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John & Dave, LLC v. Society Ins.

United States District Court, N.D. Iowa, Western Division

February 21, 2014

JOHN & DAVE, LLC, Plaintiff,

Page 784

For John and Dave, LLC, Plaintiff: James C Larew, LEAD ATTORNEY, Larew Law Office, Iowa City, IA; Shannon M Henson, Hope Law Firm PLC, West Des Moines, IA; Travis James Burk, Hope Law Firm, West Des Moines, IA.

For Society Insurance, Defendant: David Noel May, David J. W. Proctor, Caroline Kay Bettis, LEAD ATTORNEYS, Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, IA.


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A. Summary Judgment Standards

B. Discussion

1. Breach of Contract

a. Can Society Rely On Its " Noncompliance"


b. The Merits Of The " No Breach" Argument

2. Bad Faith

a. Reasonable Basis

b. Knowledge

3. Punitive Damages

C. Conclusion - Motion for Summary Judgment



Page 786


This case is before me on two related motions: (1) defendant's motion (Doc. No. 18) for summary judgment and (2) plaintiff's motion (Doc. No. 29) to strike defendant's reply in support of its motion for summary judgment. With regard to the motion for summary judgment, plaintiff has filed a resistance (Doc. No. 21) and defendant has filed the disputed reply (Doc. No. 28). I conducted a hearing on January 29, 2014. Plaintiff was represented by attorneys Travis Burk and Shannon Henson. Defendant was represented by attorneys Caroline Bettis and David May.

The motion to strike was filed one day before the summary judgment hearing. While it was discussed during the hearing, I gave defendant the opportunity to file a written resistance, which it did on February 7, 2014 (Doc. No. 32). Both motions are now fully submitted.


Plaintiff John & Dave, LLC (John & Dave) commenced this action in the Iowa District Court for Monona County on August 31, 2012. In its state court petition (Doc. No. 3), John & Dave alleges that it is insured for certain losses through an insurance policy issued by defendant Society Insurance (Society) and that it suffered covered losses as a result of a fire that occurred at its place of business on September 6, 2011. John & Dave further alleges that Society has not paid all amounts due and owing under the policy. It asserts claims for breach of contract, unjust enrichment, reasonable expectations, insurance bad faith and punitive damages.[1]

Society filed a notice of removal (Doc. No. 2) on October 1, 2012, invoking this court's diversity jurisdiction pursuant to 28 U.S.C. § 1332. Society alleges that it is a citizen of Wisconsin while John & Dave is a citizen of Iowa. Society also alleges that the amount in controversy in this case exceeds $75,000, exclusive of interest and costs. Society then filed an answer (Doc. No. 6) in which it denies liability to John & Dave and raises two affirmative defenses, including a defense that John & Dave may not maintain this action because it has not fully complied with all terms of the insurance contract.

On March 29, 2013, with the parties' consent, United States District Judge Mark W. Bennett transferred the case to me. See Doc. No. 11. Trial is scheduled to begin March 17, 2014.

Page 787


Except as otherwise noted, the following facts are undisputed for purposes Society's motion for summary judgment:

The Parties.

John & Dave is a limited liability company organized under Iowa law. Its principals are John Sick and Dave Sick. Society is an insurance company incorporated in, and with its principal place of business in, Wisconsin.

The Building and the Businesses.

As of September 6, 2011, John & Dave operated the following businesses in a building (Building) located at 2620 Iowa Avenue in Onawa, Iowa: (1) John & Dave, which included both the Country Cafe and 1st Place Sports Bar, and (2) Dave's World, Inc., a gas station and convenience store. The Building was owned by Nils, LLC. According to John & Dave, in 2009 Dave Sick purchased the defunct restaurant business that had operated in the Building for about $7000. He then spent several weeks remodeling the space, adding a bar area, restrooms, interior walls, a waitress station, new flooring and new ceiling tiles.

The Policy.

The structure of the Building was insured by Acuity Insurance (Acuity). However, Society issued John & Dave a Businessowners Policy (Policy), which was in effect from January 15, 2011 to January 15, 2012. That Policy provided business personal property coverage for Country Cafe and 1st Place Sports Bar. Specific provisions of the Policy that are relevant to this case will be discussed further, infra .

The Fire and the Claims.

On September 6, 2011, a fire caused damage to the Building and to John & Dave's personal property located therein. There is no dispute that the fire required the cessation of business activities for some period of time. Under the terms of the Policy, the following types of losses are potentially at issue:

a. income lost due to the interruption of business activities;
b. damage to leasehold improvements (as opposed to damage to the structure);
c. damage to or destruction of equipment and inventory;
d. cleaning costs.

John & Dave eventually decided to close their businesses permanently and contend that this decision resulted, at least in part, from Society's alleged failure to pay amounts owed under the Policy.

The Adjustment Process.

Society assigned Senior Field Claims Representative Jim Sutter to the claim. On the day of the fire, Sutter met with John Sick and David Sick at the property and conducted an initial inspection. The next day, Sutter inspected the property a second time with Craig Schneider of EFI Global (on behalf of Society) and George Howe of Independent Forensic Investigations Corp. (on behalf of Acuity). During this second inspection, Sutter went through the building with Floyd Brunning, a representative of Paul Davis Restoration (PDR). John Sick and Dave Sick were also present for this inspection.

Brunning had initially been called by Acuity to assist with the structural damage portion of John & Dave's claim. Since Brunning was already involved with this loss, he was also asked to inventory the contents. There is some dispute as to who initially proposed having Brunning inventory the contents, and whether there was an agreement between John & Dave and Society that Brunning would do so. It is undisputed, however, that Brunning and his team did inventory the contents and make determinations as to which items were cleanable and salvageable and which items were not.

At this time, Society determined that six months was the appropriate period of time for restoration. John & Dave admit that

Page 788

Society made this determination but deny Society's allegation that there was an agreement concerning the six-month period. The parties agree, however, that Society paid a $5,000 contents and inventory advance to John & Dave on September 7, 2011.

After these two initial inspections, Sutter was advised that John & Dave had retained public adjuster Jim Pierce to handle the claim on its behalf. By September 20, 2011, Sutter had received a contents inventory list prepared by Brunning and forwarded it to Pierce, who acknowledged receipt. John & Dave contend that this list addressed food and beverage items only, not all contents. The document itself confirms this, as it lists nothing but food and beverage items. Doc. No. 18-5 at 40-59. In any event, Sutter requested that John & Dave fill out the pricing for the listed contents and return the list to him with supporting documentation. On October 18, 2011, Pierce submitted a food inventory pricing list to Sutter. See Doc. No. 21-4 at 15-35.

Brunning submitted an estimate to Sutter on September 20, 2011, for various tasks such as the packing, cleaning and off-site storage of the building's contents. Brunning noted that the estimate was not yet approved and still under review. Doc. No. 18-6 at 2. The estimate was in the total amount of $32,435.77. Id. at 14. On September 22, 2011, Brunning sent a follow-up email revising the estimate to $31,451.29. Id. at 17-22. On September 26, 2011, Brunning sent an email message to Sutter and Pierce that included a non-salvageable, non-perishable items inventory list. Id. at 23-41. John & Dave does not deny that this list was sent, but state that Pierce " has no record" of receiving it. Doc. No. 21-2 at 7.

Shortly after the fire, Society retained Peters & Associates, S.C., an independent CPA firm, to assist with the business interruption portion of John & Dave's claim. Peters & Associates requested business records and financial documents from John & Dave. On October 14, 2012, Peters & Associates authored a letter to John Sick and Dave Sick, which discussed its need for additional documents and financial information.

As noted above, Pierce returned a food inventory pricing list to Sutter on October 18, 2011. The total claimed value of the food items was $21,621.82. The spreadsheet Pierce submitted was not in the same order as that previously prepared by Brunning of PDR. Society contends that this made the task of analyzing the Pierce list more difficult. Eight days later, Pierce sent Sutter an email message noting that John & Dave were experiencing a " negative effect" due to " the lack of payment towards their inventory." Doc. No. 18-7 at 26. Pierce also inquired as to the status of Peters & Associates' review of John & Dave's financial records. Id. On the same day, Peters & Associates responded to Pierce by noting that it had not yet received certain materials it had requested from John & Dave. Id. Also on the same day, Society issued another payment to John & Dave. The payment was in the amount of $24,725.64, representing $12,978.64 as an additional contents and inventory advance and $11,747.00 as approximately four (4) months of lost business income.

On November 8, 2011, Peters & Associates provided a preliminary analysis of the business interruption claim, calculating a total business income loss amount through March of 2012 of $15,699. Meanwhile, Sutter wrote to John & Dave on November 10, 2011, concerning the contents and inventory claim. Sutter stated that Society was paying John & Dave an additional $19,202.30, which represented the actual cash value of John & Dave's contents and

Page 789

inventory loss after application of a $1,000 deductible. Sutter also stated that Society was withholding another $15,725.65 as depreciation and that it would be payable upon a showing that certain damaged items had been repaired or replaced. Sutter asked that John & Dave notify him of its intention to repair or replace those items within 180 days of the date of the loss. Doc. No. 18-7 at 48.

On December 16, 2011, Society wrote to John & Dave regarding the business interruption claim. Society noted that it had already paid for approximately four months of business interruption and stated that it would not extend the allowable period beyond six months. Doc. No. 18-7 at ...

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