by an insurance
agent to an intended beneficiary of a life insurance policy.”
_____________________________
negligence has not been injured in a manner which is legally cognizable or
compensable.” Neb. Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124,
126 (Iowa 1984). “As a general proposition, the economic loss rule bars recovery in
negligence when the plaintiff has suffered only economic loss.” Annett Holdings, Inc. v.
Kum & Go, L.C., 801 N.W.2d 499, 503 (Iowa 2011). The rule is partly intended to
prevent the “tortification of contract law.” Id. Another “rationale for this limitation on
recovery is that ‘[p]urely economic losses usually result from the breach of a contract
and should ordinarily be compensable in contract actions, not tort actions.’ ” Van
Sickle Constr. Co. v. Wachovia Commercial Mortg., Inc., 783 N.W.2d 684, 693 (Iowa 2010)
(citation omitted) (alteration in original).
We have recently decided a case involving the application of the economic loss
rule. Instead of “delineat[ing] the precise contours of the economic loss rule in Iowa” we
examined whether the case has “characteristics that bring it within the scope of the
economic loss rule.” Annett Holdings, 801 N.W.2d at 504. The features of this case
may place it outside the scope of the economic loss rule. First, there is no chain of
contracts between Michele and Schiffer. In Annett, the plaintiff had contracted with a
third party, who had contracted with the defendant. Id. at 501. Here, Tom had a
contract with Schiffer and Farm Bureau, but Michele did not contract with either Tom,
Schiffer, or Farm Bureau. Second, Michele’s claim is not as remote as the claim
rejected in Nebraska Innkeepers. See id. at 504. Schiffer’s alleged negligence was the
direct cause of the loss suffered by Michele. These are difficult questions to answer,
and they are made more difficult by the fact that neither party has briefed this issue.
There is another potential problem regarding the application of the economic
loss rule in this case. We have recognized at least three qualifications to the economic
loss rule: cases where the duty of care arises out of a principal–agent relationship,
claims of negligent misrepresentation, and professional negligence claims against
attorneys and accountants. Id. We have not held that these are the only qualifications
to the rule, however. See id.; see also Van Sickle, 783 N.W.2d at 692 n.5. It is possible
that the professional negligence qualification may extend to insurance agents, as well as
attorneys or accountants.
Whatever the merits, Farm Bureau has not raised the economic loss rule on
appeal or before the district court. Our rule is that issues not argued on appeal are
deemed waived. See State v. Seering, 701 N.W.2d 655, 661 (Iowa 2005). We decline to
decide this case on an issue not briefed or argued to this court. Accordingly, we offer
no opinion as to whether Michele’s negligence claim would be barred by the economic
loss rule.
10
Generally, “[a]n actionable claim of negligence requires the
existence of a duty to conform to a standard of conduct to protect others,
a failure to conform to that standard, proximate cause, and damages.”
Thompson v. Kaczinski, 774 N.W.2d 829, 834 (Iowa 2009) (citation and
internal quotation marks omitted). In Thompson, we adopted the
Restatement (Third) of Torts: Liability for Physical and Emotional Harm
and, in general, rejected the use of foreseeability when determining, as a
matter of law, that one party did not owe a duty to another. Id. at 835.
In Langwith v. American National General Insurance Co., 793 N.W.2d 215(Iowa 2010), superseded by statute, 2011 Iowa Acts ch. 70, § 45 (codified
at Iowa Code § 522B.11(7) (Supp. 2011)), we noted that when duty “is
based on agency principles and involves economic loss, the duty analysis
adopted by this court in [Thompson], based on Restatement (Third) of
Torts: Liability for Physical and Emotional Harm, is not dispositive.” 793
N.W.2d at 221 n.3.
In this case, any duty that Schiffer owed to Tom or Michele would
arise out of their agency relationship as insurance agent, insured and
intended beneficiary. See Langwith, 793 N.W.2d at 219 (“[T]he
relationship between an insured and an insurance agent is one of
principal/agent.”); see also Collegiate Mfg. Co. v. McDowell’s Agency, Inc.,
200 N.W.2d 854, 857–58 (Iowa 1972). Thus, this is a case that “is based
on agency principles.” Langwith, 793 N.W.2d at 222 n.3. Michele claims
she has suffered the loss of $35,000 in life insurance proceeds, which is
a purely economic harm. Since this is a case based on agency principles
and involving economic harm, we will not rely on the concept of duty
embodied in Thompson to determine if Schiffer owed Michele a duty of
care.
11
The scope of the duties an insurance agent owes his client has
recently been the subject of both litigation and legislation. In Sandbulte
v. Farm Bureau Mutual Insurance Co., 343 N.W.2d 457 (Iowa 1984),
overruled by Langwith, 793 N.W.2d at 223, we held that an insurance
agent’s “general duty is the duty to use reasonable care, diligence, and
judgment in procuring the insurance requested by an insured.”
Sandbulte, 343 N.W.2d at 464. This duty could only be expanded “when
the agent holds himself out as an insurance specialist, consultant or
counselor and is receiving compensation for consultation and advice
apart from premiums paid by the insured.” Id. In Langwith, we
reexamined this restrictive approach to the duty an insurance agent
owes an insured and stated that “the general principles governing agency
relationships convinces us that a more flexible method of determining
the undertaking of an insurance agent is appropriate.” 793 N.W.2d at
221. We held
that it is for the fact finder to determine, based on a
consideration of all the circumstances, the agreement of the
parties with respect to the service to be rendered by the
insurance agent and whether that service was performed
with the skill and knowledge normally possessed by
insurance agents under like circumstances. Some of the
circumstances that may be considered by the fact finder in
determining the undertaking of the insurance agent include
the nature and content of the discussions between the agent
and the client; the prior dealings of the parties, if any; the
knowledge and sophistication of the client; whether the
agent holds himself out as an insurance specialist,
consultant, or counselor; and whether the agent receives
compensation for additional or specialized services.
Id. at 222 (citation omitted).
The legislature responded by amending Iowa Code section
522B.11. 2011 Iowa Acts ch. 70, § 45. The new act “declares that the
holding of Langwith is abrogated to the extent that it overrules Sandbulte
12
and imposes higher or greater duties and responsibilities on insurance
producers than those set forth in Sandbulte.” Id. (emphasis added). The
new subsection also states that “[u]nless an insurance producer holds
oneself out as an insurance specialist, consultant, or counselor and
receives compensation for consultation and advice apart from
commissions paid by an insurer, the duties and responsibilities of an
insurance producer are limited to those duties and responsibilities set
forth in Sandbulte.” Id. (emphasis added).
These cases and the statute address what duties an insurance
agent owes the insured, not who the agent can be liable to when those
duties are breached. In this case, the scope of Schiffer’s duty to Tom is
clear. There is no indication in the record that Tom and Schiffer had
modified the scope of their principal–agent relationship in any way.
Since the agency agreement had not been modified, Schiffer, as Tom’s
agent, owed him
the use of such skill as is required to accomplish the object
of his employment. If he fail[ed] to exercise reasonable care,
diligence, and judgment in this task, he is liable to his
principal for any loss or damage occasioned thereby.
Collegiate Mfg., 200 N.W.2d at 857; see also Langwith, 793 N.W.2d at
223 n.6; Sandbulte, 343 N.W.2d at 464.
Michele claims that as the intended beneficiary of Tom’s life
insurance policy, Schiffer owed her a duty as well. We acknowledge and
dismiss Farm Bureau’s claim that because Michele was not designated
as the primary beneficiary for the first $35,000 in proceeds, she cannot
show that she was the person Tom intended to be the beneficiary of the
first $35,000 in proceeds. Michele is not listed as the primary
beneficiary of the first $35,000 in proceeds. This is evidence of Tom’s
intent, but this fact, in and of itself, is not dispositive. The fact that
13
Michele is not named as the primary beneficiary only establishes that
she is not the designated beneficiary and that the necessary steps were
not taken to change the beneficiary from Tom’s daughter to Michele. The
fact that Michele is not actually designated as the beneficiary does not
establish why Michele is not the beneficiary, nor does it establish that
Tom did not intend Michele to be the beneficiary. Michele claims this
was precisely what Tom intended, but his intent was frustrated by
Schiffer’s negligence. Thus, cases such as Kubin v. Kubin, 232 Iowa
1034, 6 N.W.2d 860 (1942), where the plaintiff sought to show she “took
action sufficient to change the name of the beneficiary” on the policy, are
not controlling. 232 Iowa at 1038, 6 N.W.2d at 862.
We also note that despite Farm Bureau’s contention, Michele is not
claiming that Schiffer owed her a duty based solely on her status as a
family member of the deceased. Michele’s true claim is that when an
insured intends for a particular person to be the beneficiary of a life
insurance policy, and the insured expresses that desire to his or her life
insurance agent, the agent procuring insurance for the insured owes the
insured’s intended beneficiaries a duty of care to procure the insurance
requested. We now address that claim.
Michele claims by analogy that Schreiner v. Scoville, 410 N.W.2d
679 (Iowa 1987), supports her contention that Schiffer owed her a duty
of care as the intended beneficiary of the first $35,000 in proceeds from
Tom’s life insurance policy. In that case, Scoville, an attorney, prepared
and witnessed Mary Eickholt’s will. Schreiner, 410 N.W.2d at 680. The
will left Schreiner a one-half interest in a piece of real estate and a one-
half interest in the residue of the estate. Id. Seven months after the will
was drafted, Scoville prepared and witnessed a codicil to the will that
eliminated Schreiner’s share of the residue of Eickholt’s estate but left
14
Schreiner’s one-half interest in the real estate intact. Id. One month
after the codicil was drafted, Scoville brought an action for partition for
the sale of the real estate. Id. Eight months later, the property was sold
at partition sale. Id. Eickholt died within a year of the sale, and her will
and the codicil were admitted to probate. Id.
The “[d]istrict court found Eickholt’s devise to Schreiner had
adeemed when her interest in the property was transformed from an
interest in real property into an interest in personal property.” Id. Since
there were no express bequests relating to the distribution of this
personal property, the proceeds from the sale became part of the residue
of the estate. Id. Since the real property had adeemed, and the codicil
eliminated Schreiner’s share of the residue, Schreiner received nothing.
Id. at 681.
Schreiner filed suit, alleging that “Scoville was negligent in failing
to properly advise Eickholt” and that “Scoville negligently failed to draft
Eickholt’s testamentary instruments in a way that protected and fulfilled
her true testamentary intent.” Id. Since Scoville and Schreiner did not
have an attorney–client relationship, Scoville moved to dismiss for failure
to state a claim, and the district court granted the motion. See id.
On review, we began by noting the long-standing rule that “absent
special circumstances such as fraud or collusion, an attorney is liable for
professional malpractice only to a client.” Id. (emphasis added). We
stated,
This privity requirement flows from the Supreme Court case
of National Savings Bank v. Ward, 100 U.S. (10 Otto) 195,
200, 203, 25 L. Ed. 621, 623, 624 (1880), and is premised
upon two basic concerns. First, absent a requirement of
privity, parties to a contract for legal services could easily
lose control over their agreement. Second, imposing a duty
to the general public upon lawyers would expose lawyers to a
virtually unlimited potential for liability.
15
Id. (citation omitted). At the time, there was a trend towards allowing an
intended beneficiary of a testamentary instrument to bring a claim “when
the testamentary instruments themselves are rendered invalid in whole
or in part as a direct result of attorney error.” Id. at 681–82. We noted
the following justifications for altering the privity requirements in certain
circumstances:
“[O]ne of the main purposes which the transaction between
defendant and the testator intended to accomplish was to
provide for the transfer of property to plaintiffs; the damage
to plaintiffs in the event of invalidity of the bequest was
clearly foreseeable; it became certain, upon the death of the
testator without change of the will, that plaintiffs would have
received the intended benefits but for the asserted negligence
of defendant; and if persons such as plaintiffs are not
permitted to recover for the loss resulting from negligence of
the draftsman, no one would be able to do so, and the policy
of preventing future harm would be impaired.”
Id. at 682 (quoting Lucas v. Hamm, 364 P.2d 685, 688 (Cal. 1961))
(alteration in original).
In light of these considerations, we concluded that “a lawyer owes
a duty of care to the direct, intended, and specifically identifiable
beneficiaries of the testator as expressed in the testator’s testamentary
instruments.” Id. That limited group of plaintiffs would be permitted to
bring a claim “only when as a direct result of the lawyer’s professional
negligence the testator’s intent as expressed in the testamentary
instruments is frustrated in whole or in part and the beneficiary’s
interest in the estate is either lost, diminished, or unrealized.” Id. at 683.
We specifically noted that “a beneficiary who is simply disappointed with
what he or she received from the estate will have no cause of action
against the testator’s lawyer.” Id.
Michele argues the relationship between an insured, an insurance
agent, and the intended beneficiary of a life insurance policy is analogous
16
to the relationship between a testator, an attorney, and the intended
beneficiary of a testamentary instrument. This analogy has been
accepted by other jurisdictions. See Jones v. Hartford Life & Accident Ins.
Co., 443 F. Supp. 2d 3, 6–7 (D.D.C. 2006) (noting that cases finding an
attorney owes a duty to an intended beneficiary of a will are particularly
relevant to determining whether an insurance agent owes an intended
beneficiary an independent duty of care). The relationships share many
similarities. Like a testamentary instrument, the main purpose of the
defendant’s transaction with the insured is to benefit the intended
beneficiary–plaintiff. See Schreiner, 410 N.W.2d at 682. Likewise,
damage to parties other than the policyholder, such as the intended
beneficiary in the event of negligence, is foreseeable to the defendant.
See id. In the case of both wills and life insurance policies, the
decedent’s estate has very little incentive to bring the action. See id.
More significantly, because Tom’s estate was not designated as the
beneficiary of the life insurance policy, and no party has claimed that the
estate was the intended beneficiary of the policy, the estate would not
have a cause of action against these defendants. 5 Finally, if no cause of
5In Duffie v. Bankers’ Life Ass’n of Des Moines, 160 Iowa 19, 139 N.W. 1087(1913), a deceased’s widow brought a negligence action against a life insurance
company in both an individual capacity and in her capacity as the executor of his
estate. Duffie, 160 Iowa at 21, 139 N.W. at 1087. She alleged the company’s negligent
processing of her husband’s application led to him dying prior to a policy being issued
even though the deceased “had done all that was required of him to obtain insurance”
including paying all necessary fees and submitting to a physical examination. Id. at
22–24, 139 N.W. at 1087–88. According to the widow, the insurance company “owed
the applicant the affirmative duty either of rejecting the application or of accepting it
within a reasonable time, and upon breach of such duty it [was] liable for all damages
suffered in consequences of such breach.” Id. at 24, 139 N.W. at 1088–89. We held
that the widow could bring a negligence action on behalf of the estate, but not in her
individual capacity because any duty the company had to timely process an application
would have been owed to the deceased, not the widow. Id. at 29, 139 N.W. at 1090.
Duffie is not applicable to the case at bar. First, the insurer’s negligence in
Duffie prevented the deceased from obtaining the policy he had applied for and paid for.
Unlike in Duffie, Schiffer’s alleged negligence did not prevent Tom from obtaining an
17
action could be maintained by the intended beneficiary, the very purpose
for which the insurance agent was employed would be frustrated. Cf. id.
In its resistance to the application for further review, Farm Bureau
argues that the court of appeals was correct when it noted that
subsequent opinions limited the scope of our holding in Schreiner. The
court of appeals cited to Carr v. Bankers Trust Co., 546 N.W.2d 901 (Iowa
1996), and Holsapple v. McGrath, 521 N.W.2d 711 (Iowa 1994). In
Holsapple, we reiterated the two concerns we expressed in Schreiner: that
the parties might lose control over their agreement, and that “the
imposition of a duty to the general public could expose lawyers to a
virtually unlimited potential for liability.” 521 N.W.2d at 713. However,
we allowed the plaintiff’s claim of negligence in the preparation of a
quitclaim deed to proceed because the complaint alleged “(1) the plaintiff
was specifically identified, by the donor, as an object of the grantor’s
intent; and (2) the expectancy was lost or diminished as a result of
professional negligence.” Id. at 714. Rather than limit the holding in
Schreiner, Holsapple actually reaffirms the principles found in that case:
namely that an intended, identifiable beneficiary of a transaction can
bring an action against an attorney despite the lack of an attorney–client
relationship with the defendant.
_____________________________
insurance policy. Thus, Tom’s estate has not suffered any damage as a result of
Schiffer’s alleged negligence. The absence of damages would preclude the estate from
bringing a successful negligence action. Second, Duffie was decided decades before
Schreiner, and if Duffie were decided today, the result might be different in light of that
case. The widow in Duffie was named in the application. 160 Iowa at 21, 139 N.W. at
1087. She would clearly qualify as a direct, intended, specifically identifiable
beneficiary as expressed in the written instrument. See Schreiner, 410 N.W.2d at 682.
We also note that in the North Western reporter, the plaintiff’s name is spelled
“Duffy.” See Duffy, 139 N.W. at 1087. However, in the official Iowa reporter, the
plaintiff’s name is spelled “Duffie.” See Duffie, 160 Iowa at 19.
18
The dispute in Carr began when an investment advisor for the Iowa
Trust misappropriated over $65 million in trust assets, which led to the
removal of the trustees. 546 N.W.2d at 902–03. Three of the trustees
filed suit against the custodian and the attorneys for the trust claiming
that the misappropriation of funds was a result of negligence on the part
of the custodian and the attorneys. Id. The trustees alleged that the
defendants’ negligence caused them financial damages and damaged
their reputations. Id. at 906. The defendants claimed they were entitled
to summary judgment because they did not owe the trustees a duty of
care. Id.
In determining whether summary judgment for the defendants was
appropriate, we discussed the limitations on liability that were imposed
in Schreiner and Holsapple. Id. at 906. We discussed the rationale of
those cases, and we reaffirmed the principle that liability must be limited
to those who were “specifically intended to benefit from the
[transaction].” Id. We noted “[n]othing in the present record shows that
either [the custodian or the attorneys] could have foreseen the trustees’
reliance on their performance in their individual capacities.” Id. at 907.
We held that without evidence that the defendants “could reasonably
know or have foreseen that the individual trustees were relying on the
performance of the custodial or legal services for the protection of their
own jobs, finances, and reputations,” it was inappropriate to impose a
duty to the plaintiffs on the defendants. Id. Summary judgment was
therefore appropriate. Id. The holding in Carr does not address the duty
a defendant owes to the intended beneficiary of a life insurance policy.
Additionally, Michele is exactly the person Schiffer could reasonably
know and foresee was relying on his professional performance for her
19
protection. Therefore, Carr is not at odds with imposing a duty of care
on Schiffer to Michele in this case.
Farm Bureau also argues that “public policy advises against the
imposition of a duty in this situation.” They claim that recognizing that
“a legal duty exists between an insurance agent and the family member of
a policy owner would create the potential for sharp conflicts of interest
whenever the policy owner’s express instruction contradicts the family
member’s desire.” (Emphasis added.) In J.A.H. ex rel. R.M.H. v. Waddle
& Associates, 589 N.W.2d 256 (Iowa 1999), we were asked to determine
whether a minor child could sue a mental health care provider for loss of
parental consortium arising out of negligent treatment of the child’s
mother. 589 N.W.2d at 257. In determining whether the health care
provider owed the child a duty, we analyzed the relationship between the
plaintiff and the defendant, the foreseeability of harm, and public policy
considerations. Id. at 261–62. We noted that even though the plaintiff
and defendant were not in privity with each other, the lack of privity was
not outcome determinative. Id. We declined to answer whether it was
foreseeable to the defendants that a child could be harmed if his mother
received improper mental health treatment and proceeded to consider
public policy considerations. Id. at 262.
The child argued it was in the interests of public policy to allow
him to pursue his claim because “[u]nless such claims are allowed . . .
the negligent and harmful treatment may well continue unchecked
because the patient is too emotionally altered to recognize the harm that
has taken place.” Id. In rejecting such a “paternalistic approach,” we
noted that allowing this type of suit could create an inherent conflict of
interest for a mental health provider. Id. at 262–63. Specifically,
concerns over how treatment might affect third parties might influence
20
how therapists treat patients. Id. We also noted that in order to defend
against a suit brought by a third party, the doctor would need to violate
doctor–patient privilege. Id. We concluded that “[e]liminating the
potential for divided loyalties and maintaining confidentiality . . . far
outweigh any threat of foreseeable harm to nonpatient family members.”
Id. at 264. Accordingly, we held, “as a matter of law, there is no duty
running from a mental health care provider to nonpatient family
members.” Id.
We were also mindful of the potential “threat to the professional
relationship between the testator and the lawyer” that might exist if
“intended beneficiaries” were allowed to bring suits against attorneys.
Schreiner, 410 N.W.2d at 682. We are mindful of the same concern here.
Farm Bureau cautions against imposing a duty to all family members on
insurance agents, claiming it will produce conflicts for insurance agents.
Even if we accept Farm Bureau’s contention, the point is not relevant to
the outcome of this case. Michele is not arguing that she is owed a duty
based on her status as a family member. Instead, she is claiming that
Farm Bureau owed her a duty of care based on her status as the
intended beneficiary of the policy, which is a much more circumscribed
group. Imposing a duty on insurance agents to the intended beneficiary
of a life insurance policy would not threaten the insured–insurer
relationship, nor would imposing such a duty create the types of “divided
loyalties” that led to our conclusion in J.A.H. See J.A.H., 589 N.W.2d at
264.
Other jurisdictions have found “that an intended beneficiary can
recover from another’s insurance agent if the intended beneficiary can
prove that intent to benefit him, or her, was a direct purpose of the
transaction between the insured and agent and the other elements of
21
negligence.” Parlette v. Parlette, 596 A.2d 665, 670–71 (Md. Ct. Spec.
App. 1991); see also 12 Eric M. Holmes, Holmes’ Appleman on Insurance
2d, § 85.1, at 333–35 (1999). As one commentator has noted,
[t]he critical element in establishing a duty [to a third party
who claims to have been damaged by an agent’s failure to
procure insurance] is the foreseeability of harm to a potential
plaintiff. Liability will not lie against an [insurance agent] if
a third-party’s injury or loss was not foreseeable.
1 Jeffrey E. Thomas & Francis J. Mootz, New Appleman on Insurance
Law Library Edition § 2.07[1], at 2-84 (2011) [hereinafter Appleman]
(footnotes omitted). 6 Requiring a plaintiff to show that she was the
intended beneficiary of the transaction between the agent and the
insured, and the agent was aware of the plaintiff’s status as the intended
beneficiary, limits the universe of potential plaintiffs to those who would
be foreseeable to the insurance agent. Any communication between the
plaintiff and the insurance agent regarding the insured’s coverage and
the plaintiff’s status as the insured’s intended beneficiary makes harm to
the plaintiff foreseeable to the agent procuring the insurance coverage.
See id. (“Courts generally are reluctant to hold [agents] liable to third-
parties on negligence theories absent specific communications between
the third-party and the [agent] about the coverage to be procured.”
(footnotes omitted)). Also, if the plaintiff shows that he or she was the
intended beneficiary of the policy at the time of the insured’s death, then
there is no conflict of interest for the agent because the agent’s duty
remains the same: carry out the intent of the insured by procuring the
insurance requested. See Sandbulte, 343 N.W.2d at 464.
6We take this opportunity to reiterate that “[b]ecause the duty analysis in this
case is based on agency principles and involves economic loss, the duty analysis
adopted by this court in Thompson v. Kaczinski, 774 N.W.2d 829 (Iowa 2009), based on
Restatement (Third) of Torts: Liability for Physical and Emotional Harm, is not
dispositive.” Langwith, 793 N.W.2d at 221 n.3.
22
One court that has faced this issue found it unnecessary to impose
a duty on insurance agents to intended beneficiaries. In Mims v.
Western–Southern Agency, Inc., 226 S.W.3d 833 (Ky. Ct. App. 2007), the
Kentucky court of appeals noted that if a plaintiff could show that he or
she was the intended beneficiary of the policy as required by Parlette,
then he or “she would in effect also be proving that [the insured]
substantially complied with the [change of beneficiary] provisions of his
insurance policy.” 226 S.W.3d at 836. Showing “substantial
compliance” with the policy’s terms would make the plaintiff a third-
party beneficiary, which would make it unnecessary to establish an
independent duty to the “intended beneficiary” of the policy. See id. Due
to Kentucky’s “very liberal” substantial compliance doctrine,
[t]he threshold inquiry under either a negligence or contract
theory is essentially identical: “The question herein is not [a]
dispute between the contracting parties . . . as to the terms
of the contract, but one as to whom the insured intended to
make a gift by way of insuring his life for same.”
Id. (quoting Bosse v. Bosse, 57 S.W.2d 995, 996 (Ky. 1933)) (alteration in
original).
Iowa’s “substantial compliance” doctrine has been summarized as
follows:
It is apparently the law in Iowa that where it appears
that an insured clearly intended to change the beneficiary
named in a policy of insurance permitting such a change,
and that prior to his death he gave written notice to the
insurer of the change intended, the law will give effect to the
change although the insured has not complied with all of the
formalities specified in the contract for effecting a change of
beneficiary, provided his failure in that regard was excusable
under all the circumstances. In other words, proof of clear
intent, plus written notice to the insurer prior to death,
appears to be enough, under Iowa law, to effect the desired
change, where the failure to meet all the requirements is
excusable.
23
Franck v. Equitable Life Ins. Co., 203 F.2d 473, 476–77 (8th Cir. 1953).
As the above passage demonstrates, there are significant differences
between requiring a plaintiff to show substantial compliance with the
terms of the policy and merely showing plaintiff was the intended
beneficiary of a life insurance policy. Id. In addition to “clear intent,” a
plaintiff must also provide written notice to the insurer, as well as an
excuse for failing to meet the other requirements of the policy. Since
Iowa’s substantial compliance doctrine is not as liberal as Kentucky’s,
merely establishing that the plaintiff was the intended beneficiary of the
policy would not satisfy the substantial compliance doctrine as it exists
in Iowa. We therefore decline to adopt the rationale expressed in Mims.
“The critical element in establishing a duty is the foreseeability of
harm to a potential plaintiff.” Appleman, § 2.07[1], at 2-84. Our caselaw
imposes a duty on other professionals for foreseeable harm to intended
beneficiaries. See Schreiner, 410 N.W.2d at 682. Other jurisdictions
impose similar duties on insurance agents and brokers for injuries to
persons who are strangers to the professional relationship but who are
foreseeably harmed by the professional’s negligence. Insurance agents
and brokers should be similarly held to owe a duty of care to third
parties in limited circumstances. We therefore hold that an insurance
agent owes a duty to the intended beneficiary of a life insurance policy in
limited circumstances. See United Olympic Life Ins. Co. v. Gunther, No.
92-36710, 1994 WL 96328, at *2–3 (9th Cir. 1994); Jones, 443 F. Supp.
2d at 7; Parlette, 596 A.2d at 670–71.
In order to limit the potential liability of insurers, avoid conflicts of
interests, and not interfere with the insured–insurer relationship, we will
require a plaintiff to show that he or she was the “direct, intended, and
specifically identifiable beneficiar[y]” of the policy as well as the other
24
elements of negligence. Schreiner, 410 N.W.2d at 682; see also Parlette,
596 A.2d at 670–71. Further, the plaintiff must produce evidence from
the written instrument itself that indicates the plaintiff is the intended
beneficiary of the policy. Schreiner, 410 N.W.2d at 682. If the plaintiff
cannot show that he or she is the intended beneficiary of the policy, then
the insurance agent does not owe that plaintiff a duty of care.
B. Was Summary Judgment Appropriate? Michele claims she
was the intended beneficiary of the entire policy, including the first
$35,000. Farm Bureau disputes this claim and states that Tom’s
daughter was the intended beneficiary of the first $35,000 of the policy
and that Michele was only the intended beneficiary of the balance of the
proceeds. If Michele truly is the intended beneficiary of the entire policy,
as she claims, then Schiffer owed her a duty of care with respect to the
$35,000. If she cannot establish that fact, then Schiffer did not owe her
a duty of care. See Jones, 443 F. Supp. 2d at 7 n.3. Thus, Michele’s
status as the intended beneficiary was material to the outcome of the
case.
Facts are disputed when reasonable minds could disagree on how
these issues of fact should be resolved. Seneca Waste Solutions, 791
N.W.2d at 411. Motions for summary judgment must also be decided
based on admissible evidence. Iowa R. Civ. P. 1.981(5); see also Kern,
757 N.W.2d at 656 n.3. We now examine the admissible evidence in this
case to determine whether reasonable minds could disagree on whether
Michele was the intended beneficiary of the entire policy.
In her affidavit opposing Farm Bureau’s motion for summary
judgment, Michele claims that in April 2005, shortly after his support
obligation ended, “Tom asked Schiffer to change the beneficiary
designation on his policy so that Jamie Pitts would no longer be the
25
primary beneficiary of the first $35,000 in proceeds.” Michele believed
Tom filled out the necessary paperwork to complete the change in
beneficiary, but she does not know what he did with it. Michele claims
that
in 2006 Tom came home from a meeting with Schiffer and
told [her] that [she] would receive all of the proceeds from
[Tom’s] life insurance policy when he passed away. . . . Tom
told [Michele] that he was sure because Schiffer told him
that [Michele] was now the sole beneficiary.
Michele also claims that two weeks after Schiffer met with Tom, Schiffer
confirmed with her in a telephone conversation that Jamie was no longer
a beneficiary under the policy. She further claims that Schiffer
continued to tell her that she was the sole beneficiary on the policy after
Tom’s death. In a meeting in Schiffer’s office, Schiffer explained to
Michele that she would be receiving the full amount of Tom’s life
insurance proceeds, which was about $108,000. It was during this
meeting that Schiffer learned that Tom’s daughter Jamie was still listed
as a beneficiary when he received a telephone call from Farm Bureau.
In an interrogatory, Michele asked Schiffer what procedure he
normally follows when an insured makes an oral request to change a
beneficiary. Schiffer responded,
If an insured orally requests a change in his or her life
insurance beneficiary designation, I inform the insured that
such a change may only be made in writing by the owner of
the policy. If the insured desires to go forward with the
change, I work with the insured to complete the paperwork
necessary to make the change, and submit the written
request to Farm Bureau’s home offices.
In its reply brief in support of its motion for summary judgment, Farm
Bureau claimed that the statements Tom made to Michele regarding his
beneficiary designation are inadmissible hearsay, or a violation of the
parol evidence rule, and therefore the statements could not be
26
considered when ruling on a motion for summary judgment. One day
before the district court granted summary judgment and dismissed the
case, Farm Bureau filed a motion in limine to exclude any statements
made by Tom on the ground that they are inadmissible hearsay. 7 The
district court granted summary judgment and dismissed the case based
on a lack of a duty on Farm Bureau’s part to make a change in
beneficiary. It therefore never decided the motion in limine and did not
address the hearsay claims Farm Bureau raised. Likewise, the district
court did not address whether Farm Bureau’s claim that any statements
Tom or Schiffer may have made regarding the beneficiary designation
were inadmissible under the parol evidence rule. In order to determine
the merits of the motion for summary judgment, we must review the
evidence offered by Michele to determine whether it is admissible and
whether the admissible evidence creates a genuine factual dispute.
We start by examining the applicability of the parol evidence rule
to Michele’s negligence claim. “The parol evidence rule forbids use of
extrinsic evidence to vary, add to, or subtract from a written agreement.”
I.G.L. Racquet Club v. Midstates Builders, Inc., 323 N.W.2d 214, 216 (Iowa
1982) (citation and internal quotation marks omitted). Michele does not
dispute that the beneficiary designation on the policy indicates Tom’s
daughter is still the primary beneficiary of the first $35,000 in proceeds.
She is not seeking to use extrinsic evidence to vary the terms of the
policy; she is seeking to use extrinsic evidence to show that Schiffer’s
negligence is the reason the terms of the policy still include Tom’s
daughter as the primary beneficiary. Under this theory of liability, the
7Farm Bureau has not argued that Schiffer’s statements to Michele would
constitute inadmissible hearsay. Therefore, we will consider the statements Michele
alleges Schiffer made to her when reviewing the motion for summary judgment.
27
parol evidence rule does not bar the admission of Schiffer’s statements to
Tom or Michele, or other evidence of Tom’s intent to remove his daughter
as the primary beneficiary.
Farm Bureau argues that several of the alleged oral
representations Michele relies on to defeat summary judgment are out-
of-court statements offered for their truth and therefore constitute
inadmissible hearsay. See Iowa Rs. Evid. 5.801(c), 5.802. Farm Bureau
also claims that “[t]o the extent Plaintiff argues these statements are
offered to show Mr. Pitts’ intent to name Plaintiff as the sole beneficiary
or his belief that he had done so, they are irrelevant and immaterial.” It
notes that “the policy required Mr. Pitts to express his intent by
submitting a signed written request to change his beneficiary
designation, and the fact that he did not do so is dispositive in this case.”
Again, Michele is not claiming that Tom successfully changed the
beneficiary on his life insurance policy by complying, or substantially
complying, with its terms. She is claiming that Tom intended her to be
the primary beneficiary of the entire policy, and Schiffer’s negligence
prevented that from occurring. Tom’s intent and belief about who was
named as the primary beneficiary on his policy are both relevant and
material considerations. With this use of the statements in mind, we
now consider Farm Bureau’s claim that some of the evidence contained
in Michele’s affidavit constitute inadmissible hearsay.
The first statements Farm Bureau claims are inadmissible hearsay
are Tom’s alleged statement to Schiffer at a meeting in 1993 “that the
child support obligation was only to be secured by life insurance until
[Tom’s daughter] turned 18” and that Tom asked Schiffer to remove his
daughter as the primary beneficiary of the entire policy once his support
obligation terminated because he wanted Michele to be the sole
28
beneficiary of the proceeds. Statements of the declarant’s intent are an
exception to the hearsay rule. Iowa R. Evid. 5.803(3). Under rule
5.803(3), statements of a declarant’s intent to act are admissible “to
prove declarant engaged in the intended action.” 7 Laurie Kratky Dore,
Iowa Practice Series, Evidence § 5.803:3, at 836–37 (2011) (citing state
and federal cases applying the doctrine established in Mutual Life Ins. Co.
v. Hillmon, 145 U.S. 285, 12 S. Ct. 909, 36 L. Ed. 706 (1892)). Since
Tom’s statement demonstrates his own intent to remove his daughter as
a primary beneficiary once his support obligation ended, it is admissible
to prove he took steps to remove his daughter as the primary beneficiary
of the first $35,000 of the proceeds of his life insurance policy. Michele’s
affidavit also states that Tom said she “would receive all of the proceeds
from his life insurance policy when he passed away.” This statement
would also be admissible to show Tom’s intent to give Michele all of the
proceeds of his life insurance policy. Iowa R. Evid. 5.803(3).
Schiffer’s statement to Tom would be admissions of a party
opponent and would be excluded from the hearsay rule under rule
5.801(d)(2). However, Tom relayed those statements to Michele,
interposing another layer of hearsay. In order to be admissible, the
statements Tom made to Michele must fall within another exemption or
exception to the hearsay rule. Id. r. 5.805. The only possible exception
that applies is the exception found in rule 5.803(3), which makes
admissible
[a] statement of the declarant’s then existing state of mind,
emotion, sensation, or physical condition (such as intent,
plan, motive, design, mental feeling, pain, and bodily health),
but not including a statement of memory or belief to prove the
fact remembered or believed unless it relates to the
execution, revocation, identification, or terms of declarant’s
will.
29
Id. r. 5.803(3) (emphasis added). Michele seeks to admit Tom’s
statement of his belief or memory of what Schiffer said to prove that
Schiffer actually said it. This type of statement is expressly excluded
from the exemption, “unless it relates to the execution, revocation,
identification, or terms of declarant’s will.” Id.
Michele acknowledges that Tom’s statement does not relate to the
terms of a will. However, she argues that it does relate to the designation
of a beneficiary of a life insurance policy and that the scope of rule
5.803(3) should be extended to include statements like Tom’s. See
Primerica Life Ins. Co. v. Watson, 207 S.W.3d 443, 447–48 (Ark. 2004)
(applying the exception to statements relating to the declarant’s
statements regarding his beliefs about the beneficiary of a life insurance
policy). In Primerica, the court noted that out of court statements of a
declarant’s belief are not admissible under the exception found in rule
803(3). Id. at 447–48. However, under Arkansas law, “provisions in life
insurance contracts with reference to beneficiaries or changes in
beneficiaries are in the nature of a last will and testament and, therefore,
‘are construed in accordance with the rules applicable to the
construction of wills.’ ” Id. at 448 (quoting Am. Found. Life Ins. Co. v.
Wampler, 497 S.W.2d 656, 658 (Ark. 1973)). The court thus found the
declarant’s statements of belief about the terms of his life insurance
policy admissible under the exception to the hearsay rule. Id.
This interpretation runs counter to the express language of rule
5.803(3), which, by its terms, only admits “a statement of memory or
belief to prove the fact remembered or believed [if] it relates to the
execution, revocation, identification or terms of declarant’s will.” When
the language of the rule is clear, we need not search for meaning beyond
the words used. We therefore decline to adopt Arkansas’s expanded
30
interpretation of its version of rule 5.803(3). Therefore, any statements
that Schiffer may have made to Tom that Tom then relayed to Michele
are inadmissible hearsay.
Even without Tom’s statement to Michele that, according to
Schiffer, she was now the primary beneficiary of the entire policy, there is
still enough evidence to create a factual dispute over who Tom’s intended
(not actual) beneficiary was and whether he expressed that intent to
Schiffer. There are also statements from Schiffer to Michele herself
where he stated that Michele was now the sole beneficiary. The alleged
admissions by Schiffer would also be admissible.
As noted above, Michele must also point to evidence in the written
instrument itself that identifies her as the intended beneficiary of the
entire policy. According to the last written beneficiary designation,
Michele was the primary beneficiary of all but $35,000 in proceeds,
which were payable to Tom’s daughter as required by a court order. In
other words, Tom’s intent, expressed in the policy itself, was that Michele
would receive all policy proceeds except for those that were required by
court order to be payable to Tom’s daughter. In 2005, when Tom’s child
support obligation ended, Tom was no longer required to maintain any
life insurance naming his daughter as the beneficiary. Thus the policy
provides evidence that Tom intended for all proceeds that were not
required to satisfy his child support obligation to be paid to Michele.
Having established that Michele has produced evidence from the
written instrument itself that she was the intended beneficiary, we now
turn to the question of whether summary judgment was appropriate.
A party is entitled to summary judgment when the record
shows no genuine issue of material fact and that the moving
party is entitled to a judgment as a matter of law. . . . “In
deciding whether there is a genuine issue of material fact,
31
the court . . . afford[s] the nonmoving party every legitimate
inference the record will bear.”
Kern, 757 N.W.2d at 657 (citations omitted) (alteration in original). In
this case, Michele has produced admissible evidence that Tom intended
to change his beneficiary designation. In response to an interrogatory,
Schiffer stated that if an insured made an oral request to change a
beneficiary designation, he would inform the insured that such a request
must be made in writing and he would then “work with the insured to
complete the paperwork necessary to make the change, and submit the
written request to Farm Bureau’s home offices.” Michele claims that she
believed Tom filled out the paperwork to complete the change, but she
does not know what he did with it. Further, she has produced
admissible evidence that after Tom met with Schiffer, Schiffer told her
that she was the primary beneficiary of the entire policy.
Assuming all of Michele’s factual allegations are true, it is
reasonable to infer that Tom told Schiffer he wanted to change the
beneficiary of his policy. It is also reasonable to infer that Schiffer
responded as he indicated in his interrogatory and that he provided Tom
with the paperwork necessary to change a beneficiary, the paperwork
that Michele believed Tom filled out. Based on Schiffer’s alleged
statement to Michele, it is reasonable to infer that Schiffer believed that
Tom had provided him with the paperwork necessary to make the
change. If Tom provided Schiffer with the paperwork necessary to
change his beneficiary designation, but the beneficiary designation was
not changed, it is reasonable to infer that some negligence on Schiffer’s
part led to Tom’s beneficiary designation remaining unchanged.
Michele and Schiffer dispute whether Tom intended to change the
beneficiary of his policy and whether he requested to change the
32
beneficiary of his policy. They dispute what representations Schiffer
made to Michele regarding the status of the beneficiary designation.
Depending on how these factual disputes are resolved it might be
reasonable to infer that Schiffer’s negligence was the reason that Michele
was not the primary beneficiary of the entire policy. Accordingly, there
were disputed issues of material fact and summary judgment on this
claim was inappropriate.
V. Michele’s Negligent Misrepresentation Claim.
Michele asserted a claim of negligent misrepresentation against
Farm Bureau and Schiffer. Farm Bureau moved for summary judgment
on this count, alleging “[t]he undisputed material facts establish that
Plaintiff’s negligent misrepresentation claim should also be dismissed
because Plaintiff cannot prove, as a matter of law, that she was harmed
in a transaction with a third party.” In its December 9, 2010 decision,
the district court did not specifically address the negligent
misrepresentation issue. Instead, after determining Schiffer’s failure to
act was based on a lack of authority, the court stated “the matter is
hereby dismissed.” One week later, Michele filed a motion to enlarge,
claiming there were disputed facts that precluded summary judgment on
Michele’s negligent misrepresentation claim. The motion was denied.
We will begin our discussion with a brief review of the tort of
negligent misrepresentation. When a negligent misrepresentation results
in personal injury or property damage, the claim is treated like any other
negligence claim. Van Sickle Constr. Co. v. Wachovia Commercial Mortg.,
Inc., 783 N.W.2d 684, 690 (Iowa 2010). “However, when the negligent
misrepresentation only interferes with intangible economic interests,
courts have developed more restrictive rules of recovery.” Id. Iowa first
recognized the tort in Ryan v. Kanne, 170 N.W.2d 395 (Iowa 1969), and
33
adopted the definition found in Restatement (Second) of Torts section
552. Ryan, 170 N.W.2d 403 at 403. According to the Restatement,
negligent misrepresentation is defined as follows:
(1) One who, in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, supplies false information for the
guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their
justifiable reliance upon the information, if he fails to
exercise reasonable care or competence in obtaining or
communicating the information.
(2) Except as stated in Subsection (3), the liability stated in
Subsection (1) is limited to loss suffered
(a) by the person or one of a limited group of persons
for whose benefit and guidance he intends to supply the
information or knows that the recipient intends to supply it;
and
(b) through reliance upon it in a transaction that he
intends the information to influence or knows that the
recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the
information extends to loss suffered by any of the class of
persons for whose benefit the duty is created, in any of the
transactions in which it is intended to protect them.
Restatement (Second) of Torts § 552, at 126–27 (1977). 8 This definition
does not rely on “the traditional foreseeability limitation applicable to
negligence claims” but instead limits “the group of persons to whom [a]
defendant may be liable, short of the foreseeability of possible harm.”
Sain v. Cedar Rapids Cmty. Sch. Dist., 626 N.W.2d 115, 123 (Iowa 2001)
(citations and internal quotation marks omitted); see also Van Sickle, 783
N.W.2d at 690.
8While this case concerns the existence of a duty, the concepts relating to duty
that are discussed in the Restatement (Third) of Torts apply to those situations where
tortious conduct causes physical and emotional harm, not economic loss. We will
therefore continue to use the principles we have developed based on section 552 of the
Restatement (Second) of Torts.
34
Our past cases have held that only those who are “in the business
of supplying information to others” can be liable for negligent
misrepresentation. Meier v. Alfa-Laval, Inc., 454 N.W.2d 576, 582 (Iowa
1990). We have explained the need for a more restricted view of liability:
This narrowing of the universe of potential defendants liable
for negligent misrepresentations promotes fairness by
ensuring that those liable are only those who supply
information in an advisory capacity and are “manifestly
aware” of how the information will be used and “intend[] to
supply it for that purpose.” The restriction also ensures that
those liable are “in a position to weigh the use for the
information against the magnitude and probability of the
loss that might attend the use of the information if it is
incorrect.”
Van Sickle, 783 N.W.2d at 691 (citations omitted) (alteration in original).
When determining whether a person is in the business of
supplying information to others, we consider several factors. We
distinguish between relationships that are arm’s-length and adversarial
and those that are advisory. Sain, 626 N.W.2d at 124–25. We also
consider whether the person providing the information “is manifestly
aware of the use that the information will be put, and intends to supply
it for that purpose.” Id. at 125. We consider whether the defendant gave
the information to the plaintiff “gratuitously or incidental to a different
service.” Id. We have also found it appropriate to consider the role the
defendant was playing when the alleged misrepresentation occurred. See
Meier, 454 N.W.2d at 581 (determining whether a cause of action would
lie where the defendant supplied information in his “role as a retail
merchant”).
We have found accountants, appraisers, school guidance
counselors and investment brokers all fall within this class of potential
defendants. Sain, 626 N.W.2d at 126; Larsen v. United Fed. Savings &
Loan Ass’n, 300 N.W.2d 281, 287–88 (Iowa 1981); Ryan, 170 N.W. 2d at
35
403; McCracken v. Edward D. Jones & Co., 445 N.W.2d 375, 376, 382
(Iowa Ct. App. 1989). However, we have refused to allow a suit for
negligent misrepresentation where the defendant was a retailer in the
business of selling and servicing merchandise, a seller who made
misrepresentations pursuant to the sale of a business, a bank officer
negotiating a loan guarantee with a bank customer, or an employer
negotiating with an employee for employment. Fry v. Mount, 554 N.W.2d
263, 266 (Iowa 1996); Freeman v. Ernst & Young, 516 N.W.2d 835, 838
(Iowa 1994); Haupt v. Miller, 514 N.W.2d 905, 906, 910 (Iowa 1994);
Meier, 454 N.W.2d at 581.
A life insurance agent falls somewhere between these two groups.
On the one hand, an insurance agent, like a retailer, sells a product to a
customer. This is clearly an arm’s-length transaction—the type of
relationship that cannot give rise to an action for negligent
misrepresentation. Any information given to the prospective customer at
this time would be incidental to the negotiations. At the time Schiffer
sold the policy to Tom, their relationship was that of seller and buyer, a
relationship that is clearly arm’s-length and adversarial, as opposed to
advisory, in nature. Farm Bureau states, “The only transaction at issue
in this case is the purchase of the Policy from Schiffer.” If that were the
case, then Schiffer would not be a proper defendant in a negligent
misrepresentation action.
However, Michele does not claim that Schiffer made negligent
misrepresentations when Tom purchased the policy in 1993. She claims
that at some point in 2006, Schiffer told her that Tom’s daughter was no
longer the primary beneficiary on the policy. At that point, Tom was
already an insured. “[T]he relationship between an insured and an
insurance agent is one of principal/agent.” Langwith, 793 N.W.2d at 219
36
(citing Collegiate Mfg., 200 N.W.2d at 858); Wolfswinkel v. Gesink, 180
N.W.2d 452, 456 (Iowa 1970) (“The agent or broker is liable on the theory
that he is the agent of the insured in negotiating for a policy and that he
owes a duty to his principal to exercise reasonable skill, care, and
diligence in effecting the insurance.”). We will keep Schiffer’s role as
Tom’s agent in mind when considering whether he was “ ‘in the business
of supplying information to others’ ” at the time the alleged
misrepresentations were made. Van Sickle, 783 N.W.2d at 691 (quoting
Meier, 454 N.W.2d at 582).
Other jurisdictions have recognized that negligent
misrepresentation actions can be brought against insurance
intermediaries. 1 Appleman, § 2.05[2][d][i], at 2-33 (listing cases
permitting the cause of action). Like Iowa, these jurisdictions apply the
definition of negligent misrepresentation that is found in section 552 of
the Restatement (Second) of Torts. See, e.g., Merrill v. William E. Ward
Ins., 622 N.E.2d 743, 748–49; (Ohio Ct. App. 1993); Nast v. State Farm
Fire & Cas. Co., 82 S.W.3d 114, 124 (Tex. App. 2002) (“We perceive no
reason why section 552 should not apply to insurance agents.”). Privity
of contract between the insurance agent and the party to whom the
misrepresentation was made is not required to maintain an action
against an insurance agent. Aesoph v. Kusser, 498 N.W.2d 654, 656–57
(S.D. 1993). Instead, such a duty arises out of “the relationship of the
parties, arising out of contract or otherwise, must be such that in morals
and good conscience the one has the right to rely upon the other for
information, and the other giving the information to give it with care.” Id.
(citation and internal quotation marks omitted); see also Merrill, 622
N.E.2d at 748–49.
37
These holdings are consistent with our rule limiting liability to
those in the business of supplying information. When Schiffer allegedly
advised Tom and Michele that Tom’s daughter was no longer the primary
beneficiary on the policy, he was functioning as Tom’s agent. The
advisory nature of the principal–agent relationship supports allowing a
claim of negligent misrepresentation. See Sain, 626 N.W.2d at 124–25.
Michele claims Schiffer knew that Tom intended to remove his daughter
as the primary beneficiary in favor of Michele. The logical consequence
of telling Michele and Tom that Tom’s daughter had been removed as the
primary beneficiary would be that Tom would not make further efforts to
remove his daughter as the primary beneficiary. Thus, Schiffer would
have to be “aware of the use that the information will be put.” Id. at 125.
The consequence of providing incorrect information regarding the identity
of the beneficiary of the policy is obvious and would clearly be
foreseeable to Schiffer. See Van Sickle, 783 N.W.2d at 691 (restricting
possible defendants to those “in a position to weigh the use for the
information against the magnitude and probability of the loss that might
attend the use of the information if it is incorrect” (citation and internal
quotation marks omitted)).
We conclude Schiffer is among the class of defendants against
whom an action for negligent misrepresentation may be brought. When
Schiffer allegedly made the misrepresentations at issue in this case, he
was acting as an insurance agent providing information regarding the
identity of a beneficiary of a life insurance policy to both the insured and
the intended beneficiary of the policy. The information was therefore
provided “ ‘in the course of his business, profession or employment.’ ” Id.
at 690 (quoting Restatement (Second) of Torts, § 552, at 126). The
information Schiffer provided was not given for his own benefit but was
38
instead provided for the benefit of Michele and her husband. See Sain,
626 N.W.2d at 126 (noting that a “school counselor does not act for his
or her own benefit, but provides information for the benefit of students”).
Schiffer did not directly receive payment for the advice; however, the
defendant’s pecuniary interest in providing the information may be
indirect. Id. How the information would be used and the possible harm
that might result if the information he provided was incorrect were both
foreseeable. Correctly informing the policyholder or the intended
beneficiary as to the identity of the beneficiary on a life insurance policy
is critical information that is essential to Schiffer’s role as an insurance
agent and “is not incidental to some more central function or service” he
provided to Tom. Id.
Even though Michele was not the policyholder, she is a proper
plaintiff in an action against Schiffer. Liability for negligent
misrepresentation is “limited to loss suffered . . . by the person . . . for
whose benefit and guidance [the defendant] intend[ed] to supply the
information or knows that the recipient intends to supply it.” Van Sickle,
783 N.W.2d at 690 (quoting Restatement (Second) of Torts § 552, at 126–
27). The alleged misrepresentations that Schiffer made to Michele were
also made in the course of Schiffer’s business, and Michele’s reliance on
these statements were equally foreseeable. Once Michele was told that
Tom’s daughter was no longer the primary beneficiary on the policy, she
had no reason to ask her husband to take further action to change the
policy or to obtain additional insurance on her husband’s life from
another source if Tom refused to take the necessary steps to effectively
change the beneficiary designation. Michele was named as the
beneficiary of any amount of proceeds beyond that which was necessary
to secure Tom’s child support obligation. When asked for information
39
regarding other potential beneficiaries, Schiffer was under a duty “to
exercise reasonable care to provide accurate representations about
existing information which was ascertainable by him.” Merrill, 622
N.E.2d at 749.
Schiffer and Michele dispute what representations Schiffer made to
her. Michele’s affidavit alleges that she asked Schiffer whether Tom’s
daughter was still the primary beneficiary under Tom’s policy and
Schiffer told her that Tom’s daughter “was no longer a beneficiary under
the policy.” In response to an interrogatory, Schiffer stated that while
Michele may have answered the telephone from time to time when he
called Tom, he could not recall any specific conversations he may have
had with Michele subsequent to Tom purchasing the life insurance.
There is, therefore, a genuine issue of material fact as to whether Schiffer
told Michele that Tom’s daughter was no longer the primary beneficiary
on the policy. This disputed fact is clearly material to the outcome of
this case. Summary judgment is therefore inappropriate at this time.
See Seneca Waste Solutions, 791 N.W.2d at 411. Since the district
court’s decision to grant summary judgment cannot be sustained on an
alternate ground, the district court’s decision is reversed, and the case is
remanded.
VI. Respondeat Superior.
Pitts’s respondeat superior claim against Farm Bureau was
dismissed along with the negligence and negligent misrepresentation
claims. As long as Schiffer’s liability remains unclear, it is impossible to
resolve this issue on summary judgment. Accordingly, the district
court’s order dismissing this claim is reversed as well.
40
VII. Disposition.
The district court erred when it granted Farm Bureau’s motion for
summary judgment and dismissed the case. There is a genuine issue of
material fact in dispute as to whether Michele was the intended
beneficiary of all the proceeds of Tom’s policy and whether Schiffer’s
negligence led to Tom’s intent not being carried out. There is also a
factual dispute over whether Schiffer made negligent misrepresentations
to Michele. These disputes over material facts make summary judgment
inappropriate at this time. Having found no alternative ground on which
to affirm the district court’s grant of summary judgment, we reverse the
decision of the district court, vacate the decision of the court of appeals,
and remand the case for further proceedings.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED AND CASE REMANDED.
All justices concur except Cady, C.J., and Mansfield and
Waterman, JJ., who dissent.
41
#11–0117, Pitts v. Farm Bureau Life Ins. Co.
MANSFIELD, Justice (dissenting).
I respectfully dissent. For the reasons stated herein, I would affirm
the well-reasoned decision of the court of appeals.
I. The Majority Incorrectly Eliminates the Previous Legal
Requirement that the Plaintiff’s Status as Intended Beneficiary of
the Asset Had to Appear in the Decedent’s Written Documentation.
The majority’s opinion is an unwarranted expansion, not an
application, of existing Iowa law. In Schreiner v. Scoville, we held that an
attorney who drafted a will leaving an interest in property to a beneficiary
could be liable in negligence for failing to take additional steps to protect
the beneficiary’s interest when the property was sold before the testator
died. 410 N.W.2d 679, 683 (Iowa 1987). We said that “a lawyer owes a
duty of care to the direct, intended, and specifically identifiable
beneficiaries of the testator as expressed in the testator’s testamentary
instruments.” Id. at 682 (emphasis added). We further stated, “If the
testator’s intent, as expressed in the testamentary instruments, is fully
implemented, no further challenge will be allowed.” Id. at 683.
We reaffirmed the same basic limitation in Holsapple v. McGrath,
521 N.W.2d 711, 713–14 (Iowa 1994). There we held the named grantees
of a quitclaim deed could sue the attorney who prepared the deed but
negligently failed to have it notarized. Id. While indicating that Schreiner
could be applied to inter vivos as well as testamentary transfers, we also
quoted the language from Schreiner that the plaintiff had to be a
“ ‘specifically identifiable’ beneficiary ‘as expressed in the testator’s
testamentary instruments.’ ” Id. at 713 (quoting Schreiner, 410 N.W.2d
at 682). We said that more than
an unrealized expectation of benefits must be shown; a
plaintiff must show that the testator (or here, the grantor)
42
attempted to put the donative wishes into effect and failed to
do so only because of the intervening negligence of a lawyer.
Id.; see also Carr v. Bankers Trust Co., 546 N.W.2d 901, 906 (Iowa 1996)
(noting that in Holsapple “the claimants were specifically identified and
the extent of their interest was known [and that t]he claimants were
undisputably the objects of the clients’ donative intent”). In short, prior
Iowa law allowed negligence claims by putative beneficiaries only to the
extent the plaintiff’s status as intended recipient of the property was
revealed in the written instrument.
The majority changes that law. It does so by removing the
limitation that the intent to provide for the beneficiary must have been
“expressed in” the written instrument. See Holsapple, 521 N.W.2d at
713. In this case, the life insurance policy concededly left the $35,000 to
Tom’s daughter, not Michele. The daughter, not Michele, was the
“expressed” beneficiary of the $35,000. Nothing in the transaction
documents indicated that Tom intended Michele to receive the $35,000.
Thus, we do not have a situation as in Schreiner and Holsapple where a
written plan was prepared and thwarted simply due to the negligence of a
professional. See Holsapple, 521 N.W.2d at 713 (citing Schreiner, 410
N.W.2d at 682–83). Instead, we have a swearing contest over whether a
change to the written plan was requested and over who is to blame for
failing to carry that change into effect.
The majority points out that Michele was the designated
beneficiary for all but $35,000 of the life insurance proceeds. The
majority goes on to emphasize that “the plaintiff must produce evidence
from the written instrument itself that indicates the plaintiff is the
intended beneficiary of the policy.” This is a worthwhile limitation. It
means that someone who is not referred to in the written documentation
43
as a beneficiary will not have a cause of action. But it does not erase the
fact that the majority is expanding the law. Under our prior law, the
salient question was whether the written instrument expressed an intent
to make her the beneficiary of the interest at issue, i.e., the $35,000. See
Carr, 546 N.W.2d at 906. Thus, today’s rule breaks new ground by
allowing people to bring negligence claims to increase the amount of their
payout over what the written documentation provided. And although the
majority’s partial caution is praiseworthy, it is difficult to see the rhyme
or reason of a rule that requires some mention in the written
documentation as an admission ticket but then permits the plaintiff to
argue the admission ticket was a mistake.
Allowing people to file suits alleging that someone who wasn’t their
agent negligently failed to arrange for them to receive a benefit—without
written proof they were supposed to receive that benefit—will lead to
uncertainty and instability. We would be better off sticking to the
Schreiner rule that if the intent expressed in the written instrument is
fully implemented, no challenge by an alleged beneficiary will be allowed.
Schreiner, 410 N.W.2d at 683. Notably, in past instances where persons
have been able to sue for failure to be properly designated as insurance
beneficiaries, there has almost always been written documentation to
establish their status as intended beneficiaries of those proceeds. See
United Olympic Life Ins. Co. v. Gunther, No. 92–36710, 1994 WL 96328,
*1 (9th Cir. March, 24, 1994) (allowing claim for negligence against
insurance company where written “Policy Change Request” form was
signed by the insured and the insurance company accepted the form,
improperly advised insured about requirements for changing the
beneficiary, and improperly advised the intended beneficiaries that they
were the actual beneficiaries); Jones v. Hartford Life & Accident Ins. Co.,
44
443 F. Supp. 2d 3, 7 (D.D.C. 2006) (plaintiff alleged that “she was the
named beneficiary” under the policy); Sun Life Assurance of Can. v.
Barnard, 652 So. 2d 681, 685 (La. Ct. App. 1995) (holding that an
insurance agent could be liable to an intended beneficiary of a life
insurance policy when the change of beneficiary form had been executed
but was not valid because the agent failed to date it properly).
The only exception to that pattern cited by the majority is Parlette
v. Parlette, a decision of Maryland’s intermediate appellate court. 596
A.2d 665, 670–71 (Md. Ct. Spec. App. 1991). That case involved some
unique facts. The son of divorced parents purchased a life insurance
policy from the father, an insurance agent. Id. at 667. The son died
three years later, and the mother learned at that point that the father
was the designated beneficiary. Id. Various friends and siblings of the
son informed the mother that the son had actually intended her to
receive the benefits of the policy. Id. An eyewitness reported that he was
present when the father had sold the policy to the son and that the
father had said he would make the mother the beneficiary. Id. at 668.
According to the witness, the son signed a blank application, but the
father later filled in his own name as beneficiary. Id.
The mother sued the father (her ex-spouse) for fraud and
negligence, among other claims. Id. at 667–68. The court held that the
negligence action could proceed to the jury. Id. at 670. Although
Parlette did not involve written documentation showing that the mother
was supposed to be the beneficiary, it has several distinctive facts. The
agent was not disinterested but was in a position to receive the proceeds
if the mother did not. Id. at 667. Also, there was eyewitness testimony,
not from the mother herself, to the effect that that the father-agent had
45
essentially tricked the son and the mother. Id. at 668. Nothing like
those facts is present here.
Meanwhile, there is a substantial body of law declining to allow
“intended beneficiaries” to maintain negligence actions against life
insurance agents. See, e.g., Jackson Nat’l Life Ins. Co. v. Cabrera, 48 F.
App’x 618, 619–20 (9th Cir. 2002) (holding any duty that arose out of
conduct by the life insurer’s agent was a duty to the insured as the
owner of the policy, not to the purported beneficiaries of the policy);
Smith v. Equifax Servs., Inc., 537 So. 2d 463, 464 (Ala. 1988) (“[A]
beneficiary named in a pending insurance application does not have a
right to maintain an action against an insurance company for negligently
processing an insurance application.” (citation and internal quotation
marks omitted)); State ex rel. William Ranni Assocs., Inc. v. Hartenbach,
742 S.W.2d 134, 140–41 (Mo. 1987) (holding that beneficiaries of a life
insurance policy were merely incidental beneficiaries who were not owed
any duties by the agent); cf. Rihon v. Wilson, 415 So. 2d 94, 95–96 (Fla.
Dist. Ct. App. 1982) (dismissing negligence action brought by additional
insured under automobile liability insurance policy against insured’s
agent); Workman v. McNeal Agency, Inc., 458 S.E.2d 707, 709 (Ga. Ct.
App. 1995) (finding that a plaintiff who alleged that she should have been
named on a liability policy as an additional insured could not maintain a
negligence action against the agent). None of those cases are discussed
by my colleagues.
If suits by “intended beneficiaries” are going to be allowed, there
are good reasons to limit them to situations where documentary proof
exists that the plaintiff was the intended beneficiary of the proceeds at
issue. The insured is no longer around to speak to his or her own intent.
All we know for certain is that the insured did not make a legally valid
46
designation of the plaintiff as beneficiary. A documentary proof
requirement, as we recognized in Schreiner and Holsapple, protects a
legally binding document from being circumvented by an opportunistic
claim that the decedent intended otherwise. If negligence law can be
used without limitation to modify the beneficiaries set forth in a written
instrument, then the instrument is drained of much of its legal force.
It makes sense for the life insurance company to require the
change in beneficiary to be made in writing. This avoids competing
claims to the same proceeds. It also avoids fraudulent claims. Allowing
a negligence recovery without written documentation as to the proceeds
at issue permits an end run around the contractual safeguard of
requiring the change to be in writing. The result is to expose the insurer
to potentially paying twice on the same death claim. Here, the daughter
as the named beneficiary collects the $35,000 while another $35,000
must be paid to the widow as the “intended” beneficiary if she wins her
negligence claim.
Moreover, while Farm Bureau and the agent, Schiffer, are separate
parties in this case, many life insurance policies are sold by captive
agents employed by the insurer. Could today’s majority holding apply
equally to captive agents? Again, the negligence claim based on mere
oral testimony eviscerates the otherwise enforceable contract
requirement that changes to the beneficiary designation must be in
writing.
Here, we do not really know whether Tom Pitts still wanted his
daughter to get the $35,000 upon his death and never executed the
written change form for that reason. He may have been mulling over the
matter in his own mind or stalling on having a difficult discussion with
his wife. This speculation and the risk of overtly fraudulent claims are
47
avoided by requiring written proof that Tom intended to replace his
daughter with his wife for that $35,000.
I also disagree with the majority’s view that there is no potential for
conflicts of interest. See generally J.A.H. ex rel. R.M.H. v. Wadle &
Assocs., P.C., 589 N.W.2d 256, 264 (Iowa 1999). Agents are supposed to
serve their principals. Once a legal obligation is imposed to protect the
interests of beneficiaries as well, the agent must of necessity balance the
wishes of the principal against the possibility of a disappointed alleged
beneficiary. For example, suppose an insured tells an agent in the
presence of his wife to make his wife the sole beneficiary of a life
insurance policy. Later, however, he tells the agent to have his daughter
remain as partial beneficiary and not to tell the wife he has done that.
The agent is now in a quandary because obeying the insured’s
instructions places the agent at risk of a lawsuit.
The majority dismisses this concern by stating that Michele is not
asserting a duty based on her status as a family member but as an
intended beneficiary, “a much more circumscribed group.” I fail to see
how this eliminates the potential for conflict of interest.
II. The Economic Loss Rule Should Preclude the Existence of
a Duty in This Case.
The majority’s ruling also carves out an unwarranted exception to
the economic loss rule. “As a general proposition, the economic loss rule
bars recovery in negligence when the plaintiff has suffered only economic
loss.” Annett Holdings, Inc. v. Kum & Go, L.C., 801 N.W.2d 499, 503
(Iowa 2011). 9
9Themajority points out that Farm Bureau failed to make a specific argument
concerning the economic loss rule. I do not believe that was necessary because the
economic loss rule is simply an aspect of the overall duty question that is at the core of
this case. In my view, we should proceed to apply the proper law to the duty question,
including the economic loss rule. However, given the majority’s decision to reserve the
48
In Annett Holdings, we reiterated the “well-established general rule
. . . that a plaintiff who has suffered only economic loss due to another’s
negligence has not been injured in a manner which is legally cognizable
or compensable.” Id. at 503 (citation and internal quotation marks
omitted). We further explained that the rule “is by no means limited to
the situation where the plaintiff and the defendant are in direct
contractual privity.” Id. at 504. “[T]he stranger economic loss rule”
applies to cases where the plaintiff sues the defendant seeking recovery
of pure economic losses suffered due to the defendant’s negligent
performance of a contract with a third party. Id. (“In a complex society
such as ours, economic reverberations travel quickly and widely,
resulting in potentially limitless liability.”). We also noted three
qualifications to the economic loss rule: (1) “actions asserting claims of
professional negligence against attorneys and accountants”;
(2) “negligent misrepresentation claims”; and (3) “when the duty of care
arises out of a principal-agent relationship.” Id. Michele’s general
negligence claim falls into none of these exceptions. She is not asserting
a professional negligence claim, nor is she alleging that she was a
principal to whom an agent breached a duty. 10
At the same time, Michele’s negligence claim shares the
characteristics of claims that we have historically rejected under the
_____________________________
application of the economic loss rule to the present facts for another day, I simply make
these comments to set forth my views at this time.
10The relationship between an intended beneficiary and an insurance agent is
not one of principal/agent. “Agency . . . results from (1) manifestation of consent by
one person, the principal, that another, the agent, shall act on the former’s behalf and
subject to the former’s control and, (2) consent by the latter to so act.” Pillsbury Co. v.
Ward, 250 N.W.2d 35, 38 (Iowa 1977); see also Peak v. Adams, 799 N.W.2d 535, 547
n.2 (Iowa 2011).
Apart from her general negligence claim, Michele has a separate negligent
misrepresentation claim, which is defective for reasons I discuss below.
49
economic loss rule. It is remote. Plaintiff’s theory is that the agent
negligently failed to perform his agency agreement with Tom, thereby
resulting in Tom failing to effectuate a beneficiary change, thereby
resulting in economic loss to Michele. Historically, this court has held
that remote parties alleging pure economic loss may not recover on a
negligence theory. See, e.g., id.; State ex rel. Miller v. Philip Morris Inc.,
577 N.W.2d 401, 406–07 (Iowa 1998); Anderson Plasters v. Meinecke, 543
N.W.2d 612, 613 (Iowa 1996); Tomka v. Hoechst Celanese Corp., 528
N.W.2d 103, 107 (Iowa 1995); Neb. Innkeepers, Inc. v. Pittsburgh-Des
Moines Corp., 345 N.W.2d 124, 127–30 (Iowa 1984). It is also an attempt
to bypass one or more contracts. See, e.g., Annett Holdings, 801 N.W.2d
at 503–05; Determan v. Johnson, 613 N.W.2d 259, 262–63 (Iowa 2000);
Preferred Mktg. Assocs. Co. v. Hawkeye Nat’l Life Ins. Co., 452 N.W.2d
389, 397 (Iowa 1990); Nelson v. Todd’s Ltd., 426 N.W.2d 120, 125 (Iowa
1988); Richards v. Midland Brick Sales Co., 551 N.W.2d 649, 650–52
(Iowa Ct. App. 1996). As noted by the district court, Tom entered into an
insurance policy with Farm Bureau that placed specific requirements on
what must be done to change a beneficiary. Also, Tom had a principal–
agent relationship with his insurance agent, Schiffer, and his estate
would have the ability to sue for breach of duties arising out of that basic
agreement. This action is essentially an effort by his widow to avoid the
effects of these two agreements.
The economic loss rule recognizes that many events may have a
ripple effect leading to financial consequences in our complex society and
generally honors the allocation of those risks by contract. “Th[e] rule is
partly intended to prevent . . . the tortification of contract law.” Annett
Holdings, 801 N.W.2d at 503. When physical harm occurs, or when
antisocial conduct such as fraud takes place, we have generally provided
50
the injured party with a set of judge-made rules of recovery—those of tort
law. But in dealing with mere economic loss, our judicial system has
historically allowed the parties to fix the rules themselves through
consensual arrangements, i.e., contracts.
The unfortunate side effect of the majority’s ruling is to give a
nonparty to a contract more rights than a party to the contract would
have. Tom’s estate could not have sued Farm Bureau because he failed
to execute and return a new beneficiary designation form. Farm Bureau
honored its contract with Tom. Yet now a putative beneficiary can
effectively modify those contractual obligations through the device of a
tort suit.
The majority correctly notes that the duty analysis in Thompson v.
Kaczinski, 774 N.W.2d 829, 834–36 (Iowa 2009), does not apply to
economic loss claims. But it errs in asserting (without citing a single
Iowa authority) that “[t]he critical element in establishing a duty is the
foreseeability of harm to a potential plaintiff.” If a remote party could sue
over any “foreseeable” economic loss resulting from the negligence of
another party, our common law would be turned upside down. I say
upside down because our precedents actually recognize something like
the opposite principle. Nelson, 426 N.W.2d at 125 (where the damage
was a foreseeable result from a failure of the product to work properly,
the remedy lies in contract); Richards, 551 N.W.2d at 651 (same).
Certainly, the losses that occurred in many if not all the economic loss
cases cited above were foreseeable. See, e.g., Neb. Innkeepers, 345
N.W.2d at 126 (harm to business owners from bridge closure).
I recognize that the majority’s holding appears to be limited to
insurance agents. But there is no reason to deviate from the economic
loss rule here.
51
III. The Majority’s Opinion Is Inconsistent with Recent
Legislation.
As noted by the court of appeals, while this case was on appeal the
General Assembly enacted the following legislation:
7. a. Unless an insurance producer holds oneself out
as an insurance specialist, consultant, or counselor and
receives compensation for consultation and advice apart
from commissions paid by an insurer, the duties and
responsibilities of an insurance producer are limited to those
duties and responsibilities set forth in Sandbulte v. Farm
Bureau Mut. Ins. Co., 343 N.W.2d 457 (Iowa 1984).
b. The general assembly declares that the holding of
Langwith v. Am. Nat’l Gen. Ins. Co., (No. 08–0778) (Iowa
2010) is abrogated to the extent that it overrules Sandbulte
and imposes higher or greater duties and responsibilities on
insurance producers than those set forth in Sandbulte.
2011 Iowa Acts ch. 70, § 45 (emphasis added) (amending Iowa Code
§ 522B.11 (2009)).
Sandbulte had set forth a bright-line rule that an insurance agent
does not owe a duty to advise his or her client regarding the client’s
insurance needs unless “the agent holds himself out as an insurance
specialist, consultant or counselor and is receiving compensation for
consultation and advice apart from premiums paid by the insured.” 343
N.W.2d at 464. Langwith overruled Sandbulte and decided that the
scope of an insurance agent’s duties to his or her client would be based
on a consideration of all the circumstances. 793 N.W.2d at 222. The
2011 legislation, in turn, negated the Langwith holding and expressly
provided that “the duties and responsibilities of an insurance producer
are limited to those duties and responsibilities set forth in Sandbulte.”
2011 Iowa Acts ch. 70, § 45 (emphasis added).
The specific issue in both Langwith and Sandbulte was the extent
of the agent’s duties to his or her client. Sandbulte had reiterated an
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earlier holding that agents have a duty “to use reasonable care, diligence,
and judgment in procuring the insurance requested by an insured.” 343
N.W.2d at 464 (citing Collegiate Mfg. Co. v. McDowell’s Agency, Inc., 200
N.W.2d 854, 858 (Iowa 1972)). Langwith allowed for the possibility of a
more extensive duty. 793 N.W.2d 219–223. This case concerns the
agent’s duties (if any) to a nonclient. Still, a case can be made that the
2011 legislation freezes the duties and responsibilities of agents to those
set forth in Sandbulte, which did not mention any duties to nonclients.
The court of appeals took a contrary view that this case is not controlled
by the 2011 legislation because it involves the same general duty of care
articulated in Sandbulte, the only question being whether that duty may
extend to an intended beneficiary of an insurance policy.
What is not debatable, however, is that the majority opinion
recognizes a duty on the part of insurance agents that has not heretofore
been recognized in Iowa. In 2011, the legislature put up a stop sign after
we modified our previous law of agent’s duties based on the Restatement
(Third) of Agency and a much larger and more persuasive body of
authority than my colleagues have cited here. Langwith, 793 N.W.2d at
220–23. At a minimum, further expansion of legal liability should be
backed by something more than the sprinkling of caselaw and treatise
citations in the majority opinion; otherwise, the public policy in this area
is best left to the legislature. See Galloway v. State, 790 N.W.2d 252,
259 (Iowa 2010) (Cady, J., dissenting) (stating that unless the public
policy is clear and apparent, “public policy is best left to our legislative
branch of government to decide as representatives of the people”). 11
11The majority’s conclusion regarding duty is also contrary to a venerable
precedent of this court. In Duffie v. Bankers’ Life Ass’n of Des Moines, the widow of a
life insurance applicant brought an action as designated beneficiary in the application
alleging that the insurer’s negligent delay in processing the application deprived her of
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IV. Under the Majority’s Own Reasoning, There Is No Basis for
a Negligent Misrepresentation Claim.
The majority engages in a thorough and accurate review of our
negligent misrepresentation precedents. Ultimately, though, its analysis
is undermined by a lack of conceptual clarity.
The majority has correctly described the two forks in the road.
Generally speaking, if A (or A’s agent) negligently provides false
information to B to guide B in a transaction with C, then a potential
negligent misrepresentation claim may lie. However, if A (or A’s agent)
negligently provides false information to B in a transaction with A, then
this is the classic situation involving only two parties where the tort of
negligent misrepresentation is not available. See generally Sain v. Cedar
Rapids Cmty. Sch. Dist., 626 N.W.2d 115, 125–26 (Iowa 2001).
According to the majority: “When Schiffer allegedly advised Tom
and Michele that Tom’s daughter was no longer the primary beneficiary
on the policy, he was functioning as Tom’s agent.” I agree that to the
extent Schiffer made a negligent misrepresentation in his capacity as
Tom’s agent to Tom regarding the status of beneficiaries, a potential
claim for negligent misrepresentation by Tom (or his estate) may lie. In
this scenario, Schiffer is like the guidance counselor in Sain. Id. at 126–
28. He was supplying information, as insurance agents do, to his client
Tom to guide Tom in a transaction with a third party, namely Farm
Bureau. Id.
However, the majority’s reasoning does not support a negligent
misrepresentation claim by Michele. Michele had no ability to designate
_____________________________
the insurance policy proceeds. 160 Iowa 19, 21, 139 N.W. 1087, 1087–88 (Iowa 1913).
She also filed a petition as administratrix. Id. at 19, 139 N.W. at 1087. We held that
she could pursue the negligence claim on behalf of the estate but could not maintain
her negligence action as beneficiary because “the negligence, if any, was that of failing
to discharge a duty owing the deceased.” Id. at 29, 139 N.W. at 1090.
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beneficiaries under the life insurance policy. The only action she could
have taken was to try to influence Tom to take some action. Thus, any
statements made to her by Schiffer as Tom’s agent were not statements
for her guidance in dealings with someone else; they were statements for
her guidance in dealings with Tom. See id. at 126. Put another way,
could Michelle have sued Tom for negligently misrepresenting that she
was going to receive the $35,000? Clearly not. Therefore, she cannot
sue a person who was making statements on Tom’s behalf either. See
Haupt v. Miller, 514 N.W.2d 905, 910 (Iowa 1994) (finding that the
motions to dismiss filed by individuals who allegedly made negligent
misrepresentations in their capacity as officers and directors of the party
on the other side of the transaction from the plaintiff should have been
granted). 12
The majority cites a treatise to try to suggest that its position is
within the legal mainstream. See 1 Jeffrey E. Thomas & Francis J.
Mootz, New Appleman on Insurance Law Library Edition § 2.05[2][d][i], at
2-33 to 2-34 (2011). However, this treatise discussion is part of a section
entitled, “Intermediaries’ Liability to Insureds.” Id. at 2-28. The only
actual case cited by the majority where a putative beneficiary was
allowed to sue the insured’s agent is Merrill v. William E. Ward Ins., 622
N.E.2d 743 (Ohio Ct. App. 1993). That case involved somewhat
12I acknowledge that terms like “arm’s length” and “adversarial” would not apply
to Schiffer’s alleged conversations with Tom and Michele. See Sain, 626 N.W.2d at 126.
But just as we emphasized in Sain that negligent misrepresentation can exist as a
cause of action even when there is no business transaction, id. at 125–26, so it also
needs to be emphasized that what matters is the alignment of the parties—i.e., did the
information supplied “harm[] the plaintiff in its relations with third parties, as opposed
to harm to a plaintiff in its relations with the provider of the information”? Id. at 126.
When the transaction is not a business transaction, we are not going to see typical
arm’s length behavior. It would be incongruous of us to relax the “business
transaction” element of negligent misrepresentation in Restatement (Second) of Torts
§ 522, while strictly requiring “arm’s length” behavior for an exclusion from that tort.
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exceptional facts. After being diagnosed with a fatal illness, the decedent
executed a will leaving the proceeds of his insurance policies to his
children. Merrill, 622 N.E.2d at 746. At the same time, he executed a
change of beneficiary form for one of the insurance policies deleting his
wife as beneficiary. Id. However, the decedent’s insurance agent had
written a letter which stated incorrectly that the wife was not a
beneficiary of another policy. Id. at 745–46. No change of beneficiary
occurred as to that policy. Id. Following the decedent’s death, the
children discovered what had happened and sued the agent for negligent
misrepresentation. Id. at 746. The Ohio Court of Appeals held that the
children’s negligent misrepresentation claim could go to the jury. Id. at
748–50. The decision strikes me as somewhat result-oriented. The court
concedes that the children could not have relied on the agent’s
misrepresentations, but without citation of authority concludes that
“evidence of decedent’s reliance is sufficient to impose liability for
defendants’ negligent misrepresentation.” Id. at 749–50. 13
Finally, even if I agreed with the majority that Michele could bring
a negligent misrepresentation claim against Schiffer, the majority cannot
credibly explain why it does not affirm summary judgment for Farm
Bureau on that claim. According to the majority, Schiffer was acting as
Tom’s agent; indeed, that is essential to the majority’s analysis. So there
is no basis for Farm Bureau to be vicariously liable for Tom’s conduct
under respondeat superior.
For the foregoing reasons, I dissent and would affirm the dismissal
of the negligence and negligent misrepresentation claims.
Cady, C.J., and Waterman, J., join this dissent.
13Notably, there was considerable written documentation to establish the
decedent’s intent to make his children the beneficiaries, unlike here. See part I of my
dissent, above.
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