Steven DeVolder and Stephanie DeVolder v. State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company

IN THE COURT OF APPEALS OF IOWA
No. 17-1671
Filed October 24, 2018
STEVEN DEVOLDER and STEPHANIE DEVOLDER,
Plaintiffs-Appellants,
vs.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and STATE
FARM FIRE & CASUALTY COMPANY,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, David M. Porter, Judge.
Steven and Stephanie DeVolder appeal the grant of summary judgment in
favor of the appellee insurers. AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
S.P. DeVolder of The DeVolder Law Firm, PLLC, Norwalk, and William L.
Kutmus of Kutmus, Pennington & Hook, PC, West Des Moines, for appellants.
Guy R. Cook and Adam D. Zenor of Grefe & Sidney, PLC, Des Moines, for
appellees.
Considered by Danilson, C.J., McDonald, J., and Carr, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2018).
2
CARR, Senior Judge.
Steven and Stephanie DeVolder appeal the grant of summary judgment in
favor of State Farm Mutual Automobile Insurance Company and State Farm Fire
& Casualty Company (collectively, State Farm1). The DeVolders claim State Farm
committed breach of contract, first-party bad faith, and fraud in processing their
insurance claim. We agree with the district court that summary judgment is
appropriate on the fraud and first-party bad faith claims. However, we find a
genuine issue of material fact regarding the breach-of-contract claim. Therefore,
we reverse on the breach claim and remand for further proceedings.
I. Background Facts and Proceedings
On or about April 23, 2004, the DeVolders purchased a ring from Josephs
Jewelers (Josephs) in West Des Moines for $28,514. On April 26, Josephs
prepared a “jewelry appraisal report” describing the ring as a “lady’s 18K yellow
and white gold engagement ring mounting, center set with one round brilliant cut
diamond weighing 3.35 cts, Color K, Clarity VS1, GM (GIA Grading Report
#12607644), and also prong set with 15 full cut diamonds weighing .75 cts.” The
report stated the replacement value of the ring was $39,200.
The DeVolders insured the ring and their other jewelry through State Farm
in a personal articles policy with inflation coverage. Premiums were based on the
replacement value of the jewelry. On or about June 15, 2016, the DeVolders lost
1
State Farm Replacement Services—a wholly-controlled department or entity of State
Farm—assisted in processing the DeVolders’ claim. “State Farm” also includes State
Farm Replacement Services.
3
the ring. At the time, the coverage limit on the ring was $46,081 with a $500
deductible.
Prior to filing a claim with State Farm, the DeVolders contacted Josephs for
an updated appraisal for the ring. On June 20, 2016, Josephs emailed State Farm
for assistance finding a replacement diamond to calculate the replacement cost for
a possible claim, but they did not mention the DeVolders at the time. State Farm
responded with information about two diamonds with lot numbers ZB12-2802 and
G16103.3 Josephs used information about diamond ZB12-280 to calculate an
updated replacement cost of $52,827.23. In his deposition, Steven acknowledged
diamond ZB12-280 is higher quality than their lost diamond. The DeVolders also
submitted a signed “Report” from Neal Prati, a retired appraiser for Josephs who
originally sold the ring to the DeVolders. According to the Report, diamond
G16103 is lower quality than the DeVolders’ diamond because the two diamonds
are at opposite ends of the VS1 clarity grade and the DeVolders’ diamond has two
inclusions—or imperfections—compared to thirteen inclusions for diamond
G16103.
On or around June 21, 2016, the DeVolders filed a claim with State Farm
for their lost ring. The insurance policy contains the following conditions:
We [State Farm] have the option of repairing or replacing the lost or
damaged property. Unless otherwise stated in this policy, covered
property values will be determined at the time of loss or damage. We
will pay the cost of repair or replacement, but not more than the
smallest of the following amounts:
2
The provided information for diamond ZB12-280 includes: shape round, carat weight
3.34, color J, clarity VS1, and price $43,336.50.
3
The provided information for diamond G16103 includes: shape round, carat weight 3.35,
color K, clarity VS1, and price $26,967.50.
4
a. the full amount of our cost to repair the property to its condition
immediately prior to the loss or damage;
b. the full amount of our cost to replace the item with one
substantially identical to the item lost or damaged;
c. any special limit of liability described in this policy; or
d. the limit of liability applicable to the property.
State Farm subsequently obtained information about another ring from
Solomon Brothers Fine Jewelry (Solomon) in Atlanta, Georgia. Solomon
described its ring as “18K Y&W eng ring w/ (1) RBC center @ 3.35ct K/VS1. Also
has (15) full cut dias @ .75ct tw.” Solomon provided a cost of $36,985.52 for the
ring. However, Stephanie testified at deposition that Solomon asked her for
information about their ring instead of talking directly to Josephs even though
Josephs would be the most knowledgeable about their ring.
On or about July 8, State Farm offered the DeVolders their choice of the
Solomon ring or its cost of $36,985.52, less the $500 deductible, in satisfaction of
their claim. The DeVolders rejected both options. In his deposition, Steven
testified State Farm wanted them to accept the Solomon ring “sight unseen” and
“they refused to even describe [it] to me.”
On August 16, 2016, the DeVolders filed their petition alleging breach of
contract, first-party bad faith, and fraud on the part of State Farm. On July 19,
2017, State Farm filed for summary judgment on all claims. On October 6, the
district court granted summary judgment in favor of State Farm on all claims. The
DeVolders now appeal.
II. Standard of Review
We review a district court ruling granting a motion for summary
judgment for correction of errors at law. Summary judgment is
appropriate when there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. An issue is
5
genuine if the evidence in the record is such that a reasonable jury
could return a verdict for the nonmoving party. We . . . view the
record in the light most favorable to the nonmoving party and will
grant that party all reasonable inferences that can be drawn from the
record. Summary judgment is appropriate if the only conflict
concerns the legal consequences of undisputed facts.
Honomichi v. Valley View Swine, LLC, 914 N.W.2d 223, 230 (Iowa 2018)
(alteration in original) (internal quotations and quotation marks omitted).
III. Breach of Contract
The DeVolders argue State Farm breached the insurance contract by failing
to appropriately value “the loss of Stephanie DeVolder’s engagement/wedding ring
(stone and setting) with a like kind and comparable diamond stone and setting as
required by the policy terms.” The policy terms require State Farm to provide the
DeVolders with either (1) a ring that is “substantially identical” to the DeVolders’
ring, or (2) an amount equal to State Farm’s cost to replace the DeVolders’ ring
with a “substantially identical” ring. The policy does not define “substantially
identical.” Therefore, we use the ordinary meaning of “substantially identical.” See
Nat’l Sur. Corp. v. Westlake Inv., LLC, 880 N.W.2d 724, 734 (Iowa 2016) (“When
interpreting an insurance policy, we give each policy term not defined in the policy
its ordinary meaning.”).
The DeVolders assert State Farm is obligated to use Josephs as the
exclusive arbiter of “substantially identical” rings in the area. However, nothing in
the record supports this assertion. At most, the record shows State Farm typically
relies on Josephs to value jewelry in the area, but the policy does not require them
to do so. Even if we accept the DeVolders’ assertion that State Farm took the
“unprecedented” step of using a jeweler other than Josephs to find a “substantially
6
identical” ring in the area, nothing in the policy prevents State Farm from taking
such a step.
The DeVolders point to the appraisals Josephs provided as evidence the
Solomon ring is not “substantially identical” to their lost ring. The original 2004
appraisal of their ring from Josephs was $39,200, which is more than the
$36,985.52 cost of the Solomon ring. However, the policy only requires State Farm
to pay their “cost to replace the [lost] item with one substantially identical.” Nothing
in the policy or elsewhere in the record requires State Farm to pay the full
appraised value of the lost ring. Additionally, the DeVolders only paid $28,514 for
the ring, which suggests the cost to State Farm to replace the ring in 2004 would
have been significantly less than its $39,200 appraised value.
Josephs also provided an updated appraisal of $52,827.23. However, this
appraisal uses diamond ZB12-280, which Steven acknowledged is higher quality
than their diamond. It is therefore not an appraisal for a “substantially identical”
ring, and State Farm never admitted this diamond would make a “substantially
identical” ring when it provided the information to Josephs. The email exchange
in the record shows Josephs contacted State Farm for help finding suitable
diamonds for an appraisal without connecting the request to the DeVolders, and
State Farm merely suggested two diamonds with similar characteristics based on
the brief description Josephs provided.
Additionally, the DeVolders point to vagaries in the rings’ descriptions as
evidence the rings are not “substantially identical.” The district court found the
DeVolders’ ring and the Solomon ring are substantially identical because they have
7
diamonds with identical carat weights and grades for color and clarity. 4 Using the
ordinary meaning of “substantially identical,” we cannot agree two rings are
“substantially identical” merely because they contain diamonds with identical carat
weights and grades for color and clarity. The record shows carat weight and
grades for color and clarity, without more, are insufficient to accurately value a
diamond. For example, diamond G16103 and the DeVolders’ diamond have
identical carat weights and grades for color and clarity. However, Prati’s Report
explains diamond G16103 is inferior to the DeVolders’ diamond due to other
factors, specifically variances within the same clarity grade and inclusions within
the diamonds. Additionally, the record contains little information to compare the
settings of the two rings beyond sparse descriptions from Josephs and Solomon.
Prati’s Report is sufficient to generate a genuine issue of material fact as to
whether the Solomon ring and the DeVolders’ ring are “substantially identical.”
Prati notes diamond G16103 is “inferior” to the DeVolders’ diamond, and if they
had used diamond G16103 in their valuation it “would have been right at” the
Solomon valuation. Instead, Josephs provided a much higher valuation using
diamond ZB12-280, which is “slightly better” than the DeVolders’ diamond but still
represents “a good replacement value match.” Prati does “not in any way agree
with the Solomon Brothers’ appraisal of $36,985.52 as the correct replacement
4
According to an affidavit from a procurement specialist for State Farm, the DeVolders’
diamond had a cut grade of very good and the Solomon diamond had a higher cut grade
of triple excellent. Like the district court, we do not find this information elsewhere in the
record. As we must take the facts in the light most favorable to the DeVolders, we do not
rely on this information from the appellee for this summary judgment. Even if we were to
accept the cut grade of the Solomon diamond as equal or superior to that of the DeVolders’
diamond, we would still find a genuine issue of material fact exists as to whether the two
diamonds could be used to make “substantially similar” rings for the same reasons
discussed herein.
8
value of” the DeVolders’ ring. He criticizes Solomon for valuing the DeVolders’ for
using a “paper” valuation method of the DeVolders’ ring instead of visually
inspecting it as he has done. Therefore, the DeVolders have raised a genuine
issue of material fact as to whether the Solomon ring is “substantially identical” to
their ring, and summary judgment is not appropriate.
IV. First-Party Bad Faith
A first-party bad faith claim against a defendant insurer requires the plaintiff
to prove “the absence of a reasonable basis for denying benefits of the policy and
defendant’s knowledge or reckless disregard of the lack of a reasonable basis.”
Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988). However, the insurer is
entitled to debate a “fairly debatable” claim. Id.State Farm has not denied the DeVolders’ claim. Instead, State Farm
located a ring they argue is “substantially identical” to the DeVolders’ ring. While
a genuine issue of material fact remains as to whether the rings are “substantially
identical,” the record shows the rings share many characteristics. The DeVolders
have not provided any evidence State Farm lacked a reasonable basis to offer the
Solomon ring or its cost in satisfaction of their claim. Therefore, the district court
correctly granted summary judgment in favor of State Farm on the DeVolders’ first-
party bad faith claim.
V. Fraud
A successful fraud claim “requires clear-and-convincing evidence of (1)
materiality, (2) falsity, (3) representation, (4) scienter, (5) intent to deceive, (6)
justifiable reliance, and (7) resulting injury and damage.” Clark v. McDaniel, 546
N.W.2d 590, 592 (Iowa 1996). The DeVolders specifically allege State Farm
9
committed fraud when it rejected Josephs in favor of Solomon. However, the
record contains no indication State Farm committed to following guidance from
Josephs, nor does the record show State Farm falsely represented any material
fact. Therefore, the district court correctly granted summary judgment in favor of
State Farm on the DeVolders’ fraud claim.
VI. Conclusion
We find a genuine issue of material fact remains as to whether State Farm
identified a “substantially identical” ring when it offered the Solomon ring to satisfy
the DeVolders’ claim. However, we find nothing in the record to support the
DeVolders’ claims of first-party bad faith or fraud. Therefore, we affirm the grant
of summary judgment on the first-party bad faith and fraud claims, and we reverse
the grant of summary judgment on the breach-of-contract claim and remand for
further proceedings.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Danilson, C.J., concurs; McDonald, J., dissents.
10
McDONALD, Judge (dissenting)
I respectfully dissent. Rule 1.981(3) provides the district court shall 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.” Iowa R. Civ. P. 1.981(3). Here, the question presented to the
district court was whether the Solomon diamond was “substantially identical” to the
DeVolders’ lost diamond within the meaning of the policy. On this record, it is
undisputed that it was. The district court thus correctly granted State Farm’s
motion for summary judgment.
I disagree with the rationale for reversing the judgment of the district court.
The majority reverses the judgment of the district court because additional
examination of the Solomon diamond using the methodology in the Prati Report
might show it is not “substantially identical” to the DeVolders’ lost diamond.
However, it was the DeVolders’ obligation to create the record to support their
resistance to State Farm’s motion for summary judgment. See Iowa R. Civ. P.
1.981(5) (“When a motion for summary judgment is made and supported as
provided in this rule, an adverse party may not rest upon the mere allegations or
denials in the pleadings, but the response, by affidavits or as otherwise provided
in this rule, must set forth specific facts showing that there is a genuine issue for
trial. If the adverse party does not so respond, summary judgment, if appropriate,
shall be entered.”). In the alternative, it was the DeVolders’ obligation to seek
additional time to conduct further discovery to prepare their resistance. See Iowa
R. Civ. P. 1.981(6) (“Should it appear from the affidavits of a party opposing the
11
motion that the party for reasons stated cannot present by affidavit facts essential
to justify the opposition, the court may refuse the application for judgment or may
order a continuance to permit affidavits to be obtained or depositions to be taken
or discovery to be had or may make such other order as is just.”). In resisting
summary judgment, the DeVolders could have sought additional time for their
expert to inspect the ring. They did not do that. The fact that discovery the
DeVolders bothered not to conduct might have revealed the existence of a
disputed issue of fact is insufficient to create a genuine issue of fact for trial.
The district court correctly decided the motion for summary judgment on the
record actually made. I respectfully dissent.