Walnut Creek Townhome Association v. Depositors Insurance Company

IN THE COURT OF APPEALS OF IOWA

No. 16-0121
Filed July 19, 2017

WALNUT CREEK TOWNHOME ASSOCIATION,
Plaintiff-Appellant,

vs.

DEPOSITORS INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Polk County, Robert B. Hanson,

Judge.

Walnut Creek appeals the district court’s rejection of an appraisal report.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Timothy D. Johnson of Roeder Smith Jadin, P.L.L.C., Bloomington,

Minnesota, and Anthony R. Epping of Epping Law Office, P.C., Des Moines, for

appellant.

Apryl M. Delange and Jeff M. Margolin of Hopkins & Huebner, P.C., Des

Moines, for appellee.

Heard by Mullins, P.J., and Bower and McDonald, JJ.
 2

BOWER, Judge.

In August 2012, a hailstorm struck the Walnut Creek Townhome

Association (“Walnut Creek” or “the association”), a housing community located

in Urbandale. The association submitted an insurance claim to its insurer,

Depositors Insurance, which denied most of the claim. Walnut Creek

subsequently brought an action against Depositors for breach of contract and to

seek a declaratory judgment. Before trial, the parties went before an appraisal

panel. The panel found the association sustained approximately $1.4 million in

damages as a result of the August 2012 hailstorm. The district court, however,

concluded the association was not entitled to any relief. Walnut Creek now

appeals.

I.

As of August 2012, Walnut Creek contained thirty-six multi-family

buildings. Buildings in the association were constructed between 2004 and

2006. The association is governed by a board of directors.

In 2011, the board had discussions about the necessity of repairing roofs

in the association. It hired a roof inspector, Marcus Harbert, to review the

association’s buildings. Harbert noticed issues with the shingles of the roofs he

inspected. The shingles Walnut Creek primarily used were known as

CertainTeed New Horizon shingles. New Horizon shingles, several experts

testified, are known to have a manufacturer’s defect that causes cracking and
 3

crazing in the shingle appliqué, and significant granule loss in the shingle.1 At a

board meeting in June 2012, a representative from Harbert’s employer told the

board the shingles “could possibly be faulty.” In response, the board formed a

roofing committee.

On August 8, 2012, a hailstorm hit Urbandale and the surrounding area,

including the association. The hail in the neighborhood was reported to be “pea

size” to “dime size.” Association members reported leaking roofs, loose shingles,

and grit or grain coming off the roofs after the storm.

In August 2012, “within a week” of the storm, Harbert inspected the roofs

again. He did not observe any hail impacts significant enough to warrant an

insurance claim. Harbert recommended the association follow through with a

warranty claim for the defective shingles. Coincidentally, Harbert lived in Walnut

Creek for a year, and testified another storm in September 2013 blew shingles off

roofs. Harbert also observed the roofs again in May 2015 and concluded the

roofs had sustained two to three hail hits per square, 2 but that the only reason to

replace the roofs was the manufacturer’s defect.

In September 2012, Walnut Creek had a roofing renovator, Nick

Waterman, inspect the roofs. He concluded the roofing “definitely” had hail

damage, noting “anywhere from eight to twelve hits” per square. Waterman

testified his standard practice was to ignore hail hits to the appliqué because

such damage is “not accepted in the insurance-related field.” He would, in

1
“Crazing” was described as cracks in the asphalt “meandering in different directions”
unpredictably. The “appliqué” is a raised portion of a shingle used to create a textured
look.
2
Squares are ten feet by ten feet. The insurance industry standard to replace a roof is
six to eight hits per square.
 4

certain circumstances, double the size of the area he sampled to make up for the

fact the appliqué accounted for roughly half the area of the individual shingle. In

this case, he testified he “voided” the appliqué because he was aware of the

manufacturer’s defect. Waterman also testified he observed hail damage to the

“soft metal, fascia, gutters, air conditioner units, [and] window screens.”

Two engineers from Haag Engineering testified: Robert Danielson and

Richard Herzog. Haag Engineering was retained by Depositors to inspect the

association buildings in December 2012. The firm prepared a report on its

findings. Danielson noted there were nine “hail events” in the Urbandale area

between 2006 and September 2012. Danielson also noted one building, Building

19, did not have the New Horizon shingle. The Haag Engineering report states

the appliqué shingles were “generally in poor condition” but the “three-tab

shingles [on Building 19] were generally in good to fair condition with respect to

weathering.” Danielson testified he looked for fractures, punctures, ruptures,

bruises, or holes to conclude a roof was damaged by hail. He did not see signs

of that. He did observe granular loss in the shingles. Herzog testified, given the

weight of the shingles, the hail in the community would have been of insufficient

size to cause damage.3 The Haag Engineering report further stated, of nineteen

fractures and punctures on the vinyl siding, most were either not consistent with

hail damage or not caused by the most recent hail event. Only one, the report

concluded, was consistent with recent hail impact “as noted by the coincident

spatter mark and on an elevation that was consistent with the most recent

hailstorm event.”

3
There was evidence sufficiently large hail fell elsewhere in Urbandale.
 5

In 2013, a public adjuster, Timothy Barthelemy, assessed the thirty-six

Walnut Creek buildings and made conclusions similar to Waterman’s. Generally,

his conclusion was that hail caused damage to the properties. His team of

inspectors observed nine to eleven hits per square in the area assessed. He

also excluded the appliqué from his assessment. Barthelemy had conducted

“probably 400” appraisals. Barthelemy testified sometimes hail damage takes “a

winter” to show up in a shingle. Barthelemy also testified he discussed the

damage with Danielson. In Barthelemy’s view, fracture or not, damage existed.

According to Barthelemy, the policy covers “physical damage or physical loss.

So I’m looking for something that the shingle is physically damaged, and that

would be cosmetic damage.” Danielson agreed cosmetic damage is physical

damage. The Haag Engineering report concluded “[d]ents in the gutters,

downspouts, fascia and trim, window cladding, window screens, and flue caps

related to hail fall were a cosmetic condition that would not functionally alter the

material.”

Depositors denied most of Walnut Creek’s claim on February 13, 2013.

Depositors agreed to pay $124,656.79 based on small dents to the “soft metal”

items, including fascia, gutters, and downspouts. Depositors stated damage to

windows and air conditioning units was not covered under the policy. In August

2013, Walnut Creek filed suit for breach of contract and a declaratory judgment.

The parties’ insurance policy provides for appraisal. Walnut Creek

requested appraisal. In July 2014, Walnut Creek moved for summary judgment

and asked the district court to approve language to be used on the appraisal

form. In its summary judgment ruling in October 2014, the court declined to
 6

approve any language, but sought to “clarify what issues in this case are

determinable by appraisers and which issues are properly saved for litigation.”

The court concluded “[t]he parties may fully litigate whether all of the loss to the

property was a result of a covered event (here, the hail storm)—in other words,

whether the cause of the damage is covered under the policy.” The court also

stated “[t]he appraisers and umpire must consider what damage was caused by

hail, what damage was not, or damage with which they are unconcerned, such

as normal wear and tear.” The appraisal took place May 5, 2015, only a few

weeks before trial.

Depositors’ appraiser, Eric Howell, a property adjuster, also testified.

Howell testified he had concerns about the appraisal umpire, Larry Roth,

because Roth’s experience was, in Howell’s view, with fire and water losses, not

hail damage. However, Howell agreed to use Roth as the umpire because,

Howell testified, he believed Roth would be bringing “an independent engineer

experienced in assessing hail damage” with him. No such person was present at

the appraisal. Howell testified he did not sign off on the appraisal award form

because he “disagreed with what was being presented as a final number.”

Howell testified he was reluctant to stop the appraisal because it had been

rescheduled “a couple times” due to weather and trial was “right around the

corner.”

Waterman, Barthelemy, and Danielson were all present at the appraisal.

Roth served as the umpire on the panel. Walnut Creek selected James Pierce

as its appraiser and Howell served as Depositors’ appraiser. Evidence was

presented to the appraisal panel, including the Haag Engineering report. Five
 7

buildings were inspected as part of the appraisal. The appraisal panel was

aware of Walnut Creek’s warranty option.

The appraisal award begins with a declaration of competence and

disinterest signed by both appraisers. It next contains this statement:

The Appraisers and Umpire above-referenced hereby agree
and stipulate that the appraisal herein is limited in scope to the
amount of loss and damage as a result of a hail and windstorm that
occurred on or about August 8, 2012. The award does not include
an evaluation or determination of coverage, policy exclusions or the
relative causation of the same.

The award section contains four itemized awards. Each is listed with a

description of the property damaged, a replacement cost, a depreciation

percentage, a depreciation amount, and an actual cash value. The four items

listed are “direct physical loss roofing,” “matching roofing (additional),” “siding,

gutters, fascia,” and “air conditioners.” The appraisal concludes with this: “We,

the undersigned, pursuant to our appointment, certify that we have truly,

conscientiously and impartially performed the duties assigned us and have

appraised and determined and do hereby award the following amount of loss.

Minimum of two signatures required.” Pierce and Roth signed the appraisal

award. The combined amount of loss is $1,467,830, representing the total

replacement cost for the four property items listed.

A bench trial was held May 27 and 28, 2015. The district court concluded

the appraisal was not binding or conclusive and dismissed Walnut Creek’s

claims. This appeal followed.
 8

II.

Depositors challenges the timeliness of Walnut Creek’s appeal. A party

has thirty days to appeal a final judgment. See Iowa R. App. P. 6.101(1)(b).

Judgment herein was entered August 19, 2015. Walnut Creek filed a post-

judgment motion on September 3. The post-judgment motion requested

enlargement or amendment pursuant to Iowa Rule of Civil Procedure 1.904(2)

and a new trial pursuant to rule 1.1004. Such motions may toll the appeal period.

See id. The district court denied those motions in an order issued December 21.

Walnut Creek’s notice of appeal followed within thirty days of that order.

Depositors asserts Walnut Creek’s appeal is untimely because the

1.904(2) motion was improper. Our supreme court has repeatedly held only

“proper” 1.904(2) motions toll the appeal period. See, e.g., Hedlund v. State, 875

N.W.2d 720, 725 (Iowa 2016). Depositors asserts Walnut Creek’s 1.904(2)

motion was simply an improper “rehash” of previous arguments. See Bellach v.

IMT Ins. Co., 573 N.W.2d 903, 905 (Iowa 1998). We disagree. In its ruling on

the motions, the district court issued a “clarification” on burden-shifting that

amounts to an amendment or enlargement of its previous ruling. Cf. McKee v.

Isle of Capri Casinos, Inc., 864 N.W.2d 518, 526 (Iowa 2015) (“The district court

in fact modified [one] aspect of its original ruling when it acted on McKee’s

motion.”). Therefore, the 1.904(2) motion was a proper one and the appeal is

timely.

Additionally, Walnut Creek also brought a motion for new trial. We are

aware of no rule requiring a motion for new trial to conform to the same propriety

requirement as a 1.904(2) motion. Where the case law refers to a “proper”
 9

motion for new trial, the term “proper” unfailingly either (a) refers to timeliness or

(b) appears in dicta with citations to 1.904(2) cases. See, e.g., Union Tr. & Sav.

Bank v. Stanwood Feed & Grain, Inc., 158 N.W.2d 1, 3 (Iowa 1968) (equating

“improper” with “untimely”); In re J.L., 868 N.W.2d 462, 465 (Iowa Ct. App. 2015)

(citing string of 1.904(2) cases). If we were to conclude a motion for new trial

must be “proper” to toll the appeal period, we might find it need only identify

some enumerated basis for new trial. See Iowa R. Civ. P. 1.1004(1)-(9). The

district court here found two such bases in Walnut Creek’s motion—1.1004(6)

and 1.1004(8). Under any test we might use, the motion for new trial tolled the

appeal period. The appeal is timely.

III.

The appraisal process allows parties a forum for dispute resolution without

a formal lawsuit. See Cent. Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d

257, 260 (Iowa 1991). Policy provisions providing for appraisal are valid and

binding on the parties. See id. Under the terms of the insurance policy at issue,

either party could demand appraisal of the loss:

Appraisal. If we and you disagree on the amount of loss,
either may make written demand for an appraisal of the loss. In
this event, each party will select a competent and impartial
appraiser after receiving a written request from the other, and will
advise the other party of the name of such appraiser within 20
days. The two appraisers will select an umpire. If appraisers
cannot agree, either may request that selection be made by a judge
of a court having jurisdiction. The appraisers will state separately
the value of property and the amount of loss. If they fail to agree,
they will submit their differences to the umpire. A decision agreed
to by any two will be binding. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraiser and umpire
equally.
 10

If there is an appraisal, we will still retain our right to deny
the claim.

“Most courts favor appraisal as a way of avoiding costly and time-

consuming litigation.” 12 Jeffrey E. Thomas, New Appleman on Insurance Law

Library Edition § 149.07(1)(k) (2016) (“Appleman”); see also First Nat’l Bank v.

Clay, 2 N.W.2d 85, 91 (Iowa 1942). As a result, although appraisal awards may

be set aside by a court, courts will indulge in every reasonable presumption to

sustain the award. See Appleman § 149.07(1)(k); see also Cent. Life, 466

N.W.2d at 260; Seibert Bros. & Co. v. Germania Fire Ins. Co., 106 N.W. 507, 508

(Iowa 1906); cf. Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C., 728

N.W.2d 832, 839 (Iowa 2007) (noting, in arbitration context, court’s function “is

not to determine whether the arbitrator has correctly resolved the grievance”

because such second-guessing would “nullify the very advantages of

arbitration”). “The award will not be set aside unless the complaining party

shows fraud, mistake or malfeasance on the part of an appraiser or umpire.”

Cent. Life, 466 N.W.2d at 260; see also Jupiter Aluminum Corp. v. Home Ins.

Co., 52 F. Supp. 2d 885, 888 (N.D. Ill. 1999) (“[A] party who voluntarily submits to

appraisal to determine the amount due under an insurance policy is bound by the

appraisal award, absent exceptional circumstances. To hold otherwise would

frustrate the very purpose of the appraisal clause.”); Appleman § 149.07(1)(k); cf.

United States v. Moorman, 338 U.S. 457, 461 (1950) (“Findings of [an arbitrator],

even where employed by one of the parties, were held ‘conclusive, unless

impeached on the ground of fraud, or such gross mistake as necessarily implied

bad faith.’” (citation omitted)); Ky. River Mills v. Jackson, 206 F.2d 111, 117 (6th
 11

Cir. 1953) (“But it is the proof of bias or unfairness or partiality on the part of an

arbitrator that results in unjust advantage, and calls for the setting aside of the

award.”). The award will not be set aside simply because the court disagrees

with the result. See Cent. Life, 466 N.W.2d at 260; cf. Ales, 728 N.W.2d at 839

(asserting comparable standard in arbitration context).

By the terms of the policy, “the amount of loss”—damages—is a factual

issue left to the determination of the appraisers. See Terra Indus., Inc. v.

Commonwealth Ins. Co., 981 F. Supp. 581, 607 (N.D. Iowa 1997); Taylor v. Farm

Bureau Mut. Ins. Co., No. 07-1580, 2008 WL 4525496, at *4 (Iowa Ct. App. Oct.

1, 2008). Whether coverage under a policy exists—liability—is a question for the

court. See Just v. Farmers Auto Ins. Ass’n, 877 N.W.2d 467, 471 (Iowa 2016)

(“Generally, interpretation of an insurance policy is a question of law.”); Adams v.

N.Y. Bowery Fire Ins. Co., 51 N.W. 1149, 1150 (Iowa 1892) (“Clearly the

appraisers were not authorized to exercise their judgment as to what was or was

not included within the policy.”); North Glenn Homeowners Ass’n v. State Farm

Fire & Cas. Co., 854 N.W.2d 67, 70 (Iowa Ct. App. 2014) (“Coverage questions,

such as whether damage is excluded because it was not caused by wind, are

legal questions for the court as this case goes forward.” (citing Quade v. Secura

Ins., 814 N.W.2d 703, 706–07 (Minn. 2012))); see also Taylor, 2008 WL

4525496, at *4 (contrasting role of court in appraisal proceedings with arbitration,

which “will generally decide an entire controversy”).

“Causation relates to both liability and damages because it is the

connection between them.” State Farm Lloyds v. Johnson, 290 S.W.3d 886,

891–92 (Tex. 2009). “Courts across the country are divided as to whether, in
 12

determining the ‘amount of loss’ pursuant to appraisal provisions like the one

here, appraisers may consider questions of causation.” Auto-Owners Ins. Co. v.

Summit Park Townhome Ass’n, 100 F. Supp. 3d 1099, 1101–02 (D. Colo. 2015);

see also North Glenn, 854 N.W.2d at 70. In Iowa, appraisers make the initial

causation determination, because “[c]ausation is an integral part of the definition

of loss, without consideration of which the appraisers cannot perform their

assigned function.” North Glenn, 854 N.W.2d at 71 (citing Loss, Black’s Law

Dictionary (9th ed. 2009)); see also Quade, 814 N.W.2d at 708 (“[A]s an

incidental step in the appraisal process . . . the appraisers must necessarily

determine the cause of the loss, as well as the amount necessary to repair the

loss.”). The policy’s “appraisal of the loss” therefore requires the appraisal panel

to make causation determinations. See CIGNA Ins. Co. v. Didimoi Prop.

Holdings, N.V., 110 F. Supp. 2d 259, 264–65 (D. Del. 2000) (“Black’s Law

Dictionary defines the term ‘amount of loss’ as ‘the diminution, destruction, or

defeat of the value of, or of the charge upon, the insured subject to the assured,

by the direct consequence of the operation of the risk insured against, according

to its value in the policy, or in contribution for loss, so far as its value is covered

by the insurance.’ Thus, the definition provided by Black’s expressly includes a

causation element.” (citing Amount of loss, Black’s Law Dictionary 83 (6th ed.

1990))). However, “the causation determinations by the appraisers may be

subject to further review by the district court.” North Glenn, 854 N.W.2d at 71.

This is a necessary check on fraud, mistake, or malfeasance. See Cent. Life,

466 N.W.2d at 260. The trial court is therefore empowered to act in something of

an appellate role. Cf. Wallace v. Des Moines Indep. Cmty. Sch. Dist. Bd., 754
 13

N.W.2d 854, 858 (Iowa 2008) (explaining certiorari is available to review judicial

or quasi-judicial functions); Cent. Life, 466 N.W.2d at 261 (“[T]he function of the

appraiser becomes quasi-judicial.”). “[W]hether the appraisal award will be

conclusive on all issues will depend on the nature of the damage, the possible

causes, the parties’ dispute, and the structure of the appraisal award.” North

Glenn, 854 N.W.2d at 71 (citing Quade, 814 N.W.2d at 708).

The district court performed a North Glenn analysis and held the appraisal

award was not binding upon the parties. Walnut Creek contends the district court

should have held the appraisal award was binding and conclusive on the issue of

causation. We review such determinations for correction of errors at law. See

Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 178 (Iowa 2010).

In conducting its North Glenn analysis, the district court wrote:

In light of the North Glenn factors, the Court finds the
Appraisal Award is neither binding nor conclusive upon the parties.
First, the defective and deteriorating shingles are at the core of the
Association’s roof damage. This is shown by Harbert’s 2011
examination of the roofs, Association’s board discussions, and
Association’s attempt to exclude the defective portions from the
damage calculations. Second, Association’s roof damage resulted
from multiple concurrent causes, including the significant and pre-
existing manufacturer’s defect and multiple severe weather events.
The August 8, 2012 storm was only one of several possible causes
of damage to the roofs. Third, Association was aware or should
have been aware of the Policy exclusions: Depositors stated the
exclusions in the contract and reserved their right to raise all
defenses in multiple pieces of correspondence. Further, for almost
a year prior to the storm, Association was making plans to replace
the roofs via a manufacturer’s warranty. Finally, the Appraisal is
not signed by all parties and addresses only one of multiple causes
for the roof damage. Because Association has not shown by a
preponderance of the evidence that the Appraisal Award is binding
and conclusive on the parties, the Court holds that the parties are
not bound by the Appraisal Award and its conclusions.
 14

We conclude the district court misapplied the North Glenn factors. The

purpose of the North Glenn test is not to substitute the court’s fact finding for the

appraisal panel’s. The purpose is to evaluate the structural and environmental

underpinnings of the appraisal award and search out evidence of fraud, mistake,

or malfeasance. Upon our independent consideration of the North Glenn factors,

we see no reason to reject this appraisal award: the nature of the damage,

possible causes, parties’ dispute, and structure of the appraisal do not suggest

fraud, mistake, or malfeasance. We therefore accept the appraisal’s conclusions

as to the amount of loss and causation as binding and conclusive.

IV.

Walnut Creek challenges the district court’s finding Depositors did not

breach the contract because the alleged loss was not covered under the policy.

We begin our analysis with the burden of proof. When an insured seeks to

enforce a provision of 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.” Hometown Plumbing & Heating Co. v. Secura Ins. Co., No. 11-0309,

2012 WL 1245755, at *4 (Iowa Ct. App. Apr. 11, 2012); see 17A Couch on

Insurance § 254:11 (2016) (“Generally speaking, the insured bears the burden of

proving all elements of a prima facie case including the existence of a policy,

payment of applicable premiums, compliance with policy conditions, the loss as

within policy coverage, and the insurer’s refusal to make payment when required

to do so by the terms of the policy.”). Once the insured has established a prima

facie case, “[t]he burden of proving that coverage is excluded by an exclusion or

exception in the policy rests upon the insurer.” West Bend Mut. Ins. Co. v. Iowa
 15

Iron Works, Inc., 503 N.W.2d 596, 598 (Iowa 1993); see Long v. Glidden Mut.

Ins. Ass’n, 215 N.W.2d 271, 274 (Iowa 1974) (“[A]n insurer has the burden to

prove the applicability of a policy exclusion. The insured is not required to

negate the exclusion in order to present a prima facie case.” (citations omitted));

17A Couch on Insurance § 254:12 (2016) (“Until a prima facie case of coverage

is shown, the insurer has no burden to prove a policy exclusion. The insurer

bears the burden of proving the applicability of policy exclusions and limitations

or other types of affirmative defenses, in order to avoid an adverse judgment

after the insured has sustained its burden and made its prima facie case.”). In

both cases, the standard of proof is preponderance of the evidence, absent any

higher burden required by statute. See Hometown Plumbing & Heating Co.,

2012 WL 1245755, at *4.

The law regarding the interpretation and construction of insurance policies

is well established and need not be repeated herein. See Amish Connection,

Inc. v. State Farm Fire & Cas. Co., 861 N.W.2d 230, 236 (Iowa 2015).

We turn to the language of the policy at issue. Under the heading

“EXCLUSIONS,” the policy states in part:

B. EXCLUSIONS
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.
....
2. We will not pay for loss or damage caused by or resulting from
any of the following: . . . .
l. Other Types Of Loss
(1) Wear and tear;
 16

(2) Rust or other corrosion, decay, deterioration, hidden
or latent defect or any quality in property that causes it to
damage or destroy itself;
....
But if an excluded cause of loss that is listed in paragraphs
(1) through (7) above results in a “specified cause of loss”,
“accident” or building glass breakage, we will pay for the loss or
damage caused by that “specified cause of loss” or building glass
breakage.
....
3. We will not pay for loss or damage caused by or resulting from
any of the following B.3.a. through B.3.c. But if an excluded cause
of loss that is listed in B.3.a. through B.3.c. results in a Covered
Cause of Loss, we will pay for the loss or damage caused by that
Covered Cause of Loss.
....
c. Negligent Work. Faulty, inadequate, or defective:
....
(3) Materials used in repair, construction, renovation or
remodeling[.]

In section A(3) of the policy, “Covered Causes of Loss” are defined as

follows: “This Coverage Form insures against Risks of Direct Physical Loss

unless the loss is” excluded under the EXCLUSIONS heading (section B), limited

under “paragraph A.4, LIMITATIONS,” or limited or excluded by two headings

called PROPERTY LOSS CONDITIONS (section E) and PROPERTY GENERAL

CONDITIONS (section F). Elsewhere in the policy “specified cause of loss” is

defined to include “windstorm or hail,” among other conditions.4

The district court first concluded the policy excluded coverage of the roof

damage because Walnut Creek “did not prove the storm was the only direct or

indirect cause of physical damage to the roofs.” That language and the district

court’s citation to the policy demonstrate the court was relying on EXCLUSIONS

paragraph B(1) of the policy. This was a mistake. Sections B(1)(a) through (i)

4
This fact may come as a surprise to Depositors, which omitted the “hail” exception from
its brief in this hail case.
 17

list several exclusions not relevant here; for example, “nuclear hazard” and “war

and military action.” Only B(2) is relevant; no section of B(1) is implicated by the

damage at issue. It was incorrect for the district court to rely on the language of

B(1).

The district court next concluded the shingles contained a product defect

that triggered deterioration, coverage of which would be excluded under

paragraph B(2)(l)(2) of the policy. We find this is inconsistent with the binding

conclusions of the appraisal panel and must be rejected. The appraisal panel’s

binding fact findings support the conclusion hail caused this damage.

Finally, the district court concluded the defective construction bars

recovery under the policy’s “Negligent Work” exclusion. This provision is

irrelevant given the binding appraisal findings. The panel concluded the damage

did not result from defective construction of the type contemplated by the policy

provision.

V.

Finally, Walnut Creek requests additional funds to pay its “soft metals”

replacement costs. The “soft metals” are the siding, gutters, and fascia.

Depositors did grant a portion of Walnut Creek’s claim for the amount of

$124,656.79, based on this damage. Subsequently, the appraisal panel

calculated $159,541.51 (in replacement cost) or $119,656.51 (actual cash value)

for damages to these portions of the buildings and awarded the replacement

cost. Walnut Creek requests the difference between the $124,656.79 it has

received and the $159,541.51 it believes it is owed. It is incorrect in that belief.

The policy provides: “We will not pay on a replacement cost basis for any loss or
 18

damage . . . until the lost or damaged property is actually repaired or replaced.”

There is no evidence in the record the “soft metals” have been repaired or

replaced; indeed, at oral argument, Walnut Creek argued it has not made repairs

because it believes Depositors should pay it first. This claim fails.

VI.

The district court erred in rejecting the appraisal award. Because of that

error, the district court erred in its application of the policy. The facts of this case

and the applicable law compel a different result. We reverse the judgment of the

district court as to the appraisal award and breach of contract claim. We remand

with directions to enter judgment in favor of Walnut Creek consistent with the

appraisal panel’s award, excluding the amount predicated on damage to the air

conditioning units, which are not covered under the policy. Without a showing it

has completed repairs to the “soft metals,” Walnut Creek is not entitled to

additional payment on a replacement cost basis for the “soft metals” items. We

affirm the judgment of the district court on the “soft metals” issue.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

Mullins, P.J., concurs; McDonald, J., dissents.
 19

MCDONALD, Judge (dissenting).

As the majority notes, “[c]ourts across the country are divided as to

whether, in determining the ‘amount of loss’ pursuant to appraisal provisions like

the one here, appraisers may consider questions of causation.” Auto-Owners

Ins. Co., 100 F. Supp. 3d at 1101–02. In North Glenn, 854 N.W.2d at 70, this

court held appraisers could determine causation because determining causation

is integral to determining the amount of loss. I respectfully disagree with North

Glenn and dissent from the majority’s conclusions that the determination of

causation is a proper subject of appraisal and that the appraisal award was

binding under the circumstances. I also respectfully dissent from the majority’s

conclusion the district court erred in concluding any loss was an excluded cause

of loss. I would affirm the judgment of the district court.

I.

A.

I first address whether the determination of causation is an appropriate

function of an appraisal panel, generally. North Glenn and similar cases state

that determination of the amount of loss necessarily involves the determination of

causation. I disagree with this conclusion in two respects. First, this conclusion

wrongly conjoins separate legal issues. A “loss” is the “amount of financial

detriment caused by . . . an insured property’s damage, for which the insurer

becomes liable.” Loss, Black’s Law Dictionary (10th ed. 2014) (emphasis

added). The determination that a loss has occurred is a determination of liability,

which necessarily includes questions of causation. See, e.g., Iowa Elec. Light &

Power Co. v. Gen. Elec. Co., 352 N.W.2d 231, 234 (Iowa 1984) (stating
 20

causation is a liability concept). The appraisal provision does not give the

appraisers the authority to determine whether there is “a loss.” Instead, the

appraisal provision gives the appraisers the authority to determine “the amount”

of “the loss.” The determination of “the amount” is a question of damages, which

does not include determinations of causation and liability. This understanding is

consistent with the general understanding of appraisal. See Steven Plitt et. al.,

Scope of Appraisal, 15 COUCH ON INSURANCE § 210:42 (2017) (“As a general rule,

the sole purpose of an appraisal is to determine the amount of damage.”).

Second, the conclusion that determination of value necessarily involves

determination of causation is not factually correct. Consider this case. Here, the

parties disagreed on whether the storm caused any damage to the roofs and

whether any damage was an otherwise excluded loss. There is no reason why

the appraisers could not have went to the property, inspected the roofs the

insured claimed to be damaged, determined the repair and/or replacement costs

of the roofs, and issued an appraisal award without knowing what caused the

damage, if any, to the roofs. The parties could then have litigated liability,

including questions of causation and coverage, in the district court. If there was

a finding the insurer was liable under the terms of the policy, then the appraisal

award would be a binding measure of damages.

Not only is the separation of valuation and causation easily accomplished,

it seems preferable. For example, in this case, the insurance carrier contended

any damage to the roofs was caused by, among other things, prior, uncovered

weather events. The appraisers would not necessarily have had any reason to

know about the disputed issues. The appraisers also would not have had the
 21

competency or authority to investigate the issue further. The appraisers would

not have had, for example, the power to subpoena weather records, the

association’s records regarding past claims, or the insurance carrier’s records

regarding the past claims. The appraisers would not have had the competency

or authority to interview relevant witnesses, for example, prior homeowners with

personal knowledge of the condition of the roofs prior to the most recent storm.

The parties, however, could have conducted such discovery separate and apart

from the appraisal process.

Separating the valuation and causation determination is also good policy.

Empowering an appraisal panel to determine causation raises due process

concerns. Take, for example, the appraisal provision at issue in this policy. It

does not set forth any process to litigate causation. There is no mechanism for

discovery, the taking of testimony, the right of cross-examination, or the making

of a record. There is no direction to the appraisers or umpire regarding the

standard of proof and the burden of proof. Limiting the scope of appraisal to the

valuation of property makes appraisal an efficient and straightforward process. It

can be accomplished quickly and without the necessity of a hearing and the

creation of a record. In contrast, allowing an appraisal panel to determine issues

of causation raises future points of contention and litigation, including the

qualification of the appraisers, the competency of the appraisers, the partiality of

the appraisers, and whether the burden of proof to establish an event is a

covered cause of loss and whether any exclusions are applicable. As this case

demonstrates, expanding the scope of appraisal to include causation transforms

an efficient dispute-resolution mechanism into an inefficient litigation-creating
 22

mechanism requiring cumbersome rounds of duplicative litigation. Timothy P.

Law & Jillian L. Starinovich, What Is It Worth: A Critical Analysis of Insurance

Appraisal, 13 Conn. Ins. L.J. 291, 296–97 (2007) (“In our view, the scope of

appraisable disputes should generally be limited to issues of valuation. Appraisal

is designed to provide an inexpensive determination of the amount of loss where

coverage is conceded. Allowing, or even requiring, parties to appraise a loss that

involves other issues, such as liability or causation, can create multiple

proceedings and inefficiencies.”). The first round occurring in front of the neutral

umpire. The second round occurring in front of the district court. The third round

occurring in the appellate courts.

Consider another case to demonstrate both how easily valuation can be

separated from causation and the potential mischief created by allowing the

appraisal panel to determine both issues. Salem United Methodist Church v.

Church Mutual Insurance Company, No. 16-0170, 2017 WL 512494, at *1-2

(Iowa Ct. App. Feb. 8, 2017), involved an insurance coverage dispute relating to

water damage in a church basement. There was not an appraisal provision in

the policy. Assume there was one similar to this case, however. A competent

appraisal panel would have consisted of persons experienced in the valuation of

property and commercial property repair and replacement. For example,

persons familiar with the cost of repairing or replacing office equipment and

furniture and persons familiar with the cost of repairing or replacing flooring,

drywall, and electrical, plumbing, and mechanical systems, etc. But the primary

issue in the case was not valuation. The primary issue was liability, which turned

on questions of causation and coverage, specifically what caused the water
 23

damage in the church basement. See id. at *2-3. The witnesses regarding

causation were an expert engineer, who testified regarding the operation of

sewer systems, and the environmental manager for the City of Cedar Rapids,

who testified regarding the backflow in the city’s sanitary sewer system caused

by flooding. See id. at *3. There is no reason to believe an appraisal panel

would have had the competency to determine these complicated issues or would

have had access to the resources, e.g., schematics and data regarding the city’s

sewer system, to determine these issues. Our hypothetical appraisal panel could

have determined, however, the cost to repair and/or replace the damaged

property, and the appraisal award could have served as a measure of damages

after liability had been established in the district court. Salem United Methodist

Church is but a single example, but one can envision countless scenarios in

which the persons conducting an appraisal do not have the competency to

determine causation and the persons opining on causation would not have the

competency to determine valuation. This is why it is better to keep the issues

separate and distinct.

B.

I next address the issue of whether this particular appraisal panel had the

authority to determine causation. Because the appraisal provision at issue is

contractual, the right of appraisal and the scope of appraisal are governed by the

terms of the policy. See State Room, Inc. v. MA-60 State Assocs., L.L.C., 995

N.E.2d 807, 812 (Mass. App. Ct. 2013) (“[S]o too an appraiser can exceed his

authority by making an award which is not within the limits of the submission to

him. The issue turns on the agreement of the parties.”); Merrimack Mut. Fire Ins.
 24

Co. v. Batts, 59 S.W.3d 142, 152 (Tenn. Ct. App. 2001) (“An appraiser’s authority

is limited to the authority granted in the insurance policy or granted by some

other express agreement of the parties.”); Terra Indus. Inc., 981 F. Supp. at 607

(explaining the scope of appraisal can be determined from the language of the

policy).

Our rules governing the interpretation and construction of insurance

policies are well-settled. The cardinal principle is the parties’ intent controls, and

we determine intent by examining the text of the policy. See Amish Connection,

861 N.W.2d at 236. Here, the policy provides coverage for “direct physical loss

of or damage to Covered Property . . . caused by or resulting from any Covered

Cause of Loss.” (Policy ¶ A.) “Covered Causes of Loss” includes direct physical

loss or damage except those causes of loss excluded or limited. (Policy ¶¶

A.3(a), (b), (c).) Either party may make a demand for “an appraisal of the loss.”

The right to demand “an appraisal of the loss” can be invoked only where there is

disagreement regarding “the amount of loss.” The policy then sets forth a

procedure for selecting appraisers and an umpire. The policy also describes the

function of the appraisers, providing the “appraisers will state separately the

value of property and the amount of loss.”

The language of the policy limits the appraisal’s scope to determining the

monetary value of a loss and does not extend to questions of coverage and

causation. First, the common understanding of “appraisal” is the “determination

of what constitutes a fair price for something or how its condition can be fairly

stated; the act of assessing the worth, value, or condition of something.”

Appraisal, Black’s Law Dictionary (10th ed. 2014). As commonly understood, an
 25

appraisal does not encompass determination of issues other than valuation. See

Jefferson Davis Cty. Sch. Dist. v. RSUI Indem. Co., No. 2:08-cv-19-KS-MTP,

2009 WL 367688, at *2 (S.D. Miss. Feb. 11, 2009) (stating “the purpose of an

appraisal is not to determine the cause of loss or coverage under an insurance

policy; rather, it is ‘limited to the function of determining the money value of the

property’ at issue” (citation omitted)). Second, the policy limits the appraiser’s

authority to stating the “value of the property and the amount of loss.” Nothing in

the policy gives the appraisers the authority to opine on liability, coverage, or

causation. See Terra Indus., 981 F. Supp. at 607 (construing similar provision to

mean “the appraisal process determines the ‘amount of actual cash value and

loss,’ not legal questions of coverage”); Rogers v. State Farm Fire & Cas. Co.,

984 So. 2d 382, 392 (Ala. 2007) (finding “no ambiguity in the term ‘the amount of

loss’ as used in the appraisal clause” and “holding that an appraiser’s duty is

limited to determining the ‘amount of loss’—the monetary value of the property

damage”); Batts, 59 S.W.3d at 152 (holding an appraisal clause regarding the

“amount of the loss” limited appraisers to determining “the monetary value of the

property damage” and not questions of coverage, liability, or causation). Third,

the policy used definite articles to limit the scope of appraisal. Specifically, the

policy limits the scope of appraisal to “the loss” and “the amount of loss.” Use of

the definite article “the” means “the loss” has an antecedent; specifically “the

loss” must refer to a specific loss rather than a non-specific loss to be determined

by the appraisers. See Am. Bus Ass’n v. Slater, 231 F.3d 1, 4–5 (D.C. Cir. 2000)

(“[I]t is a rule of law well established that the definite article ‘the’ particularizes the

subject which it precedes. It is a word of limitation as opposed to the indefinite or
 26

generalizing force of ‘a’ or ‘an.’” (citation omitted)); State v. Hohenwald, 815

N.W.2d 823, 830 (Minn. 2012) (“The definite article ‘the’ is a word of limitation

that indicates a reference to a specific object.”). “The loss” is to be determined

by the finder of fact, while “the amount” of “the loss” is for the appraisal panel.

Fourth, as discussed above, there are practical reasons why causation should

not be considered within the scope of appraisal.

The district court was thus correct to conclude the appraisal panel award

was not binding on causation. “An appraisal is a supplementary arrangement to

arrive at a resolution of a dispute without a formal lawsuit.” Cent. Life Ins. Co. v.

Aetna Cas. & Sur. Co., 466 N.W.2d 257, 260 (Iowa 1991). “Appraisal awards do

not [constitute] a formal judgment and may be set aside by a court.” Id. An

appraisal award will be set aside where the appraisal provision was improperly

invoked, where the appraisers exceeded the scope of work, or where there is

fraud, mistake, or misfeasance on the part of an appraiser or umpire. See id.;

Taylor, 2008 WL 4525496, at *5 (holding the appraisal award was confined to its

proper scope where the district court specifically discarded “any discussion of

facts and/or causation in the report”); Law & Starinovich, supra, at 315 (stating

the award may be challenged if “the appraisers go beyond their scope of

authority” and citing cases). Here, the appraisal panel made a determination of

causation in addition to a determination of value. The determination of causation

was outside the scope of the appraisal panel. Causation is a question of liability,

which, under the circumstances, was a question reserved for the district court.

The district court was well within its authority to disregard the appraisal panel’s

determination on causation.
 27

C.

Once the district court determined it was not bound by the appraisal

panel’s determination of causation, the district court was required to consider the

issue. The only contested issue with respect to causation was damage to the

roofs. The district court found the hail storm at issue caused no damage to the

roofs or was not the sole cause of damage to the roofs. The district court found

any roof damage was caused in whole or in part by other causes, including

manufacturer’s defect and “multiple potentially damaging hail storms preceding

the storm in question.” In reaching this conclusion, the district court relied on the

testimony of Marcus Harbert, who was the only person to inspect the roofs before

and after the storm. Harbert testified there was damage to the roofs prior to the

storm at issue. This fact is essentially conceded by the association, which was

seeking to repair the roofs prior to the storm at issue. Harbert’s testimony was

also supported by the insurance carrier’s expert witness.

On this record, the district court’s judgment should be affirmed. “This case

was tried to the court as a law action and our review is for the correction of errors

at law.” Hendricks v. Great Plains Supply Co., 609 N.W.2d 486, 490 (Iowa

2000). “The district court's findings of fact have the effect of a jury verdict and

are binding on us if supported by substantial evidence.” Id. “Evidence is

substantial when a reasonable mind would accept it as adequate to reach the

same findings.” Id. “We construe the district court's findings broadly and

liberally.” Id. “In case of doubt or ambiguity we construe them to uphold, rather

than defeat, the judgment.” Id. “A corollary rule prohibits us from weighing the

evidence or the credibility of the witnesses.” Id. When the evidence is viewed in
 28

the light most favorable to the district court, the district court’s findings are

supported by substantial evidence.

II.

I would affirm the judgment of the district court for an additional,

independent reason. As the majority notes, the policy at issue contained an

anticoncurrent clause. The clause is enforceable. See Amish Connection, Inc.,

861 N.W.2d at 241 (stating anticoncurrent clauses are enforceable); Salem

United Methodist Church v. Church Mut. Ins. Co., No. 13-2086, 2015 WL

1546431, at *3 (Iowa Ct. App. Apr. 8, 2015) (enforcing anticoncurrent clause and

stating if an excluded cause “is a concurrent cause, there is no coverage”). The

district court found and concluded any loss was excluded by the anticoncurrent

clause because any damage to the roofs was caused by “one or more things

other than or in addition to the August 8, 2012 storm,” including “wear and tear,

mechanical related to installation, faulty workmanship, [and] manufacturer

defect.”

The majority contends the district court erred in finding any loss was

excluded by the anticoncurrent clause because the appraisal panel’s

determination of causation was binding on the district court. I disagree. First, I

disagree with the proposition that the appraisal panel was empowered to

determine of causation. Second, I also disagree with the proposition that the

district court would be bound by any such determination. However, even

assuming the district court was bound by the causation determination, the

causation determination does not resolve the issue. The appraisal panel

determined the storm at issue was a cause of damage to the roofs, but the
 29

appraisal panel did not determine the storm was the sole and proximate cause of

damage to the roofs. Indeed, the appraisal award explicitly disclaimed making

any such determination, providing “The award does not include an evaluation or

determination or coverage, policy exclusions or the relative causation of the

same.” It was thus incumbent upon the district court to resolve any coverage

issues, policy exclusions, and issues of concurrent causation. See North Glenn

Homeowners Assn., 854 N.W.2d at 71 (stating coverage determination is for the

district court).

Here, the district court properly made an independent determination that

the loss, if any, caused by the storm was an excluded cause of loss under the

terms of the policy. When the evidence is viewed in the light most favorable to

the district court’s judgment, the district court’s findings regarding other causes of

loss are supported by substantial evidence.

III.

For the foregoing reasons, I would affirm the judgment of the district court.