Opinion ID: 1236324
Heading Depth: 1
Heading Rank: 2

Heading: Factual Issues Presented in the Interpretation of the Policy.

Text: In concluding that there were no issues of fact triable to a jury, the district court concluded that the policy language was not ambiguous, that this language supported defendant's denial of plaintiff's claim, and that there was no extrinsic evidence favoring plaintiff's proposed interpretation of the policy. The defendant urges that this was a proper approach to the issue of interpretation under the rules which we have applied in Farm Bureau Mutual Insurance Co. v. Sandbulte, 302 N.W.2d 104, 107-08 (Iowa 1981); Connie's Construction Co. v. Fireman's Fund Insurance Co., 227 N.W.2d 207, 210 (Iowa 1975); and C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169, 172 (Iowa 1975). It would perhaps be possible to sustain the district court's conclusions under the cases last cited if the issue presented were solely one of interpretation of the meaning of words within a written contract. In a stipulation of facts executed by the parties it is agreed that, if called, witnesses for defendant would testify that the policy language giving rise to the present dispute was inserted in order to avoid the result which prevailed in Gustafson v. Central Iowa Mutual Insurance Association, 277 N.W.2d 609, 614-15 (Iowa 1979). That case was similar to the present in that it also involved a wind loss claim on a Morton Building ®. In Gustafson we held that, absent language in the policy so providing, amounts received by an insured under the manufacturer's warranty did not serve to reduce the casualty insurer's obligation to make payment on the same claim if it was otherwise covered by the policy. Although plaintiff's claim is, in part, based on an interpretation of the language of the policy, it is primarily grounded on the understanding of the parties within the context of the transaction. In First National Bank of Creston v. Creston Implement Co., 340 N.W.2d 777, 781 (Iowa 1983), we discussed the principles of interpretation espoused in the Reporter's Note to comment a and comment b of Restatement (Second) of Contracts § 212 (1979). The Reporter's note to comment a states: Cases making a bald objective-subjective distinction often refuse to go further unless ambiguity is facially apparent. . . . This approach is deemed simplistic, for the reason stated in this Comment and Comment b. Comment a recognizes that in cases involving misunderstanding as to the meaning of an agreement there may be a contract in accordance with the meaning of one party if the other knows or has reason to know of the misunderstanding and the first party does not. We recognized this principle in Hamilton v. Wosepka, 261 Iowa 299, 306-07, 154 N.W.2d 164, 168 (1967). Comment b of the Restatement suggests that the operative meaning of the contract is to be found in the nature of the transaction and within its context. It provides, in part, as follows: It is sometimes said that extrinsic evidence cannot change the plain meaning of a writing, but meaning can almost never be plain except in a context. Accordingly, the rule stated in Subsection (1) is not limited to cases where it is determined that the language used is ambiguous. Any determination of meaning or ambiguity should only be made in the light of the relevant evidence of the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and the course of dealing between the parties. Restatement (Second) of Contracts § 212 comment b (1979). In the present case, certain facts which do not bear directly on the meaning of the words within the insurance policy nonetheless have a significant bearing on the understanding of the parties within the context of the transaction. This is not a case involving blanket wind coverage for all buildings on a particular farm, some of which may be under warranty and some of which may not. The wind coverage for this building was added to plaintiff's policy at the time of its installation and pertains specifically to that single structure. A separate premium charge was made for that coverage. We believe a jury might reasonably conclude that a county mutual insurance company, such as defendant, dealing largely with farm risks, would be aware that this new Morton Building ® added to plaintiff's policy was under a manufacturer's warranty. If so, defendant purported to sell wind damage coverage to this plaintiff with knowledge that the building being insured was of a type to which its policy did not extend if the disputed clause is given the meaning advocated by the defendant. Based on these considerations, we conclude that a jury question was engendered concerning plaintiff's expectations of receiving some viable coverage in exchange for the premium which he was paying. We base this contention on general principles of contract law relating to interpretation in accordance with the situation and expectations of the parties. It also appears to be sustainable under the principles of reasonable expectation which we have recognized are peculiarly applicable in the interpretation of insurance policies. See Rodman v. State Farm Mut. Auto. Ins. Co., 208 N.W.2d 903, 906 (Iowa 1973). In such cases, we have indicated an exclusion will not be applied if it eliminates the dominant purpose of the transaction. Lepic v. Iowa Mut. Ins. Co., 402 N.W.2d 758, 761 (Iowa 1987); Farm Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d at 112. The only apparent purpose of the wind damage coverage on plaintiff's Morton Building ® was as a source of indemnification in the event that a wind loss occurred. Under defendant's interpretation, that purpose would be entirely frustrated in spite of the fact that plaintiff was being charged a premium for such coverage. We affirm the decision of the court of appeals. We affirm that portion of the district court's judgment denying reformation of the policy. We reverse the remaining portions of the district court's judgment and remand the case for jury trial on the remaining issues. DECISION OF COURT OF APPEALS AFFIRMED; DISTRICT COURT JUDGMENT AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.