Opinion
No. 2-896 / 02-0167.
Filed December 30, 2002.
Appeal from the Iowa District Court for Fayette County, JAMES L. BEEGHLY, Judge.
Bryan Construction appeals and Continental Western Insurance cross appeals the district court's judgment and decree denying insurance coverage for damage to construction equipment. APPEAL AFFIRMED; CROSS-APPEAL AFFIRMED.
Ronald Van Veldhuizen, Oelwein, for appellant.
Karla Shea of Yagla, McCoy Riley, P.L.C., Waterloo, for appellee.
Considered by SACKETT, C.J., and MILLER and EISENHAUER, JJ.
Appellant, Bryan Construction, appeals the district court's judgment and decree denying insurance coverage for loss to construction equipment based on contract language voiding the contract if material misrepresentations were made. Cross-appellant, Continental Western Insurance, appeals the court's failure to exclude coverage based on a policy exclusion for equipment rented to others. We affirm on appeal and cross-appeal.
Background facts and proceedings
Appellant, Bryan Construction, Inc., ("Bryan") leased a large mobile crane from Ziegler, Inc. in June 1997. Appellant had an inland marine insurance policy with appellee, Continental Western Insurance Company, ("Continental") and obtained a binder to this policy to cover the crane. In August 1997, Jim Rubner was operating the crane at the Oran Ag site without the outriggers extended and it tipped over, sustaining substantial damage. Both Rubner and Bryan filed insurance claims. During the investigation of the accident by Continental, both Bryan and Rubner indicated Rubner was renting the crane from Bryan to do a job he contracted with Oran Ag. The record is not clear whether Rubner's insurer denied the claim or whether his insurance was not sufficient to cover the damage. Continental denied Bryan's claim based on a policy exclusion for equipment rented to others.
Ziegler and its insurer sued Bryan to recover for the damage to the crane. Bryan filed a cross petition seeking a declaratory judgment against Continental, that it had a duty to defend and that coverage for the damage to the crane was not excluded by the policy. Continental's motion to sever the trials was granted. During discovery and again at trial, Bryan and Rubner claimed Rubner was an employee of Bryan and that Oran Ag contracted with Bryan for the job at which the crane was damaged. In addition to the policy language excluding coverage for "property that you rent to others," Continental's policy also contained the following condition concerning misrepresentation, concealment or fraud:
4. Misrepresentation, Concealment or Fraud. This Inland Marine coverage is void if before or after a loss:
a. the Insured has concealed or misrepresented:
1) a material fact or circumstance that relates to this insurance or the subject thereof; or
2) an Insured's interest herein.
b. there has been fraud or false swearing by an Insured with regard to a matter that relates to this insurance or the subject thereof.
During its opening statement at trial, Continental cited to both "exclusions" as applicable because it claimed Bryan rented the crane either to Rubner or Oran Ag and then both Bryan and Rubner changed their accounts in depositions, affidavits, and the statement given to Continental's investigator.
The court found the record was "unclear as to whether James Rubner was an employee of Bryan Construction, or an independent contractor, at the time of the accident." The court also found Bryan and Rubner initially indicated Rubner was an independent contractor, they later recanted those statements when Bryan learned Continental did not cover equipment rented to others, and Bryan admitted he made misrepresentations to Continental "regarding the status of James Rubner, at the time of the accident. However, he asserts that the misrepresentations were not `material.'" The court concluded Bryan made a material misrepresentation of fact to Continental, justifying cancellation of the policy, and the claim should be denied. Bryan appeals and Continental cross appeals.
We note the same court issued its decision in the companion trial between Ziegler and Bryan three weeks before the decision on appeal and found: "12. James Rubner was a full-time employee of Bryan Construction at the time of the accident."
Claims on appeal
Bryan claims the court erred in 1) considering the defense the insurance contract was void as a result of fraudulent misrepresentation because the defense was not specifically pled; 2) not requiring proof of each element of fraudulent misrepresentation; and 3) finding substantial evidence supported the defense.
Continental claims the court erred in finding coverage was not excluded based on the policy language concerning property rented to others.
Scope and standard of review
The parties disagree concerning our scope of review. Bryan correctly asserts our review of cases tried at law is for correction of errors of law. Plymouth Farmers Mut. Ins. Ass'n v. Armour, 584 N.W.2d 289, 291 (Iowa 1998). Continental argues that, although the original action by Ziegler was titled as a law action, the declaratory judgment claim was severed and tried as an equitable action. Continental urges our review is de novo. Bjork v. Dairyland Ins. Co., 174 N.W.2d 379, 382 (Iowa 1970). How the district court tried the case determines our scope of review:
The pleadings, relief sought, and nature of the case ordinarily determine whether a declaratory judgment action is legal or equitable. However, we will review a case on appeal in the same manner in which the trial court considered it regardless of what these factors suggest. Where there is uncertainty about the nature of a case, a litmus test we use in making this determination is whether the trial court ruled on evidentiary objections. In addition, where the trial court labels its ruling a "decree," this is an indication it tried the matter in equity.Ernst v. Johnson County, 522 N.W.2d 599, 602 (Iowa 1994) (citations omitted). There do not appear to be any evidentiary objections in the record. The court ruled on an objection to a question as leading. The decision after the trial between Ziegler and Bryan is captioned "judgment and order." The decision in this declaratory judgment trial is captioned "judgment and decree." It appears to us the trial court considered this as an equitable action. Our review, therefore, is de novo. Iowa R.App.P. 6.4; Western States Ins. Co. v. Continental Ins. Co., 602 N.W.2d 360, 362 (Iowa 1999). We give weight to the findings of the district court, especially concerning the credibility of witnesses, but are not bound by them. Rubes v. Mega Life Health Ins. Co., 642 N.W.2d 263, 266 (Iowa 2002).
Discussion
Bryan Construction's claims. Bryan claims the court improperly considered a defense based on fraudulent misrepresentation. It argues a defense alleging a contract is void or voidable must be pled. Iowa R.Civ.P. 1.419; Fees v. Mut. Fire and Auto Ins. Co., 490 N.W.2d 55, 58 (Iowa 1992). It also argues the court erred in not requiring proof of each element of fraudulent misrepresentation by "clear, satisfactory, and convincing" evidence. Plymouth Farmers, 584 N.W.2d at 290-91.
Bryan's argument the court should not have considered the defense fails for two reasons. First, Bryan's misrepresentations and the contract language making the insurance contract void, although not specifically pled, were addressed in Continental's opening statement and litigated throughout the trial. Defenses litigated by express or implied consent are treated as if they had been pled. See Iowa R.Civ.P. 1.457; Molo Oil Co. v. River City Ford Truck Sales, Inc., 578 N.W.2d 222, 229 (Iowa 1998); accord Smith v. Smith, 646 N.W.2d 412, 416 (Iowa 2002) (Cady, J., dissenting) (explaining the rationale behind the applicable rules of civil procedure). The record is clear the issue of Bryan's misrepresentations was litigated without objection throughout the trial. We conclude the court did not err in considering the defense even though it was not specifically pled.
Second, the cases discussing the requirement defenses based on a claim a contract is void or voidable be pled appear to address the situation where a contract is void or voidable because of some failure in its creation, whether procedural or substantive. See, e.g., Fees, 490 N.W.2d at 58 (claiming a release to be invalid because obtained under economic duress); Waechter v. Aluminum Co. of Am., 454 N.W.2d 565, 569 (economic duress); Harper v. Cedar Rapids Television Co., Inc., 244 N.W.2d 782, 788-89 (Iowa 1976) (mutual rescission); Carter Steel Supply Fabrication, Inc. v. Iowa Mut. Ins. Co., 174 N.W.2d 647, 648-49 (Iowa 1970) (absence or partial failure of consideration); Golf View Realty Co. v. Sioux City, 222 Iowa 433, 436-38, 269 N.W. 451, 453-54 (1936) (ultra vires or illegal contract); Passcuzzi v. Pierce, 208 Iowa 1389, 1391, 227 N.W. 409, 409-10 (1929) (contract made on Sunday). In contrast, there is no claim here of any problem in the creation of the insurance contract, but rather a violation of its express terms making the contract void. We are not convinced rule 1.419 applies to a claim a provision of a contract has been violated.
Bryan next argues the court erred in not requiring proof of all the elements of fraudulent misrepresentation. We disagree. Continental did not allege the tort of fraudulent misrepresentation. Rather, it claimed Bryan violated explicit contract terms by making a material misrepresentation concerning the accident. See Webb v. Am. Family Mut. Ins. Co., 493 N.W.2d 808, 810-12 (Iowa 1992). Because fraudulent misrepresentation was not alleged, the court did not err in not requiring proof of the elements of fraudulent misrepresentation. See Plymouth Farmers, 584 N.W.2d at 291 (listing the essential elements of fraudulent misrepresentation).
Bryan also argues, even though it admits misrepresentations, that they are not material. In Webb our supreme court agreed with the reasoning of the Washington Supreme Court in Mutual of Enumclaw Ins. Co. v. Cox, 757 P.2d 499 (Wash. 1988) concerning materiality. In both Webb and Cox the insureds misrepresented the amount of the loss, but claimed the misrepresentation was not material because the undisputed loss still exceeded policy limits, so the insurer was not prejudiced. Webb, 493 N.W.2d at 810-11; Cox, 757 P.2d at 502. The Washington court stated, "[I]nsurance companies rely on insureds honestly filling out inventory lists of destroyed property. Dishonesty by insureds cannot be ignored." Cox, 757 P.2d at 502. Although in the case before us Bryan did not misrepresent the amount of the loss, he gave inconsistent accounts concerning Rubner's status as employee or a separate business operator and concerning whether or not the crane was rented. As the accurate determination of these issues goes directly to coverage or exclusion of coverage, it cannot reasonably be claimed the misrepresentations are not material. We find, as did the district court, Bryan made material misrepresentations concerning the circumstances surrounding the loss of the crane, justifying cancellation of the contract. Accordingly, we affirm the judgment of the district court.
Continental Insurance's claim. On cross-appeal, Continental claims the court erred in not finding coverage was excluded because the crane was rented to others. The record provides two mutually exclusive accounts. In the first, Rubner is a sole proprietor who contracted with Oran Ag for erection work. He arranged to use the crane at issue, whether by cash rent or barter is unimportant. Under this account, Continental's exclusion for property rented to others clearly applies. In the second account, Rubner is either an employee or an independent contractor with Bryan. The Oran Ag erection work was a contract between Bryan and Oran Ag. Under this account, Continental's coverage would apply. Bryan argues he and others lied in the first account so that Rubner's insurance would pay part of the loss. He contends the second account is the truth. Continental argues the second account is the lie and only came about because it denied coverage based on the first account.
After our review of the conflicting statements, depositions, affidavits, and testimony, we find Bryan did not rent the crane to Rubner. Rather, Bryan was working for Oran Ag, and Rubner operated the crane either as an employee or independent contractor of Bryan Construction. We, like the district court, find the initial account was an attempt to have Rubner's insurance cover part of the loss. Bryan and Rubner recanted their initial statements after Bryan "realized he had placed himself at risk" by claiming Rubner rented the crane as an independent contractor. Although the district court did not base its decision insurance coverage should be denied on the "property you rent to others" exclusion in the contract, we conclude that exclusion does not apply under the circumstances before us and affirm the judgment of the district court.
Having carefully considered the claims and arguments of the parties, we addressed those we considered necessary to resolve the appeal and cross-appeal. Any arguments not specifically addressed either were not necessary to the resolution or were without merit.