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Grinnell Mutual Reinsurance Co. v. Jungling12/18/2002
On review from the Iowa Court of Appeals.
Defendants seek further review of court of appeals decision reversing district court rulings in favor of defendants in declaratory judgment action to determine insurance coverage for a judgment entered against defendants in a fraud suit. COURT OF APPEALS DECISION VACATED; DISTRICT COURT JUDGMENT AFFIRMED IN PART AND REVERSED IN PART; CASE REMANDED WITH DIRECTIONS.
Grinnell Mutual Reinsurance Company (Grinnell) appealed from a district court declaratory ruling that the company was obligated to indemnify its insured, Henry C. Jungling, Jr., under a personal excess liability policy for a settlement payment Jungling's corporation made in a fraud suit against Jungling and his corporation. Grinnell contended that the district court erred in concluding that (1) the terms of the policy provided coverage, (2) public policy did not bar coverage, (3) Jungling was legally excused from complying with the notice provisions of the policy, and (4) Grinnell was obligated to fully indemnify Jungling.
We transferred the case to the court of appeals, which reversed, concluding that public policy barred coverage. On further review, we vacate the court of appeals decision, affirm in part and reverse in part the district court judgment, and remand the case with directions.
I. Background Facts
In February 1993, William J. Steckel and Natalie M. Steckel purchased a dairy farm in Butler County, Iowa from Jungling Farms, Inc. In January 1995, the Steckels sued Henry C. Jungling, Jr. and Jungling Farms, Inc., seeking compensatory and punitive damages. The suit alleged fraudulent misrepresentation and fraudulent nondisclosure (hereinafter "the Steckel suit").
On the date the Steckel suit was filed, Henry C. Jungling, Jr. owned a personal excess liability policy (excess policy) and underlying auto liability, recreational vehicle, and homeowners' policies, all issued by Grinnell. The excess policy was in force from January 1992 until January 1998. Jungling Farms, Inc. was an additional insured under the policy from January 1992 until January 1994 and then again after December 15, 1995.
A jury in the Steckel suit found Jungling and his corporation jointly and severally liable on the Steckels' fraudulent misrepresentation and fraudulent nondisclosure claims. The jury awarded the Steckels $323,300 in compensatory damages. The district court refused to submit the punitive damages claim to the jury. Jungling and the corporation appealed and the Steckels cross-appealed. We transferred the case to the court of appeals, which affirmed the compensatory damage award but reversed and remanded for trial on the punitive damages issue.
While the application for further review was pending in our court, the parties settled. Jungling and his corporation agreed to pay the Steckels $465,000 in settlement. Grinnell contributed $50,000 toward the settlement, without waiving its legal rights to address the issue of coverage later.
Following the settlement, Jungling made a demand pursuant to the terms of his excess policy for payment of $344,400 (settlement amount of $465,000, minus Grinnell's $50,000 contribution, and minus $70,600 representing return of payments made by the Steckels on the contract of sale which were not part of the "loss" within the terms of the excess policy). Demand was also made for attorneys' fees and expenses incurred in defense and settlement of the Steckel suit.
II. The Declaratory Judgment Action
In July 1998, Grinnell filed a petition for declaratory judgment against Jungling and the corporation, asking the district court to declare that Grinnell w
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