Opinion
No. 2-076 / 01-0708
Filed November 25, 2002
Appeal from the Iowa District Court for Cerro Gordo County, JON S. SCOLES, Judge.
Defendant insurance companies appeal from a ruling granting summary judgment in a declaratory judgment action involving their respective coverage obligations for a claim of negligence. REVERSED.
Angela Althoff of Moraine, Burlingame Pugh, West Des Moines, for defendant-appellant, Farm Bureau Mutual Insurance Company; and Joel Yunek of Laird, Heiny, McManigal, Winga, Duffy Stambaugh, Mason City, for defendant-appellant, AMCO Insurance Company.
Colin Murphy of McGuire Law Firm, Mason City, for plaintiff-appellee Deshawn Dunham; and Rustin Davenport of De Vries, Price Davenport, Mason City, for intervenor-appellee, Leonard Gobeli.
Considered by SACKETT, C.J., and ZIMMER and VAITHESWARAN, JJ.
This appeal challenges the summary judgment entered by the district court in favor of DeShawn Dunham and Leonard Gobeli in a declaratory action brought by Dunham through his conservator, against two insurance companies. Dunham filed a motion for summary judgment seeking a determination that two insurance policies provided coverage to Leonard Gobeli for Dunham's claim of negligence against Gobeli. Defendants AMCO Insurance Company (AMCO) and Farm Bureau Mutual Insurance Company (Farm Bureau) also filed motions for summary judgment arguing that the policy exclusions of their respective policies denied coverage. The district court granted Dunham's motion for summary judgment and denied AMCO and Farm Bureau's motions. Both AMCO and Farm Bureau appeal. We reverse.
I. Background Facts and Proceedings.
In 1977, Leonard Gobeli and his wife purchased a house in Mason City, Iowa. The Gobelis never resided in the home. They used it strictly for rental purposes. Gobeli insured the premises with a policy from IMT Insurance Company. In October of 1986, Gobeli purchased a Sears and Roebuck Co. gas-fired water heater which was installed in the garage of the rental property.
There is a factual dispute regarding whether Gobeli installed the water heater himself, or had it installed by someone else. For purposes of summary judgment only, the parties have stipulated that Gobeli's negligence can be assumed.
In April of 1992, Gobeli sold the rental property to Russell Hardy. On June 28, 1997, Dunham, the plaintiff in the underlying action, visited the Hardy home. While Dunham was playing in the Hardys' garage, he accidentally tipped over a container of gasoline. The gasoline spread across the floor and the gas-fired water heater, installed by Gobeli in 1986, ignited the spill. As a result, Dunham suffered severe burns.
In June of 1999, Dunham, by and through his conservator, brought an action against a number of defendants, including Gobeli. Count XVI of the petition alleges that Gobeli "installed and/or directed installation" of the water heater and that as a proximate result of Gobeli's negligence, Dunham was injured and sustained substantial damages.
On the date of Dunham's accident in 1997, Gobeli lived in Mason City. His personal residence was insured by AMCO. Gobeli also owned a farm and insured that property with Farm Bureau. The premises where Dunham was injured is not identified as an "insured location" or "insured premises" in either policy. Both policies contained "business" and "rental" exclusions to coverage.
On July 18, 2000, Dunham brought a declaratory judgment action against AMCO and Farm Bureau. His petition requested that the court determine whether the disputed policies provided coverage to Gobeli for his negligent installation of the water heater. Eventually, Dunham filed a motion for summary judgment on the coverage issue. AMCO filed a motion for summary judgment asking the court to find that policy exclusions precluded coverage for Gobeli. Farm Bureau likewise filed a motion seeking a ruling precluding coverage.
The district court held a hearing on the various motions for summary judgment. Following the hearing, Gobeli intervened by agreement of all parties and joined with Dunham in his motion for summary judgment to assert coverage under his Farm Bureau and AMCO insurance policies. The district court granted Dunham's motion for summary judgment. The court ruled that both insurance companies had a duty to defend and indemnify Gobeli in the underlying negligence action pursuant to the terms of their respective insurance policies. This appeal followed.
II. Scope of Review.
Where the facts are not in dispute, our review in a declaratory judgment action is to determine whether the district court correctly determined the legal consequences arising from the terms of the insurance policy. See Principal Cas. Ins. Co. v. Blair, 500 N.W.2d 67, 68 (Iowa 1993). Construction and interpretation of insurance policies present questions of law for the court's determination, unless the decision depends on extrinsic evidence offered to explain a term's meaning. A.Y. McDonald Indus. v. INA, 475 N.W.2d 607, 618 (Iowa 1991). No party introduced such evidence in this matter. Therefore, our review is limited to the correction of errors at law. Grinnell Mut. Reins. Co. v. Voeltz, 431 N.W.2d 783, 785 (Iowa 1988).
III. Discussion.
The issue is whether the district court correctly interpreted and construed the AMCO and Farm Bureau insurance policies. The controlling factor in the interpretation and construction of insurance policies is the intent of the parties at the time the policy was sold. See A.Y. McDonald, 475 N.W.2d at 618. Except in cases of ambiguity, the intent of the parties is determined by the policy language. Id. An insurer has a duty to define limitations or exclusionary clauses in clear and explicit terms. See Lemars Mut. Ins. Co. v. Joffer, 574 N.W.2d 303, 307 (Iowa 1998). The burden of establishing an exclusion rests on the insurer. Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Farmland Mut. Ins. Co., 568 N.W.2d 815, 817 (Iowa 1997) (quoting Allied Mut. Ins. Co. v. Costello, 557 N.W.2d 284, 286 (Iowa 1996)).
Because insurance policies are in the nature of adhesive contracts, their provisions are to be construed in a light most favorable to the insured. Krause v. Krause, 589 N.W.2d 721, 726 (Iowa 1999). Due to the nature of an insurance policy, the benefit of the doubt in the drafting is interpreted against the insurance company. Westfield Ins. v. Economy Fire Cas., 623 N.W.2d 871, 875-76 (Iowa 2001). Limits on coverage are strictly construed against the insurer. Id. at 876. When words are not defined in a policy, we give them their ordinary meaning. Kalell v. Mutual Fire Auto. Ins. Co., 471 N.W.2d 865, 867 (Iowa 1991). However, policy language excluding coverage will be given a more narrow meaning than if the same were coverage language. See Norwalk Ready Mixed Concrete, Inc. v. Travelers Ins. Cos., 246 F.3d 1132, 1138 (8th Cir. 2001); Tacker v. American Family Mut. Ins Co., 530 N.W.2d 674, 677 (Iowa 1995); Grinnell Mut. Reinsurance Co. v. Employers Mut. Cas. Co., 494 N.W.2d 690, 693 (Iowa 1993); Kalell, 471 N.W.2d at 868. Conversely, language providing coverage is given a more liberal, broad, and general meaning. Kalell, 471 N.W.2d at 868.
The insurance policies issued to Gobeli by AMCO and Farm Bureau are occurrence based. Pursuant to Coverage E of its policy, AMCO agrees to pay those sums which Gobeli becomes legally obligated to pay as damages because of bodily injury. Pursuant to Coverage F, AMCO agrees to pay necessary medical expenses associated with a bodily injury caused by Gobeli. Pursuant to Coverage L of its policy, Farm Bureau agrees to pay damages for which Gobeli is legally liable as a result of bodily injury. In addition, Coverage M provides that Farm Bureau will pay medical expenses caused by Gobeli's activities. It is undisputed that the policies were in effect at the time of the loss on June 28, 1997. Accordingly, coverage is provided unless a policy exclusion applies. The insurance companies argue that the "rental" and "business pursuit" exclusions set forth in their policies apply to deny coverage for Dunham's injuries.
The Farm Bureau policy excludes coverage for bodily injuries "arising out of . . . the rental or holding for rental of any part of any premises by any insured." Similarly, the AMCO policy precludes coverage for injury "arising out of the rental or holding for rental of any part of any premises by an insured." While the AMCO policy fails to define "arising out of," the Farm Bureau policy defines "arising out of" as "originating from, growing out of or flowing from, and requires only that there be some causal relationship between the injury and the risk." The AMCO policy precludes coverage for injury "arising out of a premises: 1) owned by an insured . . . or 3) rented to others by an insured." Assuming Gobeli personally performed the installation of the water heater, the allegedly negligent act was performed at a time when he rented the property to a third party. Therefore, the insurance companies argue, Dunham's injuries are excluded from coverage because they arose out of Gobeli's rental property.
The district court relied heavily on our supreme court's pronouncements in Tackerin concluding that the rental exclusions did not apply to deny coverage. In Tacker, the insured remodeled his personal residence in 1978. Tacker, 530 N.W.2d at 675. In 1984, he sold the residential property to the plaintiff and her husband. Id. In 1990, plaintiff's husband was electrocuted while using a "wet vac" in the family room. Id. The insured's occurrence based policy excluded from coverage bodily injuries "arising out of the ownership or rental to any insured of any premises other than an insured premise." Id. The plaintiff's claim was not based on premises liability but rather, personal negligence. Id. at 677. The plaintiff claimed that her husband's death resulted from negligent electrical work performed by the insured when he remodeled the room in his home twelve years earlier. Id. Construing the exclusion clause narrowly, the court found that the issue of ownership was irrelevant to the insured's negligence and the subsequent injury. Id. The claim had nothing to do with the insured's former ownership of the home. Id. Instead, the claim against the insured turned on the insured's personal negligence that proximately caused the injuries. Id. Therefore, the exclusion did not apply. Id.
Upon review of the record, we are not convinced that Tacker is controlling here. Although the facts in Tacker are somewhat similar to the case at hand, Tacker involved an "other premises" exclusion not a "rental" or "business" exclusion. In Tacker, the property owner negligently installed wiring in his own home and then sold it. The faulty wiring electrocuted the next owner. The exclusions at issue here were not under consideration in Tacker.
In the instant case, there is no dispute that the house where the water heater was negligently installed was used for rental purposes. Gobeli never lived in the house and rented it to others for many years before selling it. He installed the water heater after his tenant told him that he needed a new one. Gobeli knew he was obligated to provide hot running water to his tenant. If Gobeli had not been renting out the premises, he would not have installed the water heater. Regardless of whether Gobeli's negligence caused Dunham's injury, his negligence was directly related to his status as landlord. Therefor, Gobeli's negligence and Dunham's subsequent injury arise out of the rental property. We conclude Gobeli's activities fall under the rental exclusions contained in the defendants' policies.
In view of our conclusion, we find it unnecessary to address defendants' claims that the business pursuit exclusions of their respective policies also operate to deny coverage. Because we conclude the defendants owe no liability in this case, we reverse the district court's ruling granting summary judgment in favor of the plaintiff and remand for proceedings not inconsistent with this opinion.