Michigan Millers Mutual Ins. v. Asoyia, Inc.

In 2006, Asoyia, LLC (now Asoyia, Inc.), an Iowa producer of soybean oil,

purchased a general commercial agribusiness insurance policy and a commercial

umbrella liability policy from Michigan Millers Mutual Insurance Company

(Michigan Millers). The policies covered general liability on an occurrence basis.

After a fire on June 18, 2007, destroyed the Sunnyside Country Club (Sunnyside)—

one of Asoyia’s customers—Sunnyside’s insurer and subrogee, United Fire &

Casualty Company (United Fire), sued Asoyia and former chief executive officer

Vivan Jennings in Iowa state court, alleging Asoyia’s soybean oil caused the fire

when a pile of laundered rags containing the oil spontaneously combusted.

In this diversity case, see 28 U.S.C. § 1332(a)(1), Michigan Millers seeks a

declaration that it has no duty to defend or indemnify Asoyia or Jennings in the

underlying suit because of Asoyia’s prejudicial failure to provide prompt notice of the

loss. See 28 U.S.C. §§ 2201, 2202; Fed. R. Civ. P. 57. On cross-motions for

summary judgment, the district court determined 1 Jennings was insured under

Asoyia’s policies but that genuine disputes of material fact remained as to whether

Michigan Millers could deny coverage for lack of notice. On December 20, 2013, a

jury determined the late notice did not prejudice Michigan Millers, and the district

court entered judgment against Michigan Millers. Michigan Millers timely filed a

post-trial motion for judgment as a matter of law or a new trial, which the district

court denied. Michigan Millers appeals,2 and we affirm.

I. BACKGROUND

A. Stipulated Facts

The parties stipulated to the following facts for the jury trial:

On June 18, 2007, a fire occurred at the Sunnyside Country Club

in Waterloo, Iowa. United Fire provided property insurance to the

country club. As the club’s property insurer, United Fire conducted a

1The Honorable Celeste F. Bremer, United States Magistrate Judge for the

Southern District of Iowa, sitting by consent of the parties pursuant to 28 U.S.C.

§ 636(c)(1) and Federal Rule of Civil Procedure 73. The Honorable Charles R.

Wolle, United States District Judge for the Southern District of Iowa, entered final

judgment against Michigan Millers as to all defendants on May 15, 2014.

2We possess appellate jurisdiction pursuant to 28 U.S.C. § 1291.

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preliminary investigation of the fire, determined that the fire loss was

covered by its insurance agreement with the club, and paid the club’s

damage claim. The fire was also investigated by Dave Boesen, the

Waterloo Fire Marshal.

Shortly after the fire, in the course of its investigation, United Fire

sent a notice to others that a fire had occurred, which stated that United

Fire might blame them for the loss. This is known as a subrogation

notice; it was sent on June 28, 2007. United Fire’s subrogation notice

stated that an investigation at the fire scene would take place starting on

July 10, 2007, and that others could participate in the ongoing

investigation.

One of the subrogation notices was sent to Asoyia, a company that

produced and sold soybean oil. Although Asoyia received the

subrogation notice from United Fire, no one at Asoyia gave the

subrogation notice to Michigan Millers. No one from, or on behalf of,

Asoyia participated in the fire investigation. Sunnyside Country Club

was entirely repaired in the summer of 2008.

On May 19, 2009, United Fire sued Asoyia in [Iowa] state court,

alleging that the fire at the country club started due to spontaneous

combustion of recently laundered kitchen rags, and that the rags had

been used to clean a fryer that had contained Asoyia’s soybean oil.

United Fire alleged that Asoyia is liable to pay the damages caused by

the fire because it did not warn customers about the hazard of

spontaneous combustion after laundering oil-soaked rags.

Once it was sued in state court in 2009, Asoyia promptly sent

notice of the suit to Michigan Millers. Vivan Jennings was Asoyia’s

Chief Executive Officer in 2005 and 2006. His duties included

marketing the oil, and approving product warnings and labels. Jennings

was added to the state court lawsuit in 2012. Jennings promptly sent

notice to Michigan Millers when he was sued. Michigan Millers’

insurance contract with Asoyia was in force at the time of the fire.

Jennings is insured under Michigan Millers’ insurance contract with

Asoyia, and thus is bound by findings about Asoyia’s coverage. Asoyia

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went out of business in December of 2009. The Court has ruled that

United Fire has standing to litigate Asoyia’s insurance coverage.

Michigan Millers claims it was prejudiced by the delay (between

June 2007 and May 2009) in receiving notice of the fire, and that

because it did not receive notice of the possible claim when Asoyia first

learned of the fire, the insurance contract does not provide coverage, and

it does not have to defend or pay in the pending state court action United

Fire has against Asoyia and Jennings.

United Fire claims that the investigations carried out in 2007 by

the Waterloo Fire Marshal and United Fire’s experts were thorough and

based upon well-preserved evidence, and that Michigan Millers was not

prejudiced by the delayed notice. At the end of the trial, you will decide

whether, due to the delay in receiving notice of the fire, Michigan

Millers was prejudiced in its ability to investigate and defend United

Fire’s state court claims against Asoyia and Jennings. If Michigan

Millers was prejudiced, there is no insurance coverage for the claims

made against Asoyia and Jennings.

B. Additional Facts

At trial, Michigan Millers—maintaining United Fire’s investigation was

biased—presented evidence indicating Michigan Millers could not perform a full

investigation of the fire scene because Sunnyside was fully repaired before Michigan

Millers received notice and the existing investigations failed to preserve adequately

the evidence of causation. Fire investigation experts for both sides testified it was

important to investigate promptly to enable investigators to see the evidence in place,

process it properly, secure contemporaneous witness statements, and confer with

other investigators about possible causes.

After reviewing approximately one thousand pages of documents, Michigan

Millers’s fire investigation expert, Scott Dillon, testified the existing fire

investigations were inadequate with respect to (1) the completion and documentation

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of witness interviews; (2) the examination 3 and preservation of artifacts in general

and the rag pile in particular; (3) the number, subject matter, and quality of

photographs; and (4) the investigation of other potential causes of the fire, including

what may have been an electrical fan near the suspected origin of the fire. In Dillon’s

view, those inadequacies made it impossible to determine the source of the fire

because memories could fade and evidence was lost or had deteriorated over time.

In addition to complaining the investigations were “so severely lacking in

organization and accuracy” that they deprived Michigan Millers of the opportunity

to “piece together” its own meaningful investigation, Michigan Millers claimed

prejudice based on its inability to assess the damages and participate in settlement

discussions before repairs were complete.

In response, United Fire presented evidence indicating Michigan Millers

suffered no prejudice from the lack of notice because the investigations by Fire

Marshal Boesen and United Fire more than adequately preserved the evidence to

enable Michigan Millers to complete its own investigation, even two years after the

fire. At trial, Fire Marshal Boesen described his process for photographing the fire

scene and “systematically” processing the debris “to determine where [and how] the

fire started.” Having taken more than 120 photographs, Fire Marshal Boesen

described for the jury the analytical importance of several key findings recorded in

his photographs. Fire Marshal Boesen also testified that, as part of his investigation

into the cause of the fire, he interviewed the firefighters on the scene and Sunnyside

employees. When Michigan Millers challenged his investigative methods on crossexamination,

Fire Marshal Boesen maintained he adequately investigated,

3As further evidence of prejudice, Michigan Millers noted United Fire redacted

and withheld certain witness statements from Michigan Millers, claiming workproduct

privilege. United Fire countered that Michigan Millers did not seek judicial

assistance in obtaining that evidence by the available means explained in the jury

instructions.

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photographed, and otherwise documented the fire, ruling out several alternative

theories before reaching a conclusion as to causation.

United Fire’s fire investigation expert, Lonn Abeltins, who arrived at the scene

shortly after the fire, testified he too thoroughly examined all relevant potential

causes of the fire. Abeltins, who took approximately 160 photographs, testified he

and other investigators thoroughly documented and photographed the scene in

compliance with industry standards. According to Abeltins and others, the

photographs and witness interview notes they took and the artifacts and debris they

collected, including the rag pile and key electrical system components, were all still

available and would allow Michigan Millers to complete its own independent

investigation.

United Fire also criticized Michigan Millers for failing to investigate even after

getting notice. United Fire emphasized that Michigan Millers waited two-and-a-half

years to hire Dillon and then asked for a very limited analysis, instructing Dillon to

determine whether the Sunnyside fire “was documented such that another investigator

could come to a meaningful and independent conclusion as to . . . the origin and cause

of the fire without performing a fire scene investigation, without looking at artifacts

collected at the scene, and without interviewing any witnesses.” Repeatedly decrying

what it saw as Michigan Millers’s failure to make any effort to interview witnesses

or review the stored evidence, United Fire questioned why Michigan Millers never

interviewed Fire Marshal Boesen before trial despite his willingness to be

interviewed, his objectivity, and his reportedly good recollection of his investigation.

After three days of testimony from seven witnesses and receipt of hundreds of

photographs and other exhibits, the district court submitted the issue of prejudice to

the jury with a special verdict form asking (1) if United Fire rebutted the presumption

of prejudice and, (2) if so, did Michigan Millers prove actual prejudice. On

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December 20, 2013, the jury answered both questions in United Fire’s favor, and the

district court entered judgment.

Michigan Millers timely moved for judgment as a matter of law under Federal

Rule of Civil Procedure 50(b) and, alternatively, for a new trial under Federal Rule

of Civil Procedure 59(a)(1)(A). This appeal followed the denial of that motion. The

parties agree Iowa law governs this diversity action. See Erie R. Co. v. Tompkins,

304 U.S. 64, 78 (1938).

II. DISCUSSION

A. Prejudice

Michigan Millers first argues the district court erred in denying its post-trial

motion because, in its view, the trial evidence did not support the jury’s verdict. “We

review de novo the district court’s denial of [Michigan Millers’s] motion for

judgment as a matter of law.” Estate of Pepper v. Whitehead, 780 F.3d 856, 861 (8th

Cir. 2015). Although Michigan Millers and United Fire both appear to apply the

federal standard without discussion, see Fed. R. Civ. P. 50(a)(1) (permitting judgment

as a matter of law “[i]f a party has been fully heard on an issue during a jury trial and

the court finds that a reasonable jury would not have a legally sufficient evidentiary

basis to find for the party on that issue”), we think the Iowa standard applies to this

diversity case.

In reviewing evidentiary sufficiency in diversity cases, we have “generally

applied the appropriate state sufficiency standard where the issue has not been raised

by the parties and the state and federal standards are similar.” Carper v. State Farm

Mut. Ins. Co., 758 F.2d 337, 340 (8th Cir. 1985); see also Hanson v. Ford Motor Co.,

278 F.2d 586, 589-90 (8th Cir. 1960) (Blackmun, J.) (considering the question open

after Dick v. N.Y. Life Ins. Co., 359 U.S. 437, 444-45 (1959), and applying the state

standard); cf. Mercer v. Theriot, 377 U.S. 152, 156 (1964) (per curiam) (“The

evidence was sufficient under any standard which might be appropriate—state or

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federal.”); Keenan v. Computer Assocs. Int’l, Inc., 13 F.3d 1266, 1269 n.3 (8th Cir.

1994) (noting “some uncertainty about whether federal courts should apply state law

standards or federal law standards to motions for a judgment notwithstanding the

verdict in diversity cases” before deciding “[w]e need not be concerned with this

dispute as the federal standard and the [applicable state] standard [we]re virtually

identical”). But see Farner v. Paccar, Inc., 562 F.2d 518, 522 (8th Cir. 1977)

(applying the federal standard).

We consistently have held the Iowa sufficiency standard is “substantially the

same” as the federal standard. Ozark Air Lines, Inc. v. Larimer, 352 F.2d 9, 11 (8th

Cir. 1965); see also, e.g., Chadima v. Nat’l Fid. Life Ins. Co., 55 F.3d 345, 347 n.5

(8th Cir. 1995); Carper, 758 F.2d at 340 (analyzing Osborn v. Massey-Ferguson, Inc.,

290 N.W.2d 893, 901 (Iowa 1980)). Both standards demand substantial evidence to

support the jury’s verdict and require us to view the evidence in the light most

favorable to United Fire, drawing all reasonable inferences to its benefit. See Ozark

Air Lines, 352 F.2d at 11 (citing Ellingson v. Kramer, 125 N.W.2d 777, 780 (Iowa

1964)); Van Sickle Constr. Co. v. Wachovia Commercial Mortg., Inc., 783 N.W.2d

684, 687 (Iowa 2010) (“Evidence is substantial if a reasonable mind would find it

adequate to support a finding.”). “[I]f reasonable minds could differ on an issue when

the evidence is viewed in the light most favorable to the nonmoving party, then it was

appropriate to submit the issue to the jury and the jury’s verdict should be upheld.”

Lamb v. Manitowoc Co., 570 N.W.2d 65, 68 (Iowa 1997); accord Structural Polymer

Grp. v. Zoltek Corp., 543 F.3d 987, 991 (8th Cir. 2008) (explaining we will not

reverse a jury verdict “unless no reasonable juror could have reached the same

conclusion”).

“The standard for granting a motion for new trial is higher still.” Howard v.

Mo. Bone & Joint Ctr., Inc., 615 F.3d 991, 995 (8th Cir. 2010). We will only reverse

the denial of a new trial motion for an abuse of discretion. See Lockley v. Deere &

Co., 933 F.2d 1378, 1385 (8th Cir. 1991). “Where, as here, the ‘basis of the motion

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for a new trial is that the jury’s verdict is against the weight of the evidence, the

district court’s denial of the motion is virtually unassailable on appeal.’” Wood v.

Minn. Mining & Mfg. Co., 112 F.3d 306, 311 (8th Cir. 1997) (quoting Keenan,

13 F.3d at 1269). “The key question is whether a new trial should have been granted

to avoid a miscarriage of justice.” Keenan, 13 F.3d at 1269.

With these standards in mind, we conclude the district court properly denied

Michigan Millers’s post-trial motion. In a decision unchallenged on appeal, the

district court decided as a matter of law that Asoyia did not substantially comply with

the notice provision of the Michigan Millers policies. Under Iowa law, that failure

gives rise to a presumption of prejudice to Michigan Millers. See Met-Coil Sys.

Corp. v. Columbia Cas. Co., 524 N.W.2d 650, 654 (Iowa 1994). But the presumption

is rebuttable upon a “satisfactory showing of lack of prejudice,” in which case,

Michigan Millers must prove actual prejudice to warrant denying coverage. Id.

To resolve those issues, the special verdict form asked the jury to answer two

related questions: (1) “Did Defendant United Fire prove facts which show that

Plaintiff Michigan Millers was not prejudiced by delayed notice of the fire?”; and

(2) if so, “Did Plaintiff Michigan Millers prove that it was actually prejudiced by

delayed notice of the fire?” The jury instructions did not specifically define prejudice

but instructed the jury to consider, as to the first question, whether “the fire

investigation by United Fire and the Waterloo Fire Department was sufficiently

thorough and the evidence was sufficiently well-preserved to allow Michigan Millers

to fully investigate the fire after it received notice in May 2009, and that Michigan

Millers never attempted to investigate.” As to the second question, the instructions

queried whether Michigan Millers lost the opportunity to try “to settle the claim” or

“to conduct, direct, or participate in a meaningful fire investigation.” See, e.g.,

Fireman’s Fund Ins. Co. v. ACC Chem. Co., 538 N.W.2d 259, 266 (Iowa 1995) (en

banc) (discussing factors relevant to prejudice).

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On this record, it was not unreasonable for the jury to determine Michigan

Millers suffered no prejudice from Asoyia’s delay in giving notice. Over the course

of the four-day trial, United Fire presented detailed testimonial and documentary

evidence that a reasonable jury could find sufficient to rebut the presumption of

prejudice. With the aid of some of the hundreds of photographs they took, Fire

Marshal Boesen, Abeltins, and other investigators thoroughly described their

investigatory processes, explaining their methods and cataloguing the physical

evidence they documented and preserved.

To further rebut the presumption, United Fire presented testimony allowing a

reasonable jury to conclude that—despite some potential obstacles—the carefully

preserved evidentiary record, including photographs, witness statements, and stored

physical evidence, would enable Michigan Millers to conduct a thorough and

meaningful investigation of the fire, even two years after receiving notice. Faulting

what it saw as Michigan Millers’s tactical refusal to investigate, United Fire

maintained Michigan Millers merely complained of potential prejudice from a variety

of sources, but failed to show any actual prejudice ever materialized. See Fireman’s

Fund, 538 N.W.2d at 266 (“‘[M]ere speculation that prejudice to an insurer may exist

as a result of its insured’s failure to give notice . . . as soon as practicable . . . will not

suffice to relieve the insurer of its liability wherein the lack of prejudice is clearly

demonstrated.’” (quoting 8 John Alan Appleman & Jean Appleman, Insurance Law

and Practice § 4732, at 30 (1981))). Although Michigan Millers may have been

correct in proclaiming in its closing argument that the question of prejudice was “a

close call” for the jury in weighing the evidence, we conclude the evidence adduced

at trial amply supported the jury’s verdict.

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B. Who Is an Insured

Michigan Millers next challenges the district court’s determination that

Jennings was insured under Asoyia’s policies. 4 See Ill. Nat’l Ins. Co. v. Farm Bureau

Mut. Ins. Co., 578 N.W.2d 670, 671 (Iowa 1998) (“The construction of an insurance

contract and the interpretation of its language are matters of law for the court.”). “We

review both the district court’s grant of summary judgment and its interpretation of

the insurance policy de novo.” United Fire & Cas. Co. v. Titan Contractors Serv.,

Inc., 751 F.3d 880, 883 (8th Cir. 2014). Summary judgment is required “if the

movant shows that there is no genuine dispute as to any material fact and the movant

is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

In construing an insurance policy under Iowa law, the intent of the parties—as

evidenced by the unambiguous policy language—controls. See Nationwide Agri-

Bus. Ins. Co. v. Goodwin, 782 N.W.2d 465, 470 (Iowa 2010). “Ambiguity exists if,

after the application of pertinent rules of interpretation to the policy, a genuine

uncertainty results as to which one of two or more meanings is the proper one.” A.Y.

McDonald Indus. v. Ins. Co. of N. Am., 475 N.W.2d 607, 618 (Iowa 1991) (en banc).

“A mere disagreement . . . as to the meaning of policy language” does not create

ambiguity. Kibbee v. State Farm Fire & Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994).

A policy is ambiguous “[o]nly when the policy language is susceptible to two

reasonable interpretations.” Id. “If the policy is ambiguous, we adopt the

construction most favorable to the insured.” Boelman v. Grinnell Mut. Reins. Co.,

826 N.W.2d 494, 502 (Iowa 2013). “It is therefore incumbent upon an insurer to

define clearly and explicitly any limitations or exclusions to coverage expressed by

broad promises.” Cairns v. Grinnell Mut. Reins. Co., 398 N.W.2d 821, 824 (Iowa

1987).

4Stating Asoyia’s primary and umbrella policies contain “substantively

identical provisions” as to who is an insured, Michigan Millers analyzes the policies

together. We do the same.

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Applying these rules of interpretation, we conclude the district court did not

err in deciding the Asoyia policies were ambiguous and Jennings was entitled to

coverage. In addition to Asoyia—the named insured on both policies—the policies

generally include as insureds Asoyia’s (1) members with respect to Asoyia’s

business; (2) managers with respect to their managerial duties; and (3) “‘employees’

. . . for acts within the scope of their employment.” The parties agree Jennings was

once an Asoyia employee and his alleged liability derives from acts he took within

the scope of his employment but disagree as to whether Jennings, who terminated his

employment before the fire, qualifies as a named insured under the policies.

Based on its reading of the insuring agreement and policy definitions,

Michigan Millers argues Jennings is not an insured because coverage is determined

“[a]t the time of the . . . occurrence” and Jennings had “severed his relationship with

Asoyia by the time of the fire.” Opining that “limiting coverage to those persons who

. . . qualify [as employees] during the coverage period is the only logical way to

construe the policy language,” Michigan Millers suggests “extending coverage to a

former employee constitutes an improper re-writing of the policy.”

In contrast, United Fire emphasizes that the Asoyia policies do not expressly

“limit coverage to employees of the named insured ‘at the time of the occurrence,’ nor

do [they] . . . otherwise distinguish as to whether current or former employees qualify

as insured.” According to United Fire, “[t]he only limitation as to employees is that

they are only insured for ‘acts with[in] the scope of their employment.’” Jennings

adds that “[t]he policy language places temporal limits only on the timing of the

damage.” As Jennings sees it, “the only reasonable interpretation” of the policy

language is that the timing of the loss “does not limit the definition of who is an

insured.”

Confronted with these conflicting “reasonable interpretations” of the policy

language, Kibbee, 525 N.W.2d at 868, the district court determined the policies—

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which lack any explicit temporal limitation on which members, managers, and

employees are covered—were “ambiguous as to whether the term ‘employees’ [was]

limited to Asoyia’s employees on June 18, 2007, the date of the occurrence.”

Resolving the ambiguity in Jennings’s favor, the district court concluded Jennings

was insured under the policies. We find no fault in the district court’s application of

Iowa law. See Boelman, 826 N.W.2d at 502.

We affirm