MEMORANDUM OPINION AND ORDER
LEONARD T. STRAND, Magistrate Judge.
This case is before me on two motions: (1) plaintiff's motion (Doc. No. 14) to compel appraisal and (2) defendant's motion (Doc. No. 15) for summary judgment. I heard oral argument on both motions on June 24, 2013. Shannon Henson appeared for plaintiff Mapleton Processing, Inc. ("Mapleton"). David May and Caroline Bettis appeared for defendant Society Insurance Company ("Society"). Both motions are fully submitted.
Mapleton commenced this action by filing a Petition at Law and Jury Demand (Doc. No. 3) in the Iowa District Court for Monona County on August 17, 2012. Mapleton alleges that it owns property in Mapleton, Iowa, that was damaged by a tornado on April 9, 2011. Mapleton further alleges that the property was covered by an insurance policy issued by Society and that Society has refused to pay the amount Mapleton contends is due and owing under the Policy. Article I of the petition includes claims for breach of contract, unjust enrichment and recovery on a reasonable expectations theory. Article II asserts a claim for insurance bad faith while Article III is a request for punitive damages.
Society filed a timely notice of removal (Doc. No. 2) to this court on September 10, 2012. Society alleged that removal was appropriate in accordance with this court's diversity jurisdiction, as described in 28 U.S.C. § 1332, because Mapleton is a citizen of Iowa, Society is a citizen of Wisconsin and the amount in controversy exceeds $75, 000, exclusive of interest and costs. See Doc. No. 2 at ¶ 2. Mapleton has not challenged the removal of this action and has not argued that this court lacks subject matter jurisdiction.
Society filed its initial answer (Doc. No. 5) on September 14, 2012, and an amended answer (Doc. No. 6) on September 27, 2012. In its affirmative defenses, Society contends (a) that it has not denied Mapleton's claim, (b) that Mapleton failed to comply with a provision of the policy that allows Society to conduct an examination under oath and (c) that this failure requires dismissal of this action because the policy provides that legal action cannot be commenced unless there has been full compliance with the terms of the policy. See Doc. No. 6 at 6-7.
The parties subsequently consented to trial, disposition and judgment by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). The case was assigned to me by an order (Doc. No. 11) entered December 4, 2012.
Mapleton filed its motion to compel appraisal on May 2, 2013. Society filed a resistance on May 16, 2013, and Mapleton filed a reply on May 28, 2013. Meanwhile, Society filed its motion for summary judgment on May 10, 2013. Mapleton filed its resistance on June 3, 2013, and Society filed its reply on June 19, 2013.
The Claim. On April 9, 2011, a tornado caused damage to a structure owned by Mapleton. Mapleton operated a meat processing plant and locker facility on the premises. The premises were insured by a Businessowners Policy ("Policy") issued by Society. The Policy was in effect from October 3, 2010, to October 3, 2011. After the tornado, Mapleton contacted Society to report the damage.
Society originally assigned the claim to adjuster Chris Stubbe. On April 13, 2011, independent adjuster Dan Henson inspected the building. Henson developed some concerns about the structural integrity of the building. Mapleton's owner, Richard Nichols, discussed his own structural and foundational concerns with Henson.
On April 15, 2011, Society reassigned the adjustment of Mapleton's claim to Jim Sutter. Sutter inspected the premises on April 19, 2011. Nichols was present, along with a contractor who was a business acquaintance of Nichols'. Nichols mentioned cracking in the foundation. Sutter also observed cracking but did not know if the cracking was caused by the tornado or was preexisting. Sutter noticed that some of the cracks had been painted in, meaning they had existed prior to the tornado.
Sutter determined that an engineering inspection was necessary. The contractor who was at the inspection with Nichols recommended that Doug Rose of Bacon Creek Design conduct the inspection. Nichols agreed with the recommendation. Sutter called Rose, who indicated that he could visit the site that afternoon to conduct an inspection. Sutter advised Rose that he could bill Society for his services.
Rose conducted his inspection on the afternoon of April 19, 2011. Sutter, Nichols and the contractor were again present. After the inspection, Rose prepared a report to summarize his findings. He described damage to the roof and other exterior features of the building. As for the interior, he stated: "Cracks in the interior masonry bearing wall are the only structural damages that were visible at the time of this inspection. This wall has numerous vertical and horizontal cracks on each face." He recommended tuck pointing as the proper method of repair, at an estimated cost of $2, 960.00.
Meanwhile, Sutter prepared a line item estimate of repairs. He states that the estimate was based on Rose's opinions and calculations and that Rose reviewed and agreed with the estimate. While Sutter had some doubt as to whether the tornado caused all of the cracks at issue, his estimate included Rose's proposed repair for those cracks. As a result of Sutter's estimate, Society determined that the actual cash value of the loss was $22, 336.77. After subtracting the policy deductible, the payment to Mapleton would be $21, 836.77.
According to Sutter, when he advised Nichols of this determination Nichols stated the amount was less than he anticipated and that he would settle the claim for $30, 000. In his affidavit, Nichols denies that he offered to settle the claim for $30, 000 but admits that he "offered to settle for $50, 000 to $60, 000." Whatever the amount, Nichols later rescinded his offer. He states that he did so after obtaining opinions that the damages caused by the tornado were far greater.
On May 5, 2011, Society issued a check to Mapleton (and its bank) in the amount of $21, 836.77. Mapleton cashed that check but also hired a public adjuster, Jim Pierce, to assist with its claim. Pierce arranged for Forensic Building Science, Inc. ("FBS") to conduct an inspection. Tom Irmiter of IBS inspected the building in August 2011 and prepared a report dated September 19, 2011. The report describes significant items of damage Irmiter attributed to the tornado. For example, it states that the existing cracks were worsened by the storm, new cracking occurred as a result of the storm and that this damage was consistent with effects of winds in excess of 140 miles per hour. While the report did not include a specific dollar value for the necessary repairs, it included a statement that the repairs "may exceed the value of the building."
Society then scheduled another inspection by Bacon Creek Design. On November 15, 2011, Sutter and Pierce, along with Rose and Eldon Schroder (also an engineer with Bacon Creek Design), conducted that inspection. During the inspection, Sutter and Pierce discussed the Irmiter report and Pierce stated that he did not agree with everything contained in that report.
This was not Schroder's first inspection of the property. He conducted an inspection in 1993 to review damage caused by a water leak when the property was under different ownership. As such, according to Society, he was in a unique position to advise it as to which of the structure's conditions pre-dated the tornado.
Schroder submitted a letter and report to Society in December 2011. He stated that much of the damage Mapleton claimed to be caused by the tornado was not. He described the damage that, in his opinion, was storm-related and stated that the other items for which Mapleton sought payment "resulted from inadequate construction of walls required to resist lateral soil pressure, a 1993 water leak, deferred maintenance and frugality on the original construction." He also stated: "Age, wear and tear, or weather inevitably caused deterioration that ought not to be called storm damage. This windstorm has been seized as the providential opportunity accompanied by a deep pocket containing funds for repairs or judicious upgrading." He concluded that the damage caused by the tornado was "less than $5, 000." In other words, Schroder advised Society that it had overpaid Mapleton on its claim.
Pierce prepared his own report based on the November 2011 inspection. His report is largely consistent with Irmiter's report and includes a finding that the actual cash value of the damage totals $173, 609.85. In his supporting affidavit, Pierce notes that his disagreement with Society's adjustment of the claim involves both the scope of the damage and Society's pricing. In other words, even with regard to repairs that Society acknowledges to be storm-related, Pierce believes Society has understated the repair costs. Based on Pierce's report, Mapleton submitted a sworn proof of loss, dated January 18, 2012, with the amount listed as "$173, 109.85." Society disputes this amount.
The Policy. The parties rely on several provisions of the Policy in support of their respective arguments:
Duties In The Event Of Loss Or Damage
b. We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.
Legal Action Against Us
No one may bring a legal action against us under this insurance unless:
a. There has been full compliance with all of the terms of this insurance; and
b. The action is brought within 2 years after the date on which the direct physical loss or damage occurred.
Concealment, Misrepresentation or Fraud
This policy is void in any case of fraud by you as it relates to this policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning:
1. This policy;
2. The Covered Property;
3. Your interest in the Covered Property; or
4. A claim under this policy.
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 notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and upon failing for fifteen days to agree upon such umpire, then, on request of the insured or this Company, such umpire shall be selected by a 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 value 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.
Request for Appraisal. On December 14, 2011, Pierce submitted a request for appraisal on Mapleton's behalf in reliance on the Policy's appraisal provision. Society responded through its counsel on December 21, 2011. According to Society, the request was premature because, as of that date, no sworn proof of loss had been submitted and other documentation Society had requested had not yet been provided.
Mapleton renewed its request for appraisal in May 2012. It made additional requests in January and March of 2013, months after it filed this lawsuit. Society declined those requests and contends that the appraisal procedure is inappropriate when disputes exist as to causation and/or coverage.
Request for Examination Under Oath. In February 2012, Society requested that Nichols submit to an examination under oath ("EUO") as provided in the Policy. According to Society, it sought to ask Nichols about various topics, including the Bacon Creek Design reports from 1993 and 2011 and Nichols' prior offer to settle the claim (which, according to Society, was in the amount of $30, 000). Nichols agreed to submit to the EUO and it was scheduled for June 22, 2012. However, Society postponed the EUO because its counsel became ill on June 21, 2012. The parties then selected August 1, 2012, as the new date for the EUO.
Mapleton retained new counsel (its counsel of record in this case) on July 31, 2012. That afternoon, the new attorney left a voicemail message for Society's counsel advising that her firm had been retained to represent Mapleton and stating that the EUO would have to be rescheduled. She also sent a letter to Society's counsel by fax and mail confirming her voicemail message and asking that he contact her "so that we can reschedule this for a later date."
According to Society, its counsel did not learn of the cancellation until the morning of August 1, 2012, just before the EUO was to take place. Society's counsel called Mapleton's new counsel to discuss the cancellation and, apparently, to express unhappiness about the resulting cost and inconvenience. During this conversation, he advised her that he had surgery scheduled for later that month.
After this conversation, Mapleton's counsel sent a letter to Society's counsel dated August 1, 2012. She commented on his "aggravation" and then stated that Nichols "has not refused to appear for an EUO nor does he intend to refuse to appear for an EUO." She again requested new dates for the EUO.
Society's counsel responded with a letter dated August 7, 2012. The letter addressed the reasons for Society's counsel's annoyance about the last-minute cancellation and stated that Society did not intend any waiver or estoppel of any of its rights. The letter did not provide proposed new dates for the EUO.
Mapleton filed this action ten days later, on August 17, 2012. Apparently there were no additional communications between the parties or counsel prior to that date. However, three days after filing the lawsuit, Mapleton's counsel wrote to Society's counsel to indicate that the action had been filed and to request dates for the EUO.
I. Society's Motion for Summary Judgment
A. Summary Judgment Standards
Any party may move for summary judgment regarding all or any part of the claims asserted in a case. Fed.R.Civ.P. 56(a). Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A material fact is one that "might affect the outcome of the suit under the governing law.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Thus, "the substantive law will identify which facts are material." Id. Facts that are "critical" under the substantive law are material, while facts that are "irrelevant or unnecessary" are not. Id.
An issue of material fact is genuine if it has a real basis in the record, Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir. 1992) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)), or when "a reasonable jury could return a verdict for the nonmoving party' on the question, " Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990 (8th Cir. 2005) (quoting Anderson, 477 U.S. at 248). Evidence that only provides "some metaphysical doubt as to the material facts, " Matsushita, 475 U.S. at 586, or evidence that is "merely colorable" or "not significantly probative, " Anderson, 477 U.S. at 249-50, does not make an issue of material fact genuine.
As such, a genuine issue of material fact requires "sufficient evidence supporting the claimed factual dispute" so as to "require a jury or judge to resolve the parties' differing versions of the truth at trial." Anderson, 477 U.S. at 248-49. Essentially, a genuine issue of material fact determination, and thus the availability of summary judgment, is a determination of "whether a proper jury question [is] presented." Id. at 249. A proper jury question is present if "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id.
The party moving for entry of summary judgment bears "the initial responsibility of informing the court of the basis for its motion and identifying those portions of the record which show a lack of a genuine issue." Hartnagel, 953 F.2d at 395 (citing Celotex, 477 U.S. at 323). Once the moving party has met this burden, the nonmoving party must go beyond the pleadings and by depositions, affidavits, or otherwise, designate specific facts showing that there is a genuine issue for trial. Mosley v. City of Northwoods, 415 F.3d 910 (8th Cir. 2005). The nonmovant must show an alleged issue of fact is genuine and material as it relates to the substantive law. If a party fails to make a sufficient showing of an essential element of a claim or defense with respect to which that party has the burden of proof, then the opposing party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 322.
In determining if a genuine issue of material fact is present, I must view the evidence in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587-88. Further, I must give the nonmoving party the benefit of all reasonable inferences that can be drawn from the facts. Id. However, "because we view the facts in the light most favorable to the nonmoving party, we do not weigh the evidence or attempt to determine the credibility of the witnesses." Kammueller v. Loomis, Fargo & Co., 383 F.3d 779, 784 (8th Cir. 2004). Instead, "the court's function is to determine whether a dispute about a material fact is genuine." Quick v. Donaldson Co., Inc., 90 F.3d 1372, 1376-77 (8th Cir. 1996).
Society contends that Mapleton's entire lawsuit must be dismissed because it was filed before Nichols submitted to an EUO, as requested by Society pursuant to the Policy. In the alternative, Society argues that all of Mapleton's claims other than breach of contract fail as a matter of law.
In its resistance, Mapleton states that it no longer intends to pursue its claims for unjust enrichment or recovery on a reasonable expectations theory. As such, I will grant Society's motion for summary judgment with regard to Counts II and III of Article I of Mapleton's state court petition. With regard to its remaining claims, Mapleton (a) denies that the lack of a pre-action EUO requires dismissal of this case and (b) contends that genuine issues of material fact preclude entry of summary judgment on its claims for insurance bad faith and punitive damages.
1. Lack of a Pre-Action Examination Under Oath
It is undisputed that the Policy gives Society the right to demand and conduct an EUO. It is also undisputed that the Policy states no legal action may be filed under the Policy until there "has been full compliance with all of the terms of this insurance." Finally, it is undisputed that Society requested that Nichols submit to an EUO but that this action was filed before he did so.
Society contends that under Iowa law,  these undisputed facts mandate an award of summary judgment in its favor. It relies on the Iowa Supreme Court's decision in Watson v. Nat'l Surety Corp., 468 N.W.2d 448 (Iowa 1991). Because Watson is pivotal, I will discuss it in detail below. Before ...