City of West Liberty v. Employers Mutual Casualty Company

IN THE SUPREME COURT OF IOWA
No. 16–1972

Filed February 1, 2019

CITY OF WEST LIBERTY, IOWA,

Appellant,

vs.

EMPLOYERS MUTUAL CASUALTY COMPANY,

Appellee.

On review from the Iowa Court of Appeals.

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

Macek, Judge.

A municipality seeks further review of a court of appeals decision

affirming summary judgment in favor of an insurer. DECISION OF

COURT OF APPEALS AND JUDGMENT OF DISTRICT COURT

AFFIRMED.

Scott A. Ruksakiati and Thomas A. Vickers of Vanek, Vickers &

Masini, P.C., Chicago, Illinois, and Daniel P. Kresowik, Jamie A. Bosten,

and Amber J. Hardin (until withdrawal) of Stanley, Lande & Hunter,

Muscatine, for appellant.

Sean M. O’Brien and Catherine M. Lucas of Bradshaw, Fowler,

Proctor & Fairgrave, P.C., Des Moines, for appellee.
2

MANSFIELD, Justice.

In a story that probably would not have been written by Beatrix

Potter, a squirrel found its way onto an electrical transformer owned by a

municipality, triggering an electrical arc that killed the squirrel and caused

substantial damage to the municipality’s property. The municipality

sought coverage under its “all-risks” insurance policy. The insurer denied

coverage based on the policy’s electrical-currents exclusion, which

excludes “loss caused by arcing or by electrical currents other than

lightning.” Disagreeing with this reading of the insurance policy, the

municipality filed suit. The district court granted summary judgment to

the insurer and the court of appeals affirmed.

On further review, we too affirm the district court. We find that the

loss was indeed “caused by arcing.” Therefore, it is excluded even though

something else (i.e., the squirrel) triggered the arcing. This is not a

situation where two independent causes, one covered and one excluded,

may have contributed to the loss.

I. Background Facts and Proceedings.

The City of West Liberty owns and operates an electrical power plant.

Employer’s Mutual Casualty Company (EMC) insured West Liberty’s power

plant with coverage effective from April 1, 2014, through April 1, 2015.

On November 7, 2014, a squirrel climbed onto an outdoor electrical

transformer at West Liberty’s power plant. While still touching a grounded

steel frame that supported an electrical cable, the squirrel came into

contact with a bare cable clamp that was energized with 7200 volts of

electricity. This contact created a conductive path between the high

voltage clamp and the grounded frame. Once this path was established,

the air between the energized and grounded surfaces became ionized and

arcing resulted. The squirrel was killed, but more significantly the arcing
3

caused $213,524.76 worth of damage to West Liberty’s transformer and

other electrical equipment.

West Liberty provided timely notice of a claim to EMC for the loss.

EMC, however, denied coverage based on an “Electrical Currents”

exclusion in the policy. The policy at issue was an all-risks insurance

policy, which in relevant part stated as follows:

PROPERTY COVERED

“We” cover the following property unless the property is
excluded or subject to limitations.

“We” cover direct physical loss to covered property at a
“covered location” caused by a covered peril.

....

PERILS COVERED

“We” cover risks of direct physical loss unless the loss is
limited or caused by a peril that is excluded.

....

PERILS EXCLUDED

1. “We” do not pay for loss or damage caused directly or
indirectly by one or more of the following excluded causes or
events. Such loss or damage is excluded regardless of other
causes or events that contribute to or aggravate the loss,
whether such causes or events act to produce the loss before,
at the same time as, or after the excluded causes or events.

....

2. “We” do not pay for loss or damage that is caused by or
results from one or more of the following excluded causes or
events:

....

g. Electrical Currents — “We” do not pay for loss caused by
arcing or by electrical currents other than lightning. But if
arcing or electrical currents other than lightning result in fire,
“we” cover the loss or damage caused by that fire.
4

On January 21, 2016, West Liberty filed a petition in the Iowa

District Court for Muscatine County against EMC, seeking a declaratory

judgment of coverage and damages. EMC answered on February 11,

denying liability and asserting affirmative defenses. On July 20, West

Liberty moved for partial summary judgment. On August 31, EMC

resisted West Liberty’s motion for partial summary judgment and filed a

cross-motion seeking summary judgment.

West Liberty’s theory of recovery under the policy evolved over time.

Prior to litigation, West Liberty’s city attorney invoked the fire exception to

the electrical-currents exclusion. However, West Liberty later appeared to

concede that no part of the $213,524.76 loss was due to fire. Instead, in

its July 20 summary judgment memorandum, West Liberty argued a

theory of concurrent causation based on Amish Connection, Inc. v. State

Farm Fire & Casualty Co. See Amish Connection, 861 N.W.2d 230 (Iowa

2015). Thereafter, in its September 14 summary judgment reply, West

Liberty landed on efficient proximate cause as its theory of choice,

following principally Qualls v. Farm Bureau Mutual Insurance Co. See

Qualls, 184 N.W.2d 710 (Iowa 1971).

The motions were heard on September 22. The court granted EMC’s

motion for summary judgment and denied West Liberty’s motion. The

district court found that the only event that caused damages was the

electrical arc, noting the squirrel did no damage to West Liberty’s property

“such as gnawing on a power line or digging for nuts in a dangerous area.”

The court held,

The Court cannot conclude that the “squirrel’s actions” were
a cause of the damages because the squirrel did not actually
do anything to cause damages; it merely touched some things
it should not have touched. The arc caused all of the
damages. Had the squirrel done what it had done and the arc
not occurred, there would be no damages. Because there are
5
not two different damage-causing events, the Court need not
engage in an efficient proximate cause analysis. If an efficient
proximate cause analysis was appropriate, the Court would
find that the arcing was the dominant cause.

The district court ultimately concluded that because the electrical

arc was the “sole cause” of damage and the policy excludes coverage for

damages caused by electrical arcing, EMC was not required to cover West
Liberty’s claim. West Liberty appealed.

We transferred the case to the court of appeals. That court affirmed,

likewise holding that West Liberty’s loss fell within the electrical-currents

exclusion. One member of the panel dissented. We granted West Liberty’s

application for further review.

II. Standard of Review.

“We review a district court’s summary judgment ruling that

interprets an insurance policy for correction of errors at law.” Just v.

Farmers Auto. Ins., 877 N.W.2d 467, 471 (Iowa 2016) (quoting Amish

Connection, 861 N.W.2d at 235). “A grant of summary judgment is

appropriate when there are no genuine issues of material fact and the

moving party is entitled to judgment as a matter of law.” Id. “Generally,

interpretation of an insurance policy is a question of law.” Id.

III. Analysis.

We must determine whether the damage to West Liberty’s

transformer and electrical equipment was excluded from coverage by the

electrical-currents exclusion in EMC’s policy.

“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.” Boelman v. Grinnell Mut. Reins. Co.,

826 N.W.2d 494, 501 (Iowa 2013). “The plain meaning of the insurance

contract generally prevails.” Id. “We will not strain the words or phrases
6

of the policy in order to find liability that the policy did not intend and the

insured did not purchase.” Just, 877 N.W.2d at 471 (quoting Amish

Connection, 861 N.W.2d at 236).

“We construe exclusions strictly against the insurer.” Amish

Connection, 861 N.W.2d at 236. Nevertheless, “we must enforce

unambiguous exclusions as written.” Id. (quoting Bituminous Cas. Corp.

v. Sand Livestock Sys., Inc., 728 N.W.2d 216, 222 (Iowa 2007)). “An

insurance policy is not ambiguous . . . just because the parties disagree

as to the meaning of its terms.” Just, 877 N.W.2d at 471 (quoting Amish

Connection, 861 N.W.2d at 236). “Moreover, ‘[a]mbiguity is not present

merely because the provision “could have been worded more clearly or

precisely than it in fact was.” ’ ” Id. (quoting Amish Connection, 861 N.W.2d

at 236).

The “Electrical Currents” exclusion in the policy states,

“We” do not pay for loss caused by arcing or by electrical
currents other than lightning. But if arcing or electrical
currents other than lightning result in fire, “we” cover the loss
or damage caused by that fire.

This language is straightforward. If arcing caused the loss, the loss

is excluded, unless the arcing led to fire. Because arcing caused the loss

here, and the arcing didn’t lead to a fire, West Liberty’s claim appears to

be foreclosed by the express terms of the policy.

Nonetheless, West Liberty directs us to the efficient proximate cause

doctrine. In effect, West Liberty maintains that the squirrel was an efficient

proximate cause of its loss. The efficient proximate cause doctrine can

apply when two or more causes, at least one covered by an insurance

policy and at least one excluded, contribute to a loss. 7 Steven Plitt, et al.,

Couch on Insurance 3d § 101:45, at 101-84 to 101-85 (Revised ed. 2013)

[hereafter Couch on Insurance 3d]. “When insurance policies lack . . . an
7

anticoncurrent-cause provision, we have held an accident that has two

independent causes, one of which is covered and one excluded, is covered

unless the excluded cause is the sole proximate cause of injury.” Amish

Connection, 861 N.W.2d at 241. West Liberty points out that there is an

anticoncurrent-cause provision in numbered paragraph 1 of the “Perils

Excluded,” as quoted above, but not in numbered paragraph 2—the

paragraph at issue here. 1

Qualls illustrates the efficient proximate cause doctrine. See Qualls,

184 N.W.2d at 713. In Qualls, an insurance policy provided coverage for

loss of livestock by “attack by dogs or wild animals.” Id. at 712. A wild

animal carrying the pseudorabies virus either bit Qualls’s heifers or bit

Qualls’s hogs which then bit the heifers. Id. In any event, an original wild

animal bite was the source of the pseudorabies disease. Id. Subsequently,

fourteen of Qualls’s heifers died of pseudorabies. Id. at 711–12. We found

the loss was covered, reasoning,

In insurance law it is generally understood that where
the peril insured against sets other causes in motion which,
in an unbroken sequence and connection between the act and
final loss, produces the result for which recovery is sought,
the insured peril is regarded as the proximate cause of the
entire loss.

Id. at 713. Importantly, though, Qualls did not involve an exclusion. See

id.

Although Qualls didn’t involve an exclusion, West Liberty relies on

it here. Specifically, West Liberty argues that the squirrel—not the

arcing—was the efficient proximate cause of its loss. Thus, it is irrelevant,

1An anticoncurrent-cause provision bars recovery based on an excluded event
even if another event could be considered a concurrent cause of the same loss. See Amish
Connection, 861 N.W.2d at 240 (noting that because of an anticoncurrent-cause
provision, “the rain limitation controls regardless of whether the breaking drainpipe is
considered a concurrent cause of the rainwater damage”).
8

according to West Liberty, that the EMC policy excludes arcing from

coverage.

We disagree. This is not a case of two independent causes, one of

which was covered and one excluded. See Amish Connection, 861 N.W.2d

at 241. “The efficient proximate cause doctrine is only applicable where

the causes are independent.” First Specialty Ins. v. Am. Home Assur. Co.,

558 F.3d 97, 105 (1st Cir. 2009); see also Swenson v. State Farm Fire &

Cas. Co., 891 F. Supp. 2d 1101, 1109 (D.S.D. 2012) (“One limit to the

efficient proximate cause doctrine, however, is that it is only applied ‘where

two separate or distinct perils could have occurred independently of the

other and caused damage.’ ” (quoting Cain v. Fortis Ins., 694 N.W.2d 709,

714 (S.D. 2005))); 7 Couch on Insurance 3d § 101:45, at 101-85 (“Under

any circumstances, in order for the efficient proximate cause doctrine to

apply, there must be at least two potential causes of the subject loss.”); 5

New Appleman on Insurance Law Library Edition § 44.03[9], at 44-22.1

(Jeffrey E. Thomas & Susan Lyons, eds., 2018) (“When the evidence shows

the loss was in fact caused by only a single cause, even if susceptible to

various characterizations, the efficient proximate cause analysis does not

apply.”).

The squirrel did not independently contribute to the $213,524.76

loss, i.e., other than through the arcing. As the district court put it, “The

squirrel by itself did not cause any damage.” Rather, the squirrel was

inextricably tied to the arcing and was the immediate reason why the

arcing happened.

Electrical arcing is always going to have some cause. Policy

language excluding an event would be meaningless if an insured could

avoid the exclusion simply by pointing out that the event itself had a cause.
9

In Kish v. Insurance Company of North America, the Washington

Supreme Court found that the efficient proximate cause rule did not apply

in such circumstances. Kish, 883 P.2d 308, 311–12 (Wash. 1994)

(en banc). Several all-risks insurance policies were at issue, each

containing a provision excluding “loss resulting directly or indirectly from”

water damage. Id. at 309. Each policy defined water damage to include

flooding, but none of the policies defined the term “flood.” Id. at 310.

When heavy and continuous rainfall washed over protective dikes, the

plaintiffs’ homes were damaged and rendered uninhabitable by ensuing

flood waters. Id. at 309. The trial court denied cross motions for summary

judgment, finding “rain” and “flood” to be distinct perils, leaving the

question of the predominant cause to the jury. Id. at 310. The jury then

found for the plaintiffs, finding “[r]ecord breaking rainfall” to be the

efficient proximate cause of the loss. Id. at 310–11. The trial court held

likewise in ruling on posttrial motions. Id. at 311.

On appeal, the insurance companies argued that the district court

had erred in treating rain and flood as distinct perils and in sending the

case to the jury to determine the efficient proximate cause as between

them. Id. The Washington Supreme Court agreed with the insurers,

holding,

The efficient proximate cause rule applies only where
two or more independent forces operate to cause the loss.
“When, however, the evidence shows the loss was in fact
occasioned by only a single cause, albeit one susceptible to
various characterizations, the efficient proximate cause
analysis has no application. An insured may not avoid a
contractual exclusion merely by affixing an additional label or
separate characterization to the act or event causing the loss.”

Id. (quoting Chadwick v. Fire Ins. Exch., 21 Cal. Rptr. 2d 871, 874 (Ct. App.

1993)).
10

The court also found that applying the efficient proximate cause

doctrine in these circumstances could have a potentially deleterious effect

on insurance coverage:

[A]ny application of the efficient proximate cause to the facts
of this case would make it difficult for any insurer to ever
exclude flood damage without excluding all rain damage. This
would be an unfortunate occurrence for insureds because
that could result in less coverage for insureds in this state.

Id. at 313. The Washington Supreme Court ultimately reversed the trial

court and concluded “flood induced by rain” was the sole cause of damage,

and “[f]lood is a peril within the clear language of the exclusion and

precipitation typically induces flood at some point along the causal chain.”

Id.

Similarly, in In re Katrina Canal Breaches Litigation, plaintiffs sought

to circumvent the flood exclusion in the defendants’ insurance policies by

arguing that the negligent design, construction, and maintenance of levees

was the efficient proximate cause of their losses. In re Katrina Canal

Breaches, 495 F.3d 191, 221–23 (5th Cir. 2007). The United States Court

of Appeals for the Fifth Circuit rejected this argument:

We agree with the district court’s determination that we
need not address whether insurers may contract around the
efficient-proximate-cause rule under Louisiana law, nor need
we address the operation of the efficient-proximate-cause rule
itself in this case. The efficient-proximate-cause doctrine
applies only where two or more distinct actions, events, or
forces combined to create the loss. But here, on these
pleadings, there are not two independent causes of the
plaintiffs’ damages at play; the only force that damaged the
plaintiffs’ properties was flood. To the extent that negligent
design, construction, or maintenance of the levees contributed
to the plaintiffs’ losses, it was only one factor in bringing about
the flood; the peril of negligence did not act, apart from flood,
to bring about damage to the insureds’ properties.
Consequently, as the plaintiffs argue and as the district court
held, the efficient-proximate-cause doctrine is inapplicable.

Id. at 222–23 (citations omitted).
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Also relevant is a case decided by the District of Columbia Court of

Appeals. In Quadrangle Development Corporation v. Hartford Insurance

Company, electrical arcing caused substantial damage to Quadrangle’s

hotel switchboard, necessitating suspension of power for twelve hours for

repairs, resulting in substantial losses due to business interruption.

Quadrangle, 645 A.2d 1074, 1074, 1077 (D.C. 1994). One of the

switchboard’s safety devices known as a “pringle switch” malfunctioned

and did not cut off the flow of electricity to stop the arcing. Id. at 1076. If

the device had functioned properly, the damage to the switchboard would

have been less severe and the time for repairs reduced. Id. Hartford

denied coverage pursuant to the following provision in its insurance policy:

We will not pay for loss or damage caused by or resulting from
any of the following:

a. Artificially generated electric current, including electric
arcing, that disturbs electrical devices, appliances or wires.

“But if loss or damage by fire results, we will pay for that
resulting loss or damage.”

Id. at 1075. The matter went to litigation, and a trial court determined

Hartford was not liable under the terms of the policy. Id. at 1074. The

District of Columbia Court of Appeals affirmed. Id. at 1078. Addressing

proximate cause, the court held,

Although the failure of the pringle switch allowed the arcing
to continue longer than it otherwise would have, the pringle
switch did not produce the damage independently of the arcing,
and did not play a role that would undercut the proposition
that arcing proximately caused the damage, as the concept of
proximate cause is applied in insurance coverage disputes.

Id. at 1077 (emphasis added). Our case is analytically similar in that

neither the squirrel here nor the pringle switch in Quadrangle “produce[d]

. . . damage independently of the arcing.” Id.
12

In the present case, the dissenting judge on the court of appeals

panel cited and discussed Continental Insurance Company v. Arkwright

Mutual Insurance Company, 102 F.3d 30 (1st Cir. 1996). However, unlike

here, the loss in Continental Insurance had two independent causes. See

id. at 31. There, flood waters entered the basement of a high-rise office

building after a severe storm. Id. The flooding caused more than one

million dollars in property damage to the building. Id. A portion of the

building damage was direct flood damage; the rest resulted from electrical

arcing that occurred when the flood waters contacted electrical switching

panels. Id. The First Circuit ultimately held that flooding was “the

dominant and efficient cause” of the damage to the electrical switching

panels. See id. at 37–38.

Notably, the First Circuit distinguished another case that is factually

more on point to today’s case—Home Insurance Company v. American

Insurance Company. Id. at 36–37. In Home Insurance, a property owner

suffered loss entirely from electrical arcing. Home Ins. v. Am. Ins., 537

N.Y.S.2d 516, 516 (App. Div. 1989). A steam-related moisture build-up

was in turn the culprit behind the arcing. Id. Water saturation had led to

a breakdown of insulation that enabled the arcing to occur. Id.

A dispute thus arose as to whether the loss was covered under

American’s policy that contained the following electrical current exclusion:

Exclusions Applicable Whether Causing or Aggravating the
Loss. We do not cover loss caused by, resulting from,
contributing to or made worse by any of the following:

a. Electric Current. We do not cover loss or damage caused
by or resulting from artificially generated electric current,
including electric arcing, that disturbs electrical devices,
appliances or wires. But if loss or damage by any cause of
loss not otherwise excluded results, we will pay that resulting
loss or damage.
13

Id. at 516–17. Home claimed “that this exclusion is inapplicable to the

facts of the . . . loss because the electrical arcing was precipitated by the

escape of hot water and steam from the open drain line, which itself is a

peril covered under the American policy.” Id. at 517. The New York

appellate court disagreed, stating, “[W]hile it is apparent that the

introduction of moisture into the bus duct facilitated the electrical injuries

in this case, it is also apparent that the losses themselves were not

moisture injuries.” Id. The court noted that the damages would not have

occurred in absence of the electrical arcing and therefore were excluded

under the plain and unambiguous language of the exclusion. Id.; see also

Finn v. Continental Ins., 267 Cal. Rptr. 22, 23–24 (Ct. App.1990) (finding

an exclusion for “continuous or repeated seepage or leakage” applied

notwithstanding the homeowner’s argument that the efficient proximate

cause of the leakage was a sudden break in the pipe, an included peril).

In Central International Company v. Kemper National Insurance

Companies, the First Circuit criticized an earlier observation by the

Massachusetts Appeals Court that recovery under an all-risks policy is

available “where the insured risk [caused] . . . an excepted risk.” Cent.

Int’l., 202 F.3d 372, 374 (1st Cir. 2000) (quoting Standard Elec. Supply Co.
v. Norfolk & Dedham Mut. Fire Ins., 307 N.E.2d 11, 13 (Mass. App. Ct.

1973)). The First Circuit observed,

The smattering of authority for this “well-established”
principle is not very impressive, and the cases usually—but
perhaps not always—can be better explained as a limiting
construction of the exclusion. The attempt to give priority to
the initial covered cause in the “train of events” over the
excluded consequence is doubtful in principle even where the
covered risk is narrowly defined (e.g., fire), but it becomes
absurd where the initial coverage is all risk, since every
excluded harm has some cause.

Id. at 374–75 (citations omitted).
14

West Liberty argues that EMC could have avoided any dispute by

placing the electrical-currents exclusion under numbered paragraph 1,

thereby making it subject to the anticoncurrent-cause provision. Again,

that paragraph read,

But as in Kish, this approach would lead to less coverage and would
be “unfortunate” for insureds. Kish, 883 P.2d at 313. In the event a loss
occurred due to a combination of two or more independent causes, at least
one of which was excluded, there would be no coverage for any of the loss.
See Walnut Creek Townhome Ass’n v. Depositors Ins., 913 N.W.2d 80, 94
(Iowa 2018) (discussing the effect of anticoncurrent-cause provisions).
It is also worth noting that the electrical-currents exclusion has an
express carve-out where “lightning” is the source of the electrical currents
or arcing. In that event, the exclusion does not apply. But if an insured
could always avoid the electrical-currents exclusion by arguing that
something else was the efficient proximate cause of the electrical current
or arcing, the lightning exception would seem unnecessary. See Boelman,
826 N.W.2d at 502 (“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.”).
IV. Conclusion.
For the foregoing reasons, we affirm the decision of the court of
appeals and the judgment of the district court.
DECISION OF COURT OF APPEALS AND JUDGMENT OF
DISTRICT COURT AFFIRMED.