IN THE SUPREME COURT OF IOWA

No. 19–1669

Submitted January 21, 2021—Filed May 14, 2021

LUIGI’S, INC.,

Appellee,

vs.

UNITED FIRE AND CASUALTY COMPANY,

Appellant.

Appeal from the Iowa District Court for Fayette County, John J. 

Bauercamper, Judge.

The defendant appeals from a jury verdict in favor of its insured 

following the district court’s denial of its motion for directed verdict and 

motion for judgment notwithstanding the verdict. REVERSED AND 

REMANDED.

McDermott, J., delivered the opinion of the court, in which all

justices joined.

Matthew G. Novak and Stephanie L. Hinz of Pickens, Barnes & 

Abernathy, Cedar Rapids, for appellant.

Peter C. Riley and Hugh G. Albrecht of Tom Riley Law Firm, P.L.C., 

Cedar Rapids, for appellee.
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McDERMOTT, Justice.

I.

Luigi’s restaurant in Oelwein, Iowa, has been in operation since the 

late 1950s. In November 2016, a fire broke out in the restaurant’s kitchen 

that resulted in a total loss of the building and its contents. Luigi’s 

insurance policy with United Fire and Casualty Company (United Fire)

provided coverage for the building based on its “actual cash value” with a 

limit of insurance of $550,000. The policy provided two ways to determine 

the actual cash value:

1. In the event that there is a regular market for the 

property where the property can be bought and sold in the 

ordinary course of dealing, and it is possible to determine the 

property’s market value, then the market value of the property 

is its Actual Cash Value.

2. In the event that there is no regular market for the 

property where the property can be bought and sold in the 

ordinary course of dealing, or it is not possible to determine 

the property’s market value, then:

Actual Case Value means the amount which it would 

cost to repair or replace covered property with material of like 

kind and quality, less allowance for physical deterioration and 

depreciation, including obsolescence.

The method described in the first subsection is sometimes referred to as a 

“market approach” and the method in the second as a “cost approach.”

United Fire’s adjuster, Dan Fasse, retained an independent real 

estate appraisal company, Rally Appraisal, to determine the building’s 

actual cash value. Rally employee Jim Herink, a certified general real 

property appraiser, believed a market approach to be the appropriate 

method to determine the property’s value. Herink (and an associate real 

estate appraiser who worked with him) inspected the Luigi’s property and 

then searched for comparable sales of similar properties in similar 

markets. Citing to four restaurants in the area it believed were comparable 
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to Luigi’s, Rally issued an appraisal report that concluded the actual cash 

value of the Luigi’s building immediately prior to the fire was $242,000.

Fasse sent the appraisal report to Luigi’s, along with a check for 

$234,500 (representing the $242,000 appraised value less the policy’s 

deductible and advance payments). Luigi’s owner orally rejected the 

valuation, telling Fasse that the comparable properties Herink used in his 

appraisal weren’t comparable and that truly comparable properties didn’t 

exist. Fasse followed up with a letter acknowledging that Luigi’s rejected 

the valuation and informing Luigi’s that it could contest the appraisal by 

hiring its own appraiser at its own cost or by invoking its appraisal process 

right set forth in the insurance policy.

Luigi’s invoked its right to the appraisal process. The policy’s 

appraisal process required Luigi’s and United Fire each to select an 

appraiser. The appraisers, in turn, would select a neutral umpire. If the 

appraisers failed to agree on a valuation, they would submit their 

differences to the umpire. A decision agreed to by any two of the three 

would be binding on Luigi’s and United Fire. The policy holds the parties 

responsible for their own fees or costs associated with the appraisal 

process.

For the appraisal process, United Fire continued with Herink as its 

appraiser. Luigi’s retained Globe Midwest Adjustors International. Globe 

Midwest assigned its employee Charles Sorrell, an insurance appraiser, to 

the matter. Sorrell in turn retained an independent real estate appraiser

(since Sorrell was not a real estate appraiser) named Keith Westercamp to 

assist him on the matter.

Sorrell in his appraisal used a cost approach (not a market approach 

as did Herink) and concluded the actual cash value of the Luigi’s building 

immediately prior to the fire was $1,030,000. This figure included just 
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over $900,000 for the structure and $122,767.62 for “furniture, fixtures 

and equipment.” Herink’s appraisal (which valued the building at 

$242,000) didn’t value and didn’t address any other property or fixtures 

within the building.

On June 22, 2017, the umpire conducted the appraisal hearing with 

Sorrell and Westercamp (for Luigi’s) and Herink (for United Fire). At its 

conclusion, all three signed an appraisal award letter establishing the loss 

amount at $502,000. This number consisted of a value for the building of 

$380,000 and a value for furniture, fixtures, and equipment of $122,000.

When he learned the result of the appraisal hearing, a displeased 

Fasse quizzed Herink about the basis for the numbers in the award. Fasse 

complained to Herink that the furniture, fixtures, and equipment were 

either duplicative of amounts already factored into the building valuation 

or already paid by United Fire under a separate provision of the policy 

covering business personal property. Fasse called Herink’s supervisor at 

Rally to complain. Fasse advised Rally that Herink’s mistake appeared to 

him a professional error, and Fasse thus requested Rally’s errors and 

omission insurance policy information.

On June 23, with Fasse’s approval, Herink sent a letter to the 

umpire complaining that the appraisal hearing exceeded its scope in 

determining loss amounts beyond the actual cash value of the real estate. 

Herink sought to withdraw his signature from the award letter that he’d 

signed the day before, contending that he felt “coerced” to sign the award, 

that “furniture, fixtures and equipment” were covered under the separate 

business personal property coverage in the policy (and that Sorrell “misled” 

him on this point), and that the personal property amount lacked a 

professional appraisal.
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On June 27, the umpire called Sorrell and asked if Luigi’s wished to 

consider reopening the appraisal hearing. The next day, Sorrell sent a 

short email declining any further action and stating that the appraisal 

award had been “agreed upon and signed” by all three participants at the 

hearing. In response, Rally’s owner sent Sorrell a short email stating, 

“Thanks for the information, but we would like you to reconsider because 

this is likely heading towards a lawsuit.” Two days later, Luigi’s lawyer 

sent a letter to United Fire demanding immediate payment of the 

$502,000.

Meanwhile, under the policy, Luigi’s still needed to provide United 

Fire with a sworn statement and proof of loss for its insurance claim. 

Luigi’s provided them on June 29. These materials list (consistent with 

the appraisal hearing award) the loss amount at $502,000. Under the 

policy, having now received the sworn statement and proof of loss, United 

Fire had thirty days from the appraisal hearing—until July 22—to make 

its payment. On July 12, United Fire paid the $502,000 award in full.

Eight months later, Luigi’s sued United Fire for breach of contract 

and bad faith, and included a request for punitive damages based on 

United Fire’s failure to pay the $550,000 building coverage limit and for 

its actions after the appraisal hearing. During the jury trial in July 2019, 

United Fire moved for a directed verdict and for dismissal of all claims at 

the close of Luigi’s case-in-chief and again after the submission of all the 

evidence. The district court denied the motions. United Fire also objected 

to several of the district court’s instructions to the jury. 

The jury returned a verdict in Luigi’s favor on the breach of contract 

claim and awarded $48,000 in damages—the difference between the 

$550,000 building coverage limits and the $502,000 appraisal award. The 

jury also returned a verdict in Luigi’s favor on its bad-faith claim and 
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awarded $40,989.25 in damages for the fees Luigi’s incurred in the 

appraisal process to pay Globe Midwest and Sorrell, and $751.71 for 

Luigi’s legal fees for the June 29 demand letter and related work. The jury 

also awarded Luigi’s $30,000 in punitive damages. United Fire filed a 

posttrial motion for judgment notwithstanding the verdict or, in the 

alternative, for a new trial. The district court denied these motions as well.

II.

On appeal, United Fire argues that Luigi’s loss was completely 

resolved through the appraisal process and that the district court erred in 

denying the motion for directed verdict on the alleged delay in paying the 

claim. Stated differently, United Fire contends Luigi’s invocation of the 

appraisal process, and United Fire’s timely payment of the appraisal 

award, requires the court’s dismissal of Luigi’s claims as a matter of law, 

and that Luigi’s failed to prove bad faith for any actions after the appraisal 

hearing. 

We review the district court’s ruling on a motion notwithstanding 

the verdict to correct legal error. Iowa R. App. P. 6.907. We consider the 

facts in a light most favorable to Luigi’s as the nonmoving party. Id. r.

6.904(3)(b); Royal Indem. Co. v. Factory Mut. Ins., 786 N.W.2d 839, 846 

(Iowa 2010).

A.

Luigi’s argues that we shouldn’t consider the substance of United 

Fire’s appeal on the breach of contract issue because it failed to preserve 

error. A party ordinarily needs to raise and the district court needs to 

decide an issue before we address its merits on appeal. Meier v. Senecaut, 

641 N.W.2d 532, 537 (Iowa 2002). Luigi’s asserts that United Fire’s 

argument to the district court centered on insufficiency of the evidence

and didn’t delve into the argument it presses in this appeal about the 
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conclusiveness of the appraisal process and United Fire’s related timely 

payment of the appraisal award.

But Luigi’s contention doesn’t square with the district court 

transcript. United Fire argued repeatedly that “the construction of that 

policy is an issue for the Court as a matter of law” and that the district

court could decide the issue based on the contract’s requirements. “The 

obligation to pay came upon the proof of loss and the appraisal award, and 

the award was paid within the time frame set in the policy.” United Fire 

raised the issue below, and the district court considered and denied it. 

See Lamasters v. State, 821 N.W.2d 856, 864 (Iowa 2012) (stating that an 

issue is preserved when the court’s ruling indicates that the court 

considered the issue and necessarily ruled on it). Finding this issue 

preserved for appeal, we turn to the merits.

B.

At trial, Luigi’s argued that United Fire breached the insurance 

policy and acted in bad faith by providing a lowball offer for the building 

coverage that, in turn, forced Luigi’s to go through a time-consuming and 

expensive appraisal process. At the heart of Luigi’s argument lies a 

claimed right to payment in full of the $550,000 building policy limits.

But the policy declarations page unambiguously describes the 

$550,000 as a “limit of insurance.” The word “limit” denotes a maximum 

possible amount, not a guaranteed fixed amount. Limit, Black’s Law 

Dictionary 1114 (11th ed. 2019) (“1. A restriction or restraint. 2. A

boundary or defining line. 3. The extent of power, right, or authority.”).

What’s more, the policy states the valuation would be determined based 

on the property’s “actual cash value” immediately before the fire. It stated 

two alternative methods (the market approach and the cost approach) for 

how the actual cash value would be determined. If the policy really did 
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mandate a payout of $550,000 for a loss, there arguably would have been 

no need to specify any method—let alone two alternative methods—

dictating how to determine the building’s value. And if the parties 

disagreed on the value of the property, the policy provided for an appraisal 

process (the one Luigi’s invoked) to resolve the dispute. There would be 

no need for an appraisal process if the building’s value had been cemented 

at the $550,000 level. The policy itself dispatches Luigi’s argument on this 

point.

Luigi’s counters that, even if the policy language itself doesn’t 

mandate the $550,000 payment, the doctrine of “reasonable expectations”

compels that we impose such a requirement. The doctrine of reasonable 

expectations requires an insurer to provide coverage based on an insured’s 

objectively reasonable expectations of what the insurance provides “even 

though painstaking study of the policy provisions would have negated 

those expectations.” Rodman v. State Farm Mut. Ins., 208 N.W.2d 903, 906 

(Iowa 1973) (quoting Robert E. Keeton, Basic Text on Insurance Law

§ 6.3(a), at 351 (1971)). We will apply the doctrine where an exclusion is 

bizarre or oppressive, eviscerates terms the parties explicitly agreed to, or 

eliminates the dominant purpose for entering into the insurance contract.

Farm Bureau Mut. Ins. v. Sandbulte, 302 N.W.2d 104, 112 (Iowa 1981) (en 

banc).

But an insured invoking the doctrine first needs to show that

“[e]ither the policy must be such that an ordinary layperson would 

misunderstand its coverage, or there must be circumstances attributable 

to the insurer which would foster coverage expectations.” Clark-Peterson 

Co. v. Indep. Ins. Assocs., 492 N.W.2d 675, 677 (Iowa 1992) (en banc). The 

policy in this case refers to the $550,000 as a “limit of insurance.” This 

information isn’t buried in the depths of the policy, but stated on the 
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declarations page, and is language that an ordinary layperson could

readily understand.

As to the other showing, Luigi’s relies primarily on discussions and 

an email from United Fire’s insurance agent as part of the policy renewal 

asking Luigi’s to confirm whether “it’s OK to lower the building value to 

$550,000.” The communications more accurately should have referred to 

a “limit,” and in written correspondence several weeks after this email, the 

agent correctly noted that changes to the policy included that the 

“[b]uilding limit is reduced to $550,000 and is on actual cash basis.”

Imprecision in these particular terms doesn’t rise to a level that would 

foster a reasonable coverage expectation that Luigi’s was automatically 

entitled to payment of the full $550,000 in the event of a loss. Under the 

circumstances, something far less than a “painstaking study of the policy 

provisions” would fix any misunderstanding that the policy expressed a

guaranteed payment amount.

Luigi’s continues that, even if the reasonable expectations doctrine 

doesn’t apply, United Fire still breached the insurance contract by failing 

to retain “a competent, experienced appraiser” and to ensure the 

appraiser’s valuation correctly established the building’s actual cash 

value. Luigi’s specifically contends that Fasse, had he critically analyzed 

Herink’s appraisal and the comparable sales Herink relied on, simply 

could not have concluded a market approach would comply with the 

policy’s valuation methodology considering the dearth of any suitable 

comparable sales. Luigi’s argues that, with a market approach untenable, 

United Fire needed to employ the cost approach to value the building.

Luigi’s asserts that had United Fire not used the market approach, Luigi’s 

would have received the full $550,000 based on the cost approach, and 
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wouldn’t have needed to pay the $40,257.50 to Midwest Global and Sorrell

for handling the appraisal process. 

Herink, the independent expert United Fire retained on this claim,

was a certified general real estate appraiser. He’d previously appraised 

forty to fifty restaurants and a half dozen fire losses. Herink steadfastly 

maintained the propriety of his appraising Luigi’s real estate using a 

market approach. Sorrell himself agreed that Herink was qualified to 

determine whether there was a market value for the property. And even 

Westercamp, Luigi’s own real estate appraiser (whom Sorrell retained to 

critique Herink’s appraisal), told Sorrell there was a regular market value 

for the building. Fasse is himself an insurance adjustor, not a real estate 

appraiser, and retained Herink on United Fire’s behalf for his expertise. 

Construing the facts in a light most favorable to Luigi’s, Luigi’s breach of 

contract claim based on United Fire’s reliance on its expert still fails as a 

matter of law.

C.

Luigi’s also contends United Fire’s reliance on Herink’s appraisal 

constituted bad-faith denial of its insurance claim. Bad-faith denial has 

two elements: (1) absence of a reasonable basis for denying the claim (an 

objective standard), and (2) the insurer knew or had reason to know its 

denial was without a reasonable basis (a subjective standard). Bellville v. 

Farm Bureau Mut. Ins., 702 N.W.2d 468, 473 (Iowa 2005); Galbraith v. 

Allied Mut. Ins., 698 N.W.2d 325, 328 (Iowa 2005).

But to establish bad faith Luigi’s must do more than show the 

investigation wasn’t as “thorough or all-encompassing” as Luigi’s would 

have liked. Seastrom v. Farm Bureau Life Ins., 601 N.W.2d 339, 347 (Iowa 

1999). Again, United Fire had no obligation “to disregard the opinion of 

its own expert in favor of the insured’s expert’s opinion.” Morgan v. Am. 
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Fam. Mut. Ins., 534 N.W.2d 92, 97 (Iowa 1995). For the reasons elaborated 

above, we thus hold this claim similarly fails as a matter of law. See Reuter 

v. State Farm Mut. Auto. Ins., 469 N.W.2d 250, 254 (Iowa 1991) (affirming 

directed verdict in favor of an insurer on an insured’s bad-faith claim 

where the insurer reasonably sought an independent professional 

evaluation of the claim and relied on the professional’s opinions).

Luigi’s also argues that United Fire acted in bad faith by attempting 

to back out of the appraisal award after the hearing through Herink’s letter 

to the umpire seeking to rescind his signature and Rally’s email to Sorrell 

stating that the matter was “likely heading towards a lawsuit.” Insureds 

may pursue a cause of action against an insurer for bad-faith denial or (as 

relevant to this claim) delay of insurance benefits. Dolan v. Aid Ins., 431 

N.W.2d 790, 794 (Iowa 1988) (en banc). The jury awarded Luigi’s $751.71 

in attorney fees it incurred to draft a letter demanding United Fire pay the 

appraisal award as it had agreed. But Luigi’s possesses no bad-faith delay 

claim concerning the payment because the parties agreed in the insurance 

contract that United Fire would have thirty days after the appraisal 

hearing and submission of the sworn statement and proof of loss to make 

payment. United Fire had until July 22; it paid in full on July 12.

Luigi’s argues Herink’s letter to the umpire and Rally’s email to 

Sorrell separately provide Luigi’s a cause of action for bad faith. United 

Fire, for its part, didn’t actually send either communication, but more 

accurately allowed them to be sent. Regardless, an appraisal award is not 

a judgment and the court possesses the power to set it aside. Cent. Life 

Ins. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 260 (Iowa 1991) (en banc). 

To set aside an award, the complaining party must prove fraud, mistake, 

or misfeasance on the part of an appraiser or umpire. Walnut Creek 

Townhome Ass’n v. Depositors Ins., 913 N.W.2d 80, 89 (Iowa 2018).
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For Luigi’s to establish its claim of bad faith, it has to negate “any 

reasonable basis” for United Fire’s denial or delay. Bellville, 702 N.W.2d 

at 481. United Fire would have a reasonable basis if the claim is “fairly 

debatable” as to either an issue of fact or law. Rodda v. Vermeer Mfg., 734 

N.W.2d 480, 483 (Iowa 2007). A claim is “fairly debatable” if it’s “open to 

dispute on any logical basis.” Id. This determination may be made by the 

court as a matter of law. Id.

The record makes clear there was a legitimate debate about the 

scope of the appraisal process. Not long after Luigi’s invoked its appraisal 

process right, Fasse emailed Sorrell asking, “Is an appraisal being sought 

for only the building coverage or are all coverages being disputed at this 

time?” Fasse then stated that he hadn’t received information to support 

any other coverages, naming particularly “the business personal property 

[(BPP)], the business income [(BI)] or extra expenses matters.” Sorrell sent 

a response email stating, “It is my understanding that appraisal is being 

sought for all coverages involved with the claim.” But then Sorrell 

continued: 

That being said, I can understand your point regarding 

the BPP, BI, and Extra Expense portions of the claim. I will 

review with the Insured the need for those claims being 

submitted. If a dispute still exists at that time, then they will 

have the option to demand appraisal on those differences, 

should some exist. 

Despite Fasse’s direct question, the resulting correspondence left the issue 

unresolved.

The insurance policy provided separate coverages for “Building” and 

“Business Personal Property.” The building coverage refers to “the building 

or structure.” Business personal property means “property located in or 

on,” or “within 100 feet of the building or structure.” For certain types of 

property, the policy includes some overlap in what’s included under these
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separate coverages. For instance, both the building coverage and the 

business personal property coverage include fixtures, machinery, and 

equipment. Yet appliances are listed only under the building provision; 

furniture is listed only under business personal property.

Known to Fasse, but unbeknownst to Herink, United Fire had 

already paid Luigi’s business personal property claim by the time of the 

appraisal hearing. United Fire thus sent only Herink—a real estate 

appraiser but not a property appraiser—to the hearing. Herink had

appraised the building, but he apparently came armed without 

information to discuss the valuation of any furniture, fixtures, or 

equipment. Herink’s written response to Sorrell’s appraisal report 

(provided to the umpire before the appraisal hearing) likewise included no 

mention of furniture, fixtures, or equipment. Even when viewed in a light 

most favorable to Luigi’s, the record establishes that the issue of whether 

the appraisal hearing would (or should) include consideration of furniture, 

fixtures, and equipment was “open to dispute” and thus fairly debatable.

Rodda, 734 N.W.2d at 483.

United Fire thus had a reasonable basis for allowing Herink and 

Rally to send the posthearing letter and email. While appraisal awards 

have a strong presumption of validity, courts nonetheless possess the 

power to set them aside in situations involving fraud or malfeasance. See 

Cent. Life Ins., 466 N.W.2d at 260. Parties are under no prohibition to 

remain silent when a colorable basis for challenging them might arise. 

Luigi’s failed to meet its burden to negate any reasonable basis for Herink’s 

and Rally’s postaward correspondence. Under these circumstances, 

Luigi’s possesses no claim for bad faith as a matter of law, and the district 

court erred in denying United Fire’s motion for directed verdict.
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D.

Having reversed the district court’s denial of the motion for directed 

verdict on Luigi’s breach of contract and bad-faith causes of action, we 

likewise dismiss the related punitive damages claim necessarily associated 

with them. Magnusson Agency v. Pub. Entity Nat’l Co.-Midwest, 560 

N.W.2d 20, 29 (Iowa 1997).

III.

For the foregoing reasons, we reverse the judgment of the district 

court and remand for dismissal.

REVERSED AND REMANDED.