3140 LLC v. State Central Financial Services, Inc. D/B/A State Central Insurance

IN THE COURT OF APPEALS OF IOWA

No. 14-1602
Filed January 27, 2016

3140 LLC,
Plaintiff-Appellant,

vs.

STATE CENTRAL FINANCIAL SERVICES, INC.
d/b/a STATE CENTRAL INSURANCE,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Lee (South) County, John M.

Wright, Judge.

A limited liability corporation appeals from entry of summary judgment in

favor of its insurer. AFFIRMED.

Ross Braden of the Law Office of Ross Braden, Fort Madison,and Curtis

Dial of Law Office of Curtis Dial, Keokuk, for appellant.

Joseph Wharton and Joseph M. Barron of Peddicord, Wharton, Spencer,

Hook, Barron & Wegman, L.L.P., West Des Moines, for appellee.

Heard by Danilson, C.J., and Vogel and Potterfield, JJ.
2

POTTERFIELD, Judge.

The insured, 3140 LLC, claims its insurance agent, State Central Financial

Services, Inc., doing business as State Central Insurance (State Central), was

negligent in “providing false information to [3140 LLC] regarding the requirement

to have a working sprinkler system.” The district court granted State Central

summary judgment, and 3140 LLC appeals.

I. Background Facts and Proceedings.

Leon Ewart and Rick Greenfield are two of the principals or owners of

3140 LLC, which purchased a parcel of real estate located at 3140 Plank Road in

Keokuk, Lee County, Iowa, in 2004. A former nursing home is located on the

land.

Prior to September of 2007, the real estate and building were insured

through United Fire and Casualty Company. This policy had been sold to 3140

LLC by Lofton, Stebbings & Sohl Insurance in Keokuk, Iowa. This insurance

policy was cancelled or non-renewed by the insurance company. The building

became uninsured after June 2007. The real estate was subject to a mortgage

by State Central Bank. State Central Bank, upon learning of the cancellation of

insurance, demanded that 3140 LLC provide property damage coverage for the

building located on the real estate in the amount of the mortgage.

3140 LLC then began efforts to obtain successor insurance coverage.

Ewart and Greenfield were the individuals who participated in the efforts to obtain

insurance coverage. The building located on the property could not be insured

by a standard insurance carrier doing business in the state of Iowa. As a result,
3

it was necessary for 3140 LLC to pursue insurance coverage in the secondary

market through an insurance broker.

3140 LLC sought a quote for insurance coverage from State Central

Insurance, an independent insurance company. 3140 LLC first dealt with State

Central contact Cory Grisham, and later with Frank O’Connor.

State Central, through insurance broker M. J. Kelly, obtained a quote from

Mount Vernon Insurance Company. 3140 LLC requested that insurance

coverage be bound and that they receive a written binder for insurance on the

building from Mount Vernon. An insurance policy was issued by Mount Vernon

for the building. The policy had an exclusion for damage due to sprinkler

leakage. Ewart acknowledges receiving a copy of the policy, reading the policy,

and being comfortable with the coverage it provided. No objection to the

coverage provided in the policy was ever raised by 3140 LLC. 3140 LLC never

specifically asked any of the insurance agents or representatives to obtain

sprinkler leakage coverage.

A memo from Mount Vernon to insurance broker M.J. Kelly Company

dated November 5, 2007, reported the results of a loss control survey for the

3140 LLC account. It included recommendations to minimize the insured’s

exposure to loss. Included within this memo was the following language: “The

sprinkler system main drain should be tested regularly to comply with NFPA 25.

This test shows that water supply is available at the base of riser, and

consecutive similar tests prove an unchanging supply. Main drain test was not

witnessed at the survey, last tested 2004.”
4

On November 19, 2007, O’Connor from State Central wrote a letter to M.J.

Kelly Company, which included the following: “With respect to the fire

extinguishers and sprinkler system testing, you’ve indicated these could be

ignored since the building is rated as a vacant structure.”

State Central received a memo from M.J. Kelly Company on November

19, 2007, which included the following language: “I want to clarify that I have

never indicated that the fire extinguishers and sprinkler system testing could be

disregarded. I’m confused as to where this indication came from as I have not

spoken to anyone regarding the recommendations on this account.”

O’Connor wrote a letter to Greenfield on November 26, 2007, that

included the following:

In reviewing my letter of November 19th to you, I failed to indicate
that the recommendations made by the Life Safety Inspector
excused you from having fire extinguishers because the property
was vacant, but they still wanted to have the sprinkler system main
drain tested regularly to comply with federal regulations. The last
test was in 2004, which would indicate that it has not been tested in
recent times. This is an engineering requirement that is mandatory.

The insurance policy issued in 2007 was renewed in September of 2008.

No substantial changes to the policy or coverage were contained in the renewed

policy. An October 9, 2008 letter from State Central employee O’Connor to

Ewart listed the coverage provided for in the renewed insurance policy. Included

in the letter were the following sentences:

The basic form only provides coverage for fire, lightning, explosion,
wind or hail, smoke, aircraft or vehicle, riot, vandalism, sprinkler
leakage, sinkhole collapse and volcanic action all as defined and
limited within the policy. In addition, the policy contains several
exclusions including earthquake and flood. Please read Form
CP1010 carefully to understand the limitations and exclusions on
the property side of the policy.
5

In October 2008, Ewart and Greenfield discussed with Dan Logan at State

Central the 3140 LLC’s desire to drain the sprinkler system and vacate the

building. Greenfield testified in the first trial that Logan then called O’Connor:

Q. Can you tell me what—what Mr. O’Connor said, as far as
whether the pipes could be drained? A. He just said he was going
to check on it. We did not have resolution that day as to whether
we could or couldn’t.
Q. Did you ever get resolution as to whether you could or
could not drain the pipes? A. Yeah, I think it was within a week
after that that we received a thing telling us that we could not
because that would cancel our fire insurance because we had to—if
I remember correctly, we had to have the sprinkler system checked,
the pressure checked on it, had to have an inspection or whatever
of the sprinkler system in order to keep our insurance and if you
drained the pipes, of course, you wouldn’t pass that inspection.
And so, therefore, you could not drain the pipes.

Upon further questioning, Greenfield explains he is referring to the November 26,

2007 letter from O’Connor quoted above and “a similar one a year later.”

Q. Based upon the letters that you had and the conversation
that you had, did you determine that you could not turn off the water
to the building? A. These two letters, of course, kind of spelled it
out that, obviously, if we drained the water, we wouldn’t—we
wouldn’t pass this test and then they wouldn’t cover our insurance.
And then we went through that winter, calculated how much it cost
us to heat that thing; and then I think that’s when we all had the
discussion that, hey, we just need to—we just need to drain the
water so then we don’t have to heat it and we would incur less risk
of that thing—you know, of those freezing up and that’s when we
readdressed it.
....
Q. And did you choose not to [drain the water pipes] then
based upon the representation from Mr. O’Connor that they could
not be drained? A. Well, yeah, yeah, I mean, if we didn’t think—we
thought we had to keep them in there just to maintain insurance.

On December 24, 2008, it was discovered the building owned by 3140

LLC incurred damages as a result of water pipes and sprinkler system freezing

and breaking. 3140 LLC made a claim for the damages with the insurance
6

company. The claim was denied pursuant to the policy exclusion for damage

due to sprinkler leakage.

On February 17, 2009, O’Connor sent a letter to 3140 LLC stating, “I do

not find a protective safeguard endorsement which would indicate that for the

coverage to apply, the sprinkler system must be operational.”

On October 12, 2009, 3140 LLC filed a petition at law alleging claims of

negligence and negligent misrepresentation against State Central.1

2011 Summary judgment. On April 13, 2011, the district court granted

summary judgment to State Central as to the claim of negligence in State

Central’s failing to provide necessary or requested coverage. The court wrote:

There is nothing in the record to indicate that anyone from
3140 told their insurance agent, Mr. O’Connor or Mr. Grisham, that
they wanted to have coverage for water damage caused by broken
pipes or a sprinkler system. Consequently, there would have been
no breach in the duty of care owed by the insurance agent in failing
to have an insurance policy providing such coverage. This is
because there is no evidence of an expanded agency agreement,
such as O’Connor or Grisham holding themselves out to be an
insurance specialist or receiving additional compensation apart
from the premiums paid.
The difficulty in the case arose when State Central,
admittedly because of information provided to it by the insurance
broker, notified the insured that they must test their sprinkler
system to [e]nsure that it was working. That would lead a
reasonable person to believe that the sprinkler system must be
operational in order for the policy to be effective. A working
sprinkler system would have prevented the pipes in the building
being drained in the winter time, to allow 3140 to turn off the heat,
as they had wanted to do. The testimony of Ewart and Greenfield
are that they relied upon this information to make a decision to not
drain the pipes. If they had drained the pipes as they had wanted
to, there would never have been the damage caused by a sprinkler
system or pipe failure in December 2008. This could lead a

1
Other claims and other defendants were involved and amended petitions were filed
subsequently. This appeal, however, deals only with the claims of negligence and
negligent misrepresentation against State Central.
7

reasonable person to the conclusion that if 3140 [LLC] had never
been given the incorrect information that the sprinkler system must
be operational, there never would have been the water damage to
the building.

Relying on principles announced in Langwith v. American National General

Insurance Co. 793 N.W.2d 215, 221 (Iowa 2010), the court found that whether

State Central told 3140 LLC that the sprinkler system had to be working and

3140 LLC’s “interpretation of what they were told by State Central constitutes a

substantial and material fact in dispute which defeats entry of summary judgment

on the negligence and negligent misrepresentation claims that State Central

provided inaccurate information about the need for a working sprinkler system.”

Jury trial. A jury trial resulted in a verdict for 3140 LLC in the amount of

$351,784. However, on February 8, 2012, the trial court granted State Central’s

motion for new trial “on all issues.” The court determined the verdict was contrary

to the jury instruction in that the “jury awarded damages for restoration, which

was substantially greater than diminution of value.” The court found, “The

substantial evidence presented during trial of this case was that diminution in

value would result in damages of $115,000 at most, and arguably, zero.” The

trial court also concluded it had inadequately instructed the jury in not providing a

definition of fair market value and “should not have instructed on the specification

of negligence that ‘[T]he Defendant was negligent in: (a) providing inaccurate

information that the insurance policy covered damages caused by leakage from

the sprinkler system.’” 3140 LLC appealed.

Prior appeal. This court reviewed the district court’s granting the motion

for a new trial. 3140 LLC v. State Cent. Fin. Servs., Inc., No. 12-0434, 2013 WL
8

535597, at *1 (Iowa Ct. App. Feb. 13, 2013). We concluded the district court

erred in granting a new trial based upon jury instruction where there had been no

objections made to the instructions. Id. at *3 (“Our only question on appeal is

whether the jury’s verdict conformed with the evidence and the law as

instructed.”). We agreed with the district court that the damages awarded were

contrary to the instruction given. Id. at *4. Finding the damages were

excessive—but not a result of passion or prejudice—we conditionally affirmed,

stating:

We conditionally affirm the trial court’s grant of a new trial for
excessive damages. If, within fifteen days of the issuance of
procedendo, the plaintiff files with the clerk of the district court a
remittitur of all damages in excess of $69,000 [$115,000 reduced
by forty percent for contributory negligence], the judgment shall be
reversed. If the plaintiff does not file a remittitur, the district court is
affirmed and a new trial is granted.

Id. at *5.

3140 LLC did not file a remittitur, and a new trial was ordered.

Proceedings following first appeal. State Central was granted

permission to extend deadlines to file dispositive motions, and filed a motion for

summary judgment on March 5, 2014. In its motion for summary judgment, State

Central asserted the Langwith decision was abrogated by a subsequent

amendment to Iowa Code section 522B.11(7), and the supreme court had “since

decided Pitts v. Farm Bureau Life Ins. Co., 818 N.W.2d 91 (Iowa 2012)[,] which

placed strict limitations on a negligent misrepresentation claim against an

insurance agent.” It also contended the district court had ruled that only the

negligent misrepresentation claim should have gone to the jury and the new trial

was therefore limited to negligent misrepresentation.
9

3140 LLC resisted, asserting, “In the latest motion for summary judgment

the Defendant claims that the Court must grant summary judgment in regard to

the claims of negligence and negligent misrepresentation. This is the same

argument raised in the previous motion for summary judgment.” State Central

was barred from raising the issue because the argument had been rejected

before the previous trial and not raised on appeal. 3140 LLC asserted there

were questions of fact, including whether State Central “owe[d] a duty to the

Plaintiff which the Defendant breached,” “falsely informed the Plaintiff that the

sprinkler system had to be operational,” “negligently misrepresented to the

Plaintiff that the sprinkler system had to be operational and could not be drained,”

and “negligently represented to the Plaintiff that the Plaintiff was covered under

the policy for sprinkler leakage, when in fact they were not.” 3140 LLC also

stated, “It should be pointed out that in the motion for summary judgment the

Defendant really raises no questions of fact. The motion is simply the same legal

arguments which have been made previously on the first motion for summary

judgment and denied.”

2014 Summary judgment. On August 28, 2014, the district court noted

Iowa Code section 522B.11(7)(c) (2013) provides that “an insurance producer,

while acting within the scope and course of the license provided by this chapter is

not in the business of supplying information to others unless the requirements of

paragraph ‘a’ relating to expanded duties and responsibilities are met.”

Paragraph ‘a’ reads:

Unless an insurance producer holds oneself out as an
insurance specialist, consultant, or counselor and receives
compensation for consultation and advice apart from commissions
10

paid by an insurer, the duties and responsibilities of an insurance
producer are limited to those duties and responsibilities set forth
in Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457 (Iowa
1984).

The district court determined there was nothing in the record indicating State

Central held itself out to 3140 LLC as an insurance specialist, consultant, or

counselor, which “shields the Defendant from liability in this case.” The court

granted summary judgment to State Central.

Motion to reconsider. On August 29, 2014, 3140 LLC filed a motion to

reconsider, asserting State Central had not sought to amend its summary

judgment motion to assert section 522B.11. State Central resisted the motion to

reconsider on September 4, stating that during the hearing on the motion for

summary judgment the defendant had specifically discussed House File 398

(now Iowa Code § 522B.11(7)(c)), which had been passed by the legislature and

was awaiting the governor’s signature at that time. The resistance also noted

that following the hearing, defendant’s counsel notified the court by letter dated

June 2, 2014—with a copy to plaintiff’s counsel—that the governor had signed

the bill. In any event, State Central argued in support of its motion for summary

judgment that there was no duty owed by the defendant under the facts of this

case because there was no expanded agency relationship under existing case

law and Iowa Code § 522B.11(7), and with or without the addition of

subparagraph (c) to this statute, summary judgment was appropriate on this

ground.
11

3140 LLC filed an appeal on September 26, 2014. No ruling on its motion

to reconsider appears in the record, and no motion was filed pursuant to Iowa

Rule of Civil Procedure 1.904(2).

II. Scope and Standard of Review.

We review a district court’s grant of summary judgment for correction of

errors at law. Iowa R. App. P. 6.907; Thompson v. Kaczinski, 774 N.W.2d 829,

832 (Iowa 2009). Summary judgment is proper only if “the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a matter of law.” Iowa R. Civ.

P. 1.981(3).

III. Discussion.

On appeal, 3140 LLC contends the district court erred in granting

summary judgment to State Central because the court (1) did not view the

evidence in the light most favorable to the non-moving party, (2) disregarded the

testimony of Rick Greenfield, (3) “did not understand the ruling . . . granting the

motion for new trial,” and (4) considered a ground not raised in the motion for

summary judgment.

With regard to the third contention, we simply note that following the first

trial, the district court granted a new trial on “all issues,” which that court

determined involved whether State Central provided inaccurate information about

the need for a working sprinkler system. State Central argues that it had no duty

to advise the insurance customer unless there existed an expanded agency

relationship as set out in Sandbulte.
12

The difficulty presented to this court arises because an insurance agent’s

duties to its clients have expanded and contracted over time. As stated in

Collegiate Manufacturing Co. v. McDowell’s Agency, Inc., 200 N.W.2d 854, 857

(Iowa 1972): “

Generally an agent owes his principal the use of such skill as is
required to accomplish the object of his employment. If he fails to
exercise reasonable care, diligence, and judgment in this task, he is
liable to his principal for any loss or damage occasioned thereby.
This general rule may be altered, either to limit or enlarge
the ordinary duties, by agreement of the parties.

(Citations omitted.)

In Sandbulte, plaintiff insureds asserted a claim that their insurance

agents had breached an implied expanded agency agreement to “advise

plaintiffs of the extent of their liability insurance coverage, and suggest and

implement for plaintiffs proper, complete, and adequate liability coverage.” See

343 N.W.2d at 461. The Sandbulte court noted the “general duty is the duty to

use reasonable care, diligence, and judgment in procuring the insurance

requested by an insured.” Id. at 464. The plaintiffs’ action was based on

language in Collegiate, that “there could have been delegated to defendant

[insurance agent] the burden of deciding for plaintiff both the type and amount of

insurance to be provided.” Id. at 461. However,

An expanded agency agreement, arrangement or
relationship, sufficient to require a greater duty from the agent than
the general duty, generally exists when the agent holds himself out
as an insurance specialist, consultant or counselor and is receiving
compensation for consultation and advice apart from premiums
paid by the insured. Hardt v. Brink, 192 F. Supp. 879, 880-81
(W.D. Wash. 1961) (agent assumed a duty to advise plaintiff as to
his insurance needs when such agent held himself out to be a
highly skilled insurance advisor and insured relied upon him as
such); Nowell v. Dawn-Leavitt Agency, Inc., 617 P.2d 1164, 1168
13

(Ariz. Ct. App. 1980) (imposition of liability for agent’s failure to
advise client of need for coverage should be confined to situations
where insurance counselor is receiving consideration for his
services apart from premiums to be paid by insured or there is a
long-established relationship of entrustment between insurance
counselor or agent and client from which it clearly appears that the
counselor appreciated that there was a duty to take the initiative in
giving comprehensive advice to his client on insurance matters);
16A Appleman, Insurance Law & Practice § 8836, at 64–66 (1981)
(“Ordinarily, of course, an insurance agent assumes only those
duties normally found in an agency relationship . . . and he
assumes no duty to advise the insured merely by such relationship.
However, where an agent holds himself out as a consultant and
counselor, he does have a duty to advise the insured as to his
insurance needs, particularly where such needs have been brought
to the agent’s attention. And in so doing, he may be held to a
higher standard of care than that required of the ordinary agent
since he is acting as a specialist. Accordingly, the agent may be
liable to an insured for the damage suffered by his failing to inform
him as to a potential source of loss and by his failing to recommend
insurance therefor.”).

Id. at 464–65.

This was the state of the law with respect to an insurance agent’s duties to

its clients at the time of the conduct complained of here in 2008. Thus, State

Central had the duty “to use reasonable care, diligence, and judgment in

procuring the insurance requested by an insured.” Id. at 464.

Then, in 2010, our supreme court “abandon[ed] . . . the restrictive

requirements for an expanded agency duty” and overruled Sandbulte. Langwith,

793 N.W.2d at 224. In Langwith, the court held “that it is for the fact finder to

determine, based on a consideration of all the circumstances, the agreement of

the parties with respect to the service to be rendered by the insurance agent and

whether that service was performed with the skill and knowledge normally

possessed by insurance agents under like circumstances.” 793 N.W.2d at 222.
14

Consequently, Langwith articulated the duty owed by State Central on

April 13, 2011—the date on which the district court ruled on the summary

judgment prior to the jury trial in this matter. In April 2011, the district court

granted summary judgment to State Central as to the claim of negligence in

State Central’s failing to provide necessary or requested coverage.

But, Langwith was legislatively overturned effective July 5, 2011. See

2011 Iowa Acts ch. 70, § 45. That legislative action was codified at Iowa Code

section 522B.11(7):

a. Unless an insurance producer holds oneself out as an
insurance specialist, consultant, or counselor and receives
compensation for consultation and advice apart from commissions
paid by an insurer, the duties and responsibilities of an insurance
producer are limited to those duties and responsibilities set forth
in Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457 (Iowa
1984).
b. The general assembly declares that the holding
of Langwith . . . is abrogated to the extent that it
overrules Sandbulte and imposes higher or greater duties and
responsibilities on insurance producers than those set forth
in Sandbulte.

Consequently, the 2010 Langwith expansion, which occurred after filing of this

suit, was abrogated by the legislative contraction, which was effective July 2011,2

and the duty owed by State Central to 3140 LLC at the time a new trial was

ordered by the district court in March 2012 was the same as at the time the case

was filed—and was limited to those duties and responsibilities set forth

in Sandbulte.

2
The duty owed by State Central was not an issue raised in the first appeal. See 3140
LLC, 2013 WL 535597, at *1. Nonetheless, we affirmed the trial court’s grant of a new
trial (which the trial court stated was to be “on all issues”). Id. at *5.
15

3140 LLC complains that the district court improperly considered section

522B.11(7) because State Central “never raised the issue of Iowa Code section

522B.11 as amended by the legislature after filing and arguing the motion for

summary judgment.” The record belies this claim.3 In any event, Sandbulte and

section 522B.11(7) “address what duties an insurance agent owes the insured.”

Pitts v. Farm Bureau Life Ins. Co., 818 N.W.2d 91, 99 (Iowa 2012). Thus, the

district court did not err in looking to section 522B.11(7) to determine whether

State Central owed a duty to 3140 LLC when considering the motion for

summary judgment.

As stated in Sandbulte, State Central had the general duty “to use

reasonable care, diligence, and judgment in procuring the insurance requested

by an insured.” 343 N.W.2d at 464. 3140 LLC presented no evidence

supporting a finding that State Central held itself out as an insurance specialist,

consultant, or counselor, or received compensation for consultation and advice

apart from commissions paid by 3140 LLC. In April 2011, even before trial, the

district court observed there “is no evidence of an expanded agency agreement,

such as O’Connor or Grisham holding themselves out to be an insurance

specialist or receiving additional compensation apart from the premiums paid.”

3
See page ten.
16

3140 LLC has not raised a genuine issue of fact that State Central

assumed a duty beyond the procurement of the coverage.4 Consequently, the

district court did not err in determining State Central was shielded from liability

with respect to the claims of negligence or negligent misrepresentation.

We therefore affirm.

AFFIRMED.

4
Yet, even under Langwith,
The client bears the burden of proving an agreement to render
services beyond the general duty to obtain the coverage requested. In
the absence of circumstances indicating the insurance agent has
assumed a duty beyond the procurement of the coverage requested by
the client, the insurance agent has no obligation to advise a client
regarding additional coverage or risk management.
793 N.W.2d at 223 (citations omitted).