... NO BAD FAITH CLAIM, NO COVERAGE CLAIM FOR BUSINESS INTERRUPTION.
The Eighth Circuit Court of Appeals issued a tripartite ruling in Penrod Corp. v. National Union Fire Ins. Co., 2011 WL 5922976 (8th Cir. November 29, 2011), Download Penford Corp. v. National Union Fire Insurance Co. (8th Cir. Case No. 10.3068, Opinion Filed Nov. 29, 2011) PUBLIC ACCESS. In issuing its ruling, the Eighth Circuit affirmed the decisions of a United States District Judge in the Northern District of Iowa, in a case which was previously posted here several times for several different significant rulings during the course of the litigation. See, e.g., the post of June 25, 2010.
The three parts of significance here, are based on a set of pertinent facts. Penford Corporation purchased Flood Insurance from the National Flood Insurance Program ("NFIP"). In 2008, a Flood ensued, causing damages including claimed business interruption losses, when the Cedar River breached a diking system that surrounded Penford's factory.
The Flood Policy provided for sublimits of Coverage which expressly did not increase the available Coverage limits. The Policy provided potentially applicable sublimits of $50,000,000.00 for "flood"; or $10,000,000.00 specifically for flood at the plant in Cedar Rapids. Penford contended in essence that if any sublimit applied then the $50,000,000.00 sublimit should apply; the Flood Insurance Companies argued for the $10,000,000.00 sublimit. The issue was whether the applicable sublimit applied to Business Interruption Losses. After paying $20,500,000.00 or $20.5 Million, the Flood Insurance Companies declined to pay anything on Business Interruption Losses. Id. at *1-*2.
On these facts, the three parts of the Eighth Circuit's ruling of significance here, are:
- The Iowa cause of action or claim for First-Party Insurance Bad Faith is similar if not identical to the same cause of action allowed in about one-half of the jurisdictions in the United States. In pertinent part, there is no cognizable claim or cause of action if the First-Party Insurance Company had a reasonable basis for denying the claim. In this case, the District Court found that "the policy was ambiguous and that the language was susceptible to two reasonable interpretations." Id. at *5. The District Court accordingly granted the Insurance Company Defendants' Motion for Judgment as a Matter of Law at Trial on Penford's First-Party Bad Faith Claims. Id. at *1, *4 & *6. The Eighth Circuit affirmed this first ruling: "Because the insurers had a reasonable basis for denying coverage for such losses, they cannot be held to have acted in bad faith." Id. at *5.
- The District Court refused to apply the doctrine of contra proferentem here. The doctrine of contra proferentem is in hot dispute in current discussions among the members of the American Law Institute who are considering draft Principles of the Law of Liability Insurance. The doctrine has it that ambiguous insurance policy provisions must be construed most strongly against the party which drafted them, usually the Insurance Company. Here, in contrast, Penford Corporation and its Flood Insurers apparently went "back and forth" during the drafting process and Penford was on a relatively equal footing with the Insurance Companies in terms of bargaining power in this case. "Moreover, the doctrine should not be applied when the question may be resolved in light of facts developed via extrinsic evidence." Id. at *6. Since such was the case here, the Eighth Circuit concluded "that the district Court properly denied Penford's motion" for judgment as a matter of law at Trial, and affirmed this second ruling of the district court. Id.
- Third and finally, by now it is clear to the reader that in this case the contract language was ambiguous. Since the contract language was ambiguous, extrinsic evidence was properly admissible. On the record, the issue of "whether, when reviewed in the light most favorable to Penford, a reasonable jury could have concluded that the sublimits did not capture and cap business interruption losses," should be determined in favor of the Flood Insurance Companies which contended instead that a particular sublimit in Penford's Flood Policy applies to Business Interruption losses at the Cedar Rapids plant and, in this peculiar case, precludes Coverage. The District Judge accordingly granted the Flood Insurance Companies' MJOL on this issue and the Eighth Circuit affirmed this third ruling. Id. at *11.
Three for three. The Flood Insurance Companies and the District Court had a perfect day at the coverage litigation plate in this case. In the meantime, Penford Corporation employed a lot of people and incurred other expenses, of course, to sweep out a factory on the banks of the Cedar River.
Please Read The Disclaimer.