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PENFORD PRODUCTS CO. et al v. NATIONAL UNION FIRE INSURANCE CO. et al Motion for Judgment

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Case 1:09-cv-00013-LRR Document 119-1
Filed 08/24/10 Page 1 of 13
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF IOWA CEDAR RAPIDS DIVISION
PENFORD CORPORATION and PENFORD PRODUCTS CO., Plaintiffs, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA and ACE AMERICAN INSURANCE COMPANY, Defendants.
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Case No.: 1:09cv13-LRR MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR JUDGMENT AS A MATTER OF LAW UNDER F. R. CIV. P. 50(a)
AND NOW COME Plaintiffs, Penford Corporation and Penford Products Co. (collectively, Penford ), by and through their undersigned counsel, and respectfully submit this Memorandum in Support of Plaintiffs Motion for Judgment as a Matter of Law Under Federal Rule of Civil Procedure 50(a).
SIMMONS PERRINE PLC Stephen J. Holtman, AT0003594 115 Third Street SE, Suite 1200 Cedar Rapids, IA 52401 p: (319) 366-7641 f: (212) 366-1917 sholtman@simmonsperrine.com
K&L GATES LLP Neal R. Brendel Douglas J. Simmons Christopher C. French K&L Gates Center 210 Sixth Avenue Pittsburgh, PA 15222-2613 p: (412) 355-6500 f: (412) 355-6501 neal.brendel@klgates.com doug.simmons@klgates.com christopher.french@klgates.com
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TABLE OF CONTENTS I. II. LEGAL STANDARD ......................................................................................................... 1 ARGUMENT ...................................................................................................................... 1 A. The Court Already Has Ruled That The Policy Language Is Ambiguous, And Therefore The Court Should Construe That Ambiguity In Favor Of Penford And Enter Judgment As A Matter Of Law. ............................................................ 1 The Undisputed Record Demonstrates That The Insurers Selected The Ambiguous Policy Language, And Therefore The Rule Of Contra Proferentem Requires The Ambiguity To Be Construed In Penford s Favor......... 2 Even If The Court Rules That Extrinsic Evidence Could Be Considered In An Effort To Resolve The Policy Language Ambiguity, No Relevant Extrinsic Evidence Was Presented At The Trial. ................................................................... 4 1. To Be Relevant In The Determination Of Intent Extrinsic Evidence Must Have Been Manifested To The Other Party At The Time Of Contracting. ................................................................................................. 5 No Evidence of the Parties Intent at the Time of Contracting Regarding the Application of the Zones A and B Flood Sublimits to Time Element Losses Was Presented During the Trial............................... 6 In the Absence of Relevant Extrinsic Evidence Regarding the Intent of the Parties, the Court Should Deny the Insurers Motion for Judgment as a Matter of Law and Construe the Policy in Penford s Favor ........................................................................................................... 8
B.
C.
2.
3.
III.
CONCLUSION ................................................................................................................... 9
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I.
LEGAL STANDARD
A Rule 50(a) motion for judgment as a matter of law may be presented to the court any time after a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue. Fed. R. Civ. P. 50(a). A Rule 50(a) motion should be granted only when all of the evidence points one way and is susceptible of no reasonable inference sustaining the position of the nonmoving party. Keenan v. Computer Assocs. Int l, Inc., 13 F.3d 1266, 1268-69 (8th Cir. 1994) (quotation omitted). [A] directed verdict is mandated where the facts and the law will reasonably support only one conclusion. McDermott Int l, Inc. v. Wilander, 498 U.S. 337, 356 (1991). II. A. ARGUMENT
The Court Already Has Ruled That The Policy Language Is Ambiguous, And Therefore The Court Should Construe That Ambiguity In Favor Of Penford And Enter Judgment As A Matter Of Law. In its January 19, 2010 Order denying the parties respective motions for summary
judgment, this Court held that the language of the insurance policy at issue is ambiguous with respect to the application of the Zones A and B Flood sublimits. (See Doc. # 64, at 25-26.) For all intents and purposes, that finding by the Court resolves the breach of contract claim in Penford s favor, because the longstanding, well-recognized Iowa doctrine of construing ambiguous insurance policy language in the favor of the policyholder (Penford) must be applied. See Grinnell Mut. Rein. Co. v. Jungling, 654 N.W.2d 530, 536 (Iowa 2002) ( We interpret ambiguous policy provisions in favor of the insured because insurance policies are in the nature of adhesion contracts ); see also Iowa Comprehensive Petro. Underground Storage Tank Fund Bd. v. Farmland Mut. Ins. Co., 568 N.W.2d 815, 818 (Iowa 1997) ( If the term is susceptible to two reasonable interpretations, the interpretation favoring the insured is adopted. ) (citation
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omitted). Penford was, and still is, entitled to the benefit of this rule of Iowa law. Penford therefore requests that the Court apply that doctrine, and enter judgment as a matter of law that the policy language ambiguity must be construed in Penford s favor, meaning that the Zones A and B Flood sublimits do not capture and cap Penford s time element claims. The jury then should retire to deliberate only on the question of damages recoverable by Penford. B. The Undisputed Record Demonstrates That The Insurers Selected The Ambiguous Policy Language, And Therefore The Rule Of Contra Proferentem Requires The Ambiguity To Be Construed In Penford s Favor. Even if the Court rejects Penford s request that the ambiguous insurance policy language be construed as a matter of course in Penford s favor, the undisputed trial record demonstrates that the Insurers selected the ambiguous policy language. Therefore, the longstanding rule of contra proferentem requires that the contract ambiguity be construed against the Insurers and in Penford s favor. The record is uncontroverted that AIG not Penford or Marsh specifically selected the
form that was used for the policy bound to Penford as of March 1, 2007, after AIG rejected the previous form due to a corporate divorce with the Managing General Agent for ACE, Starr Technical Risks Agency. (Rehmer Dep. Tr. at 49:12-50:12; 50:17-53:3; Scott Dep. Tr. at 85:1487:6; Gunty Testimony, 8/23/2010 Trial Tr. at 106:14-108:18; 110:22-111:12; Scott Testimony, 8/23/2010 Trial Tr. at 153:8-24.) The record is uncontroverted that the Limits language of the policy is standard-form insurers policy language, not language written by Marsh (Scott Dep. Tr. at 80:21-83:14; 101:12102:1; Lafferty Dep. Tr. at 136:18-137:15; 138:2-138:11; 138:21-139:3; Rehmer Dep. Tr. at 40:7-40:24; 41:4-41:18; 42:13-42:24; 60:15-61:18; 61:22-62:2; 62:19-62:22; Scott Testimony, 8/23/2010 Trial Tr. at 154:3-7.)
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The record is uncontroverted that, after Marsh retrieved the form specifically requested by AIG in February 2007, the Insurers made multiple changes to the form, while Marsh and Penford made none. (Rehmer Dep. Tr. at 52:3-53:3; Gunty Testimony, 8/23/2010 Trial Tr. at 111:13-113:14; Scott Testimony, 8/23/2010 Trial Tr. at 154:8-21; Weltscheff Testimony, 8/24/2010 Trial Tr. at ___.)1 The record is uncontroverted that this same form was used to bind coverage as of March 1, 2008, again with no substantive changes by Marsh or Penford. (Rehmer Dep. Tr. at 47:1948:8; Gunty Testimony, 8/23/2010 Trial Tr. at 113:15-23; Weltscheff Testimony, 8/24/2010 Trial Tr. at ___.) Given these undisputed facts, Penford is entitled to application, as a matter of law, of the doctrine of contra proferentem, wherein ambiguity in the policy form must be resolved against the party that selected it. See Iowa Civil Jury Instruction § 2400.5 ( Ambiguous language in a written contract is interpreted against the party who selected it. ) (citing, among other cases, Village Supply Co. v. Iowa Fund, Inc., 312 N.W.2d 551, 555 (Iowa 1981) (resolving doubts concerning the meaning of an agreement against the drafter); DeJong v. Sioux Center, 168 F.3d 1115, 1121 (8th Cir. 1999) (referring to the rule that ambiguous terms are to be construed against the drafter as a standard rule of Iowa contract law ), affirming 980 F. Supp. 1010 (N.D. Iowa 1997)). This is particularly true where the ambiguity appears in a limitation on coverage, on which the insurer bears the onus of ensuring clarity. See Dairyland Ins. Co. v. Concrete Prods. Co., 203 N.W.2d 558, 562-63 (Iowa 1973) (It is a fundamental Iowa rule that an insurer, having affirmatively expressed coverage through broad promises, assumes a duty to define any
1
At the time of the drafting of this memorandum, the transcript of Mr. Weltscheff s trial testimony had not been made available by the court reporter. Accordingly, all citations to Mr. Weltscheff s testimony herein are to 8/24/2010 Trial Tr. at ____. )
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limitations upon that coverage in clear and explicit terms. ); Draper v. Wellmark, Inc., 478 F.Supp. 1101, 1108 (N.D. Iowa 2007) (citing Hamm v. Allied Mut. Ins. Co., 612 N.W.2d 775, 778 (Iowa 2000)); Northwestern Flyers, Inc. v. Olson Bros. Mfg. Co., 679 F.2d 1264, 1273 (8th Cir. 1982); Roach v. Churchman, 431 F.2d 849, 851 (8th Cir. 1970)); Farm & City Ins. Co. v. Gilmore, 539 N.W.2d 154, 157 (Iowa 1995). Because this Court already has found such ambiguity to exist (see Doc. # 64, at 25-26), the doctrine of contra proferentem requires that Penford s reasonable interpretation of the policy to be accepted. C. Even If The Court Rules That Extrinsic Evidence Could Be Considered In An Effort To Resolve The Policy Language Ambiguity, No Relevant Extrinsic Evidence Was Presented At The Trial. If this Court rejects Penford s request in Sections II.A and II.B. above and determines that extrinsic evidence may be considered for the purpose of attempting to resolve the insurance policy language ambiguity before rules of contract construction are applied, the Court nonetheless should enter judgment as a matter of law in Penford s favor because no relevant extrinsic evidence was admitted at the trial on the issue of intent. Specifically, all of the witnesses confirmed that they never had any communications (orally or in writing) regarding how the policy s Flood sublimits would apply (i.e., whether they capture and cap just property damage losses or also time element losses). Likewise, the witnesses confirmed that none of the documents (e.g., the insurers quotes or binders ) addressed this issue directly either.
Therefore, the extrinsic evidence of intent cannot be deemed sufficient to allow a reasonable juror to resolve the policy ambiguity, and the Court must apply the rules of insurance policy contract construction, which require entry of judgment as a matter of law in Penford s favor.
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1.
To Be Relevant In The Determination Of Intent Extrinsic Evidence Must Have Been Manifested To The Other Party At The Time Of Contracting.
Under Iowa law only extrinsic evidence that is manifested to the other party is relevant to determining a party s intent. If a party had no knowledge of the extrinsic evidence purportedly demonstrating the other party s intent, such evidence has no bearing on the determination of intent. In searching for that intention [of the parties to a contract], we look to what the parties did and said, rather than to some secret, undisclosed intention they may have had in mind, or which occurred to them later. Waechter v. Aluminum Co. of Am., 454 N.W.2d 565, 568 (Iowa 1990) (emphasis added).2 Moreover, to be relevant, extrinsic evidence must be from the time of contracting. See NevadaCare, Inc. v. Dep t of Human Servs., 783 N.W.2d 459, 466 (Iowa 2010) ( The determination of the intent of the parties at the time they entered into the contract is the cardinal rule of contract interpretation. ). As this Court recognized in its June 17, 2010 Order on the parties motions in limine, the Iowa Supreme Court has articulated a seemingly broad standard for the admissibility of extrinsic evidence regarding intent that sheds light on the situation of the parties, antecedent negotiations, the attendant circumstances, and the objects they were striving to attain. (Doc. # 94 at 13 (quoting Clinton Phys. Therapy Servs., P.C. v. John Deere Health Care, Inc., 714 N.W.2d 603, 615 (Iowa 2006)).) However, the application of this language by Iowa courts has been significantly more narrow and does not stand for the proposition that undisclosed or postcontracting evidence is relevant to the determination of intent. Indeed, in Hamilton v. Wosepka,
2
Waechter dealt with the interpretation of a settlement agreement, but describes the legal principle applicable to the interpretation of all contracts under Iowa law. As the Waechter Court itself recognized, because settlement agreements are essentially contracts, we look to the legal principles applicable to contracts when interpreting them. As with any contract, [w]hen we do interpret settlement agreements, our primary concern is to ascertain the intention of the parties. 454 N.W.2d at 568 (emphasis added).
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the decision first articulating the above-quoted standard, the Iowa Supreme Court recognized the necessary limitation that should be placed on the evidence used in the search for the parties intent: [T]he meaning to be discovered and applied is that which each party had reason to know would be given to the words by the other party. Antecedent and surrounding factors that throw light upon this question may be proved by any kind of relevant evidence. 154 N.W.2d 164, 169 (Iowa 1967) (emphasis added) (quoting 3 Corbin on Contracts, § 579). Likewise, in Clinton Physical Therapy Services, the decision quoted by this Court in its prior Order and during trial, the Iowa Supreme Court held that post-contract evidence (specifically, a contract amendment agreed to by the parties subsequent to the execution of the ambiguous contract at issue) did little to shed light on the situation of the parties or any attendant circumstances at the time of executing the original contract. 714 N.W.2d at 615-16. Thus, the extrinsic evidence presented in Penford s case must be evaluated in light of these wellestablished principles of contract interpretation. 2. No Evidence of the Parties Intent at the Time of Contracting Regarding the Application of the Zones A and B Flood Sublimits to Time Element Losses Was Presented During the Trial
No extrinsic evidence has been presented during this trial demonstrating any intent that was manifested to the other contracting party(ies). The underwriters involved for the Insurers testified that they never discussed with Marsh or Penford whether the flood sublimits would apply to time element loss in the event of a flood loss at Zones A or B of the Cedar Rapids plant. ((Gunty Testimony, 8/23/2010 Trial Tr. at 117:12-20; 118:8-12; Scott Testimony, 8/23/2010 Trial Tr. at 170:11-16.; Weltscheff Testimony, 8/24/2010 Trial Tr. at ___.) Ms. Rehmer of Marsh confirmed that at no time prior to or after the June 2008 flood did she recall any discussions with anyone from the Insurers regarding how the Zones A and B flood sublimits
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would apply to a time element loss at the Cedar Rapids facility. (Rehmer Dep. Tr. at 92:8-92:14; 95:24-96:11; 96:20-24.) Mr. Michaels of Marsh also testified that he was not aware of any such discussions. (Michaels Testimony, 8/20/2010 Trial Tr. at 73:9-74:4.) Mr. Cordier of Penford likewise confirmed that at the time the policy was placed he did not receive any communication from the Insurers, either directly or indirectly, indicating that the Insurers contended that the zone sublimits applied to a flood-related business interruption claim. (Cordier Testimony, 8/17/2010 Tr. at 72:4-18.) Likewise, none of the documentary evidence relied upon by the Insurers shows any precontracting expressed intent by either party regarding the application of the Zones A and B flood sublimits to time element losses. Neither the program specifications for the March 1, 2008 to March 1, 2009 policy year (Trial Ex. 1000), nor the Insurers quotations (Trial Exs. 1018 [and
1410]3), nor the binders (Trial Exs. 1096 [and 74]4) say anything explicit about whether time element losses would be encompassed by the Zones A and B flood sublimits. The Insurers internal underwriting guidelines (Trial Exs. 1092 [and 1022]5) are the quintessential example of unexpressed intent, and also do not actually prohibit the Insurers from writing the coverage to which Penford contends it is entitled. (Scott Testimony, 8/23/2010 Trial Tr. at 160:16-160:23; Weltscheff Testimony, 8/24/2010 Trial Tr. at ___). Finally, Ms. Rehmer s e-mail of June 11, 2008, which both post-dates the agreement of the parties regarding the applicable policy language and was neither sent to nor relied upon by the Insurers, does not discuss whether time element losses are included within the Zones A and B flood sublimits. (See Trial Ex. 1024.)
3 4 5
Not yet admitted as of the drafting of the motion. Not yet admitted as of the drafting of the motion. Not yet admitted as of the drafting of the motion.
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Indeed, the undisputed evidence is that no party ever considered
let alone formed an
intent that was shared with the other how a flood-related business interruption loss at Penford s Cedar Rapids Plant could be calculated under the geographic Flood zones of the policy. The Insurers underwriters certainly did not consider that issue (see Scott Testimony, 8/23/2010 Trial Tr. at 155:21-158:13) even though they knew that Penford s facility was an integrated one (see Trial Ex. 57, 65). 3. In the Absence of Relevant Extrinsic Evidence Regarding the Intent of the Parties, the Court Should Deny the Insurers Motion for Judgment as a Matter of Law and Construe the Policy in Penford s Favor
As the Court recognized in its January 19, 2010 Order on the parties respective motions for summary judgment, in the context of insurance policies, ambiguous policy provisions especially any limitations or exclusionary clauses and
are interpreted against the insurer and in
favor of the insured. (Doc. # 64, January 19, 2010 Order, at 15 (citing Grinnell Mut. Reins. Co. v. Jungling, 654 N.W.2d 530, 536 (Iowa 2002))); see also, e.g., Comprehensive Petro. Underground Storage Tank Fund Bd. v. Farmland Mut. Ins. Co., 568 N.W.2d 815, 818 (Iowa 1997) ( If the term is susceptible to two reasonable interpretations, the interpretation favoring the insured is adopted. ) (citation omitted); West Bend Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 624 N.W.2d 422, 424 (Iowa 2001) ( When the meaning of the terms in an insurance policy is susceptible to two interpretations, the one favoring the insured is adopted. ); IMT Ins. Co. v. Crestmoor Golf Club, 702 N.W.2d 492, 496 (Iowa 2005) ( Even in cases of doubt as to whether a claim is covered by the policy, the doubt must be resolved in the insured s favor. ). Indeed, in Iowa, the courts have applied this rule in favor of the policyholder regardless of the size or sophistication of the policyholder. The Iowa Supreme Court has not recognized an exception to this rule based on the purported sophistication of the policyholder or the involvement of an insurance broker in the procurement of the policy. To the contrary, the Iowa -8-
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Supreme Court has applied this rule equally to individual policyholders and more sophisticated corporate policyholders. See, e.g., Bituminous Cas. Corp. v. Sand Livestock Sys., Inc., 728 N.W.2d 216, 220 (Iowa 2007) (corporate policyholder constructed livestock confinement facilities), A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 619 (Iowa 1991) (corporate policyholder operated brass foundry). Accordingly, because the evidence of record does not show by any measure, let alone the high hurdle for judgment as a matter of law, that the parties manifested a shared intent at the time of contracting regarding the application of the Zones A and B flood sublimits to time element losses, the Court should construe the sublimit provision which clearly acts as a limitation on coverage in Penford s favor. III. CONCLUSION
For all the foregoing reasons, Penford respectfully requests that Defendants Motion for Judgment as a Matter of Law Under Rule 50(a) be denied in its entirety.
Respectfully submitted: Dated: August 24, 2010 /s/ Neal R. Brendel SIMMONS PERRINE PLC Roger W. Stone, AT0007519 Stephen J. Holtman, AT0003594 Jeffrey K. McGinness, AT0009493 115 Third Street SE, Suite 1200 Cedar Rapids, IA 52401 p: (319) 366-7641 f: (212) 366-1917 rstone@simmonsperrine.com sholtman@simmonsperrine.com jmcginness@simmonsperrine.com K&L GATES LLP Neal R. Brendel Douglas J. Simmons Christopher C. French K&L Gates Center 210 Sixth Avenue -9-
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Pittsburgh, PA 15222-2613 p: (412) 355-6500 f: (412) 355-6501 neal.brendel@klgates.com doug.simmons@klgates.com christopher.french@klgates.com Attorneys for Plaintiffs Penford Corporation and Penford Products Co.
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CERTIFICATE OF SERVICE I certify that a true and correct copy of the foregoing Penford s Opposition to Defendants Motion for Judgment as a Matter of Law was served upon the following counsel of record on August 24, 2010, via hand delivery and the Court s ECF system:
COUNSEL FOR DEFENDANTS: Matthew S. Ponzi mponzi@fgppr.com Thomas B. Orlando torlando@fgppr.com Richard A. Buchanan rbuchanan@fgppr.com J. Michael Weston mweston@lwclawyers.com Gregory M. Lederer glederer@lwclawyers.com Brenda K. Wallrichs bwallrichs@lwclawyers.com
COUNSEL FOR PLAINTIFFS: Neal R. Brendel neal.brendel@klgates.com Thomas M. Reiter thomas.reiter@klgates.com Douglas J. Simmons doug.simmons@klgates.com Christopher C. French christopher.french@klgates.com Paul C. Fuener paul.fuener@klgates.com Roger W. Stone rstone@simmonsperrine.com Stephen J. Holtman sholtman@simmonsperrine.com Jeffrey K. McGinness jmcginness@simmonsperrine.com
/s/ Neal R. Brendel Neal R. Brendel neal.brendel@klgates.com
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