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City of West Liberty v. Employers Mutual Casualty Co.

Supreme Court of Iowa

February 1, 2019

CITY OF WEST LIBERTY, IOWA, Appellant,
v.
EMPLOYERS MUTUAL CASUALTY COMPANY, Appellee.

          On review from the Iowa Court of Appeals.

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

         A municipality seeks further review of a court of appeals decision affirming summary judgment in favor of an insurer.

          Scott A. Ruksakiati and Thomas A. Vickers of Vanek, Vickers & Masini, P.C., Chicago, Illinois, and Daniel P. Kresowik, Jamie A. Bosten, and Amber J. Hardin (until withdrawal) 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.

          MANSFIELD, JUSTICE.

         In a story that probably would not have been written by Beatrix Potter, a squirrel found its way onto an electrical transformer owned by a municipality, triggering an electrical arc that killed the squirrel and caused substantial damage to the municipality's property. The municipality sought coverage under its "all-risks" insurance policy. The insurer denied coverage based on the policy's electrical-currents exclusion, which excludes "loss caused by arcing or by electrical currents other than lightning." Disagreeing with this reading of the insurance policy, the municipality filed suit. The district court granted summary judgment to the insurer and the court of appeals affirmed.

         On further review, we too affirm the district court. We find that the loss was indeed "caused by arcing." Therefore, it is excluded even though something else (i.e., the squirrel) triggered the arcing. This is not a situation where two independent causes, one covered and one excluded, may have contributed to the loss.

         I. Background Facts and Proceedings.

         The City of West Liberty owns and operates an electrical power plant. Employer's Mutual Casualty Company (EMC) insured West Liberty's power plant with coverage effective from April 1, 2014, through April 1, 2015.

         On November 7, 2014, a squirrel climbed onto an outdoor electrical transformer at West Liberty's power plant. While still touching a grounded steel frame that supported an electrical cable, the squirrel came into contact with a bare cable clamp that was energized with 7200 volts of electricity. This contact created a conductive path between the high voltage clamp and the grounded frame. Once this path was established, the air between the energized and grounded surfaces became ionized and arcing resulted. The squirrel was killed, but more significantly the arcing caused $213, 524.76 worth of damage to West Liberty's transformer and other electrical equipment.

         West Liberty provided timely notice of a claim to EMC for the loss. EMC, however, denied coverage based on an "Electrical Currents" exclusion in the policy. The policy at issue was an all-risks insurance policy, which in relevant part stated as follows:

PROPERTY COVERED
"We" cover the following property unless the property is excluded or subject to limitations.
"We" cover direct physical loss to covered property at a "covered location" caused by a covered peril.
PERILS COVERED
"We" cover risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.
PERILS EXCLUDED
1. "We" do not pay for loss or damage caused directly or indirectly by one or more of the following excluded causes or events. Such loss or damage is excluded regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.
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.

         On January 21, 2016, West Liberty filed a petition in the Iowa District Court for Muscatine County against EMC, seeking a declaratory judgment of coverage and damages. EMC answered on February 11, denying liability and asserting affirmative defenses. On July 20, West Liberty moved for partial summary judgment. On August 31, EMC resisted West Liberty's motion for partial summary judgment and filed a cross-motion seeking summary judgment.

         West Liberty's theory of recovery under the policy evolved over time. Prior to litigation, West Liberty's city attorney invoked the fire exception to the electrical-currents exclusion. However, West Liberty later appeared to concede that no part of the $213, 524.76 loss was due to fire. Instead, in its July 20 summary judgment memorandum, West Liberty argued a theory of concurrent causation based on Amish Connection, Inc. v. State Farm Fire & Casualty Co. See Amish Connection, 861 N.W.2d 230 (Iowa 2015). Thereafter, in its September 14 summary judgment reply, West Liberty landed on efficient proximate cause as its theory of choice, following principally Qualls v. Farm Bureau Mutual Insurance Co. See Qualls, 184 N.W.2d 710 (Iowa 1971).

         The motions were heard on September 22. The court granted EMC's motion for summary judgment and denied West Liberty's motion. The district court found that the only event that caused damages was the electrical arc, noting the squirrel did no damage to West Liberty's property "such as ...


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