Many insurance lawsuits involve claims of coverage, notwithstanding a missing provision in the policy. This dispute is the converse of the usual claim. Here the company contends that, because' the parties so agreed, there should be no coverage for a products liability claim. We agree that there should be no coverage, even though no clear policy provision excluded it, and even though, through mistake, an endorsement excluding coverage was omitted from the policy.
On our de novo review of this equitable action, we find the following. Charles Cor-rill, a worker at a Denison, Iowa, packing plant, was injured when his hand was caught in a tilt dumper manufactured by Custom Stainless Steel Equipment Co., Inc. (Custom Stainless) and sold to the plant by Johnston Equipment Corporation of Iowa (Johnston). Corrill was joined in the suit by family members interested through him, though for simplicity the Corrills will be referred to in the singular. Corrill sued Custom Stainless and Johnston. Johnston filed a cross-claim seeking indemnity against Custom Stainless.
Industrial Indemnity had issued an insurance policy to Custom Stainless, which included comprehensive general liability coverage for the period in question. Both Custom Stainless and Industrial Indemnity were California corporations and the insurance policy was issued there. The parties stipulated that California law controls this litigation except that Iowa law applies to matters of evidence and with regard to the statute of limitations on a claim for reformation.
Under a reservation of rights, Industrial Indemnity at first proceeded to defend Custom Stainless, both against Corrill’s suit, and against Johnston’s cross-claim. Partway into the litigation it indicated it believed the policy provided no coverage and thereafter ceased defending.
Custom Stainless, Johnston, and Corrill reached a settlement under which Johnston paid Corrill $45,000. Johnston then obtained a default judgment against Custom Stainless for the $45,000 settlement paid to Corrill and for $54,552.36 in defense costs. Corrill obtained a default judgment against Custom Stainless totaling $1,454,996.
Johnston brought this declaratory judgment action against Industrial Indemnity and Corrill, requesting an adjudication that the policy covered liability for Corrill’s injury. Corrill requested the same adjudication in a cross-claim against Industrial Indemnity.
The trial court concluded that, because of a mistake, a “product hazard exception” endorsement, which would have excluded coverage for product liability claims, was not included in the policy. The court nevertheless decided this omission did not mean the policy included products hazard coverage. Instead the court concluded that the policy did not provide coverage, a holding with which, for reasons to be explained, we disagree. The court rejected Industrial Indemnity’s claim that the policy should be reformed by reason of mutual mistake, finding the burden to establish grounds for reformation had not been met. We also disagree with this holding. In other words, we hold that the policy did provide coverage, but should be reformed so as to exclude it.
I. The policy first provided for typical comprehensive liability coverage.
1
Fol
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lowing this general description of coverage are sixteen listed exclusions. No exclusion was listed for bodily injury or property damage caused by the insured’s products.
Morris v. Atlas Assurance Co.,
The declaration page for the policy in this ease provided that the “only coverage afforded is that contained on those coverage parts and endorsements listed ... which are preceded by a form number.” The declaration page listed types of coverage and by key number identified those purchased by the insured. The key number for “comprehensive general” coverage was included. Under the cited generic rule coverage was provided for this claim under the general comprehensive provision.
II. Overwhelming evidence supports Industrial Indemnity’s claim that there was never any intent by either Custom Stainless or Industrial Indemnity for the policy to cover products liability risks. This was made clear when Industrial Indemnity undertook to provide the coverage. Acting on this knowledge, Custom Stainless obtained the coverage from another company at a cost of $23,558.09. 2 The real dispute in the case involves Industrial Indemnity’s contention that if, as we have found, the policy did provide products liability coverage, then the court should reform the policy to match the intentions of the parties.
Before addressing this contention it is necessary to consider threshold questions of (a) preservation of error and (b) waiver.
A. Preservation of error.
Because the trial court found there was no coverage in the policy, Industrial Indemnity did not feel obliged to, and did not, cross-appeal from the trial court’s holding on the reformation issue. Corrill and Johnston Equipment contend the reformation issue was thereby waived.
See Becker v. Central States Health & Life Co.,
The rule in
Wassom
is not inconsistent with the canon that issues must ordinarily be presented to and passed upon by the trial court before they can be raised and decided on appeal.
State Farm Mut. Auto. Ins. Co. v. Pflibsen,
Notwithstanding our past holding to the contrary, we think the preservation requirement ordinarily should apply only to an unsuccessful party. Our cases are legion which hold that a trial court may be affirmed on grounds upon which it does not rely.
See, e.g., Midwest Management Corp. v. Stephens,
B. Waiver.
Corrill and Johnston Equipment also assert that, assuming the issue is preserved for appeal, Industrial Indemnity waived the issue of reformation by failing to include that legal ground in the letter reserving its right to deny coverage. According to California law any potential defenses known to an insurer not specifically included in a reservation-of-rights letter are waived.
See Intel Corp. v. Hartford Accident & Indem. Co.,
There is a second footing for the waiver contention. It is also claimed that Industrial Indemnity waived the defense of reformation by failing to reform the policy within a reasonable time after it allegedly became aware that the policy lacked an exclusion for products liability.
See Verex Assurance, Inc. v. John Hanson Sav. & Loan Ass’n,
We conclude there was no waiver here under either theory. Three letters were written by Industrial Indemnity’s claims adjuster to Custom Stainless’ attorney reserving its right to deny coverage. It is true that none of the letters contained the words “reformation of contract for mutual mistake.” But the letters consistently denied there was coverage for all the reasons we have discussed, including the fact that the parties did not intend for the policy to provide it. Anyone reading the correspondence should have understood Industrial Indemnity’s present contention. We do not think California’s waiver rule demands more specificity than this.
III. Under the record, as we have said, there was never any intent by either the insured (Custom Stainless) or the insurance carrier (Industrial Indemnity) for the policy to cover products liability risks. This finding almost directly mirrors the required finding for a court to allow reformation of a contract. The rule was applied in
Truck Insurance Exchange v. Wilshire Insurance Co.,
It is fundamental that a written contract may be reformed by a court of equity where, due to mutual mistake on the part of the parties, it fails to express their true intentions. Moreover, it is settled that an insurance policy may be reformed to limit or exclude coverage if such was the intention of the parties, even where the rights of third party *18 claimants who are not parties to the insurance contract are adversely affected.
Id.
at 559,
The rule is the same elsewhere, including Iowa.
Great Atlantic Ins. Co. v. Liberty Mut. Ins. Co.,
Evidence of the parties’ intent was admitted over objection. We agree, though, with the trial court that the admission was not prohibited by Iowa Code section 515.95 (1989) (insurer to attach any application or representations “of the assured”).
See Dohse v. Market Mens Mut. Ins. Co.,
Neither is the evidence inadmissible on the challenge that it is an attempt to vary the policy by parole evidence. When a party seeks reformation of a policy so that it will match the parties’ intentions, extrinsic evidence is admissible to prove what their intentions were.
American Employers Ins. Co. v. St. Paul Fire & Marine Ins. Co.,
IV. Johnston Equipment argues that Industrial Indemnity is precluded from seeking reformation of the policy because the statute of limitations has run. The argument is also without merit. Reformation may be raised as an affirmative defense after the period of limitations has run for affirmative actions.
See, e.g., Great Atlantic Ins. Co. v. Liberty Mut. Ins. Co.,
Although we have not discussed them, we have not overlooked other contentions argued on appeal. They have been considered and rejected. To discuss them would unduly extend this opinion and yield nothing of precedential value. We conclude that the policy, as written, did provide coverage for Corrill’s claim, but that it should be reformed to reflect the parties’ intent to exclude that coverage.
AFFIRMED.
Notes
. The provision reads as follows:
I. COVERAGE A — BODILY INJURY LIABILITY
COVERAGE B — PROPERTY DAMAGE LIABILITY
*16 The Company will pay on behalf of the Insured all sums which the insured shall become legally obligated to pay as damages because of
Coverage A — bodily injury, or
Coverage B — property damage
to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company’s liability has been exhausted by payment of judgments or settlements.
. Because the purchased coverage was on a "claims made” rather than an "occurrence” basis, it does not cover Corrill's claim.