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City of West Liberty v. Employers Mutual Casualty Co.

Court of Appeals of Iowa

March 7, 2018

CITY OF WEST LIBERTY, Plaintiff-Appellant,

         Appeal from the Iowa District Court for Muscatine County, Paul L. Macek, Judge.

         A city appeals a summary judgment ruling in favor of the city's insurer pursuant to an exclusion in an all-risks insurance policy. AFFIRMED.

          Thomas A. Vickers and Scott A. Ruksakiafi of Vanek, Vickers & Masini, P.C., Chicago, Illinois, and Amber J. Hardin of Stanley, Lande & Hunter, Muscatine, for appellant.

          Sean M. O'Brien and Catherine M. Lucas of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, for appellee.

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

          MULLINS, Judge.

         A city appeals the district court's grant of summary judgment in favor of the city's insurer. The district court concluded the city's property damages were not covered by an all-risks insurance policy due to the policy's "Electrical Currents" exclusion. We affirm.

         I. Background Facts and Proceedings

         The facts in this case are generally undisputed. In November 2014, a gray squirrel scampered into an electrical substation owned by the City of West Liberty, Iowa (the City). The property was insured by Employers Mutual Casualty Company (EMC). The squirrel was climbing on equipment when, as the district court found, "the squirrel found itself in a rather shocking situation when it came into contact simultaneously with a cable clamp energized at 7200 volts and the grounded steel frame which supported the cable attached to the clamp." An electrical arc was generated when the squirrel completed the circuit. The arcing lasted thirty to forty-five seconds, [1] causing substantial damage to the City's property and short-circuiting the squirrel's life. The City and EMC agree the squirrel created the conductive path that resulted in an electrical arc that caused substantial damage to equipment at the City's electrical substation.

         The City submitted a claim to EMC for the damages. EMC denied the City's claim, citing the insurance policy's "Electrical Currents" exclusion. Ultimately, the City filed suit seeking a declaration that its damage was covered under the policy. Dueling motions for summary judgment were filed. In its analysis, the district court stated:

[Here, ] [t]here are not two distinct events that caused damages. While the incident might be characterized as having two events: 1) the squirrel physically touching the equipment, in and of itself hardly an "event, " and 2) the ensuing electrical arc, the first event of the squirrel physically touching the equipment, by itself, did not cause any damage. The only event that caused the damage sought by [the City] was the electrical arc. Importantly, [the City] does not claim, nor do the undisputed facts show, that the squirrel did any damage to [the City]'s property such as gnawing on a power line or digging for nuts in a dangerous area. [The City] has characterized the "squirrel's actions" as "not excluded under the policy." The Court cannot conclude that the "squirrel's actions" were a cause of the damages because the squirrel did not actually do anything to cause damages; it merely touched some things it should not have touched. The arc caused all of the damages. Had the squirrel done what it had done and the arc not occurred, there would be no damages. Because there are not two different damage-causing events, the Court need not engage in an efficient proximate cause analysis. If an efficient proximate cause analysis was appropriate, the Court would find that the arcing was the dominant cause.

         In granting summary judgment in favor of EMC, the district court concluded:

The squirrel's presence was merely a legal cause of the chain of events that ensued afterwards. The squirrel by itself did not cause any damage. Rather, the sole cause of damage to [the City]'s property was the electrical arc. The Policy excludes coverage for damage caused by an electrical arc. Therefore, the Policy does not require [EMC] to cover the damage caused on November 7, 2014.

         The court also denied the City's motion for partial summary judgment.

         The City now appeals the court's ruling.

         II. Standard of Review

         We review a summary judgment ruling interpreting an insurance policy for correction of errors at law. See Just v. Farmers Auto. Ins. Ass'n, 877 N.W.2d 467, 471 (Iowa 2016). A grant of summary judgment is only proper if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. See Iowa R. Civ. P. 1.981(3); Villarreal v. United Fire & Cas. Co., 873 N.W.2d 714, 719 (Iowa 2016). If the dispute concerns only the legal consequences of undisputed facts, summary judgment is appropriate. See Nelson v. Lindaman, 867 N.W.2d 1, 6 (Iowa 2015). "We view the evidence in the light most favorable to the nonmoving party, who is entitled to every legitimate inference that we may draw from the record." Id. at 6-7.

         III. Applicable Insurance Contract Principles

         The standards for interpreting and construing insurance policies are well established. When scrutinizing an insurance policy,

we must observe the differences between interpretation and construction of an insurance policy. Interpretation requires us to give meaning to contractual words in the policy. Policy interpretation is always an issue for the court, unless we are required to rely upon extrinsic evidence or choose between reasonable inferences from extrinsic evidence. If the policy does not define a term, we give the word its ordinary meaning. The plain meaning of the insurance contract generally prevails.
Construction is the process of giving legal effect to a contract. This is always a matter of law for the court. The cardinal rule of construing insurance policies is that except in cases of ambiguity, the intent of the parties must control, and the court determines the intent of the parties by looking at what the policy itself says. We consider the parties' intent at the time the policy was sold, not in hindsight. We will not strain the words or phrases of the policy in order to find liability that the policy did not intend and the insured did not purchase.
Under an objective test, a policy is ambiguous if the language is susceptible to two reasonable interpretations. We read the policy as a whole when determining whether the contract has two equally plausible interpretations, not seriatim by clauses. This stems from the concept that [w]ords in an insurance policy are to be applied to subjects that seem most properly related by context and applicability. Accordingly, reading the contract as a whole requires us to consider all declarations, riders, or endorsements attached.
. . . . We will not interpret an insurance policy to render any part superfluous, unless doing so is reasonable and necessary to preserve the structure and format of the provision. Moreover, we interpret the policy language from a reasonable rather than a hypertechnical viewpoint.
If the policy is ambiguous, we adopt the construction most favorable to the insured. This same rule applies when an exclusion is ambiguous, because [a]n insurer assumes a duty to define any limitations or exclusionary clauses in clear and explicit terms. Thus, we strictly construe exclusions against the insurer. We do so because insurance policies constitute adhesion contracts.
An insurance policy is not ambiguous, however, just because the parties disagree as to the meaning of its terms. If an insurance policy and its exclusions are clear, the court will not write a new contract of insurance for the parties.

Boelman v. Grinnell Mut. Reinsurance Co., 826 N.W.2d 494, 501-02 (Iowa 2013) (alterations in original) (internal citations and quotation marks omitted).

         When an insured who has experienced loss seeks coverage under an insurance policy, the burden of proof initially is on the insured to prove that both the property and the peril were covered by the terms of the policy. See, e.g., Henschel v. Hawkeye-Sec. Ins. Co., 178 N.W.2d 409, 418-20 (1970); 17A Steven Plitt et al., Couch on Insurance § 254:11 (3d ed. Dec. 2017 update) [hereinafter Couch on Insurance]; 46 C.J.S. Insurance § 1525 (Feb. 2018 update). If the insured meets the initial burden, it is then that the burden shifts to the insurer to prove any claimed exclusion or exception to the coverage. See W. Bend Mut. Ins. Co. v. Iowa Iron Works, Inc., 503 N.W.2d 596, 598-99 (Iowa 1993); Long v. Glidden Mut. Ins. Ass'n, 215 N.W.2d 271, 274 (Iowa 1974); 17A Couch on Insurance § 254:12; 46 C.J.S. Insurance § 1525 (Feb. 2018 update); 5 Jeffery E. Thomas & Susan Lyons, New Appleman on Insurance Law Library Edition § 41.02[1][b][i] (Sept. 2017 update) [hereinafter Appleman] ("Once the insured makes a prima facie showing that the all-risks coverage exists and there is damage to or loss of the covered property, the burden shifts to the insurer to demonstrate that the damage or loss falls within one of the exclusions listed in the policy.").

         IV. Discussion

         We begin our analysis by looking at the insuring agreement itself to determine if the "policy affords coverage under a particular set of circumstances." See Nat'l Sur. Corp. v. Westlake Invs., LLC, 880 N.W.2d 724, 739 (Iowa 2016). The relevant provisions of the insurance policy at issue provide:

. . . .
"We" cover direct physical loss to covered property at a "covered location" caused by a covered peril.
. . . .
"We" cover risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.
. . . .
2. "We" do not pay for loss or damage that is caused by or results from one or more of the following excluded causes or events:
. . . .
g. Electrical Currents - "We" do not pay for loss caused by arcing or by electrical currents other than lightning. But if arcing or electrical currents other than lightning result in fire, "we" cover the loss or damage caused by that fire.
"We" do cover the direct loss by a covered peril which occurs at "covered locations" as a result of any power interruption or other utility services.

         This exclusion does not apply to "computers."

         The insurance policy at issue is an all-risks policy. "[A]n 'all-risks' policy covers any risk of direct physical loss or damage to the covered property unless specifically excluded by the policy." Appleman § 41.02[1][a]. "Under an 'all risk' property insurance policy, losses to covered property caused by any and all perils, or risks, are covered, unless the loss is caused by a peril that is expressly and unambiguously excluded by the policy." Id. § 44.02[2]. "The term 'peril' or 'risk' refers to 'fortuitous, active, physical forces such as lightning, wind, and explosion, which bring about the loss." Id. § 44.02[1].

An "all-risk" policy creates coverage of a type not ordinarily present under other types of insurance, and recovery is allowed for fortuitous losses unless the loss is excluded by a specific policy provision; the effect of such a policy is to broaden coverage, and a fortuitous event is one which, to the knowledge of the parties, is dependent upon chance.

10A Couch on Insurance § 148:50.

"[U]nder all-risk policies a loss or damage arising from a fortuitous event, that is, one that is unexpected and not probable, and caused by an external force, that is, not resulting from an internal characteristic of the property, is covered under such a policy unless specifically excluded . . . ."

         Jane Massey Draper, Annotation, Coverage Under All-Risk Insurance, 30 A.L.R.5th 170, § 2(a) (1995); accord 10A Couch ...

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