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B&F Jacobson Lumber & Hardware, L.L.P. v. Acuity, A Mutual Insurance Co.

Court of Appeals of Iowa

December 20, 2017

B&F JACOBSON LUMBER & HARDWARE, L.L.P., Plaintiff-Appellant,
v.
ACUITY, A Mutual Insurance Company, Defendant-Appellee.

         Appeal from the Iowa District Court for Monona County, Jeffrey L. Poulson, Judge.

         B&F Jacobson Lumber & Hardware, L.L.P. appeals from a jury verdict in favor of Acuity, A Mutual Insurance Company, on B&F's claim for bad faith in the adjustment of a property-damage claim. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

          Bruce Stoltze of Stoltze & Stoltze, P.L.C., Des Moines, Travis J. Burk of Hope Law Firm, P.L.C., and Jeffrey S. Carter of Jeff Carter Law Office, P.C., Des Moines, for appellant.

          Dustin T. Zeschke and Stephen J. Powell of Swisher & Cohrt, P.L.C., Waterloo, for appellee.

          Danilson, C.J., and Doyle and Mullins, JJ.

          DANILSON, Chief Judge

         B&F Jacobson Lumber & Hardware, L.L.P. (B&F) appeals from a jury verdict in favor of Acuity, A Mutual Insurance Company (Acuity), on B&F's claim for bad faith in the adjustment of a property-damage claim. B&F contends the district court improperly (1) denied B&F's motion to compel evidence of post-filing-of-litigation claim adjustment decisions on the basis it is protected by the attorney-client privilege, (2) determined other evidence of post-filing-of-litigation conduct was inadmissible, and (3) precluded B&F from presenting evidence as to damages for loss of peace of mind. We conclude the district court abused its discretion in denying B&F's motion to compel and in making a blanket decision that all evidence of post-filing-of-litigation conduct was inadmissible. The court also erred in denying the admission of two damage estimates. We reverse and remand for further proceedings and a new trial. We affirm the court's ruling that B&F may not present evidence as to loss of peace of mind or prejudgment interest.

         I. Background Facts & Proceedings.

         This matter arose on April 9, 2011, when a tornado caused significant damage to the two buildings located on B&F's business premises in Mapleton, Iowa. B&F's insurer, Acuity, sent an adjuster, Brad Werger, to Mapleton on April 12, 2011, to assess the damage. On April 13, the owner of B&F, Bruce Jacobson, discussed the damage estimate with Werger and signed the proof of loss. A check was issued to B&F in the amount of $60, 464.75 for the actual cash value of loss to B&F's buildings. The check included a notation stating, "Settlement in Full-ACV."

         Jacobson later realized the damage was more extensive and could not be remedied with only $60, 464.75. In August 2011, Jacobson hired a public adjuster, James Pierce, to review the claim including the damages. While working together on an unrelated claim in February 2012, Pierce mentioned to Werger that he had been hired by B&F to serve as its public adjuster. In his second affidavit, Werger explained, "We had a conversation in which Mr. Pierce stated it appeared we would be working another claim together, the lumber yard claim. I believed Mr. Pierce was mistaken and informed him that the claim had been settled back in April of 2011." Pierce again contacted Werger by email on August 6, 2012, stating, "I have another possible claim with you. The B[&]F Jacobs[o]n lumber yard. You and I had talked about it previously and you had mentioned that the client signed off on something. Could you send me that form please at your convenience." Werger replied, "On vacation until the 13th. Policyholders release so we are not opening up the claim. I can send when I get back."

         After the email exchange, B&F filed its petition on August 17, 2012, asserting claims for breach of contract, unjust enrichment, reasonable expectations, bad faith, and seeking punitive damages. On October 23, 2012, counsel for B&F made a written request for appraisal[1] as permitted by B&F's insurance policy if the parties "disagree on the value of the property or the amount of the loss." Counsel for Acuity replied and refused appraisal. Acuity filed both a motion for summary judgment and a motion to stay discovery and appraisal requests on January 11, 2013. B&F filed a motion to compel appraisal on February 7. The district court granted the motion for summary judgment in May 2013 but did not address the motion to stay or the motion to compel appraisal. B&F appealed. See B&F Jacobsen Lumber & Hardware, L.L.P. v. Acuity, No. 13-0952, 2014 WL 1714968, at *1 (Iowa Ct. App. Apr. 30, 2014). On appeal, this court concluded questions of fact existed as to a number of issues raised regarding the notice provision and the bad-faith claim, reversed the summary-judgment ruling, and remanded the case back to the district court. Id. at *9-10.

         On August 5, 2014, B&F filed a second motion to compel appraisal, which Acuity again resisted. The court entered an order compelling appraisal on October 13. The appraisal was completed on February 17, 2015, resulting in an award requiring Acuity to pay B&F an additional $83, 000 in damages. After the appraisal was complete and payment was made, only B&F's bad-faith claim remained.

         On June 4, 2015, a deposition was taken of Acuity's property-claims manager, Marty Jaeger. During the deposition, Acuity's counsel asserted attorney-client privilege in declining to allow Jaeger to answer a number of questions respecting Acuity's reliance on the "settled in full" language on the check and the reasoning for its decision to refuse B&F's requests for additional payment and appraisal after the litigation was commenced. Acuity's counsel stated any decision made after the filing of the petition was on advice of counsel and maintained the reasoning for Acuity's decisions was therefore protected by attorney-client privilege.

         On October 12, 2015, B&F filed a third motion to compel. The third motion requested an order to compel Jaeger to answer the questions avoided during his deposition. On November 19, pursuant to Iowa Rule of Evidence 5.104(a), Acuity filed a motion to determine the admissibility of evidence requesting that the court determine certain evidence inadmissible at trial including evidence of post-filing-of-litigation conduct and evidence as to emotional damages or-as B&F described it-loss of peace of mind from the purchase of property insurance. The court entered an order ruling on both the motion to compel and the motion to determine admissibility of evidence on February 5, 2016. The court held counsel for Acuity's assertion of attorney-client privilege during Jaeger's deposition was proper, and denied B&F's motion to compel. The court also determined evidence of Acuity's post-filing-of-litigation actions were not admissible.

         On March 4, B&F filed a motion regarding emotional-distress damages for bad faith, asserting B&F was not claiming damages for emotional distress and requesting B&F be permitted to seek damages for loss of peace of mind. The court held B&F, being a limited liability partnership, could not experience a loss of peace of mind, and thus evidence as to loss of peace of mind would not be admitted.

         The matter proceeded to jury trial, and on March 14, the jury rendered a verdict finding Acuity had not acted in bad faith. B&F filed a motion for new trial on April 27, which was denied. B&F now appeals, maintaining the district court erred in (1) denying B&F's motion to compel answers previously omitted from Jaeger's deposition, (2) limiting evidence as to Acuity's post-filing-of-litigation conduct, and (3) determining evidence as to loss of peace of mind was inadmissible.

         II. Standards of Review.

         "We review a district court's ruling on a discovery matter for abuse of discretion." Mediacom Iowa, L.L.C. v. Inc. City of Spencer, 682 N.W.2d 62, 66 (Iowa 2004). "[W]e afford the district court wide latitude. We will reverse a ruling on a discovery matter only for an abuse of discretion." Exotica Botanicals, Inc. v. Terra Int'l, Inc., 612 N.W.2d 801, 804 (Iowa 2000) (citation omitted). "There is such an abuse when the grounds underlying a district court are clearly untenable or unreasonable." Mediacom Iowa, 682 N.W.2d at 66. There must also be a showing that the alleged error resulted in prejudice to provide grounds for reversal. Jones v. Univ. of Iowa, 836 N.W.2d 127, 140 (Iowa 2013). In Jones, our supreme court summarized the applicable principles:

It is well-settled that nonprejudicial error is never ground for reversal on appeal. See Bengford v. Carlem Corp., 156 N.W.2d 855, 867 (Iowa 1968). Furthermore, we do not presume the existence of prejudice based on an erroneous discovery ruling. See James v. Hyatt Regency Chi., 707 F.3d 775, 784 (7th Cir. 2013) ("We shall not reverse the district court's ruling [on a motion to compel] absent a clear showing that the denial of discovery resulted in actual and substantial prejudice . . . ."); Team Cent., Inc. v. Teamco, Inc., 271 N.W.2d 914, 922 (Iowa 1978) (noting that an erroneous discovery ruling on privilege must be "of sufficient importance to justify a reversal"); Schroedl v. McTague, 169 N.W.2d 860, 865 (Iowa 1969) (holding that even if trial court's discovery ruling on party's request for admissions was erroneous, there was "no ground for a reversal as no prejudice therefrom appear[ed] in the record"). "[T]he burden rests upon the appellant not only to establish error but to further show that prejudice resulted." In re Behrend's Will, 10 N.W.2d 651, 655 (1943).

         (Second and third alterations in original.)

         We also review the district court's evidentiary rulings for an abuse of discretion. State v. Olutunde, 878 N.W.2d 264, 266 (Iowa 2016). The same abuse-of-discretion standard applies-we reverse if the district court exercised its discretion on clearly untenable or unreasonable grounds. Ranes v. Adams Labs., Inc., 778 N.W.2d 677, 685 (Iowa 2010). "A ground or reason is untenable when it is not supported by substantial evidence or when it is based on an erroneous application of the law." Id. (quoting Graber v. City of Ankeny, 616 N.W.2d 633, 638 (Iowa 2000)).

         III. Motion to Compel-Deposition.

         B&F first contends the district court erred in refusing to compel those portions of Jaeger's deposition he declined to answer by asserting attorney-client privilege. Acuity argues the privilege was properly invoked because the actions taken by Acuity after the litigation commenced were all on the advice of counsel.

         B&F argued Acuity acted in bad faith because it had no reasonable basis to deny B&F's claim for additional damages. See Reuter v. State Farm Mut. Auto. Ins. Co., Inc., 469 N.W.2d 250, 253 (Iowa 1991) (stating that to establish the insurer acted in bad faith, the insured must "show the absence of a reasonable basis for denying benefits of the policy and the [insurer's] knowledge or reckless disregard of the lack of a reasonable basis for denying the claim").

         B&F also asserted Acuity's bad faith was evidenced in part by Acuity's issuance of a check to B&F four days after the tornado, which indicated the claim was "settled in full, " in violation of Iowa Administrative Code rule 191-15.41(10).[2]

         Acuity denied the allegations of bad faith, and, specifically with respect to the "settled in full" language, Acuity maintained the language was harmless because Acuity never intended the language to be binding. To rebut these arguments, B&F sought to obtain answers from Jaeger during his deposition respecting Acuity's reasoning for denying B&F's requests for additional payment and appraisal and Acuity's true position on the "settled in full" language. For example:

Q. Mr. Jaeger, who has been the person in charge of adjusting the claim of BF Jacobson on this property loss since the time of the filing of this lawsuit? A. Mr. Werger and I.
. . . .
Q. Okay. Did you at any time become aware of a request for appraisal by Mr. Jacobson on or about October 23, of 2012? A. As part of the litigation, yes. I-my attorney shared a letter with me.
Q. All right. What is the reason Acuity refused to agree to the appraisal in October of 2012?
COUNSEL FOR ACUITY: Do not answer that question. I'm invoking the attorney-client privilege, and I'm advising my client not to answer this or any other question that you pose to him about what the reasons were for Acuity to do anything in response to litigation. And that's exactly what you're doing, and I am not going to let him answer that or any other question that's directed toward decisions that were made while the litigation was pending.
. . . .
Q. Mr. Jaeger, would you tell me the reason that Acuity refused to conduct an appraisal when the request was made for one by ...

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