Opinion ID: 223511
Heading Depth: 2
Heading Rank: 2

Heading: Pella Cross-Appeal

Text: In its cross-appeal, Pella argues that the district court erred in granting summary judgment to Liberty Mutual on Pella's claim for a bad-faith denial of insurance coverage. First, Pella contends that, under Iowa law,  everything an insurer does and says must be in good faith. In other words, even if Liberty Mutual had other reasonable grounds for denying coverage, Pella asserts that Liberty Mutual can be liable for a bad-faith claim because it did not act in good faith by denying coverage on the unreasonable grounds that the Policies required an established occurrence and the exhaustion of all other insurance. Second, Pella maintains that Liberty Mutual did not rely on the argument  either in denying coverage or in defending against Pella's bad-faith claim  that the Policies did not cover the claims in the Pappas and Saltzman Suits. To establish a bad-faith claim under Iowa law, the insured must prove two elements: (1) [the insurer] had no reasonable basis for denying the plaintiff's claim or for refusing to consent to settlement, and (2) the [the insurer] knew or had reason to know that its denial or refusal was without reasonable basis. Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). [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. Id. (quotations and citations omitted). Because we have concluded that Pella was not entitled to coverage for its defense costs in the Pappas and Saltzman Suits, see supra Part II.A.2, we necessarily conclude that Liberty Mutual had an objectively reasonable basis for denying Pella's claim. Of course, implicit in the first element of a bad-faith claim is the requirement that the insurer actually relied on the reasonable basis in denying coverage. See id. at 474 (noting that a bad-faith claim fails if the insurer took a position on a reasonable basis). Although Liberty Mutual emphasized its established occurrence and other insurance arguments, the undisputed evidence in the record shows that it also denied coverage because it believed that the Pappas Suit did not allege covered property damage, and the Saltzman Suit did not allege an occurrence. Liberty Mutual communicated these positions to Pella in several coverage and reservation-of-rights letters. Because the undisputed record shows that Liberty Mutual relied on a reasonable basis for denying coverage, the district court properly granted summary judgment on Pella's bad-faith claim. Pella's assertion that Liberty Mutual can be liable for a bad-faith claim by taking any position in bad faith is without merit. Iowa law requires a plaintiff in a bad-faith action to prove that the insurer had  no reasonable basis for denying coverage. Bellville, 702 N.W.2d at 473 (emphasis added). In other words, a defendant can defeat a bad-faith claim by showing that it had only one reasonable basis for denying coverage  not by proving that all of its coverage positions were reasonable. Accordingly, we need not address whether Liberty Mutual's actual occurrence and other insurance arguments were also reasonable. Finally, Pella contends that summary judgment was inappropriate because the court unfairly based its order on Liberty Mutual's two coverage positions that neither party briefed in its summary judgment motions on the bad-faith claim. We have repeatedly held that ... a district court commits reversible error when it grants summary judgment on an issue not raised or discussed by the parties. Heisler v. Metro. Council, 339 F.3d 622, 631 (8th Cir.2003); see Fed.R.Civ.P. 56(f)(2) (authorizing the district court to grant summary judgment on grounds not raised by a party only after giving notice and a reasonable time to respond). Pella, however, overlooks the fact that, as the plaintiff in its bad-faith claim, it had the burden of proving that Liberty Mutual had  no reasonable basis for denying coverage. Bellville, 702 N.W.2d at 473 (emphasis added). Liberty Mutual's motion asserted that summary judgment was appropriate based on the undisputed record. Although Liberty Mutual emphasized its actual occurrence and other insurance arguments, the critical issue necessarily encompassed whether Liberty Mutual had any reasonable basis for denying coverage. Based on Liberty Mutual's coverage letters and its arguments before the district court, Pella knew that Liberty Mutual had also denied coverage because it believed the Pappas and Saltzman Suits did not allege covered claims. The district court did not grant summary judgment on an issue not raised by the parties because the ultimate issue never changed: the undisputed record showed that Pella could not establish that Liberty Mutual had no reasonable basis for denying coverage. Accordingly, the district court did not commit reversible error in granting summary judgment to Liberty Mutual.
Finally, Pella argues that the district court erroneously limited the amount of defense costs that Pella could recover from Liberty Mutual. In light of our conclusion that Liberty Mutual had no duty to reimburse Pella's defense costs in the Pappas and Saltzman Suits, we need not address this issue.