IN THE SUPREME COURT OF IOWA
No. 11–0570
Filed February 1, 2013
DALE BOELMAN and NANCY BOELMAN,
Appellees,
vs.
GRINNELL MUTUAL REINSURANCE COMPANY,
Appellant.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Butler County, Stephen P.
Carroll, Judge.
An insurance company seeks further review of a court of appeals
opinion affirming the district court decision in favor of the insureds.
COURT OF APPEALS DECISION VACATED; DISTRICT COURT
JUDGMENT REVERSED AND CASE REMANDED WITH
INSTRUCTIONS.
Douglas A. Haag of Patterson Law Firm, L.L.P., Des Moines, for
appellant.
Bruce J. Toenjes of Nelson & Toenjes, Shell Rock, for appellees.
Eldon L. McAfee and Erin C. Herbold of Beving, Swanson &
Forrest, P.C., Des Moines, for amicus curiae Iowa Pork Producers
Association.
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WIGGINS, Justice.
This appeal involves the question of whether an insurance policy
provides coverage to a custom farming operation. Both parties filed
motions for summary judgment. The district court overruled the
insurance company’s motion for summary judgment. The district court
granted the insureds’ motion for summary judgment and entered
judgment for the insureds based on the reasonable expectations
doctrine. The court of appeals affirmed the district court’s judgment on
alternative grounds, concluding the insurance policy was ambiguous and
construing the ambiguity in favor of the insureds to find coverage. On
further review, we conclude the policy is not ambiguous, and as a matter
of law, the policy does not provide coverage. Additionally, we find there
is no genuine issue of material fact as to the application of the
reasonable expectations doctrine, and as a matter of law, the doctrine
does not apply. Therefore, we vacate the decision of the court of appeals,
reverse the judgment of the district court, and remand the case to the
district court with instructions to enter judgment in favor of the
insurance company on its motion for summary judgment.
I. Background Facts and Proceedings.
The facts giving rise to this action are not in dispute. Dale and
Nancy Boelman are farmers in Butler County. Their farming operation
involves contract-feeding nursery hogs for others until the hogs are
fattened and ready for market. Under one such arrangement, the
Boelmans agreed to raise hogs owned by Budke Farms. A contractor,
Schneider’s Milling, Inc., organized the arrangement. A “Sew Nursery
Agreement” defined the Boelman’s obligations.
Pursuant to that agreement, the Boelmans fed, cared for, and
managed the hogs supplied to them. They also were required to furnish
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all insurance on the building and hogs, specifically for suffocation of the
animals. Meanwhile, Schneider’s Milling provided the feeder hogs,
oversaw the farm’s management, paid for feed and medications, and
compensated Dale for his efforts at $81,600 per year.
On October 4, 2008, the Boelmans had approximately 1254
nursery hogs on their farm. Of those, 535 hogs suffocated to death in
the Boelmans’ building. The deaths occurred when Dale was cleaning
out the manure basins. It is undisputed that the hogs were in the
exclusive care, custody, or control of the Boelmans at that time. The
Boelmans were required to exercise such control over the hogs pursuant
to the “Sew Nursery Agreement.”
A. The Farm-Guard Policy. Approximately two years prior to the
hog loss, on or about August 1, 2006, the Boelmans purchased a Farm-
Guard policy from the First Maxfield Mutual Insurance Association (First
Maxfield). Grinnell Mutual Reinsurance Company (Grinnell Mutual)
reinsured the policy. Dale and Nancy Boelman are the named insureds.
It is undisputed that the policy was in effect when the hog casualties
occurred in October 2008.
Subsequent to the hog loss, the Boelmans filed a claim with
Grinnell Mutual to recover under their Farm-Guard policy. Grinnell
Mutual denied the claim. The Boelmans borrowed funds and
compensated Budke Farms for the casualty expenses totaling $24,075.
The Boelmans then sued First Maxfield and Grinnell Mutual for breach
of contract.
The Farm-Guard policy provides protection for property damage. It
does so through five different types of coverage. This appeal concerns
the Boelmans’ liability to the public for property damage under Coverage
A and liability for damage to other’s property pursuant to Coverage A-1.
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Both Coverage A and A-1 adopt the same definition of property
damage. The definition of property damage used throughout the policy is
as follows:
15. “Property damage” means the physical injury to or
destruction of tangible property. “Property damage” does not
include loss of use unless the property has been physically
injured or destroyed.
Under Coverage A, which protects the insured against liability to
the public, the insurance company will pay up to the policy limits for
“any one loss which any ‘insured person’ becomes legally obligated to pay
as damages because of . . . ‘property damage’ covered by this policy.”
Grinnell Mutual covers $100,000 per loss occurrence, with a $200,000
annual aggregate. The policy, however, precludes recovery under
Coverage A in the following circumstance:
5. “We” do not cover “property damage” to property rented
to, leased to, occupied by, used by, or in the care, custody or
control of any “insured person” or any persons living in the
household of an “insured person” . . . .
(Emphasis added.)
Coverage A-1 protects the insured from “any one loss for ‘property
damage’ to property owned by others in the care of any ‘insured
person.’ ” Grinnell Mutual compensates the insured for a loss at $1000
per occurrence. However, the following exclusion specifically applies to
Coverage A-1:
2. “We” will not pay for “property damage” arising out of
“custom farming.”
(Emphasis added.) The policy defines custom farming as: “any activity
arising out of or connected with . . . [the] care or raising of ‘livestock’ . . .
by any ‘insured person’ for any other person or organization in
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accordance with a written or oral agreement.” The policy states livestock
includes hogs.
In addition to these coverage-specific exclusions, the Farm-Guard
policy also includes general exclusions that are applicable “UNDER ANY
OF THE COVERAGES.” Among those are two relevant provisions: one
excluding recovery for property damage arising from the care, custody, or
control of another’s property and one for custom farming. The provisions
are as follows:
5. “We” do not cover “bodily injury” or “property damage”
arising out of any premises:
....
d. in the care, custody or control of any “insured person”;
which is not an “insured premises”. . . .
6. “We” do not cover “bodily injury” or “property damage”
arising out of:
a. “custom farming” operations of any “insured person” if the
“total gross receipts” from all “custom farming” exceed $2000
in the twelve months of the prior calendar year. . . .
(Emphasis added.)
B. Custom Feeding Endorsement. The parties modified the
basic Farm-Guard policy through several endorsements. Pertinent to
this dispute is the Custom Feeding Endorsement. It is clear the parties
intended and understood the endorsement changed the coverage under
the policy. The endorsement’s caption states in bold and capital letters,
surrounded by a box border: “PLEASE READ THIS ENDORSEMENT
CAREFULLY, AS IT MODIFIES THE POLICY.”
The endorsement operates to modify the general exclusion under
section 6(a) regarding custom farming. The endorsement provides:
6
EXCLUSIONS
UNDER ANY OF THE COVERAGES
....
In consideration of the premium charged, exclusion 6.a.
under this section of the policy does not apply if:
1) the “bodily injury” or “property damage” arises from the
activities of care or raising of “livestock” or “poultry” by any
“insured person” for any other person or organization in
accordance with a written or oral agreement; and
2) your “total gross receipts” for the prior calendar year from
the activities described in paragraph 1) do not exceed the
amount of gross receipts as stated on “your” declaration
page or are:
(Please check box that applies)
☒ not more than $150,000
(Emphasis added.)
C. Proceedings. Following denial of their claim, the Boelmans
filed their petition for breach of contract against First Maxfield under the
Farm-Guard policy. The Boelmans amended their petition to include
Grinnell Mutual as a defendant. In their petition, the Boelmans sought
damages in the amount of $24,075 plus actual interest at 7.5% and
litigation costs.
Grinnell Mutual answered and counterclaimed, seeking a
declaratory judgment that the Farm-Guard policy does not cover the
Boelmans’ claim. Specifically, Grinnell Mutual alleged Coverage A, which
protects against liabilities to the public, does not apply because the
property damage occurred while the hogs were in the Boelmans’ care,
custody, or control. Grinnell Mutual refers to the specific care, custody,
or control exclusion under Coverage A. Second, they denied the claim
pursuant to Coverage A-1 (damage to property of others), citing
Exclusion 2 pertaining to custom farming.
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The Boelmans subsequently dismissed their claim against First
Maxfield without prejudice. Both Grinnell Mutual and the Boelmans
then filed cross motions for summary judgment. Grinnell Mutual
asserted there was no genuine issue as to any material fact and that as a
matter of law, the hog loss was not covered under the policy. The
Boelmans countered that the endorsement insured the loss.
The district court granted the Boelmans’ motion for summary
judgment. The district court employed the reasonable expectations
doctrine to conclude the Boelmans reasonably expected the endorsement
to protect all activities in their custom farming operation, not just those
specifically arising under the custom farming exception in general
exclusion 6(a). Accordingly, the district court held the Boelmans could
recover, despite the care, custody, or control exclusion. Moreover, the
district court held denying coverage would thwart the insurance
transaction’s purpose of protecting custom farming through the
endorsement.
Grinnell Mutual appealed. The court of appeals affirmed the
district court ruling. The court of appeals found the policy was
ambiguous based on the two interpretations proffered by the parties and
did not conduct an analysis under the reasonable expectations doctrine.
The court of appeals construed the ambiguity in favor of the Boelmans.
Grinnell Mutual subsequently sought further review, which we
granted.
Other facts relevant to our analysis are included below.
II. Issues.
The first issue raised on appeal requires us to decide if there is a
genuine issue of material fact as to whether the Farm-Guard policy with
the Custom Feeding Endorsement, as written, covers the Boelmans’ loss.
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If not, we then must decide whether a genuine issue of material fact
exists under the reasonable expectations doctrine.
III. Standard of Review.
We use the errors at law standard when our decision rests upon
the interpretation of an insurance policy. Jones v. State Farm Mut. Auto.
Ins. Co., 760 N.W.2d 186, 188 (Iowa 2008). Additionally, we review a
district court’s grant of summary judgment for correction of errors at
law. 1 Iowa R. App. P. 6.907; Nationwide Mut. Ins. Co. v. Kelly, 687
N.W.2d 272, 274 (Iowa 2004). The district court properly grants
summary judgment when the moving party demonstrates there is no
genuine issue of material fact and that he or she is entitled to judgment
as a matter of law. Iowa R. Civ. P. 1.981(3); Kelly, 687 N.W.2d at 274.
We can resolve a matter on summary judgment if the record reveals a
conflict concerning only the legal consequences of undisputed facts.
Pecenka v. Fareway Stores, Inc., 672 N.W.2d 800, 802 (Iowa 2003).
When reviewing the district court decision, we examine the record
in the light most favorable to the nonmoving party. Minor v. State, 819
N.W.2d 383, 393 (Iowa 2012). We afford the nonmoving party “ ‘every
legitimate inference that can be reasonably deduced from the evidence,
and if reasonable minds can differ on how the issue should be resolved, a
fact question is generated,’ ” and the district court should deny summary
judgment. Bank of the W. v. Kline, 782 N.W.2d 453, 456–57 (Iowa 2010)
1GrinnellMutual sought declaratory judgment, which would normally indicate
that our standard of review depends upon whether the parties brought the case in
equity or at law in the district court. Ferguson v. Allied Mut. Ins. Co., 512 N.W.2d 296,
297 (Iowa 1994). However, “[t]hat distinction is inconsequential on this appeal because
the matter is before us on review of the district court’s entry of summary judgment” in
favor of the Boelmans. Id. Thus, we base our review on the propriety of the district
court’s summary judgment ruling, not the declaratory judgment. Id.
9
(quoting Hills Bank & Trust Co. v. Converse, 772 N.W.2d 764, 771 (Iowa
2009)).
IV. Legal Standards for Interpreting and Construing an
Insurance Policy.
Before scrutinizing the Farm-Guard policy, we must observe the
differences between interpretation and construction of an insurance
policy. Interpretation requires us to give meaning to contractual words
in the policy. Connie’s Constr. Co. v. Fireman’s Fund Ins. Co., 227
N.W.2d 207, 210 (Iowa 1975). Policy interpretation is always an issue for
the court, unless we are required to rely upon extrinsic evidence or
choose between reasonable inferences from extrinsic evidence. Id. If the
policy does not define a term, we give the word its ordinary meaning.
Interstate Power Co. v. Ins. Co. of N. Am., 603 N.W.2d 751, 754 (Iowa
1999). The plain meaning of the insurance contract generally prevails.
Thomas v. Progressive Cas. Ins. Co., 749 N.W.2d 678, 682 (Iowa 2008).
Construction is the process of giving legal effect to a contract. Id.
at 681. This is always a matter of law for the court. Id. The cardinal
rule of construing insurance policies is that except in cases of ambiguity,
the intent of the parties must control, and the court determines the
intent of the parties by looking at what the policy itself says. Id. We
consider the parties’ intent at the time the policy was sold, not in
hindsight. Ferguson v. Allied Mut. Ins. Co., 512 N.W.2d 296, 299 (Iowa
1994). We will not strain the words or phrases of the policy in order to
find liability that the policy did not intend and the insured did not
purchase. Thomas, 749 N.W.2d at 682.
Under an objective test, a policy is ambiguous if the language is
susceptible to two reasonable interpretations. Id. at 681. We read the
policy as a whole when determining whether the contract has two equally
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plausible interpretations, not seriatim by clauses. Id. at 681–82. This
stems from the concept that “ ‘[w]ords in an insurance policy are to be
applied to subjects that seem most properly related by context and
applicability.’ ” Jones, 760 N.W.2d at 188 (quoting Talen v. Emp’rs Mut.
Cas. Co., 703 N.W.2d 395, 402 (Iowa 2005)). Accordingly, reading the
contract as a whole requires us to consider all declarations, riders, or
endorsements attached. Ferguson, 512 N.W.2d at 299; see also 2 Steven
Plitt, Daniel Maldonado & Joshua D. Rogers, Couch on Insurance 3d
§ 21:21, at 21-88 to 21-91 (rev. ed. 2010) [hereafter Couch on Insurance
3d].
The terms in the endorsement govern if the terms in the body of
the policy conflict with the endorsement. Bobich v. Oja, 104 N.W.2d 19,
24 (Minn. 1960); Couch on Insurance 3d § 21:22, at 21-101 to 21-102
(emphasizing the terms of the endorsement control over the original
policy). We will not interpret an insurance policy to render any part
superfluous, unless doing so is reasonable and necessary to preserve the
structure and format of the provision. Thomas, 749 N.W.2d at 685.
Moreover, we interpret the policy language from a reasonable rather than
a hypertechnical viewpoint. Steel Prods. Co. v. Millers Nat’l Ins. Co., 209
N.W.2d 32, 36 (Iowa 1973).
If the policy is ambiguous, we adopt the construction most
favorable to the insured. Hamm v. Allied Mut. Ins. Co., 612 N.W.2d 775,
778 (Iowa 2000). This same rule applies when an exclusion is
ambiguous, because “ ‘[a]n insurer assumes a duty to define any
limitations or exclusionary clauses in clear and explicit terms.’ ”
Thomas, 749 N.W.2d at 682 (quoting Hornick v. Owners Ins. Co., 511
N.W.2d 370, 374 (Iowa 1993)). Thus, we strictly construe exclusions
against the insurer. Ferguson, 512 N.W.2d at 299. We do so because
11
insurance policies constitute adhesion contracts. Allied Mut. Ins. Co. v.
Costello, 557 N.W.2d 284, 286 (Iowa 1996).
An insurance policy is not ambiguous, however, just because the
parties disagree as to the meaning of its terms. Essex Ins. Co. v.
Fieldhouse, Inc., 506 N.W.2d 772, 776 (Iowa 1993). If an insurance
policy and its exclusions are clear, the court “will not ‘write a new
contract of insurance’ ” for the parties. Thomas, 749 N.W.2d at 682
(quoting Cairns v. Grinnell Mut. Reins. Co., 398 N.W.2d 821, 824 (Iowa
1987)).
V. Analysis.
The Boelmans assert the Custom Feeding Endorsement is
ambiguous and urge the court to construe this ambiguity in their favor.
The court of appeals agreed the Farm-Guard policy, containing the
endorsement, was ambiguous. Grinnell Mutual contends the policy is
not ambiguous because the endorsement explicitly removes only
Exclusion 6(a), the general exclusion for custom farming, and clearly
communicates it does not alter or supersede any other exclusions. As a
result, Grinnell Mutual points out that the care, custody, or control
exclusions still apply and refuse to indemnify the Boelmans. To
determine the existence of an ambiguity, we look to what the policy says.
Thomas, 749 N.W.2d at 683.
A. Coverage Under the Farm-Guard Policy, Without the
Custom Feeding Endorsement. Coverage A, which protects against
liability to the public, appears to provide broad coverage for all property
damage the Boelmans would be legally obligated to pay. This coverage
insures the holder up to $100,000 for each occurrence, with a $200,000
annual aggregate. However, as with most policies, the exclusions narrow
the coverage.
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Exclusion 5 limits Coverage A by barring recovery for property
damage or loss arising when another’s property is in the Boelmans’ care,
custody, or control. This exclusion makes sense in light of Coverage A-1,
which provides coverage to the insureds for damage arising while other’s
property is in the Boelmans’ care, custody, or control.
Additionally, Exclusion 6(a), which is applicable to all the
coverages in the policy, limits Coverage A by excluding recovery for
property damage arising out of custom farming, if the insured’s total
gross receipts from all custom farming exceed $2000 in the twelve
months of the prior calendar year. This exclusion operates so that if all
income from custom farming operations is $2000 or less, and the
damage is to property not in the care, custody, or control of the
Boelmans, Coverage A would provide protection.
The following shows an example of the property damage protected
by Coverage A. If the Boelmans’ income from custom farming did not
exceed $2000, and if their custom farming operation caused an
explosion, damaging a third person’s car parked on the Boelmans’
property, then the Boelmans would be indemnified by Grinnell Mutual.
As this example illustrates, the purpose of Exclusion 6(a) is to limit the
insurance company’s liability for property not in the Boelmans’ care,
control, or custody to the risks associated with a farmer whose operation
includes custom farming grossing $2000 or less per year. This is
reasonable, because the custom farming operation’s size, as indicated by
income, correlates to the risks associated with that operation. The more
expansive the custom farming operation is, the greater the risks.
Coverage A-1 protects against damage to other’s property while it
is in the care, custody, or control of the Boelmans. The limits of liability
under this coverage are $1000 for each occurrence. Coverage A-1 also
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has exclusions limiting its applicability. Exclusion 2 bars recovery for
property damage arising out of custom farming. The custom farming
exclusion applies because the Boelmans care for another’s livestock
under a written or oral agreement. The purpose of this exclusion is to
prevent Grinnell Mutual from becoming an insurer of the Boelmans’
obligations and performance under their agreement to raise another’s
livestock. Thus, the purpose of Coverage A-1 is to provide protection if
the Boelmans’ borrowed another’s piece of equipment, the equipment
suffers damage on the Boelmans’ property, and the damage does not
arise from their custom farming.
In summary, Coverage A indemnifies the Boelmans for liability to
third parties arising from property damage they are legally obligated to
pay. However, it excludes coverage for damage to other’s property in the
care, custody, or control of the Boelmans. It also excludes coverage for
damage to other’s property that arises out of custom farming if the gross
receipts from the Boelmans’ custom farming operation exceed $2000.
Thus, the policy will protect against all property damage the Boelmans
are legally obligated to pay, as long as the property was not in their care,
custody, or control, and the property damage did not arise out of their
custom farming operation. 2 Moreover, Coverage A-1 pays for damage to
property of others in the care, custody, or control of the Boelmans,
regardless of liability, but not when the property damage arises out of
custom farming. When we read the policy as a whole, all the coverages
and exclusions in the policy are consistent with each other. Therefore,
2The record establishes that the Boelmans’ income from custom farming
exceeded $2000. Thus, the general exclusion in the policy, Exclusion 6(a), applies in
the absence of the Custom Feeding Endorsement.
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we find the policy, as issued without the Custom Feeding Endorsement,
is unambiguous.
B. Coverage Under the Farm-Guard Policy, With the Custom
Feeding Endorsement. The Boelmans contend the Custom Feeding
Endorsement makes the policy ambiguous. Thus, the Boelmans urge us
to construe the policy in their favor and provide coverage in accordance
with the court of appeals. We disagree and refuse to do so.
The Custom Feeding Endorsement provides in bold type that the
insured must read the endorsement carefully, because it modifies the
Farm-Guard policy. The endorsement specifically refers to Exclusion 6(a)
contained in the policy’s general exclusion section. The endorsement
merely raises the threshold from $2000 in custom farming income to
$150,000 before Exclusion 6(a) bars indemnity by the insured. Thus, the
endorsement operates to broaden the protection afforded under
Coverage A, pertaining to liability to the public, in the Farm-Guard
policy. Accordingly, if the Boelmans are liable for damage to property not
in their care, control, or custody, and their custom farming operation
grosses $150,000 or less per year, the policy will indemnify the
Boelmans. Accordingly, we do not see how this endorsement conflicts
with any other policy provision.
Our conclusion in this regard is consistent with existing law.
Courts recognize that endorsements do not alter or supersede care,
custody, or control exclusions. See, e.g., Kemper Nat’l Ins. Cos. v.
Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 875 (Ky. 2002) (finding a
commercial general liability policy with an endorsement removing a
pollution damage exclusion did not supersede the care, custody, or
control exclusion). More specifically, courts have found that custom
feeding endorsements do not preempt care, custody, or control provisions
15
contained in the basic policy. See Grinnell Mut. Reins. Co. v. Schwieger,
685 F.3d 697, 701 (8th Cir. 2012) (construing the exact same Farm-
Guard policy and Custom Feeding Endorsement). We have specifically
rejected the argument that “having property in your care is the ‘essence
of a custom livestock feeding operation’ ” and refused to find an
endorsement conflicts with a policy including a care, custody, or control
exclusion. Ferguson, 512 N.W.2d at 299–300.
The care, custody, or control exclusion functions specifically to
prevent the insurance company from becoming a guarantor of the
insured’s work. Connie’s Const. Co., 227 N.W.2d at 211. It does not
apply “when the property damaged is merely incidental to the property
upon which the work is being performed by the insured at the time of the
accident.” Id. However, we recognize the exclusion “is applicable if the
property damaged is under the supervision of the insured and is a
necessary element of the work being performed.” Id. (emphasis added).
The “Sew Nursery Agreement” indicates the Boelmans were directly
managing the hogs and that doing so was a necessary element of their
task of feeding the hogs to market weight. A second requirement for the
exclusion to apply is that the insured be in exclusive control of the
damaged property. Id. Here, it is undisputed that the Boelmans were in
exclusive care, custody, or control of the hogs that died.
We would be engaging in a strained analysis and would be
stretching the endorsement’s terms beyond the bounds of reasonability
to find the endorsement functions to negate all exclusions whole cloth in
the Farm-Guard policy. Thomas, 749 N.W.2d at 682. The court of
appeals erred by indulging in this practice.
Any such construction contorts the endorsement to read, “In
consideration of the premium charged, none of the policy’s exclusions
16
apply.” Agreeing with this logic would be to ignore completely the
numerous other exclusions in the policy, which the endorsement
expressly leaves intact. See Ferguson, 512 N.W.2d at 300 (observing a
construction is unreasonable if it requires us to completely ignore policy
exclusions). Here, the endorsement does not expressly remove any other
exclusions from the policy, such as the care, custody, or control
provisions. Instead, the endorsement clearly indicates that “[a]ll other
terms and provisions of the policy apply,” including exclusions.
Moreover, such construction would denigrate our established principle
that “ ‘[e]ndorsements do not limit or change the basic policy except as
specifically set out in the endorsement.’ ” Id. (emphasis added) (quoting
Swift & Co. v. Zurich Ins. Co., 511 S.W.2d 826, 832 (Mo. 1974)).
Construing the policy in this manner would also result in rejecting
jurisprudence that has recently developed on this very issue. See
Schwieger, 685 F.3d at 699, 703 (construing the exact same Farm-Guard
policy and Custom Feeding Endorsement).
Additionally, to adopt the Boelmans’ interpretations would be to
write a new contract for the parties. Thomas, 749 N.W.2d at 682. There
is no indication in the record that the parties intended the endorsement
to have the sweeping effect of removing other policy exclusions. The fact
that Grinnell Mutual only charged $27 annually in premiums for the
added protection under the endorsement does not correlate with the
substantially elevated risk they would have assumed if they had removed
all exclusions touching upon the Boelmans’ custom farming operation.
Moreover, the endorsement only vests the right to recovery in a
third party, not the holder of the property, such as a contract feeder.
The recognition of an increased risk of property damage and subsequent
liability inures to the third party.
17
The endorsement required Grinnell Mutual to compensate the
Boelmans for losses if their total gross receipts from custom farming
were not more than $150,000. This was a significant increase in
protection from the basic policy, which only required Grinnell Mutual to
pay out for custom farming losses if the insured farmer’s total gross
receipts were less than $2000 for the previous year. Thus, the basic
policy only protected hobby farmers, not large-scale producers, for losses
to third parties from custom farming operations.
Therefore, we find the policy with the Custom Feeding
Endorsement is not ambiguous. Thus, the policy with the endorsement
does not provide coverage for this loss.
VI. Reasonable Expectations Doctrine.
In their brief to the district court, the Boelmans raised the
reasonable expectations doctrine as an alternative ground for relief. The
district court construed the policy in favor of the Boelmans based upon
their reasonable expectation of coverage in the event of loss arising from
their custom farming operations. When a party raises an alternative
ground for a motion for summary judgment in the district court, we can
consider that ground on appeal. Bagelmann v. First Nat’l Bank, 823
N.W.2d 18, 32 (Iowa 2012).
The reasonable expectations doctrine “is a recognition that
insurance policies are sold on the basis of the coverage they promise.”
Clark-Peterson Co. v. Indep. Ins. Assocs., Ltd., 492 N.W.2d 675, 679 (Iowa
1992). It does not expand coverage on a purely equitable basis. Id. at
677. Thus, as a preliminary matter, it was improper for the district court
to find the Boelmans reasonably expected coverage.
Instead, the doctrine is carefully circumscribed. Id. This is
because “[i]nsurance coverage is a contractual matter and is ultimately
18
based on policy provisions.” Jones, 760 N.W.2d at 188 (citation and
internal quotation marks omitted). Accordingly, we allow insurers to
limit coverage to only specific claims. Id.
The doctrine is only invoked when an exclusion “(1) is bizarre or
oppressive, (2) eviscerates terms explicitly agreed to, or (3) eliminates the
dominant purpose of the transaction.” Clark-Peterson Co., 492 N.W.2d at
677 (citation and internal quotation marks omitted). If the doctrine
applies, “the objectively reasonable expectations of applicants and
intended beneficiaries regarding insurance [policies] will be honored even
though painstaking study of the policy provisions would have negated
those expectations.” Id. (citation and internal quotation marks omitted).
Evidence of reasonable expectations comes from the underlying
negotiations or the inferences arising from the circumstances of when
the parties entered the policy. Id. Only representations made by the
insurer at the time of policy negotiation and issuance are relevant. Vos
v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 50 (Iowa 2003).
For the doctrine to apply, a prerequisite must first be satisfied.
“[T]he insured must prove circumstances attributable to the insurer that
fostered coverage expectations or show that the policy is such that an
ordinary layperson would misunderstand its coverage.” Nationwide Agri-
Bus. Ins. Co. v. Goodwin, 782 N.W.2d 465, 473 (Iowa 2010) (emphasis
added) (citations and internal quotation marks omitted). The Boelmans
must carry this burden.
The Boelmans fail to do so. At the district court, they did not
conduct the discovery needed to make a reasonable expectations
argument. For instance, the record lacks any indication the Boelmans
expected the endorsement’s dominant purpose was to provide coverage
for the hogs in their care, custody, or control. Additionally, nothing
19
shows the content of the negotiations between the Boelmans and agents
or representatives of Grinnell Mutual when they executed the policy. The
Boelmans did not file an affidavit covering any of these subjects. Thus,
the Boelmans have presented no evidence of (1) representations made by
Grinnell Mutual, which might have fostered expectations, or (2) reliance
by the Boelmans on any such representations. Thus, there is no genuine
issue of material fact concerning the application of the doctrine.
Additionally, the doctrine of reasonable expectations does not
apply because the policy does not contain ambiguous language or
constitute the “extreme situation” of a policy containing a “hidden
exclusion.” Schwieger, 685 F.3d at 702 (citation and internal quotation
marks omitted). The Boelmans could not have reasonably expected
coverage for any loss arising from their custom farming operation, based
upon the explicit language of the endorsement and exclusions in the
policy. Despite the endorsement, the policy still expressly excludes
coverage through two separate care, custody, or control exclusions.
Thus, based on the plain language of the policy, the Boelmans could not
reasonably expect coverage under these circumstances. Moreover, they
failed to guard against such losses as suffocation, even though the “Sew
Nursery Agreement” imposed upon them a duty to obtain insurance in
the case of suffocation. Accordingly, we find no genuine issue of material
fact exists concerning the reasonable expectations doctrine and find the
doctrine is inapplicable.
VII. Disposition.
On further review, we find the policy is not ambiguous and does
not provide coverage as a matter of law. Additionally, we find there is no
genuine issue of material fact as to the application of the reasonable
expectations doctrine and conclude, as a matter of law, that it does not
20
apply. Therefore, we vacate the decision of the court of appeals, reverse
the judgment of the district court, and remand the case to the district
court with instructions to enter judgment in favor of Grinnell Mutual on
its motion for summary judgment.
COURT OF APPEALS DECISION VACATED; DISTRICT COURT
JUDGMENT REVERSED AND CASE REMANDED WITH
INSTRUCTIONS.