United States Court of Appeals

For the Eighth Circuit 

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No. 20-1339

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Hallmark Specialty Insurance Company

 Plaintiff - Appellee

v.

Phoenix C & D Recycling, Inc.

 Defendant - Appellant

R & A Properties, Inc.

 Defendant

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Appeal from United States District Court 

for the Southern District of Iowa - Des Moines

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Submitted: January 14, 2021

Filed: June 1, 2021

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Before COLLOTON, WOLLMAN, and SHEPHERD, Circuit Judges. 

SHEPHERD, Circuit Judge.

Phoenix C & D Recycling, Inc. and its property owner, R & A Properties, Inc., 

(collectively, Phoenix) operate a trash recycling plant in Des Moines, Iowa. In July 

2017, a fire began from a pile of biofuel material located on Phoenix’s property. 
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Hallmark Specialty Insurance Co. (Hallmark), Phoenix’s insurer, made several 

payments to Phoenix for Phoenix’s losses, but after disagreements as to those 

payments arose, Hallmark filed an action with the district court1 seeking declaratory 

judgment that it did not breach the insurance policy or act in bad faith when adjusting 

Phoenix’s claims. Phoenix asserted three counterclaims, and after the parties filed 

cross-motions for summary judgment, the district court granted Hallmark’s motion 

in its entirety and granted Phoenix’s motion in part. Phoenix now appeals the district 

court’s grant of summary judgment in favor of Hallmark.2

 Having jurisdiction 

pursuant to 28 U.S.C. § 1291, we affirm.3

 

I. 

 

Phoenix operated a recycling plant in Des Moines, Iowa, recycling

construction debris and producing biofuel from wood materials. On July 6, 2017, a 

fire began at Phoenix’s plant. At the time of the fire, Phoenix had nearly 18,000 tons 

of biofuel on its property, and the fire originated from a pile of this biofuel located 

at the southeast corner of the plant. Pursuant to a policy effective April 16, 2017, 

Hallmark insured Phoenix with coverage for property damage and business 

interruption of up to approximately $6.5 million. Phoenix provided Hallmark with 

notice of its fire loss on or about July 10, 2017. This loss included damage to 

buildings, wiring, equipment, and other materials located on Phoenix’s property. 

1

The Honorable John A. Jarvey, Chief Judge, United States District Court for 

the Southern District of Iowa. 

2

Phoenix does not appeal the district court’s summary judgment ruling insofar 

as it granted summary judgment in favor of Hallmark on Phoenix’s breach of 

contract counterclaim. 

3

Hallmark also filed two motions to strike, seeking to strike portions of 

affidavits that Phoenix relied on in its motion for summary judgment and in its 

resistance to Hallmark’s motion for summary judgment. However, because the 

district court granted Hallmark’s motion for summary judgment in full, it denied 

Hallmark’s motions to strike as moot. These motions to strike are not before us on 

appeal. 
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Hallmark assigned Bryan Jones, a “Property Claims Supervisor,” to Phoenix’s 

claimed loss and subsequently hired 11 different experts and consultants to also 

evaluate the loss. There are two experts and consultants pertinent to this appeal: 

Larry Baxter and HSNO. Hallmark hired Baxter, a mechanical engineer, to assess

Phoenix’s wiring and equipment damage. Baxter created a report, dated July 31, 

2017, that included three different estimates for equipment loss: (1) actual cash value 

of $368,520; (2) replacement cost value of $1,226,400; and (3) repair cost of 

$93,600. R. Doc. 38-9, at 59. Within Baxter’s report was an estimate of $124,800 

for removal and replacement of wiring and equipment, including equipment removal 

and installation labor cost; replacement of electrical wiring cost; and a contingency 

fee. R. Doc. 38-9, at 59. In a separate report, R. Doc. 38-12, at 20, Jones

characterized the electrical wiring replacement cost as being included in the 

replacement cost value category. Jones later confirmed this classification in a 

supplemental declaration, stating, “Based on [Baxter’s] report, my understanding at 

the time was that the electrical equipment should be depreciated and allocated as 

[r]eplacement [c]ost [v]alue.” R. Doc. 47-4, at 8. On October 18, 2017,4 Hallmark 

paid Phoenix $200,720 under its equipment loss coverage. This amount did not 

include compensation for removal and installation of wiring and equipment because, 

Hallmark contended, the policy did not require such payment until damaged property 

had been repaired or replaced. Hallmark did eventually compensate Phoenix for its 

damaged wiring and equipment (as well as the associated labor costs and 

contingency fee): Hallmark included the $124,800 in its July 6, 2018 “compromise” 

payment, which exceeded $1 million. However, Phoenix contends that Hallmark 

should have paid the $124,800 for removal and replacement of wiring and equipment

on October 18, 2017. 

4

Appellant’s brief characterizes this payment as occurring on October 18, 

2017, and the district court characterizes this payment as occurring both on October 

18, 2017, and on the following day, October 19, 2017. This discrepancy does not 

affect our analysis, and for consistency, we characterize this payment as occurring 

on October 18, 2017. 
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Hallmark also hired HSNO, an accounting firm, in anticipation of Phoenix’s 

business income interruption claim. HSNO began requesting information regarding 

any such claim in November 2017. In response, on December 1, 2017, Phoenix 

provided financial information for 2015, 2016, and through October 2017. At this 

time, Phoenix stated that “[t]he business income/extra expense loss exceeds 

$530,000,” R. Doc. 59, at 21 (alteration in original), and demanded a $200,000 

advance. However, at the time of its demand, Phoenix had not provided complete 

financial information to HSNO or to Hallmark—namely, financial information 

covering the time period beyond October 2017. HSNO then provided Hallmark with 

a preliminary calculation of business income loss totaling $28,774.34. HSNO 

characterized 94.16% of the expenses included in its calculation as “noncontinuing,” meaning that no continuing payroll expenses were incorporated into the 

estimate. HSNO expressly told Jones that this calculation was preliminary, as it was 

subject to “additional discussions, and new information, including continuing 

payroll.” R. Doc. 59, at 22. Jones then relayed this calculation to Phoenix, alerting 

Phoenix of the calculation’s preliminary status. In response, Phoenix submitted to 

Hallmark a proof of loss for $28,774.34 coupled with a letter disputing HSNO’s

calculation. Phoenix did not provide a proposed alternative calculation or the 

missing financial information. Instead, it simply alleged that it had provided 

sufficient financial information and that, based on that information, it was entitled 

to a larger payment. On January 9, 2018, Hallmark advanced Phoenix $28,774.34

under the policy’s business interruption coverage. 

Hallmark brought an action in district court for declaratory judgment that it 

did not breach the insurance policy or act in bad faith when adjusting Phoenix’s 

claims, and Phoenix brought three counterclaims, seeking punitive damages and 

contending that although Hallmark ultimately paid all sums owed under the policy, 

it breached the terms of the policy, acted in bad faith, and breached its fiduciary duty 

to Phoenix by delaying the payment of policy benefits. The parties filed crossmotions for summary judgment, and ultimately, the district court granted Hallmark’s 
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motion for summary judgment in its entirety and granted Phoenix’s motion in part.

5

 

We find that the district court did not err, and we affirm in full.6

 

II. 

 “We review de novo the district court’s grant of summary judgment.” Van 

Dorn v. Hunter, 919 F.3d 541, 544 (8th Cir. 2019) (citation omitted). “Summary 

judgment is appropriate where there is no genuine issue of material fact and the 

moving party is entitled to judgment as a matter of law.” Kempf v. Hennepin Cnty., 

987 F.3d 1192, 1195 (8th Cir. 2021). 

On appeal, Phoenix abandons many of the claims that it raised before the 

district court and challenges only the district court’s grant of summary judgment in 

favor of Hallmark on Phoenix’s bad faith claim and Hallmark’s claim for declaratory 

judgment, and on Phoenix’s request for punitive damages. We agree with the district 

court’s thoughtful analysis of these claims and affirm.7

 

 “To show a claim for bad faith, a plaintiff must show the absence of a 

reasonable basis for denying benefits of the policy and defendant’s knowledge or 

reckless disregard of the lack of a reasonable basis for denying the claim.” Dolan v. 

Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988) (citation omitted); see also Rodda 

5

The district court granted Phoenix’s motion for summary judgment, denying 

Hallmark’s request for attorney’s fees. 

6

In its motion for summary judgment on Phoenix’s breach of fiduciary duty 

counterclaim, Hallmark argued that no such cause of action was available for firstparty insurance actions. In response, Phoenix did not resist Hallmark’s motion for 

summary judgment on Phoenix’s breach of fiduciary duty counterclaim. That claim 

is not before us on appeal. 

7

“When exercising diversity jurisdiction, as we do here, we apply the forum 

state’s substantive law to any state-law claims.” May v. Nationstar Mortg., LLC, 

852 F.3d 806, 813 (8th Cir. 2017). Therefore, here we apply Iowa law to Phoenix’s 

bad faith claim. 
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v. Vermeer Mfg., 734 N.W.2d 480, 483 (Iowa 2007) (explaining that a plaintiff must 

prove that the insurer “had no reasonable basis for denying benefits under the policy” 

and that “the insurer knew, or had reason to know, that its denial was without basis” 

(citation omitted)). “The first element is an objective one; the second element is 

subjective.” Rodda, 734 N.W.2d at 483 (citation omitted). As the district court 

correctly noted, we consider the second element only if we find that the insurer did 

not have a reasonable basis to deny the insured’s claim. R. Doc. 59, at 15; see also

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

 

The first element is not satisfied if the “claim is ‘fairly debatable’ as to either 

a matter of fact or law.” Rodda, 734 N.W.2d at 483 (citation omitted); see also

Thornton v. Am. Interstate Ins. Co., 897 N.W.2d 445, 465 (Iowa 2017) (“‘[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.’ ‘[C]ourts and juries do not 

weigh the conflicting evidence that was before the insurer; they decide whether 

evidence existed to justify denial of the claim.’” (second alteration in original)

(emphasis omitted) (citation omitted)). Iowa courts find several principles important 

to the first element’s analysis. First, “[t]he reasonable basis for denying the 

claim . . . must exist at the time the claim is denied.” Seastrom v. Farm Bureau Life 

Ins. Co., 601 N.W.2d 339, 346 (Iowa 1999). Second, although an insurer may

conduct an investigation of an insured’s claims, there is no duty of investigation on 

the insurer, Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 478 (Iowa 

2005), and “an imperfect investigation, standing alone, ‘is not sufficient cause for 

recovery if the insurer in fact has an objectively reasonable basis for denying the 

claim,’” Villarreal v. United Fire & Cas. Co., 873 N.W.2d 714, 728 (Iowa 2016) 

(citation omitted); see also Reuter v. State Farm Mut. Auto. Ins. Co., 469 N.W.2d 

250, 254-55 (Iowa 1991). Third, “[t]here must be evidence that the basis for [the 

insurer’s] valuation was unreasonable,” and the insurer is “not obligated to disregard 

the opinion of its own expert in favor of the insured’s expert’s opinion.” Bellville, 

702 N.W.2d at 475, 477 (emphasis omitted). 
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On appeal, Phoenix argues that although Hallmark eventually paid all sums 

owed under the policy for business interruption, Hallmark acted in bad faith when, 

on January 9, 2018, it paid Phoenix only $28,774.34 rather than the $200,000 that 

Phoenix demanded. Phoenix contends that, based on the financial information 

Phoenix submitted to Hallmark on December 1, 2017, this payment should have 

included continuing payroll costs but did not. The crux of Phoenix’s argument is 

that it was unreasonable for Hallmark to rely on HSNO’s report—because, Phoenix

alleges, that report was flawed—and from this unreasonableness, bad faith can be 

inferred. See, e.g., Appellant Br. 15-16 (“[B]ad faith may be inferred from a flawed 

or inadequate investigation by the insurer. . . . The [district court], in allowing 

Hallmark to rely on the HSNO report, fails to consider the fact that the report is 

unreasonable.” (citation omitted)). In response, Hallmark points out that Phoenix

agrees that it ultimately received the total amount of business interruption benefits 

to which it was entitled and only argues that Hallmark should have paid more than 

$28,774.34 on January 9, 2018. See, e.g., Appellant Br. 20 (“The fact an insurer 

ultimately pays benefits due under the contract does not relieve it from liability for 

bad faith when it unreasonably delayed payment of those benefits.”). Hallmark 

directs us to the incomplete financial information that Phoenix provided HSNO on 

December 1, 2017; HSNO’s requests to Phoenix for additional financial 

information; HSNO’s calculation of $28,774.34, which was preliminary and subject 

to change should Phoenix provide the missing financial information; and Phoenix’s 

failure to provide an alternative calculation. 

Our role is confined to determining “whether evidence existed to justify 

[Hallmark’s] denial of the claim”; we are not tasked with “weigh[ing] the conflicting 

evidence that was before the insurer.” Thornton, 897 N.W.2d at 465 (emphasis 

omitted); cf. McIlravy v. N. River Ins. Co., 653 N.W.2d 323, 330 (Iowa 2002) 

(explaining that the plaintiff must “present substantial evidence to establish the 

absence of a reasonable basis by [the insurer] for denying benefits” (emphasis 

added)). With this in mind, we find that Hallmark had an objectively reasonable 

basis to initially deny Phoenix’s $200,000 business income interruption demand. 

See Dolan, 431 N.W.2d at 794; Rodda, 734 N.W.2d at 483. On January 9, 2018, 
-8- 

Hallmark relied on HSNO’s report, which included estimates of loss calculated from 

the incomplete financial information Phoenix had provided. HSNO indicated that 

this $28,774.34 calculation was preliminary and subject to change upon receipt of 

additional financial information. However, rather than supplying the missing 

information, Phoenix simply reasserted its belief that it had provided sufficient 

information and that, based on the financial information provided, it was entitled to 

a larger payment. Phoenix did not provide an alternative calculation or explain why 

Hallmark’s calculation was incorrect. Based on these facts, we find that Hallmark 

had an objectively reasonable basis for denying Phoenix’s demand and limiting its 

payment to $28,774.34 on January 9, 2018. See Thornton, 897 N.W.2d at 465. 

Further, to the extent that HSNO’s report included any inaccuracies, “an imperfect 

investigation, standing alone, ‘is not sufficient cause for recovery if the insurer in 

fact has an objectively reasonable basis for denying the claim.’” Villarreal, 873 

N.W.2d at 728 (citation omitted). 

Phoenix next argues that Hallmark acted in bad faith when it delayed paying 

the total amount owed under the policy for damage sustained to Phoenix’s wiring 

and equipment. Specifically, Phoenix contends that Hallmark knew, at time of the 

partial payment in October 2017, that Hallmark’s expert’s calculation for equipment 

damage totaled $368,520 but nevertheless paid only $200,720 on that date. Phoenix 

argues that Hallmark owed Phoenix an additional $124,800 for damage to wiring 

and equipment.

8

 As it did in response to Phoenix’s first bad faith argument, 

Hallmark similarly characterizes this argument as objecting to the timing of 

8

Before the district court, Phoenix presented this as two distinct claims: first, 

that Hallmark acted in bad faith in denying or delaying payment of $124,800 for the 

removal and installation of wiring and equipment; and second, that Hallmark acted 

in bad faith by failing to pay Phoenix on October 18, 2017, for equipment loss and 

repair (i.e., that on October 18, 2017, Hallmark should have paid Phoenix $368,520 

based on Baxter’s calculation for actual cash value plus $124,800 for the wiring and 

equipment removal and installation). However, on appeal, Phoenix consolidates this 

argument, claiming that Hallmark acted in bad faith for “fail[ing] to include 

$124,800 for damage to wiring and electronic equipment necessary to operate the 

Phoenix equipment.” See Appellant Br. 25. 
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Hallmark’s payments. Hallmark explains, and the district court opinion confirms, 

that Hallmark did pay benefits under the policy for the wiring and equipment

damage, but that Hallmark included this payment in its July 8, 2018 “compromise” 

payment. See R. Doc. 59, at 18 (“[N]o reasonable juror could conclude that the full 

costs of removal and installation of wiring and electrical components were not 

included in the [July 6, 2018] ‘compromise’ payment.”). 

We find that there was a reasonable basis for Hallmark to deny Phoenix’s 

demand for an additional $124,800 in October 2017. See Dolan, 431 N.W.2d at 794; 

Rodda, 734 N.W.2d at 483. Although in his report Baxter included an estimate of 

$124,800 to remove and install wiring and equipment, Jones classified this estimate

as part of the replacement cost value category. Hallmark interpreted its policy as not 

requiring payment for items included in the replacement cost value category until 

Phoenix had actually repaired or replaced those items—which it had not done as of 

October 2017. As the district court noted, “Hallmark knew that the Iowa Supreme 

Court had interpreted comparable policy language as not requiring payment of 

[replacement cost value] until the associated equipment was actually repaired or 

replaced.” R. Doc. 59, at 17 (citing Pierce v. Farm Bureau Mut. Ins. Co., 548 

N.W.2d 551, 554 (Iowa 1996)). This interpretation of the policy—and of Iowa 

law—constitutes an objectively reasonable basis to deny Phoenix’s $124,800 

demand in October 2017. See Thornton, 897 N.W.2d at 465. 

To the extent that Phoenix argues Hallmark acted in bad faith for failing to 

pay Phoenix in October 2017 for equipment loss and repair, i.e., that Hallmark 

should have paid $368,520, we agree with the district court that Hallmark had an 

objectively reasonable basis for denying Phoenix’s claim. Baxter’s report indicated 

that the equipment’s replacement cost value was $1,226,400; that the equipment’s 

actual cash value was $368,520; and that the equipment’s repair costs were $93,600. 

Even though Hallmark’s October 2017 payment of $200,720 was less than Baxter’s 

recommended $368,520, Hallmark had a reasonable basis to advance only $200,720. 

Jones concluded that $200,720 was appropriate after considering: repair costs and 

actual cash value for non-repairable items; the 20% contingencies on all amounts 
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(per the policy); and the applicable $25,000 deductible (per the policy). Further, 

Jones omitted the $124,800 amount (for removal and installation of wiring and 

equipment) from his calculation for the reasons discussed above. There is no 

evidence that this calculation was unreasonable, see Bellville, 702 N.W.2d at 477-

78, and it forms an objectively reasonable basis for denial of Phoenix’s $368,520 

claim, see Thornton, 897 N.W.2d at 465. Because we find that there was a 

reasonable basis for Hallmark’s denial of both the business income interruption 

claim and the wiring and equipment damage claim, we need not reach the second, 

subjective knowledge element. See Rodda, 734 N.W.2d at 483 (explaining that a 

court needs to reach the second, subjective element only once it has found that the 

insurer lacked a reasonable basis to deny the insured’s claim). Because we find that 

summary judgment was appropriate on Phoenix’s bad faith claim, it follows that 

summary judgment was appropriate on Hallmark’s declaratory judgment claim.

Next and finally, the district court granted summary judgment to Hallmark on 

Phoenix’s request for punitive damages. The district court addressed this issue 

briefly, stating in part, “Because the [district] court has resolved the underlying 

substantive claims against Phoenix, Phoenix’s punitive damages claim is moot, and 

Hallmark is entitled to summary judgment on that claim.” R. Doc. 59, at 41. We 

agree. See, e.g., Iowa Code § 668A.1 (noting that where a party requests punitive 

damages, there must be a finding, “by a preponderance of clear, convincing, and 

satisfactory evidence,” that the defendant’s conduct “constituted willful and wanton 

disregard for the rights . . . of another”). 

III. 

For the above-stated reasons, we affirm. 

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