Penford Corp. v. National Union Fire Insurance
2011 U.S. App. LEXIS 23734
| 8th Cir. | 2011Background
- Cedar Rapids flood in 2008 damaged Penford's plant; insurers argued flood sublimits capped BI losses as well as property damage.
- Policy: all-risk coverage up to $300M with per-peril sublimits; flood sublimits were $10M per occurrence for Zone A and Zone B, stated as per occurrence and annual aggregate.
- Penford procured coverage through Marsh; Rehmer negotiated with National Union and ACE; binder issued reflecting $10M per zone coverage totaling $20M for flood.
- Penford submitted claims starting July 21, 2008; insurers paid $20.5M but denied additional BI loss payments.
- District court found the policy language ambiguous and allowed extrinsic evidence; later denied Penford's JMOL and granted the insurers' JMOL on multiple claims; Penford appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bad-faith liability can survive where coverage is arguably debatable | Penford contends insurers lacked reasonable basis and delayed payments; trial evidence supported bad faith. | Insurers argue the denial was fairly debatable and payment timing complied with the policy. | Insurers had an objectively reasonable basis; no bad-faith liability. |
| Whether contra proferentem applies to resolve the ambiguity | Penford seeks contra proferentem to construe against the drafter. | Doctrine not applicable due to equal bargaining power and extrinsic-evidence context. | Contra proferentem does not apply; extrinsic evidence supports mutual understanding. |
| Whether extrinsic evidence shows sublimits apply to business interruption losses | Penford argues extrinsic evidence creates ambiguity about scope of sublimits. | Underwriters and agent understood sublimits apply to all losses, including BI. | Yes; mutual intent shown; extrinsic evidence supports sublimits applying to BI. |
Key Cases Cited
- Dolan v. Aid Insurance Co., 431 N.W.2d 790 (Iowa 1988) (first-party bad faith standard for insurers)
- Sampson v. Am. Standard Ins. Co., 582 N.W.2d 146 (Iowa 1998) (reasonable basis required for denial; subjective knowledge element)
- Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468 (Iowa 2005) (fairly debatable doctrine governs bad faith when reasonable basis exists)
- Gardner v. Hartford Ins. Accident & Indem. Co., 659 N.W.2d 198 (Iowa 2003) (objective basis for denial defeats bad-faith liability)
- Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430 (Iowa 2008) (ambiguities may be resolved with extrinsic evidence; jury if credibility at issue)