Walnut Creek Townhome Association v. Depositors Insurance Company

IN THE SUPREME COURT OF IOWA
No. 16–0121
Filed June 1, 2018
WALNUT CREEK TOWNHOME ASSOCIATION,
Appellant,
vs.
DEPOSITORS INSURANCE COMPANY,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Polk County, Robert B.
Hanson, Judge.
Property insurer seeks further review of court of appeals decision
that reversed district court judgment rejecting appraisal award. COURT
OF APPEALS DECISION VACATED; DISTRICT COURT JUDGMENT
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH
INSTRUCTIONS.
Timothy D. Johnson of Roeder Smith Jadin, PLLC, Bloomington,
Minnesota, and Anthony R. Epping of Epping Law Office, P.C.,
Des Moines, for appellant.
Jeff M. Margolin and Apryl M. DeLange of Hopkins and Huebner,
P.C., Des Moines, for appellee.
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WATERMAN, Justice.
In this appeal, we must decide whether the district court erred by
rejecting an insurance appraisal award for hail damage to roofing
shingles. This case presents a question of first impression in Iowa that
has divided the courts of other jurisdictions: whether the appraisers may
determine the cause of the loss. The insured townhome association was
already investigating a warranty claim against the manufacturer seeking
replacement of allegedly defective shingles when the hailstorm occurred.
The property insurer paid for damage to metal gutters and fascia but
disputed whether the hail caused damage to the asphalt shingles and
denied coverage based on the preexisting manufacturing defect. The
Association sued the insurer for breach of contract and invoked the
appraisal provision of the property insurance policy to ascertain the
amount of the loss from the hailstorm. The appraisal panel considered
conflicting expert opinions and, in a two-to-one decision, valued the hail-
damage loss at approximately $1.4 million. The district court held a
bench trial, rejected the appraisal award, found no shingle damage from
hail, applied an exclusion for defective materials, and entered judgment
in favor of the insurer. The Association appealed, and we transferred the
case to the court of appeals.
The court of appeals held the district court erred by rejecting the
appraisal award for shingle damage and remanded for entry of judgment
on the appraisal award, excluding amounts for air conditioners not
owned by the insured. A dissenting judge would have affirmed the
district court judgment against the insured, concluding the district court
was not bound by the appraiser’s determination of the cause of the loss.
We granted the insurer’s application for further review.
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We hold the district court erred by disregarding the appraisal
award’s determination of the amount of the loss for shingles damaged by
the hailstorm. We are persuaded by the court’s holding that appraisers
may determine the factual cause of damage to insured property to
ascertain the amount of the loss. Coverage questions, however, are to be
resolved by the court. The appraisal did not address the extent of
preexisting shingle damage excluded from coverage through the
insurance policy’s anticoncurrent-cause provision. That issue must be
decided by the court on remand. We therefore vacate the decision of the
court of appeals and remand the case for further proceedings consistent
with this opinion.
I. Background Facts and Proceedings.
Walnut Creek Townhome Association (Walnut Creek or the
Association) is a residential common interest community in Urbandale.
The thirty-six multifamily buildings at Walnut Creek were built between
2004 and 2006. Walnut Creek is governed by a board of directors. In
2011, the board began investigating the need to replace the shingles on
the roofs installed during the original construction. The type of shingle—
New Horizon manufactured by CertainTeed—was regarded by roofing
professionals to be defective.
Marcus Harbert, a professional roofer for Hedberg & Son Roofing,
evaluated the life expectancy of the roofs in the spring or summer of
2011. He inspected the roofs of three buildings. Harbert observed
“[c]racking, crazing of appliques,[1] [and] significant granule loss
1According to a professional engineer who testified for Depositors, “craze
cracking” means “the cracks in the asphalt are meandering in different directions,” and
the phenomenon is “a result of . . . unreinforced asphalt shrinking as it weathers. And
as it weathers and shrinks, the cracks form, and granules displace around them.”
4
throughout the whole shingle itself.” CertainTeed shingles carry a
twenty-five-year warranty, but Harbert recommended to Mike Gooding,
Hedberg’s residential salesperson, that the shingles be replaced within
five years. Gooding relayed this information to the Association’s board.
Minutes of the board meetings in 2011 and 2012 show the board was
preparing to replace the roofs.
On August 8, 2012, a severe wind and hailstorm hit Walnut Creek.
One resident described the hail as “pea size” and “dime size” and noted
that it covered his entire deck. Within a week after the storm, Harbert
inspected the roofs at Walnut Creek again, this time for hail damage. He
concluded the hail impacts were not significant enough “to warrant
calling for an insurance claim.” However, Harbert recommended to
Gooding that Walnut Creek follow through with the CertainTeed
warranty claim.
In September, Walnut Creek asked Nicholas Waterman, a roofing
renovator with GreenGuard Construction, to inspect the roofs for hail
damage. Waterman found between eight to twelve hits per ten-by-ten-
foot square and concluded that “[t]he roofing definitely had hail damage.”
Waterman testified that his standard practice was to ignore hits to the
applique because damage to this area is “not accepted in the insurance-
related field.” He acknowledged that he will sometimes examine an area
twice as large as the usual ten-by-ten-foot square to make up for the
applique area that is ignored.
Walnut Creek is insured by Depositors Insurance Company
(Depositors). The insurance policy provides,
_______________________
An expert for Walnut Creek testified that the applique is “a second layer of
granules . . . basically glued onto the base layer . . . [to] add[] a dimensional look to it.”
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A. COVERAGES
We will pay for direct physical loss of or damage to
Covered Property at the described premises in the
Declarations caused by or resulting from any Covered
Cause of Loss.
The policy defines “Specified Causes of Loss” to include a “windstorm or
hail.” The policy sets forth exclusions and limitations:
3. COVERED CAUSES OF LOSS
This Coverage Form insures against Risks Of Direct
Physical Loss unless the loss is:
a. Excluded in Section B. EXCLUSIONS;
b. Limited in paragraph A.4. LIMITATIONS in this
section; or
c. Limited or excluded in Section E. PROPERTY LOSS
CONDITIONS or Section F. PROPERTY GENERAL
CONDITIONS.
The section on exclusions includes an anticoncurrent-cause provision
which states,
1. We will not pay for loss or damage caused directly or
indirectly by any of the following. Such loss or damage
is excluded regardless of any other cause or event that
contributes concurrently or in any sequence to the
loss. These exclusions apply whether or not the loss
event results in widespread damage or affects a
substantial area.
The section continues, “2. We will not pay for loss or damage caused by
or resulting from any of the following . . . [r]ust or other corrosion, decay,
deterioration, hidden or latent defect or any quality in property that
causes it to damage or destroy itself.”
The section on exclusions also provides,
3. We will not pay for loss or damage caused by or
resulting from any of the following
....
c. Negligent Work.
Faulty, inadequate, or defective:
....
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(2) Design, specifications, workmanship, work
methods, repair, construction, renovation,
remodeling, grading, compaction, failure to
protect the property;
(3) Materials used in repair, construction,
renovation or remodeling . . . .
Walnut Creek submitted an insurance claim to Depositors, alleging
that the August 8 storm caused damage to the roofs, gutters, siding,
soffits, and air conditioning units and that the policy covered such
damage. Depositors retained Haag Engineering to conduct a hail damage
inspection. Two engineers—Robert Danielson and Richard Herzog—
inspected the roofs on December 12 to 14. They prepared a report dated
January 18, 2013. In the report, Danielson noted that there were nine
hail events in the Urbandale area between 2006 and September 2012.
The report concluded, “There was no hail-caused damage to shingles on
the Walnut Creek Townhome Association property roofs.”
Timothy Barthelemy, a public adjuster, assessed the buildings for
Walnut Creek in 2013. Barthelemy observed nine to eleven hits per ten-
by-ten-foot square. Barthelemy concluded that the hail caused damage
to the buildings. Barthelemy inspected the roofs with a representative of
Haag Engineering and Jason Johnson, the adjuster for Depositors.
On February 13, Depositors sent Walnut Creek a reservation-of-
rights letter, noting its “investigation reveal[ed] no hail damage to the
composition shingle roof covering of the subject buildings” at Walnut
Creek. Depositors denied most of Walnut Creek’s claim but payed
Walnut Creek $124,656.79 for hail damage to the “soft metals” (such as
the gutters, downspouts, and fascia).
Walnut Creek exercised its right to an appraisal under the parties’
insurance policy. The policy provides,
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If we and you disagree on the amount of loss, either
may make written demand for an appraisal of the loss.
In this event, each party will select a competent and
impartial appraiser after receiving a written request
from the other, and will advise the other party of the
name of such appraiser within 20 days. The two
appraisers will select an umpire. If appraisers cannot
agree, either may request that selection be made by a
judge of a court having jurisdiction. The appraisers
will state separately the value of property and the
amount of loss. If they fail to agree, they will submit
their differences to the umpire. A decision agreed to
by any two will be binding. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and
umpire equally.
If there is an appraisal, we will still retain our right to
deny the claim.
Walnut Creek and Depositors each named an appraiser, and their
appraisers selected an umpire. Before the appraisal occurred, Walnut
Creek filed a civil action against Depositors in district court for breach of
contract and sought a declaratory judgment “that the appraisal award
form specify the amount of the covered loss.”
In July 2014, Walnut Creek filed a motion for summary judgment,
requesting the court order an appraisal, “identify any issues of coverage
or causation related to coverage issues or exclusions,” and approve an
appraisal award form. Depositors resisted and filed a cross-motion for
partial summary judgment to dismiss Walnut Creek’s declaratory
judgment claim. After a hearing, the court denied Walnut Creek’s motion
for summary judgment. The court granted Depositors’ cross-motion for
partial summary judgment and dismissed Walnut Creek’s claim for
declaratory judgment. The court set the bench trial for April 27, 2015,
but later continued the trial to May 27.
The appraisal took place on May 5, 2015. Depositors participated
in the appraisal, subject to an explicit reservation of the right to
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challenge coverage after completion of the appraisal. Walnut Creek
selected James Pierce as its appraiser, while Depositor selected Eric
Howell. Pierce and Howell selected Larry Roth as the umpire. Howell, a
property adjuster, testified that he worked with Roth on one other
appraisal when Roth served as the umpire. Howell testified that he
approved Roth as the umpire because Howell believed Roth “would be
bringing an independent engineer experienced in assessing hail damage
to the inspection to consult with.”
Roth did not bring an expert on hail damage to the appraisal. The
appraisers inspected five buildings. Harbert, Waterman, Barthelemy,
and Danielson all attended the appraisal. Harbert, who had inspected
Walnut Creek’s roofs again in the spring of that year, concluded that the
roofs needed to be replaced solely because of the manufacturer’s defect.
Harbert mentioned the CertainTeed warranty, so the appraisal panel was
aware of the Association’s warranty option. Danielson presented to the
appraisal panel his opinion that hail did not cause the damage to the
shingles.
Waterman, however, took the position that “everything [they] were
looking at was bona fide hail damage” and explained his opinion to the
appraisers and umpire. Barthelemy agreed that the damage was caused
by the August 8, 2012 storm. On May 5, the appraisers and umpire
issued a written award. The appraisal award stated,
The Appraisers and Umpire above-referenced hereby agree
and stipulate that the appraisal herein is limited in scope to
the amount of loss and damage as a result of a hail and
windstorm that occurred on or about August 8, 2012. The
award does not include an evaluation or determination of
coverage, policy exclusions or the relative causation of the
same.
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The award continued,
We, the undersigned, pursuant to our appointment, certify
that we have truly, conscientiously and impartially
performed the duties assigned us and have appraised and
determined and do hereby award the following amount of
loss. Minimum of two signatures required.
The appraisal award set the amount of loss at $1,467,830. 2 Only Pierce
and Roth signed the award; Howell did not sign because he disagreed
with the final number.
Depositors disputed whether there was coverage for the loss, and
the case proceeded to a bench trial, as scheduled. At trial, Walnut Creek
argued that Depositors breached the insurance contract by denying
coverage for the damage caused to Walnut Creek’s roofs by the August 8,
2012 wind and hailstorm. Walnut Creek also sought a declaratory
judgment enforcing the appraisal award. Depositors claimed there was
no breach of contract because the roof damage was due to multiple
concurrent causes, and such damage is excluded from coverage by the
policy’s anticoncurrent-cause provision. Depositors also argued that the
air conditioning units included in the appraisal award were not covered
because the units were owned by individual residents rather than the
insured Association. Depositors claimed the appraisal award is neither
binding nor conclusive, and alternatively, if coverage existed, any liability
should be reduced by the amount of any warranty negotiated with
CertainTeed, the manufacturer of the defective shingles.
Waterman and Barthelemy testified for Walnut Creek. Both
acknowledged that the CertainTeed shingles were defective but
2Thisincluded the replacement cost of the air conditioners, which the court later
determined did not belong to Walnut Creek and, therefore, were not covered by the
policy.
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concluded that there was hail damage to the roofs attributable to the
August 8, 2012 storm.
Misty Benge, the property manager of Walnut Creek, testified that
the board directed her to sign a warranty extension with CertainTeed.
She executed the CertainTeed release on February 4, 2015. Benge also
testified that, to her knowledge, Walnut Creek had not applied for the
warranty yet and had not given her approval to do so.
Danielson and Harbert testified for Depositors. Danielson
explained that when he inspected the roofs, the shingles “show[ed] signs
of weathering, craze cracking in the applique portion, [and] granular loss
in the applique portion,” as well as “variations in the amount of granule
loss in the . . . non-applique portion.” Danielson testified that he found
craze cracking on a majority of the shingles on the roofs at Walnut
Creek. Danielson testified that he did not find any evidence of hail
damage. When asked if pea-sized hail could cause hail damage to the
shingles on the roofs at Walnut Creek, Danielson answered, “Absolutely
not.” He also testified that dime-sized hail would not cause damage to
the shingles.
On August 19, the district court issued its findings of fact,
conclusions of law, and judgment. The court concluded that Depositors
did not breach the contract because the policy did not cover the damage
to Walnut Creek’s roofs. The court determined that the policy excludes
coverage of the roof damage because (1) Walnut Creek did not prove the
storm was the only cause of the physical damage to the roofs, (2) Walnut
Creek did not disprove Depositors’ contention that the shingles contained
a product defect that triggered deterioration, and (3) the defective
shingles were used in the construction of the townhomes even though
the defect was well-known in the roofing industry.
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The court also determined that the appraisal award was “neither
binding nor conclusive upon the parties.” The court relied on the factors
set forth in the court of appeals decision in North Glenn Homeowners
Ass’n v. State Farm Fire & Casualty, 854 N.W.2d 67, 71 (Iowa Ct. App.
2014) (Whether an appraisal is binding and conclusive depends “on the
nature of the damage, the possible causes, the parties’ dispute, and the
structure of the appraisal award.” (quoting Quade v. Secura Ins., 814
N.W.2d 703, 707–08 (Minn. 2012))). The district court found that the
damage to the shingles resulted from multiple concurrent causes,
including the preexisting defect in the shingles; Walnut Creek was aware
of the policy exclusions; and the appraisal, which was not signed by all
parties, only addressed one of the causes of roof damage. The court
concluded that Walnut Creek did not meet its burden of showing the
appraisal award was binding and conclusive on the parties. The court
denied Walnut Creek’s breach of contract claim and claim for declaratory
judgment.
Walnut Creek filed a motion for enlargement or amendment under
Iowa Rule of Civil Procedure 1.904(2) and for a new trial under rule
1.1004. After a hearing, the court denied Walnut Creek’s motions,
concluding that Walnut Creek “basically asks the court to revisit matters
that it has already adequately addressed in its final ruling.”
Walnut Creek appealed, and we transferred the case to the court of
appeals. Depositors argued Walnut Creek’s appeal was untimely
because the insured’s rule 1.904(2) motion merely rehashed its
arguments and did not stop the thirty-day time clock to appeal the
judgment. The court of appeals determined Walnut Creek’s rule 1.904(2)
motion was proper and its appeal was timely. On the merits, the court of
appeals determined the district court misapplied the North Glenn factors.
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The appellate court explained that the purpose of the North Glenn test “is
to evaluate the structural and environmental underpinnings of the
appraisal award and search out evidence of fraud, mistake, or
malfeasance.” The court of appeals held “the appraisal’s conclusions as
to the amount of loss and causation [are] binding and conclusive.” The
court of appeals rejected the district court’s conclusion that the shingles
contained a product defect that triggered deterioration (and therefore
precluded recovery under the “Other Types of Losses” category of
exclusions), noting that it was inconsistent with the binding conclusions
of the appraisal panel. For the same reason, the court of appeals
rejected the district court’s conclusion that the defective construction
bars recovery.
The court of appeals rejected Walnut Creek’s request for additional
funds to pay the “soft metals” replacement costs. While the appraisal
award determined the replacement cost was $159,541.51, Depositors
paid Walnut Creek $124,656.79 for the damage to the “soft metals.”
Because the policy states, “We will not pay on a replacement cost basis
for any loss or damage . . . [u]ntil the lost or damaged property is actually
repaired or replaced,” and Walnut Creek did not show it completed
repairs, the court of appeals concluded Walnut Creek was not entitled to
additional payment for the “soft metals.”
The court of appeals reversed the judgment of the district court as
to the appraisal award and the breach of contract claim. The court of
appeals remanded with directions to enter judgment in Walnut Creek’s
favor consistent with the appraisal panel’s award (but excluding the
amount predicated on damage to the air conditioning units).
One judge dissented. The dissenting judge concluded that
causation should not be considered by the appraisal panel, so “[t]he
13
district court was well within its authority to disregard the appraisal
panel’s determination on causation.” The dissent also noted that
because the appraisal award expressly disclaimed that it determined
relative causation, it was “incumbent upon the district court to resolve
any coverage issues, policy exclusions, and issues of concurrent
causation.” The dissenting judge would affirm the district court’s
judgment.
Depositors applied for further review, which we granted.
II. Standard of Review.
We review a district court’s interpretation of an insurance policy
for correction of errors at law. Boelman v. Grinnell Mut. Reins. Co., 826
N.W.2d 494, 500 (Iowa 2013). The district court’s factual findings in a
bench trial “are binding on appeal if supported by substantial evidence.”
Pudil v. State Farm Mut. Auto. Ins., 633 N.W.2d 809, 811 (Iowa 2001). We
review the district court’s legal conclusions for correction of errors at law.
Frunzar v. Allied Prop. & Cas. Ins., 548 N.W.2d 880, 884 (Iowa 1996).
III. Analysis.
We must decide whether the district court erred by failing to
enforce the appraisal award. We begin with an overview of the insurance
policy appraisal provision and caselaw applying the standard policy
language. We conclude the better-reasoned cases permit appraisers to
decide the factual cause of damage to insured property to determine the
amount of the loss. The court is to decide coverage questions, but the
appraisers’ determination of the factual cause and monetary amount of
the insured loss is binding on the parties absent fraud or other grounds
to overcome a presumption of validity.
A. The Appraisal Provision. Iowa Code section 515.109
prescribes a standard form fire insurance policy to be used in the State
14
of Iowa. Iowa Code § 515.109(1) (2016). The standard policy includes an
appraisal provision. Id. § 515.109(6)(a). The appraisal provision in the
Iowa Code is based on the 1943 New York Standard Fire Policy adopted
in most states. See C.T. Drechsler, Annotation, Remedies of Insured
Other than Direct Action on Policy Where Fire or Other Property Insurer
Refuses to Comply with Policy Provisions for Appointment of Appraisers to
Determine Amount of Loss, 44 A.L.R. 2d 850, § 1 & n.2, at 850–51 (1955)
(recognizing Massachusetts, New Hampshire, Minnesota, and Texas as
the only states that have not adopted the New York Standard Fire Policy).
Iowa property insurers must use policy language that is the
“substantial equivalent” to the standard form’s terms. See Iowa Code
§ 515.109(5) (“An insurer may issue a policy, . . . which contains
coverage against the peril of fire and substantial coverage against other
perils, if such policy includes provisions with respect to the peril of fire
which are the substantial equivalent of the minimum provisions of such
standard policy, provided [additional requirements are met].”); see also
Sager v. Farm Bureau Mut. Ins., 680 N.W.2d 8, 13 (Iowa 2004) (“Iowa’s
statute only prohibits those policies which are not the ‘substantial
equivalent’ of the statutory policy.”), superseded by statute on other
grounds, 2005 Iowa Acts ch. 70, §§ 19–21 (codified at Iowa Code
§ 515.109), as recognized in Postell v. Am. Family Mut. Ins., 823 N.W.2d
35, 48–49 (Iowa 2012). The Depositors insurance policy appraisal
provision (on the left column), except for the final sentence, is the
substantial equivalent of the prescribed statutory language for appraisals
in the Iowa Code (on the right).
Appraisal. If we and you Appraisal. In case the
disagree on the amount of insured and this company
loss, either may make shall fail to agree as to the
written demand for an actual cash value or the
15
appraisal of the loss. In amount of loss, then, on the
this event, each party will written demand of either,
select a competent and each shall select a
impartial appraiser after competent and
receiving a written request disinterested appraiser and
from the other, and will notify the other of the
advise the other party of appraiser selected within
the name of such appraiser twenty days of such
within 20 days. The two demand. The appraisers
appraisers will select an shall first select a
umpire. If appraisers competent and
cannot agree, either may disinterested umpire; and
request that selection be failing for fifteen days to
made by a judge of a court agree upon such umpire,
having jurisdiction. The then, on request of the
appraisers will state insured or this company,
separately the value of such umpire shall be
property and the amount of selected by a judge of a
loss. If they fail to agree, court of record in the state
they will submit their in which the property
differences to the umpire. covered is located. The
A decision agreed to by any appraisers shall then
two will be binding. Each appraise the loss, stating
party will: separately actual cash
value and loss to each item;
a. Pay its chosen and, failing to agree, shall
appraiser; and submit their differences,
only, to the umpire. An
b. Bear the other expenses award in writing, so
of the appraisal and umpire itemized, of any two when
equally. filed with this company
shall determine the amount
If there is an appraisal, we
of actual cash value and
will still retain our right to
loss. Each appraiser shall
deny the claim.
be paid by the party
Depositors policy § E.2 selecting the appraiser and
(emphasis added). the expenses of appraisal
and umpire shall be paid by
the parties equally.
Iowa Code § 515.109(6)(a).
To the extent the final sentence of Depositors’ appraisal provision
purports to change the meaning of the provision, it is unenforceable as
16
not substantially equivalent to the standard policy provision. See Sager,
680 N.W.2d at 13.
We last addressed the insurance appraisal provision in 1991. We
observed the “appraisal is a supplementary arrangement to arrive at a
resolution of a dispute without a formal lawsuit.” Cent. Life Ins. v. Aetna
Cas. & Sur. Co., 466 N.W.2d 257, 260 (Iowa 1991). We emphasized that
the appraisal “serves as an inexpensive and speedy means of settling
disputes over matters such as the amount of loss and value of the
property in question.” Id. A federal district court aptly noted the
appraisal is “favored by both the Iowa legislature and the Iowa Supreme
Court as a means for narrowing disputes that may ultimately have to be
resolved in litigation.” Terra Indus., Inc. v. Commw. Ins. Co. of Am., 981
F. Supp. 581, 605 (N.D. Iowa 1997).
Other courts have noted the efficacy of these insurance appraisal
provisions. The Minnesota Supreme Court stated,
Minnesota has mandated appraisal clauses in fire
insurance policies since 1895. [Appraisal] provisions have
been included in property casualty policies for over 100
years as a means to provide “the plain, speedy, inexpensive
and just determination of the extent of the loss.” Appraisal
clauses are also required for insurance policies that protect
against damage caused by hail. Accordingly, there is a
strong public policy in Minnesota favoring appraisals . . . .
Quade, 814 N.W.2d at 707 (citations omitted) (quoting Kavli v. Eagle Star
Ins., 288 N.W. 723, 725 (Minn. 1939)). The Wisconsin Supreme Court
similarly observed,
[T]he appraisal process is a fair and efficient tool for
resolving disputes. First and foremost, the process is fair to
both parties. It allows each to appoint an appraiser of their
own liking, with a neutral umpire as the deciding vote.
Appraisals also promote finality, are time and cost-efficient,
and place a difficult factual question—the replacement value
of an item—into the hands of those best-equipped to answer
17
that question. As a form of alternative dispute resolution,
the appraisal process is favored and encouraged.
Farmers Auto. Ins. v. Union Pac. Ry., 768 N.W.2d 596, 607 (Wis. 2009);
see also Fla. Ins. Guar. Ass’n v. Olympus Ass’n, 34 So. 3d 791, 794 (Fla.
Dist. Ct. App. 2010) (“Appraisal clauses are preferred, as they provide a
mechanism for prompt resolution of claims and discourage the filing of
needless lawsuits.”).
We addressed judicial review of appraisal awards in Central Life,
466 N.W.2d at 260. We noted, “Appraisal awards do not provide a formal
judgment and may be set aside by a court.” Id. But, importantly, we
concluded, “Provisions for appraisal of an insurance loss, whether under
policy terms or pursuant to independent agreement, are valid and
binding on the parties.” Id. (citing 6 J. Appleman & J. Appleman,
Insurance Law and Practice §§ 3921, 3924 (rev. 1972)). We made clear
“the award is supported by every reasonable presumption and will be
sustained even if the court disagrees with the result.” Id. We specifically
held that the appraisal “award will not be set aside unless the
complaining party shows fraud, mistake or misfeasance on the part of an
appraiser or umpire.” Id.
The insurer met that high standard to set aside the award in
Central Life. Central Life Insurance Company (Central) was insured
under a policy issued by Aetna Casualty and Surety Company (Aetna).
Id. at 258. A fire damaged buildings owned by Central in downtown
Des Moines. Id. When the parties were unable to agree on the amount
of the loss, Central invoked the Aetna policy’s appraisal process. Id. 3
3The Aetna appraisal provision stated,
Appraisal. In case the insured and this company shall fail to agree as to
the actual cash value or the amount of loss, then, on the written demand
of either, each shall select a competent and disinterested appraiser and
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Each party selected an appraiser. Id. at 258–59. “The appraisers failed
to agree on an umpire and requested that a district court judge make the
selection.” Id. at 259. After hearing suggestions from both appraisers
and Aetna’s lawyer, the court selected an umpire “who was previously
suggested by Central’s appraiser and rejected by Aetna’s appraiser.” Id.
The umpire worked closely with Central’s appraiser and ultimately
adopted the calculations of Central’s appraiser. Id. The award set the
amount payable at $522,233. Id. Viewing that amount as excessive,
Aetna retained another appraisal firm that determined the amount was
$180,932. Id. Aetna offered that amount, which Central rejected. Id.
Aetna filed a declaratory judgment action to set aside the award.
Id. Central sued for enforcement of the award and for damages for
Aetna’s bad faith refusal to pay the award. Id. The district court
consolidated the cases. Id. During discovery, Aetna learned that
Central’s appraiser had an undisclosed contingent fee that increased
with the size of the award. Id. The policy required each party to select a
“disinterested appraiser.” Id. at 258 n.1. Both parties filed motions for
summary judgment. Id. at 259. The district court denied Aetna’s motion
to vacate the appraisal award. Id. The court granted Central’s motion
_______________________
notify the other of the appraiser selected within twenty days of such
demand. The appraisers shall first select a competent and disinterested
umpire; and failing for fifteen days to agree upon such umpire, then, on
request of the insured or this Company, such umpire shall be selected by
judge of a court of record in the state in which the property covered is
located. The appraisers shall then appraise the loss, stating separately
actual cash values and loss to each item; and, failing to agree shall
submit their differences, only to the umpire. An award in writing, so
itemized, of any two when filed with this Company shall determine the
amount of actual cash value and loss. Each appraiser shall be paid by
the party selecting him and the expenses of appraisal and umpire shall
be paid by the parties equally.
Cent. Life Ins., 466 N.W.2d at 258 n.1.
19
for summary judgment to enforce the appraisal award and entered
judgment for Central in the amount of the award. Id. The bad-faith
claim was submitted to the jury, which found Aetna was in bad faith and
awarded compensatory damages for Central’s attorney fees incurred
enforcing the appraisal award through summary judgment but awarded
no punitive damages. Id. at 259–60.
Aetna appealed. Id. at 260. Aetna requested that we set aside the
appraisal award because Central’s appraiser was not “disinterested” as a
matter of law given his secret contingent fee. Id. Aetna also asked us to
set aside the jury verdict, arguing that Aetna was not in bad faith for
challenging the appraisal award. Id. We reversed the district court
judgments and remanded the case for entry of judgment in Aetna’s favor
vacating the appraisal award and dismissing the bad-faith claim. Id. at
262–64. We held that Central’s appraiser, as a matter of law, was not
disinterested because his fee increased with the size of the award. Id. at
261. We explained “that the object and purpose of an appraisal is to
secure a fair and just evaluation by an impartial tribunal” and that
“appraisers should be in a position to act fairly and be free from
suspicion or unknown interest.” Id. at 260–61.
Central Life governs judicial review of appraisal awards, see id. at
260, but further analysis is required because that case did not
adjudicate property damage with multiple causes. Against this
backdrop, we turn to the challenges to the appraisal award here.
B. Whether Causation Determinations Made by the Appraisal
Panel Are Binding. Depositors has not alleged or established any fraud
or disqualifying conflict of interest on the part of an appraiser or umpire
to set aside the award. See id. at 260. Rather, Depositors contends the
district court was free to disregard the appraisal award in determining
20
the cause of the shingle damage and in applying coverage exclusions for
defective shingles. We disagree in part. Coverage questions are for the
court. See Nat’l Sur. Corp. v. Westlake Invs. LLC, 880 N.W.2d 724, 733–
34 (Iowa 2016) (setting forth interpretive principles). But we conclude
factual causation issues may be decided through the appraisal process.
The appraisal award is presumptively binding on the parties and court.
See Cent. Life Ins., 466 N.W.2d at 260.
Other jurisdictions have adjudicated disputes over appraisal
awards in insurance claims involving covered and uncovered damage.
“Courts across the country agree that coverage determinations are
reserved only to the courts.” Ashley Smith, Comment, Property Insurance
Appraisal: Is Determining Causation Essential to Evaluating the Amount of
Loss?, 2012 J. Disp. Resol. 591, 594 (2012); see, e.g., Trout Brook S.
Condo. Ass’n v. Harleysville Worcester Ins., 995 F. Supp. 2d 1035, 1041
(D. Minn. 2014) (“[C]overage questions are not for appraisers.”); HHC
Assocs. v. Assurance Co. of Am., 256 F. Supp. 2d 505, 511 (E.D. Va.
2003) (“[C]ourts have found consistently that whether coverage was
properly denied is a legal issue reserved for the court alone.”); CIGNA Ins.
v. Didimoi Prop. Holdings, N.V., 110 F. Supp. 2d 259, 268 (D. Del. 2000)
(“Coverage questions . . . are legal questions for the Court.”); Wausau Ins.
v. Herbert Halperin Distrib. Corp., 664 F. Supp. 987, 989 (D. Md. 1987)
(“Th[e] issue [of the application of policy exclusions] . . . is within the
competence of the Court, not an appraiser, to resolve.”); Rogers v. State
Farm Fire & Cas. Co., 984 So. 2d 382, 392 (Ala. 2007) (“Questions of
coverage and liability should be decided only by the courts, not
appraisers.”); Johnson v. Nationwide Mut. Ins., 828 So. 2d 1021, 1025
(Fla. 2002) (“[C]overage issues [a]re to be judicially determined by the
court . . . .”); Auto-Owners Ins. v. Kwaiser, 476 N.W.2d 467, 469 (Mich.
21
Ct. App. 1991) (“We conclude that the issue of coverage is for the court,
not the appraisers.”); see also St. Paul Fire & Marine Ins. v. Wright, 629
P.2d 1202, 1203 (Nev. 1981) (per curiam) (concluding that umpire and
appraisers who interpreted coverage provisions to determine the award
amount exceeded the scope of their powers); 5 New Appleman on
Insurance Law Library Edition § 48.03[2], at 48-12 (Lon A. Berk &
Michael S. Levine eds., 2017) (“[A]ny . . . coverage disputes ultimately
need to be resolved by the court, regardless of the appraisal concerning
amount of loss.”). We hold that coverage determinations are for the
court. But this does not mean the court is free to disregard the appraisal
award as to factual disputes that may be dispositive of coverage
questions.
The fighting issue here is whether the appraisers may determine
the cause-in-fact of damage to insured property (here, roofing shingles)
when appraising the amount of the loss from the hailstorm. “Courts
across the country are divided as to whether, in determining the ‘amount
of loss’ pursuant to appraisal provisions like the one here, appraisers
may consider questions of causation.” Auto-Owners Ins. v. Summit Park
Townhome Ass’n, 100 F. Supp. 3d 1099, 1101–02 (D. Colo. 2015). Some
courts view causation questions as off-limits for appraisers. See, e.g.,
Spearman Indus., Inc. v. St. Paul Fire & Marine Ins., 109 F. Supp. 2d 905,
907 (N.D. Ill. 2000) (“[C]ausation is a matter for the courts—not an
appraiser—to decide.”); Rogers, 984 So. 2d at 392 (concluding that the
determination of causation “is within the exclusive purview of the courts,
not the appraisers”); Munn v. Nat’l Fire Ins. Co. of Hartford, 115 So. 2d
54, 55 (Miss. 1959) (“We have concluded that the appraisers have no
power to determine the cause of the damage. Their power is limited to
22
the function of determining the money value of the property which may
be damaged by the storm.”).
The better-reasoned cases, however, hold the appraisers
necessarily address causation when determining the amount of the loss
from an insured event. See, e.g., Phila. Indem. Ins. v. WE Pebble Point, 44
F. Supp. 3d 813, 818 (S.D. Ind. 2014) (“[I]t would be extraordinarily
difficult, if not impossible, for an appraiser to determine the amount of
storm damage without addressing the demarcation between ‘storm
damage’ and ‘non-storm damage.’ To hold otherwise would be to say
that an appraisal is never in order unless there is only one conceivable
cause of damage—for example, to insist that ‘appraisals can never assess
hail damage unless a roof is brand new.’ ” (quoting State Farm Lloyds v.
Johnson, 290 S.W.3d 886, 892–93 (Tex. 2009) (also stating “appraisers
must always consider causation, at least as an initial matter”))); CIGNA
Ins., 110 F. Supp. 2d at 268 (“[U]nder the circumstances of this case,
including the plain language of the policy, a determination of amount of
loss under the appraisal clause includes a determination of causation.”);
Quade, 814 N.W.2d at 706–07 (“[A] determination of the ‘amount of loss’
under the appraisal clause necessarily includes a determination of
causation.”). We are persuaded by this precedent to hold appraisers may
decide the factual cause of damage to property in determining the
amount of the loss from a storm.
The court of appeals in North Glenn considered “whether causation
and coverage issues are to be determined by the appraisers, or by the
court.” 854 N.W.2d at 69. The court of appeals held that an “appraisal
does not determine issues of coverage but simply causation.” Id. at 68.
We agree.
23
The court of appeals in the instant case followed North Glenn.
North Glenn Homeowners Association (North Glenn) was an association
of property owners insured by State Farm. Id. After a hailstorm in July
2009, North Glenn submitted a claim for hail damage to a roof. Id.
State Farm paid the claim, but North Glenn did not repair all of the
damage. Id. Another storm hit North Glenn’s buildings in March 2011,
and North Glenn filed another claim for wind and hail damage. Id.
State Farm denied the claim after inspecting the roof and determining
that the hail damage was from the 2009 storm and therefore not covered
under the 2011 policy. Id. “The wind damage was estimated to be less
than the policy deductible.” Id.
North Glenn demanded an appraisal under the policy’s standard
appraisal provision—worded identically to Depositors’. See id. While
State Farm agreed to an appraisal of the wind damage, it refused an
appraisal of the hail damage. Id. North Glenn filed a petition for
declaratory judgment, “requesting a determination of coverage issues,
seeking an order for appraisal, and alleging breach of contract.” Id.
North Glenn later filed a motion to compel appraisal; the district court
granted the motion. Id. Upon analyzing the appraisal clause, the district
court found the clause requires the appraisers to examine the loss,
which requires consideration of any preexisting damage. Id.
On appeal, State Farm argued that the district court erred in
ordering an appraisal that requires the appraisers to determine
causation, which State Farm contended is beyond the appraisers’
authority. Id. at 69. The court of the appeals recognized that “[t]he
dispute is whether causation and coverage issues are to be determined
by the appraisers, or by the court.” Id. The court of appeals rejected the
rationale of other courts that decided appraisers have no authority to
24
consider issues of causation and, instead, relied on the reasoning of the
Minnesota Supreme Court in Quade. Id. at 70–71.
The Quade court held “a determination of the ‘amount of loss’
under the appraisal clause necessarily includes a determination of
causation.” 814 N.W.2d at 706–07. The Quade court acknowledged
“[c]overage questions, such as whether damage is excluded because it
was not caused by wind, are legal questions for the court.” Id. at 707.
The Iowa Court of Appeals adopted this reasoning, noting that “[a]s part
of the appraisal process, appraisers must determine what the amount of
‘loss’ is, which often requires consideration of causation.” North Glenn,
854 N.W.2d at 71. The North Glenn court noted that “appraisers must
consider what damage was caused by hail, and what damage was not, or
damage with which they are unconcerned, such as normal wear and
tear.” Id.
However, the court of appeals explained that “the issue of coverage
may be further litigated,” and “the causation determinations by the
appraisers may be subject to further review by the district court.” Id.
The court then held, “[W]hether the appraisal award will be conclusive on
all issues will depend on the nature of the damage, the possible causes,
the parties’ dispute, and the structure of the appraisal award.” Id.
(quoting Quade, 814 N.W.2d at 707–08). The court of appeals did not
further explain how to apply these factors. See id.
Here, the appraisers themselves made clear they were determining
only the amount of loss attributable to the hailstorm without deciding
coverage exclusions or other causes of shingle damage:
[T]he appraisal herein is limited in scope to the amount of
loss and damage as a result of a hail and windstorm that
occurred on or about August 8, 2012. The award does not
25
include an evaluation or determination of coverage, policy
exclusions or the relative causation of the same.
Depositors’ policy excludes coverage for preexisting deterioration caused
by defective shingles. But the appraisers necessarily distinguished the
hailstorm damage from deterioration of defective shingles installed
between 2004 and 2006. The appraisers were entitled to rely on expert
opinions that the August 8, 2012 hailstorm caused damage to the roofing
shingles. One roofing expert, Nicholas Waterman, observed eight to
twelve “hits” from hail per ten-by-ten-foot square sections of shingles, not
including the applique that had deteriorated over the half-decade since
the original installation. The public adjuster, Timothy Barthelemy,
observed nine to eleven hits per ten-by-ten-foot square. The appraisers
were not required to accept conflicting expert opinions that the hail
caused no shingle damage. It is undisputed the same hailstorm
damaged metal gutters and fascia at Walnut Creek.
We conclude Depositors failed to overcome the appraisal award’s
presumption of validity. The district court was not free to make its own
factual determination that there was no hail damage to the shingles. See
Cent. Life Ins., 466 N.W.2d at 260 (“When reviewed, the award is
supported by every reasonable presumption and will be sustained even if
the court disagrees with the result.”). To hold otherwise would
undermine the efficacy of the appraisal process. The appraisal award is
binding on the parties as to the dollar amount of the loss for shingle
damage caused by the August 8, 2012 hailstorm, but that amount
remains subject to coverage exclusions and limitations.
Coverage issues are for the court. Depositors relies on the
anticoncurrent-cause provision and the exclusions for defective materials
and deterioration. Depositors argues the policy does not cover roof
26
damage caused by both hail and deterioration from defective shingles.
See Travelers Prop. Cas. Co. of Am. v. Brookwood, LLC, 283 F. Supp. 3d
1153, 1161–63 (N.D. Ala. 2017) (applying exclusions for faulty
workmanship and inadequate maintenance to defeat coverage claim for
storm water damage from leaking roof). Anticoncurrent-cause provisions
are enforceable under Iowa law. Amish Connection, Inc. v. State Farm Fire
& Cas. Co., 861 N.W.2d 230, 241 (Iowa 2015). “Anti-concurrent cause
language addresses multiple concurrent or sequential causes of the same
loss. It does not apply if the perils at work caused different damage or
different losses. These would not be concurrent causes.” 5 New
Appleman on Insurance Law Library Edition § 44.04[1], at 44-28 (Marc J.
Shrake ed., 2017).
After its bench trial, the district court found that “the defective and
deteriorating shingles are at the core of [Walnut Creek’s] roof damage.”
But the court also found no hail damage to the shingles, contrary to the
appraisal award. A new trial is required because the district court
applied the wrong legal standard when it disregarded the appraisers’
causation determination on hail damage. In the retrial, the court shall
accept the appraisal award as to the hail damage loss, and then
determine the amount, if any, Depositors owes under the policy after
adjudicating the coverage defenses. We express no opinion on the merits
of those defenses.
IV. Disposition.
For these reasons, we vacate the decision of the court of appeals
and reverse the district court judgment rejecting the appraisal award.
We affirm the district court judgment declining Walnut Creek’s claim for
additional sums for soft metal damage. We remand the case for the
27
district court to adjudicate coverage exclusions for prior deterioration
and defective shingles under the anticoncurrent-cause provision.
COURT OF APPEALS DECISION VACATED; DISTRICT COURT
JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED WITH INSTRUCTIONS.