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Walnut Creek Townhome Association v. Depositors Insurance Co.

Supreme Court of Iowa

June 1, 2018

WALNUT CREEK TOWNHOME ASSOCIATION, Appellant,
v.
DEPOSITORS INSURANCE COMPANY, Appellee.

          On review from the Iowa Court of Appeals. Appeal from the Iowa District Court for Polk County, Robert B. Hanson, Judge.

         Property insurer seeks further review of court of appeals decision that reversed district court judgment rejecting appraisal award. COURT OF APPEALS DECISION VACATED; DISTRICT COURT JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH INSTRUCTIONS.

          Timothy D. Johnson of Roeder Smith Jadin, PLLC, Bloomington, Minnesota, and Anthony R. Epping of Epping Law Office, P.C., Des Moines, for appellant.

          Jeff M. Margolin and Apryl M. DeLange of Hopkins and Huebner, P.C., Des Moines, for appellee.

          WATERMAN, Justice.

         In this appeal, we must decide whether the district court erred by rejecting an insurance appraisal award for hail damage to roofing shingles. This case presents a question of first impression in Iowa that has divided the courts of other jurisdictions: whether the appraisers may determine the cause of the loss. The insured townhome association was already investigating a warranty claim against the manufacturer seeking replacement of allegedly defective shingles when the hailstorm occurred. The property insurer paid for damage to metal gutters and fascia but disputed whether the hail caused damage to the asphalt shingles and denied coverage based on the preexisting manufacturing defect. The Association sued the insurer for breach of contract and invoked the appraisal provision of the property insurance policy to ascertain the amount of the loss from the hailstorm. The appraisal panel considered conflicting expert opinions and, in a two-to-one decision, valued the hail-damage loss at approximately $1.4 million. The district court held a bench trial, rejected the appraisal award, found no shingle damage from hail, applied an exclusion for defective materials, and entered judgment in favor of the insurer. The Association appealed, and we transferred the case to the court of appeals.

         The court of appeals held the district court erred by rejecting the appraisal award for shingle damage and remanded for entry of judgment on the appraisal award, excluding amounts for air conditioners not owned by the insured. A dissenting judge would have affirmed the district court judgment against the insured, concluding the district court was not bound by the appraiser's determination of the cause of the loss. We granted the insurer's application for further review.

         We hold the district court erred by disregarding the appraisal award's determination of the amount of the loss for shingles damaged by the hailstorm. We are persuaded by the court's holding that appraisers may determine the factual cause of damage to insured property to ascertain the amount of the loss. Coverage questions, however, are to be resolved by the court. The appraisal did not address the extent of preexisting shingle damage excluded from coverage through the insurance policy's anticoncurrent-cause provision. That issue must be decided by the court on remand. We therefore vacate the decision of the court of appeals and remand the case for further proceedings consistent with this opinion.

         I. Background Facts and Proceedings.

         Walnut Creek Townhome Association (Walnut Creek or the Association) is a residential common interest community in Urbandale. The thirty-six multifamily buildings at Walnut Creek were built between 2004 and 2006. Walnut Creek is governed by a board of directors. In 2011, the board began investigating the need to replace the shingles on the roofs installed during the original construction. The type of shingle- New Horizon manufactured by CertainTeed-was regarded by roofing professionals to be defective.

         Marcus Harbert, a professional roofer for Hedberg & Son Roofing, evaluated the life expectancy of the roofs in the spring or summer of 2011. He inspected the roofs of three buildings. Harbert observed "[c]racking, crazing of appliques, [[1] [and] significant granule loss throughout the whole shingle itself." CertainTeed shingles carry a twenty-five-year warranty, but Harbert recommended to Mike Gooding, Hedberg's residential salesperson, that the shingles be replaced within five years. Gooding relayed this information to the Association's board. Minutes of the board meetings in 2011 and 2012 show the board was preparing to replace the roofs.

         On August 8, 2012, a severe wind and hailstorm hit Walnut Creek. One resident described the hail as "pea size" and "dime size" and noted that it covered his entire deck. Within a week after the storm, Harbert inspected the roofs at Walnut Creek again, this time for hail damage. He concluded the hail impacts were not significant enough "to warrant calling for an insurance claim." However, Harbert recommended to Gooding that Walnut Creek follow through with the CertainTeed warranty claim.

         In September, Walnut Creek asked Nicholas Waterman, a roofing renovator with GreenGuard Construction, to inspect the roofs for hail damage. Waterman found between eight to twelve hits per ten-by-ten-foot square and concluded that "[t]he roofing definitely had hail damage." Waterman testified that his standard practice was to ignore hits to the applique because damage to this area is "not accepted in the insurance-related field." He acknowledged that he will sometimes examine an area twice as large as the usual ten-by-ten-foot square to make up for the applique area that is ignored. Walnut Creek is insured by Depositors Insurance Company (Depositors). The insurance policy provides, A. COVERAGES

We will pay for direct physical loss of or damage to Covered Property at the described premises in the Declarations caused by or resulting from any Covered Cause of Loss.

         The policy defines "Specified Causes of Loss" to include a "windstorm or hail." The policy sets forth exclusions and limitations:

         3. COVERED CAUSES OF LOSS

This Coverage Form insures against Risks Of Direct Physical Loss unless the loss is:
a. Excluded in Section B. EXCLUSIONS;
b. Limited in paragraph A.4. LIMITATIONS in this section; or
c. Limited or excluded in Section E. PROPERTY LOSS CONDITIONS or Section F. PROPERTY GENERAL CONDITIONS.

         The section on exclusions includes an anticoncurrent-cause provision which states,

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.

         The section continues, "2. We will not pay for loss or damage caused by or resulting from any of the following . . . [r]ust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself."

         The section on exclusions also provides,

3. We will not pay for loss or damage caused by or resulting from any of the following
. . . .
c. Negligent Work.
Faulty, inadequate, or defective:
. . . .
(2) Design, specifications, workmanship, work methods, repair, construction, renovation, remodeling, grading, compaction, failure to protect the property;
(3) Materials used in repair, construction, renovation or remodeling . . . .

         Walnut Creek submitted an insurance claim to Depositors, alleging that the August 8 storm caused damage to the roofs, gutters, siding, soffits, and air conditioning units and that the policy covered such damage. Depositors retained Haag Engineering to conduct a hail damage inspection. Two engineers-Robert Danielson and Richard Herzog- inspected the roofs on December 12 to 14. They prepared a report dated January 18, 2013. In the report, Danielson noted that there were nine hail events in the Urbandale area between 2006 and September 2012. The report concluded, "There was no hail-caused damage to shingles on the Walnut Creek Townhome Association property roofs."

         Timothy Barthelemy, a public adjuster, assessed the buildings for Walnut Creek in 2013. Barthelemy observed nine to eleven hits per ten-by-ten-foot square. Barthelemy concluded that the hail caused damage to the buildings. Barthelemy inspected the roofs with a representative of Haag Engineering and Jason Johnson, the adjuster for Depositors.

         On February 13, Depositors sent Walnut Creek a reservation-of-rights letter, noting its "investigation reveal[ed] no hail damage to the composition shingle roof covering of the subject buildings" at Walnut Creek. Depositors denied most of Walnut Creek's claim but payed Walnut Creek $124, 656.79 for hail ...


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