Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-15-02202/USCOURTS-ca8-15-02202-0/pdf.json

Parties Involved:
Bruhn Farms Joint Venture
Appellant
Fireman's Fund Insurance Company
Appellee

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 15-2202

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Bruhn Farms Joint Venture

lllllllllllllllllllll Plaintiff - Appellant

v.

Fireman's Fund Insurance Company

lllllllllllllllllllll Defendant - Appellee

____________

Appeal from United States District Court 

for the Northern District of Iowa - Sioux City

____________

 Submitted: February 11, 2016

 Filed: May 25, 2016

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Before SHEPHERD, BEAM, and KELLY, Circuit Judges.

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BEAM, Circuit Judge.

Bruhn Farms Joint Venture (Bruhn) appeals the district court's grant of

summary judgment in favor of Fireman's Fund Insurance Company (Fireman's)in this

insurance dispute over the adjusted value of hail-damaged crops in northwest Iowa. 

Because a factual dispute remainsregarding the adjustment of this claim, we reverse

and remand to the district court for further proceedings.

Appellate Case: 15-2202 Page: 1 Date Filed: 05/25/2016 Entry ID: 4402581 
I. BACKGROUND

RuralCommunityInsuranceServices(RCIS), acting asmanaging general agent

for Fireman's, issued a policy of crop-hail insurance to Bruhn. The policy afforded

coverage during the 2012 crop year for direct loss due to hail and certain other

specified perils. Bruhn sustained a significant hail loss on September 11, 2012, and

reported that loss to RCIS. Adjustment of the loss was assigned to RCIS adjuster

Galen Sornson. Although the loss occurred in early September, Bruhn had still not

heard from RCIS or its adjusters in mid-October. Accordingly, Bruhn requested and

obtained approval from RCIS to harvest its crops and leave check strips for the

adjusters. Because the loss potentially involved more than 5,000 acres, a six-person

team was assembled to work the loss. The team of adjusters did not arrive at the

Bruhn farm until October 29, 2012, more than a month after receiving notice of the

1

loss, during which time harvest had occurred and volatile weather conditions

persisted in Iowa. Indeed, according to Alan Bruhn (Alan), a partner of Bruhn,

weather conditions were cold and windy on the two days that the adjusters were in the

fields counting check strips, and the adjustersspent a considerable amount of time in

the barn and in their trucks, trying to warm up. Bruhn's expert opined that the

adjusters could not have spent a sufficient amount of time in the fields over those two

days to properly adjust a claim covering the number of acres over which Bruhn had

reported damage.

Nonetheless, the adjusters purportedly completed their counts using the check

strips that had been left in the fields and reported that sufficient check strips were left

in each field to complete the adjustment process. According to their survey sheets,

Fireman's contends the field inspection occurred a week earlier, on October

1

22-23. Given that Bruhn is the nonmovant, we accept Bruhn's version of the factual

record and note that the record indicatesthat at least two adjusters who completed the

field review (including Sornson) stated that the adjustment occurred on October 29-

30.

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Appellate Case: 15-2202 Page: 2 Date Filed: 05/25/2016 Entry ID: 4402581 
the adjusters determined that 4,120.5 acres of soybeans had payable hail losses. 

Based on the crop-hail loss-adjustment proceduresset forth in the respective National

Crop Insurance Services (NCIS) manuals, the RCIS adjusters found losses ranging

from 2.3% to 71.4%. On October 30, Sornson completed the proof of loss for the

September 11 claim. Sornson attempted to meet with Alan to discuss the claim on

October 30 before leaving the Bruhn farm, but Alan was sick and unable to meet. 

Sornson faxed a copy of the proof of loss to Alan on November 5, 2012. 

Bruhn did not agree with the adjusters' calculations and Alan refused to sign

the proof of loss. Sornson's supervisor conducted a review of the Bruhn claim in late

November 2012 and determined that the loss had been properly adjusted in

accordance with NCIS crop-hail procedures. On November 28, 2012, despite Bruhn's

disagreement and without its approval or Alan's signature, RCIS issued payment to

Bruhn for the amount RCIS had determined was payable for the losses: $417,636 for

the loss, less a premium credit of $184,578, for a net payment of $233,058. A check

in that amount was delivered to Alan's residence via FedEx on December 4, 2012.

After the check was delivered, Alan directed his insurance agent, Terry

Nielsen, to inquire as to how he could dispute the paid amount. Nielsen, in turn,

contacted Rod Nelson, the manager of RCIS's Regional Service Office. According

to Nielsen, Nelson suggested that in order to reconsider the loss determination, the

insurance company would look at records of historical yields. It was Nelson's

recollection that Nielsen was the one who suggested looking at historical yields,

although Nelson agreed in his deposition that looking at historical yield numbers

would be part of the process. The next incident of note occurred on December 15,

2012, when Nielsen inquired of Nelson about the status of the claim, and Nelson

responded via text message that they were "one drink away" from settling Bruhn's

claim. However, when contacted the next day, Nelson stated that there was nothing

further RCIS could do with regard to Bruhn's claim. 

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Appellate Case: 15-2202 Page: 3 Date Filed: 05/25/2016 Entry ID: 4402581 
Following this news fromNelson, Alan met with Larry Burkhart, RCIS's CropHail/Named Peril Field Claims Manager, on December 18, 2012. During the meeting,

Burkhart also advised Alan that he would conduct a review of the claim and would,

among other things, look at Bruhn's historical yields. Alan contended that his

historical yield records would result in a much higher payment. During the meeting,

Alan contends Burkhart told him to be patient while they gathered information and

considered the claim, because the claim had been mishandled. Nielsen alleges that

several weeks later, Burkhart advised him they were about $25,000 apart on the

claim, somewhere in the neighborhood of $900,000. Nielsen relayed thisinformation

to Alan, who directed him to settle for the lower number. However when Nielsen

contacted Burkhart to tell him Alan was willing to take the lower number, Burkhart

retreated, and instead informed Nielsen that after reviewing the available information,

he concluded that RCIS's original loss determinations were correct. On January 25,

2013, Burkhart sent a letter to Bruhn indicating that RCIS had completed the review

and determined that the claim was properly adjusted and paid.

Bruhn commenced this action in Iowa state court on October 3, 2013, against

Fireman's. The petition alleged a breach of contract and also contended that punitive

damages were appropriate due to the bad-faith refusal to pay the claim. Fireman's

removed the case to federal court, invoking the court's diversity jurisdiction pursuant

to 28 U.S.C. § 1332(a). The parties unanimously consented to trial, disposition and

judgment by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c)(3). 

Upon motion, the court granted summary judgment in favor of Fireman's, finding that

it had not breached the contract because Fireman's followed NCIS guidelines in

determining the amount of loss, and that in any event, Bruhn did not ask for an

independent appraisal as provided for in the insurance contract. The court

additionally held that in the absence of a breach of contract, Fireman's position with

respect to the claim was fairly debatable, and thus the claim for bad faith failed. 

Bruhn appeals.

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Appellate Case: 15-2202 Page: 4 Date Filed: 05/25/2016 Entry ID: 4402581 
II. DISCUSSION

Summary judgment is appropriate when the pleadings, depositions, answersto

interrogatories, and admissions on file, together with the affidavits, if any, show that

there is no genuine issue of material fact and that the moving party is entitled to a

judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A

material fact is one that might affect the outcome of the case. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). We review the evidence in the light most

favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith RadioCorp.,

475 U.S. 574, 587 (1986). Because the basis for our jurisdiction is diversity of the

parties, Iowa law controls, and we review the district court's interpretation of Iowa

law and its grant of summary judgment de novo. Praetorian Ins. Co. v. Site

Inspection, LLC, 604 F.3d 509, 513, 515 (8th Cir. 2010).

Bruhn currently contends Fireman's breached the contract in three ways: by 2

Fireman's argues that Bruhn did not advance these arguments before the

2

district court, and we thus cannot consider them on appeal. However, we find that

these theories were pleaded in the complaint. See Pl.'s Compl. ¶ 24, J.A. 11. And

having examined the record, we find there is more than sufficient evidence adduced

at the summary judgment stage to reveal a factual dispute about whether a breach of

contract occurred based upon these theories. Numerous excerpts of deposition

testimony in the record tend to support Bruhn's theory that the claim adjustment

process was unduly delayed, that Bruhn never agreed to the amount that was paid,

and that by the time it was clear there would be no agreement between the insurance

company and Bruhn, the opportunity for an independent appraisal had passed. 

Further, Bruhn introduced an expert report addressing the substance of these

arguments. Even if that were not the case, in certain instances we have discretion to

consider arguments not advanced below, and we exercise that discretion in this case. 

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Appellate Case: 15-2202 Page: 5 Date Filed: 05/25/2016 Entry ID: 4402581 
paying the loss without reaching agreement with Bruhn, in violation of § 3(b) of the

policy; by failing to invoke the appraisal procedure, in violation of § 6 of the policy;

and by failing to follow the NCIS shatter loss procedures when determining

percentage of the loss, in violation of policy § 3(c). We find that there is a factual

dispute with respect to at least the first two of these contentions.

In a breach-of-contract claim, the complaining party must prove the existence,

terms, and conditions of the contract, that he has performed all of the terms and

conditions required under the contract, but that the defendant breached the contract

and caused him damages. Molo Oil Co. v. River City Ford Truck Sales, Inc., 578

N.W.2d 222, 224 (Iowa 1998). A party breaches when he fails to perform part of the

contract without legal excuse. Id. Section 3(b)(2) of the policy states that it is the

insurance company's duty to "[p]ay the loss within 30 days after we reach agreement

with you, entry of a final judgment, or the filing of any appraisal award with us." 

Section 6 of the policy states that if the insured and insurer "fail to agree on the

percentage of loss," then "[o]ne of us will demand in writing that the percentage of

loss be set by appraisal." Reading these provisionstogether, we find there is a factual

dispute about whether Fireman's breached its obligations to its insured in this case. 

Bruhn contends Fireman's breached the agreement by tendering payment for

the loss without first reaching agreement with Bruhn, without entry of a final

judgment, and without the filing of any appraisal award, in violation of policy §

3(b)(2). Fireman's contends that the provision merely provides a payment deadline,

See Warren v. City of Lincoln, 864 F.2d 1436, 1439 (8th Cir. 1989) (en banc)

(holding that while we generally do not consider arguments not advanced below, we

may do so where the record is fully developed); see also United States v. Lucas, 499

F.3d 769, 789 (8th Cir. 2007) (en banc) (Beam, J., dissenting) (noting that the

majority rested its holding in part upon theories and arguments raised for the first

time in a petition for rehearing en banc).

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not a condition precedent to payment issuance. We disagree that the section provides

only a deadline to pay, as it is the only instance in the contract mentioning Fireman's

duty to pay. Reading this section as only providing a deadline would thus effectively

eliminate the duty to pay. And, when read in connection with the appraisal provisions

of § 6, it seems that the policy's framework ideally intends for the insured and the

company to come to an agreement without the need to resort to litigation. Instead of

coming to an agreement, however, Fireman's unilaterally tendered a payment to

Bruhn. Nielsen testified in his deposition that he had not known an insurance

company to issue a check without the agreement or approval of the insured in his

thirty-five years in the insurance agent business. Bruhn's expert also indicated that

remitting payment without the insured's agreement was an unusual procedure. Thus,

Fireman's attempt to pay the claim without the agreement of Bruhn speaks to the

irregularity of proceedings that occurred in processing this claim. 

Once Fireman's tendered payment well below Alan's expectations,Alan and his

agent immediately let RCIS officials know that he disagreed with the loss

calculations. This waslikely sufficient to trigger an appraisal. However, discussions

between RCIS officials and Bruhn or its agent Nielsen continued from early

November into January. While Bruhn did not specifically demand an appraisal, it

claims this is because it was led to believe that Fireman's adjuster would change the

amount after reviewing the historical yields. By the time Bruhn realized this would

not occur, it was too late for an appraisal and the workable evidence (check strips)

had, by that time in late January, been naturally destroyed. Alan testified that he was

under the impression the loss would be reworked and reevaluated up until the time

when it was finally denied in mid-to-late January. The policy does not place the

burden exclusively upon Bruhn to invoke the appraisal procedure. Nor does the

policy specifically place the burden on Fireman's. But, Fireman's drafted the policy,

and at the very least there is a factual dispute over who should have invoked the

policy's language regarding the appraisal procedure. Hornick v. Owners Ins. Co., 511

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N.W.2d 370, 374 (Iowa 1993) (holding that it is the insurer's duty to define terms in

clear and explicit language).

To the extent that Fireman's again complainsthat thistheory was not advanced

below, we note that in Bruhn's answer to interrogatory number eleven, which the

district court heavily relied upon in granting summary judgment, Bruhn alleges that

"the company denied Bruhn the opportunity to have an independent appraisal of the

loss which is afforded under the policy." Fireman's alleges Bruhn was free to pursue

the appraisal option at any point. However, given the allegedly misleading

adjustment activity by Fireman's after the check strips were destroyed, a factfinder

should decide whether, how, and who should have invoked the appraisal procedure,

which invocation would have allowed the parties to come to an agreement over the

amount of the September 11, 2012, hail loss.

This leave us with Bruhn's claim for bad-faith refusal to pay. Bad-faith claims

require proof of the absence of a reasonable basis for an insurance company's denial

of the claim, and that the company had knowledge or recklessly disregarded

knowledge that its denial was without reasonable basis. Dolan v. Aid Ins. Co., 431

N.W.2d 790, 794 (Iowa 1988). The first element is objective, and the second,

subjective. Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa

2005). An insurance company has the right to dispute claims that are fairly debatable

without being subject to a bad-faith tort claim. Gardner v. Hartford Ins. Accident &

Indem. Co., 659 N.W.2d 198, 206 (Iowa 2003). Although Fireman's did not

completely refuse to pay the claim, its payment of less than the full amount, if that

occurred, can also be the subject of a bad-faith claim. See Chadima v. Nat'l Fid. Life

Ins. Co., 55 F.3d 345, 346, 350 (8th Cir. 1995) (applying Iowa law, allowing badfaith claim to be decided by the factfinder when the insurance company paid about

$91,000 on a claim alleged to be worth over $136,000). 

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Appellate Case: 15-2202 Page: 8 Date Filed: 05/25/2016 Entry ID: 4402581 
Because we decide that there is an issue of fact as to whether Fireman's

breached the insurance contract, and because the factual issuesin the breach claimare

relevant to the bad-faith claim, this claim survives summary judgment as well. 

Numerous instances of conduct by the insurance representative and adjusters at the

very least raise jury issues on bad faith, most specifically the delay in adjusting the

fields and then, for the next several months, leading Bruhn to believe that the claim

would be favorably settled without having to go through the hassle of a joint

appraisal. See A.W.G. Farms, Inc. v. Fed. Crop Ins. Corp., 757 F.2d 720, 728-29 (8th

Cir. 1985) (holding that the federal crop insurance agency led farmers down a

"primrose path" that ultimately resulted in the defeat of the insurance claim, contrary

to the covenant of good faith and fair dealing implied in every contract). There was

also evidence that RCIS officials and adjusters found it difficult to get in touch with

Alan, and that he had been difficult to work with on past claims. Alan and his agent

Nielsen claim that they were readily available and were aggravated throughout the

month of October that the adjusters had not yet inspected his fields. Although

Fireman's argues that the delay in adjusting the claim was due to Alan's conduct,

Sornson's notes indicate that the insurance company had to wait for help from more

adjusters, and this caused a delay in adjusting the fields. All of the foregoing points

to the myriad factual disputes running through this case. Specifically with regard to

bad faith, however, given that the evidence in the fields wassubject to spoliation, and

the fact that the claim was not finally decided until January when the evidence was

necessarily gone, there remains a factual dispute on that issue. See Chadima, 55 F.3d

at 350 (holding there was sufficient evidence from which a reasonable jury could

decide that the insurer had no reasonable basis for underpaying the claim). 

III. CONCLUSION

We reverse and remand for further proceedings.

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