Minnesota contract and business lawyers know that the doctrine of contra proferentem can sometimes help a person to get out of a contract if the written agreement does not mean what the party intended.
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
Penford Corporation; *
Penford Products Company, *
Appellants, * Appeal from the United States
* District Court for the
v. * Northern District of Iowa.
National Union Fire Insurance *
Company of Pittsburgh, PA; *
Ace American Insurance Company, *
Submitted: April 14, 2011
Filed: November 29, 2011
Before WOLLMAN, GILMAN,1 and MELLOY, Circuit Judges.
WOLLMAN, Circuit Judge.
A severe flood struck Cedar Rapids, Iowa, in 2008, damaging many of its
businesses, including a manufacturing facility owned and operated by Penford
Corporation (Penford). Penford submitted claims to its insurers, National Union Fire
Insurance Company (National Union) and ACE American Insurance Company (ACE)
1The Honorable Ronald Lee Gilman, United States Circuit Judge for the Sixth
Circuit Court of Appeals, sitting by designation.
(collectively, insurers), and a coverage dispute ensued. The insurers asserted that
certain sublimits in the policy capped reimbursement for damages caused by a flood
and that those sublimits applied to both property damage and business interruption
losses.2 Penford claimed that the sublimits applied only to property damage.
Penford brought suit, seeking declaratory judgment and asserting claims for
breach of contract and bad faith. After Penford presented its case-in-chief, the district
court3 granted the insurers’ motion for judgment as a matter of law (JMOL) on the bad
faith claim. At the close of the evidence, both parties moved for JMOL on the
remaining claims. The district court granted the insurers’ motion, denied Penford’s
motion, and entered judgment dismissing the action. Penford appeals from the orders
and judgment. We affirm.
Penford produces gasoline-additive ethanol, as well as starch for the paper
industry at its Cedar Rapids plant (the plant), which sits on a 29-acre parcel adjacent
to the Cedar River. This parcel occupies three different flood zones, as established by
the Federal Emergency Management Agency: Zone A (roughly the 100-year flood
plain); Zone B (roughly the 500-year flood plain); and Zone C (a higher-elevation
area). Numerous buildings are situated within the different flood zones. The plant’s
operation is integrated, such that personnel and materials pass through and among the
flood zones during the production process.
2As did the parties and the district court, we use the terms “business interruption
loss” and “time element loss” interchangeably.
3The Honorable Linda R. Reade, Chief Judge, United States District Court for
the Northern District of Iowa.
In 2008, Penford purchased flood insurance from the National Flood Insurance
Program (NFIP) on eighteen of its buildings. It purchased additional insurance from
the insurers, issued on a form entitled “Property All Risk Insurance Subscription
Policy,” with each insurer sharing equal responsibility for any claim under the policy.
The policy encompassed Penford’s interests in the plant and other assets and provided
coverage for losses of up to $300 million. Specific sublimits capped the insurers’
liability according to the type of peril insured against. Under the subheading “Flood,”
the policy provided: “This ‘policy’ covers direct physical loss or damage caused by
or resulting from Flood.” J.A. 927. In a later section, it provided: “This ‘policy’
insures TIME ELEMENT loss . . . directly resulting from direct physical loss or
damage of the type insured against this ‘policy.’” J.A. 938.
The policy defined sublimits and explained their operation in a subsection
entitled “Limits,” which provided:
This “policy” also contains Sublimits as specified under this clause and
the various extensions, endorsements, and Sections of this “policy.”
These Sublimits are part of and not in addition to the [$300 million]
Limit of Liability. These Sublimits do not increase the Limit of Liability
or any other Sublimit . . . . Sublimits stated below apply per
“occurrence” for all “locations” and coverages involved. The maximum
Sublimit amount collectible under this “policy” shall be the Sublimit
applicable for all loss or damage from a peril insured against by this
“policy . . . ,” regardless of the number of “locations” or coverages
involved in the “occurrence.”
J.A. 916-17. An accompanying chart identified the various sublimits that applied to
specific perils. The peril sublimit for flood was $50 million “per occurrence and
annual aggregate.” J.A. 917. Specific flood sublimits applied to the plant in Cedar
Rapids: $10 million in Zone A “per occurrence and annual aggregate” and $10
million in Zone B “per occurrence and annual aggregate.” J.A. 917.
On June 13, 2008, the Cedar River breached the diking system that surrounded
the plant. The river crested two days later, reaching a level twelve feet higher than the
previous record set in the 1920s. The flood caused extensive damage to the plant, and
plant operations were shut down. In the months that followed, the parties disagreed
over what losses were subject to the flood sublimits and over the timeliness and
amount of payments due under the policy. The insurers eventually paid $20.5 million,
but declined to pay additional claims for business interruption losses.4 During the
ensuing litigation, the parties agreed that intent was crucial to interpreting which
losses were subject to the flood sublimits, but disagreed over what they had
respectively intended. They offered competing accounts of the circumstances leading
up to the issuance of the policy, including the negotiations over which policy form
would be used; discussions of the amount and extent of coverage the policy would
contain; and the objectives of those involved in the negotiations.
A. Selection and Issuance of the All Risk Property Policy
Penford contracted with Marsh USA, Inc. (Marsh), an insurance brokerage
services firm, to obtain insurance and to handle claims. Under their agreement, Marsh
was “engaged to act as [Penford’s] risk management advisor and consultant and
insurance broker.” J.A. 3379. Marsh was also authorized “to represent and assist
[Penford] in all discussions and transactions with insurers relating to the lines of
insurance” to be procured. J.A. 3380. The agreement provided that Marsh would
“negotiate on [Penford’s] behalf with insurers and keep [Penford] informed of
significant developments in the negotiations.” J.A. 3382.
4The insurers allocated $10 million for damage in Flood Zone A and $10
million for damage in Flood Zone B. The additional $500,000 arose from property
damage that Penford suffered in Flood Zone C, to which damage the sublimits did not
Marilyn Rehmer, a Marsh employee, began to consult with Penford on its
property insurance coverage in 2006 and was charged with renewing coverage through
March 2008. Marsh had helped Penford procure its previous policy through the
insurers, and Rehmer resumed discussions with National Union’s underwriters,
Michael Gunty and Timothy Scott, on the possibility of renewal. At the underwriters’
suggestion, Marsh replaced the policy form used the previous year with a policy form
that had been used on a different account, which Marsh had brokered as well.
The next year, Rehmer again led the process of obtaining coverage through
March 2009. She submitted Penford’s specifications to various commercial insurers,
including the insurers, and invited reply bids. The submission, dated January 28,
2008, proposed a $300 million limit and “$15,000,000 per occurrence and annual
aggregate as respects the peril of Flood in Cedar Rapids, IA.” J.A. 2875. Rehmer
commenced negotiations with Gunty and Scott of National Union and with Justin
Weltscheff, underwriter for ACE. Neither insurer was willing to underwrite $15
million of flood coverage for the Cedar Rapids plant. Both had internal underwriting
policies that restricted coverage to $5 million for areas prone to flooding. After
further communications, each insurer offered to underwrite $5 million in coverage per
flood zone, for a total of $10 million in coverage for Zone A and another $10 million
for Zone B. On February 28, 2008, the insurers issued a binder reflecting this figure,
and Rehmer renewed coverage on Penford’s behalf through March 2009.
In early June 2008, it became apparent that the Cedar River would flood. Mark
Wynne, Penford’s Vice President and Comptroller for North America, contacted
Rehmer with questions about deductibles and qualifications for making a claim.
Rehmer replied by email on June 11, offering, among other things, the following
coverage summary: “Penford currently purchases National Flood Insurance Program
policies for several buildings on the Cedar Rapids, IA campus. Penford also
purchases all risk property insurance which includes coverage for flood in Cedar
Rapids, IA for both Flood Zone A for $10,000,000 and in Flood Zone B for
$10,000,000.” J.A. 2912. Rehmer attached a chart to the email that explained the
coverage provided by the NFIP policy and by the insurers’ policy.
On June 17, 2008, days after the river crested, Steven Cordier, Penford’s Chief
Financial Officer and Senior Vice President, wrote a draft press release that was
consistent with Rehmer’s coverage summary. It stated:
In addition to [the National Flood Insurance Program], the Company
maintains several policies with highly rated insurance companies. The
coverage provided includes property damage and business interruption
protection. The applicable all risk policy has flood sub-limits
aggregating to $20 million for a Cedar Rapids location.
J.A. 3074. When cross-examined about the draft press release at trial, Cordier agreed
that “aggregating” meant “taken together as a whole” or “combined.” J.A. 289-91.
The same day that Cordier drafted the press release, he met with the loss
adjuster named in the policy. The adjuster, together with personnel sent by Marsh,
began surveying and documenting the damage throughout the plant and later shared
their findings with Penford’s management. The general consensus was that losses
would exceed the policy’s sublimits.
B. The Claims Submission and Payment Process
The provisions in the policy regarding partial payment for loss read as follows:
PARTIAL PAYMENT OF LOSS SETTLEMENT
In the event of a loss occurring which has been ascertained to be insured
loss or damage under this “policy” and determined by the “company’s”
representatives to be in excess of the applicable “policy” deductible, the
“company” will advance mutually agreed upon partial payment(s) on the
insured loss or damage, subject to provisions of the “policy.” To obtain
said partial payments, the insured will submit a signed and sworn Proof
of Loss as described in this “policy”, with adequate supporting
J.A. 954. In that same section, the policy provided the following procedure for
issuance of partial payments:
SETTLEMENT OF CLAIMS
The amount of loss . . . for which the “company” may be liable will be
paid within 30 days after:
A. proof of loss as described in this “policy” is received and accepted
by the company[.]
J.A. 954. Penford submitted its first claim on July 21, 2008, and received $1.25
million from each insurer by August 1. Penford filed its second claim in early
October and received $8 million by October 23, 2008. Penford submitted additional
claims in late November and late December, and the insurers made payments within
30 days of the receipt of the claims, for a total payout of $20.5 million.
In addition to the foregoing requests for payment, Penford sought additional
payments in late August 2008 and, after receiving no response, sent two letters
reiterating its request in late September. The insurers replied by letter on October 14,
2008, declining to provide their coverage position. In a letter dated November 13,
2008, the insurers set forth their position that the sublimits applied not only to
property damage, but also to any business interruption loss Penford suffered because
of the flood.
All told, Penford alleged property damage of $35.3 million, time element losses
of $26.7 million, and professional fees paid for the preparation and submission of the
insurance claims of roughly $440,000, for a total loss of approximately $62.5 million.
C. Proceedings Before the District Court
After the lawsuit was filed, the parties completed discovery and moved for
summary judgment. After considering the parties’ respective motions, the district
court found that “the Policy is ambiguous on the question of what losses are subject
to the Policy’s ‘Flood’ sublimits,” D. Ct. Order of Jan. 19, 2010, at 25, and
determined that the parties’ underlying intent would therefore be interpreted in light
of extrinsic evidence offered at trial.
As recounted earlier, the insurers moved for JMOL on the bad faith claim at the
close of Penford’s case-in-chief. The district court granted the motion, concluding
that no jury would have a sufficient evidentiary basis to find for Penford. Following
the presentation of the insurers’ evidence, which included the submission of Rehmer’s
deposition, the insurers moved for JMOL on Penford’s declaratory judgment and
breach of contract claims. Penford submitted a brief in resistance to that motion and
moved for JMOL on its remaining claims.
After reviewing the parties’ briefs and hearing oral argument, the district court
denied Penford’s motion and granted the insurers’, finding that “no reasonable jury
would have a legally sufficient evidentiary basis for finding for plaintiffs on Count 1
and 2 of the complaint, that is, plaintiff’s claims for declaratory judgment and breach
of contract.” J.A. 530.
We review de novo the grant or denial of a motion for judgment as a matter of
law, using the same standards as the trial court. Masters v. UHS of Del., Inc., 631
F.3d 464, 469 (8th Cir. 2011). A grant of a JMOL motion is appropriate if “a party
has been fully heard on an issue during a jury trial and the court finds that a
reasonable jury would not have a legally sufficient evidentiary basis to find for the
party on that issue . . . .” Fed. R. Civ. P. 50(a). We draw “all reasonable inferences
in favor of the nonmoving party without making credibility assessments or weighing
the evidence.” Phillips v. Collings, 256 F.3d 843, 847 (8th Cir. 2001). To sustain an
entry of judgment as a matter of law, “[t]he evidence must point unswervingly to only
one reasonable conclusion. This demanding standard reflects our concern that, if
misused, judgment as a matter of law can invade the jury’s rightful province.”
Gardner v. Buerger, 82 F.3d 248, 251 (8th Cir. 1996) (citations omitted).
Penford makes two primary arguments on appeal. First, it contends that the
district court erred in granting the insurers’ motion for JMOL on its bad faith claim
because the evidence it presented, and reasonable inferences therefrom, were
sufficient to present the claim to the jury. Second, Penford argues that the district
court should have granted its JMOL motion, not that of the insurers. According to
Penford, the trial evidence did not resolve the ambiguity in the policy language, and
thus the language should have been construed against the drafter, under the doctrine
of contra proferentem. In the alternative, it contends that the district court should
have adhered to its summary judgment ruling: because the policy was ambiguous, the
parties’ intention was a question of fact to be resolved by the jury. In granting the
insurers’ JMOL motion, Penford contends, the district court usurped the jury’s role
by assessing credibility and weighing the evidence.
A. Bad Faith Claim
Penford contends that the district court erred by ruling that no reasonable jury
could conclude that the insurers had acted in bad faith by failing to investigate
Penford’s claim properly and by failing to make timely payments.
Iowa first recognized a claim of first-party bad faith in Dolan v. Aid Insurance
Co., 431 N.W.2d 790 (Iowa 1988). To establish a first-party bad faith claim, a
plaintiff must prove that (1) the insurer had no reasonable basis for denying the
plaintiff’s claim or for refusing to consent to settlement; and (2) the insurer knew or
had reason to know that its denial or refusal lacked a reasonable basis. Sampson v.
Am. Standard Ins. Co., 582 N.W.2d 146, 149 (Iowa 1998). The first element is
objective, and the second is subjective. Belleville v. Farm Bureau Mut. Ins. Co., 702
N.W.2d 468, 473 (Iowa 2005). “When a claim is ‘fairly debatable,’ the insurer is
entitled to debate it, whether the debate concerns a matter of fact or law.” Dolan, 431
N.W.2d at 794. Furthermore, “[w]hether a claim is fairly debatable can generally be
decided as a matter of law by the court.” Belleville, 702 N.W.2d at 473.
In its order denying summary judgment, the district court concluded that the
policy was ambiguous and that the language was susceptible to two reasonable
interpretations. Penford has argued that the summary judgment order was correct and
that the district court should have granted its JMOL motion, construing the ambiguous
language against the insurers, or submitted the case to the jury. If the language was
susceptible of two reasonable interpretations, it follows that the question of whether
a claim for business interruption losses was captured and capped by the sublimits was
“fairly debatable.” Because the insurers had a reasonable basis for denying coverage
for such losses, they cannot be held to have acted in bad faith. See Gardner v.
Hartford Ins. Accident & Indem. Co., 659 N.W.2d 198, 206 (Iowa 2003) (concluding
that “[w]here an objectively reasonable basis for denial of a claim actually exists, the
insurer cannot be held liable for bad faith as a matter of law”).
As an alternate ground for reversal, Penford counters that the insurers
unreasonably delayed payment in the face of obvious, extensive losses, thereby
breaching their duty. But, as recounted above, the policy required only that the
insurer make a payment within 30 days of receiving a sworn statement of proof of
loss. The insurers complied with this provision on each of the four occasions that
Penford submitted a sworn proof-of-loss statement. Accordingly, Penford’s alternate
argument is without merit.
We conclude that the insurers had an objectively reasonable basis for
interpreting the sublimits as they did and that their payment schedule complied with
the policy’s requirements. Accordingly, the district court did not err in granting the
insurers’ JMOL motion on Penford’s bad faith claim.
B. Denial of Penford’s JMOL Motion
Penford asserts that the district court should have granted its motion for
judgment as a matter of law under the doctrine of contra proferentem. According to
Penford, the district court correctly determined that the policy language at issue was
ambiguous but erred in failing to resolve that ambiguity by applying the doctrine
against the insurers, as the drafters of the policy. In considering the denial of
Penford’s JMOL motion, we construe all evidence in the light most favorable to the
We conclude that the doctrine of contra proferentem is inapplicable here. First,
the evidence most favorable to the insurers is equivocal on the identity of the drafter
of the policy form, given the back-and-forth nature of the drafting process and the
relatively equal bargaining power of the parties. See Terra Intern., Inc. v. Miss.
Chem. Corp., 119 F.3d 688, 692 (8th Cir. 1997) (declining to apply the doctrine on
grounds that parties were of relatively equal bargaining strength). Moreover, the
doctrine should not be applied when the question may be resolved in light of facts
developed via extrinsic evidence. See DeGeare v. Alpha Portland Indus., Inc., 837
F.2d 812, 816 (8th Cir. 1988) (concluding that “[a]mbiguities should be construed
against the drafter only if after application of ordinary rules of construction and
consideration of extrinsic evidence, the ambiguities remain”) vacated on other
grounds sub nom. DeGeare v. Slattery Grp., 489 U.S. 1089 (1989); see also
Residential Mktg. Grp., Inc. v. Granite Inv. Grp., 933 F.2d 546, 549 (7th Cir. 1991)
(concluding that the doctrine “does not bar the use of oral testimony to disambiguate
a written contract,” but “is a tie-breaker, used to resolve cases in which the written
contract remains ambiguous even after oral evidence has been admitted”). We thus
conclude that the district court properly denied Penford’s JMOL.
C. Grant of the Insurers’ JMOL Motion
We next consider Penford’s alternative argument that the extrinsic evidence on
the issue of intent did not “point unswervingly to only one reasonable conclusion,”
Gardner, 82 F.3d at 251, and that the district court therefore erred by granting the
insurers’ JMOL motion.
When contract language is ambiguous, “we must engage in a process of
interpretation to search for the meanings attached by each party at the time the
contract was made.” Clinton Phys. Therapy Serv., P.C. v. John Deere Health Care,
Inc., 714 N.W.2d 603, 615 (Iowa 2006) (internal quotation marks omitted).
“[E]xtrinsic evidence is admissible when it sheds light on the situation of the parties,
antecedent negotiations, the attendant circumstances, and the objects they were
striving to attain.” Id. (internal quotation marks omitted). As noted by the district
court in its summary judgment ruling, if the extrinsic evidence is undisputed, the court
will construe the contract as a matter of law. D. Ct. Order of Jan. 19, 2010, at 15
(citing State Farm Mut. Auto. Ins. Co. v. Townsend, 361 N.W.2d 332, 335 (Iowa
1984)). “When the interpretation of a contract depends on the credibility of extrinsic
evidence or on a choice among reasonable inferences that can be drawn from the
extrinsic evidence, the question of interpretation is determined by the finder of fact.”
Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 436 (Iowa 2008); see also
Restatement (Second) of Contracts § 212(2) (1981).
We have held that judgment as a matter of law may be appropriate in a case in
which summary judgment was initially denied. See Armco Steel Corp. v. Realty Inv.
Co., 273 F.2d 483, 485 (8th Cir. 1960) (“When, however, both parties have had an
opportunity to adduce all relevant, available evidence so that the trial court is no
longer uncertain as to the circumstances of the case, then slight doubt as to the facts
is insufficient to avert a directed verdict or a judgment notwithstanding the verdict.”).
The district court did not elaborate on its reasoning in granting the motion. Implicit
in its ruling, however, is the conclusion that the extrinsic evidence presented at trial
removed any ambiguity regarding the meaning of the sublimits provision.
Accordingly, we must determine whether, when viewed in the light most favorable to
Penford, a reasonable jury could have concluded that the sublimits did not capture and
cap business interruption losses.
The insurers contend that the extrinsic evidence showed that the parties to the
negotiation shared a mutual understanding that the sublimits applied to all losses,
including business interruption losses. They cite testimony from the underwriters,
each of whom understood that peril sublimits apply to all forms of coverage.
Weltscheff testified that this understanding was “basic 101 insurance,” a bedrock
principle that prevailed across the industry. Tr. 1215:24. The insurers contend that
not only did the underwriters share this understanding, but that Rehmer, Penford’s
agent, did so as well. They assert that Rehmer was aware that the underwriters were
prevented from offering more than $5 million for locations categorized as 100-year
flood zones, as was Zone A, in the absence of prior approval. They refer to Rehmer’s
statement that it was her understanding that the two sublimits would apply to both
property damage and time element loss, citing the following testimony from her
December 2009 deposition:
Q: When you wrote this [June 11, 2008, email to a Penford
representative], was it your understanding that the two $10 million Cedar
Rapids flood sublimits would apply to both property damage and time
A: It was my understanding, yes.
J.A. 603. The insurers maintain that, as Penford’s agent, Rehmer was aware that each
insurer intended to limit its exposure to $10 million, that she understood that the
sublimits would apply to business interruption losses, and that her knowledge should
be imputed to Penford under agency principles.
The insurers contend that because Penford presented no affirmative evidence
regarding the policy’s underlying intent, the extrinsic evidence the insurers submitted
was uncontested and left no question that the parties had attached the same meaning
to the contract at the time it was made. In such circumstances, the insurers argue,
Penford cannot avoid that meaning and its attendant consequences by offering another
construction, even if such were reasonable on its face.5 Accordingly, they argue that
because the interpretation of the contract did not depend on “the credibility of
5See 2 E. Allan Farnsworth, Farnsworth on Contracts, § 7.9, at 275-76 (3d ed.
2004) (“Surely if one party shows that the other party attached the same meaning that
the other party did, the other party should not be able to avoid that meaning by
showing that a reasonable person could have attached a different one.”).
extrinsic evidence or on a choice among reasonable inferences that can be drawn from
the extrinsic evidence,” Pillsbury, 752 N.W.2d at 436, the district court properly
granted their JMOL motion.
We disagree with the insurers’ suggestion that, when faced with their
undisputed evidence regarding intent, the district court had no choice but to grant their
motion. “[W]hile a district court is permitted to enter judgment as a matter of law
when it concludes that the evidence is legally insufficient, it is not required to do so.
To the contrary, the district courts are, if anything, encouraged to submit the case to
the jury, rather than granting such motions.” Unitherm Food Sys. v. Swift-Eckrich,
Inc., 546 U.S. 394, 405 (2006). Penford argues that, by granting the insurers’ motion,
the district court not only ignored this prudential precept, but also failed to apply
Federal Rule of Civil Procedure 50(a)’s exacting standard.
Penford argues that even if the insurers’ extrinsic evidence was undisputed, it
derived primarily from the testimony of interested witnesses and therefore should have
been disregarded. In the alternative, Penford contends that it provided sufficient
evidence to impeach and contradict the insurers’ extrinsic evidence and thus raised
issues of fact and credibility that were rightfully within the province of the jury.
When ruling on a JMOL motion, a district court must “consider ‘evidence
supporting the moving party that is uncontradicted and unimpeached, at least to the
extent that that evidence comes from disinterested witnesses.’” Wilson v. Brinker
Int’l, Inc., 382 F.3d 765, 770 (8th Cir. 2004) (quoting Reeves v. Sanderson Plumbing
Prods., Inc., 530 U.S. 133, 151 (2000)). “Put another way, we must accept all the
evidence favoring [the nonmoving party], but only the evidence favoring [the moving
party] that is uncontradicted and unimpeached and that comes from disinterested
witnesses.” Salitros v. Chrysler Corp., 306 F.3d 562, 569 (8th Cir. 2002). Penford
takes this statement to mean that the testimony of interested parties must be
discounted entirely when considering a JMOL motion. It contends that the
underwriters were interested parties because they were employees of the insurers and
could arguably be blamed if the policy they drafted exposed their employers to more
liability than had been anticipated or approved. Thus, according to Penford, the
district court should have disregarded their testimony in conducting its Rule 50(a)
We do not believe such an insuperable bar exists. Our sister circuits have
recognized that, in employment discrimination cases, a district court may consider
testimony from the employer’s agents at the summary judgment stage even though the
agents are arguably interested parties. Traylor v. Brown, 295 F.3d 783, 791 (7th Cir.
2002) (rejecting interpretation that would “require a court to ignore the uncontroverted
testimony of company employees or to conclude, where a proffered reason [for
terminating the plaintiff-employee] is established through such testimony, that it is
necessarily pretextual”); Sanstad v. CB Richard Ellis, Inc., 309 F.3d 893, 898 (5th Cir.
2002) (rejecting same interpretation). Whether it is proper to credit the testimony of
an interested witness will depend on the context and circumstances at issue. See 9B
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2527 (3d
ed. 2008) (“Often it will be for the jury to determine the credibility of uncontradicted
and unimpeached testimony of an interested witness but in other circumstances even
this testimony must be believed.”). In this case, the insurers purported to offer more
than testimony from interested parties: they assert that the extrinsic evidence shows
that all parties involved in the negotiations, including Penford’s agent, operated under
the same implicit agreement regarding the scope of the sublimits.
Penford argues that a reasonable jury would not be required to believe that the
parties intended for the flood sub-limits to apply to property damage and business
interruption losses. Penford asserts that it adduced evidence in support of the
inference that the sublimits, as written, were not intended to cap business interruption
losses, pointing to a document from National Union entitled “Property Underwriting
Practices and Procedures Manual,” which reads:
Whenever a sublimit is used and the policy covers Property Damage
(PD) and Time Element (TE) it should be made clear that the sublimit is
a combined PD/TE sublimit.
J.A. 2937. Gunty admitted that the underwriters did not apply this provision in this
case. The absence of such a clear statement, Penford argues, was evidence that the
parties did not intend for the flood sublimits to cap any coverage other than for
Penford’s argument is misplaced. It is not enough to have adduced evidence
that its interpretation of the sublimits was reasonable or to imply that had the
underwriters really intended for the sublimits to apply to all coverages, they would
have made that point explicitly. The underwriters testified that the policy did make
that point explicitly, as recounted in Gunty’s testimony:
Q: Is there any other language that you seized upon in this [sublimits]
provision as consistent with your intent in underwriting the account?
A: Go down to the next paragraph, I guess, the line that says “sublimits
stated below.” “Sublimits stated below apply per occurrence for all
locations and coverages involved.” That, to me, was really a key part of
the heart and soul of what was we were trying to get across, and this
wording did a very fine job with that. It says that if you have a sublimit,
that sublimit is going to apply on a per occurrence basis and it includes
all coverages. That’s pretty comprehensive. That was exactly our intent.
And those words say that precisely.
Tr. 1081:1-15. As set forth above, Rehmer’s deposition confirmed that she
understood the flood sublimits in the same way. This evidence of mutual intent is the
most salient evidence available. See Swainston v. Am. Family Mut. Ins. Co., 774
N.W.2d 478, 481 (Iowa 2009) (“In construing insurance contracts, we adhere to the
rule that the intent of the parties must control.”) (internal quotation marks omitted);
Pillsbury, 752 N.W.2d at 436 (“The cardinal rule of contract interpretation is to
determine what the intent of the parties was at the time they entered into the
Thus, to overcome the insurers’ extrinsic evidence, Penford was required to
establish that a reasonable jury would have had a sound basis to conclude that no such
mutual understanding existed at the time the contract was entered into. Penford
contends that not only could a reasonable jury decline to impute Rehmer’s statements
to Penford, but also could conclude that those statements lack credibility.
Penford denies that Rehmer’s understanding of the contract terms can be
imputed to it with binding effect. It contends that Marsh had offered to provide the
service of “interpretation of insurance policies,” but that that service was not included
in its agreement with Marsh. Penford seems to suggest that Rehmer had the authority
to negotiate the terms of the policy, but should not have been permitted to recount
what she understood those terms to mean. We do not agree. Rehmer served as
Penford’s broker and chief negotiator, and her deposition testimony should be read in
that light. Rehmer was in the best position to offer to Penford a precise account of
what would be covered under the policy. Her understanding of what the sublimits
meant reflected her interactions with the insurers’ representatives and her awareness
of the meaning the parties had respectively attached to the sublimits provision. We
find unpersuasive Penford’s attempt to distance itself from Rehmer’s deposition
testimony, particularly in light of its request for her opinion and its reliance on that
opinion when preparing for the impending flood.
Penford argues in the alternative that it should not be bound by Rehmer’s
testimony because it lacks credibility and cannot be taken at face value. Penford
contends that evidence adduced at trial revealed Rehmer’s “ongoing financial ties” to
the insurance industry. Appellant’s Br. 57. It points to Gunty’s cross-examination,
in which he explained that brokers from Marsh and other insurance brokerage firms
earn a commission from the insurers for each policy they place with insureds. At no
point in this line of questioning, however, was Rehmer ever mentioned by name, and
thus the nonspecific nature of this testimony is insufficient to sustain an inference that
would undermine Rehmer’s credibility. Furthermore, Penford called as a witness
Richard Michaels, Rehmer’s supervisor at Marsh. Among other things, Michaels
described Rehmer as a key member of the team and expressed confidence in her
ability to deliver quality service. He agreed that she would be the person to whom
Penford would direct questions related to coverage and stated that he would expect her
to make her best effort to answer its questions, hardly the description of one whose
testimony should be deemed lacking in probity.
We conclude that there was no factual dispute regarding whether Rehmer
shared the same understanding as the underwriters and whether that understanding
bound Penford. Consequently, the interpretation of the contract did not depend “on
the credibility of extrinsic evidence or on a choice among reasonable inferences that
can be drawn from the extrinsic evidence,” Pillsbury, 752 N.W.2d at 436, and thus the
district court did not err when it granted the insurers’ JMOL motions on the
declaratory judgment and breach of contract claims.
The judgment is affirmed.