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Iowa App.,2011.
Deters v. USF Ins. Co.
797 N.W.2d 621, 2011 WL 222533 (Iowa App.)
Jan. 20, 2011.
Background: Widow brought action as executor of husband's estate against commercial general liability (CGL)
insurer of tower business of which husband was president for declaration that insurer breached the terms of the in-
surance contract and acted in bad faith in not paying claims related to deaths of insured's employees who died in fall.
sured's employees, who died with president of insured in work related fall, and no evidence to support the proffered
217 Insurance
217XXVII Claims and Settlement Practices
217XXVII(C) Settlement Duties; Bad Faith
217k3373 Amount and Items Recoverable
estate provided convincing authority that there was coverage.
[4] Constitutional Law 92 4427
92 Constitutional Law
insurer to satisfy the underlying judgments, and, thus, award of $1 million in punitive damages to estate of insured's
president did not violate insurer's due process rights. U.S.C.A. Const.Amend. 14.
Appeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.
Insurance company appeals bad faith and punitive damages judgment in favor of its insured. AFFIRMED.Mark
EISENHAUER, P.J.
Mary Deters, as Executor for the estate of her husband, Leo Deters, filed a declaratory judgment action against
USF alleging USF breached the terms of an insurance contract and acted in bad faith. The issues were bifurcated
with the coverage issue tried first, followed by a separate trial on the issue of bad faith. After an August 2009 trial
on the coverage issue, the court ruled USF had a duty to defend and indemnify the Deters Estate against two co-
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
jury”.... We will have the right and duty to defend the insured against any “suit” seeking those damages. However,
we will have no duty to defend the insured against any “suit”... to which this insurance does not apply....
....
2. Exclusions
This insurance does not apply to:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of the insured's business....
....
This exclusion applies:
(1) Whether the insured may be liable as an employer or in any other capacity; and
profit organization. At trial, LaMair explained CG 00 01 is “[b]y far the most common form that insurance compa-
nies will use. Rather than drafting their own forms, they sign on to ISO and subscribe to ISO and pay a fee to them
to use that form.” LaMair described how he stays current on any changes in ISO forms over time: “There are about
five organizations that we subscribe to that provide coverage interpretations along with updates....” LaMair dis-
cussed the interplay between insurance policies he sold to Tower Inc.:
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
At trial, LaMair testified IRMI is an educational organization and “the leading publication for coverage analy-
sis.” LaMair discussed CG 00 01:
Q. Now, in terms of the CG 00 01 and its coverage of executive officers for claims by co-employees, are you
familiar with how long that coverage would have been provided under the CG 00 01? A. I went back and looked,
companies provided coverage for claims against executive officers by co-employees. USF's denial of coverage was
the first time LaMair had ever seen an insurance company deny coverage for a gross negligence claim against an
executive officer.
At trial, Gabel stated the IRMI analysis provided by LaMair Agency is “commentary by an outside organiza-
under the terms of the policy and Iowa law, USF Insurance is obligated to defend and indemnify. I would direct
your attention to the Iowa Supreme Court's decision in Zenti ....
On December 21, 2007, Rock responded and quoted the same policy language as her prior letters. Rock stated,
“there is no coverage for the defense and indemnification you are seeking under the policy:”
Jon McWilliams was an employee of Deters at the time of his injury, and was working in the course and scope
“Whether employees accused of gross negligence would also be executive officers is irrelevant. Chapter 85 [work-
ers' compensation] provides the only remedy for a work-related injury against an employer and that is against an
individual in the capacity of employee.”
In Rock's September 18, 2008 deposition, read into the record at trial, she testifies:
Q. As part of your handling of this claim did you ever do anything to determine whether Leo Deters was an ex-
employee of Venetian Iron Works, Inc., rather than the Zentis at the time of the accident, Zentis argue Home In-
surance is obligated to defend them.
Id. The Zenti court rejected Home Insurance's argument that household insurance exclusion cases support its
and defense:
[W]e are persuaded that the severability-of-interests clause was inserted into insurance contracts to make clear
that the employee exclusion is applicable only when the person claiming coverage as insured is the employer. To
reach the conclusion urged by Home Insurance would wholly negate this purpose. This we will not do.
Trial court correctly held the employee exclusion was inapplicable here and thus Home Insurance was obligated
child injured in Mark Francke's daycare sued Harold, Mark's father, alleging negligent supervision and liability
based on Harold's ownership of the home where the injuries occurred. Id. Mark was convicted of child endanger-
ment. Id. at 109-10. The Corrigan court distinguished the exclusion at issue in Zenti:
In contrast to the exclusions at issue in Zenti ... the American Family policy excludes coverage for bodily injury
“arising out of ... violation of any criminal law for which any insured is convicted.” ... This court has held that the
is applied separately to Harold, it does not provide coverage.
Id. at 118-19.
B. Insurance Coverage Litigation.
In May 2008, Mary, as executor of the Deters Estate, filed a declaratory judgment action against USF alleging
USF breached the terms of the insurance contract and acted in bad faith.
In the fall of 2008, the Deters Estate settled the tort cases filed by Jon and Jason's estates. Jon and Jason's estates
accepted an offer by the Deters Estate to confess judgment in the amount of $375,000 per estate and in exchange
received $5000 per estate and an assignment of the Deters Estate's right to indemnification under the USF policy.
Jon and Jason's estates also agreed to a covenant not to execute against Tower Inc. or the Deters Estate and agreed to
sured's employees, who died with president of insured in work related fall, and no evidence to support the proffered
217 Insurance
217XXVII Claims and Settlement Practices
217XXVII(C) Settlement Duties; Bad Faith
217k3373 Amount and Items Recoverable
estate provided convincing authority that there was coverage.
[4] Constitutional Law 92 4427
92 Constitutional Law
insurer to satisfy the underlying judgments, and, thus, award of $1 million in punitive damages to estate of insured's
president did not violate insurer's due process rights. U.S.C.A. Const.Amend. 14.
Appeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.
Insurance company appeals bad faith and punitive damages judgment in favor of its insured. AFFIRMED.Mark
EISENHAUER, P.J.
Mary Deters, as Executor for the estate of her husband, Leo Deters, filed a declaratory judgment action against
USF alleging USF breached the terms of an insurance contract and acted in bad faith. The issues were bifurcated
with the coverage issue tried first, followed by a separate trial on the issue of bad faith. After an August 2009 trial
on the coverage issue, the court ruled USF had a duty to defend and indemnify the Deters Estate against two co-
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
jury”.... We will have the right and duty to defend the insured against any “suit” seeking those damages. However,
we will have no duty to defend the insured against any “suit”... to which this insurance does not apply....
....
2. Exclusions
This insurance does not apply to:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of the insured's business....
....
This exclusion applies:
(1) Whether the insured may be liable as an employer or in any other capacity; and
profit organization. At trial, LaMair explained CG 00 01 is “[b]y far the most common form that insurance compa-
nies will use. Rather than drafting their own forms, they sign on to ISO and subscribe to ISO and pay a fee to them
to use that form.” LaMair described how he stays current on any changes in ISO forms over time: “There are about
five organizations that we subscribe to that provide coverage interpretations along with updates....” LaMair dis-
cussed the interplay between insurance policies he sold to Tower Inc.:
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
At trial, LaMair testified IRMI is an educational organization and “the leading publication for coverage analy-
sis.” LaMair discussed CG 00 01:
Q. Now, in terms of the CG 00 01 and its coverage of executive officers for claims by co-employees, are you
familiar with how long that coverage would have been provided under the CG 00 01? A. I went back and looked,
companies provided coverage for claims against executive officers by co-employees. USF's denial of coverage was
the first time LaMair had ever seen an insurance company deny coverage for a gross negligence claim against an
executive officer.
At trial, Gabel stated the IRMI analysis provided by LaMair Agency is “commentary by an outside organiza-
under the terms of the policy and Iowa law, USF Insurance is obligated to defend and indemnify. I would direct
your attention to the Iowa Supreme Court's decision in Zenti ....
On December 21, 2007, Rock responded and quoted the same policy language as her prior letters. Rock stated,
“there is no coverage for the defense and indemnification you are seeking under the policy:”
Jon McWilliams was an employee of Deters at the time of his injury, and was working in the course and scope
“Whether employees accused of gross negligence would also be executive officers is irrelevant. Chapter 85 [work-
ers' compensation] provides the only remedy for a work-related injury against an employer and that is against an
individual in the capacity of employee.”
In Rock's September 18, 2008 deposition, read into the record at trial, she testifies:
Q. As part of your handling of this claim did you ever do anything to determine whether Leo Deters was an ex-
employee of Venetian Iron Works, Inc., rather than the Zentis at the time of the accident, Zentis argue Home In-
surance is obligated to defend them.
Id. The Zenti court rejected Home Insurance's argument that household insurance exclusion cases support its
and defense:
[W]e are persuaded that the severability-of-interests clause was inserted into insurance contracts to make clear
that the employee exclusion is applicable only when the person claiming coverage as insured is the employer. To
reach the conclusion urged by Home Insurance would wholly negate this purpose. This we will not do.
Trial court correctly held the employee exclusion was inapplicable here and thus Home Insurance was obligated
child injured in Mark Francke's daycare sued Harold, Mark's father, alleging negligent supervision and liability
based on Harold's ownership of the home where the injuries occurred. Id. Mark was convicted of child endanger-
ment. Id. at 109-10. The Corrigan court distinguished the exclusion at issue in Zenti:
In contrast to the exclusions at issue in Zenti ... the American Family policy excludes coverage for bodily injury
“arising out of ... violation of any criminal law for which any insured is convicted.” ... This court has held that the
is applied separately to Harold, it does not provide coverage.
Id. at 118-19.
B. Insurance Coverage Litigation.
In May 2008, Mary, as executor of the Deters Estate, filed a declaratory judgment action against USF alleging
USF breached the terms of the insurance contract and acted in bad faith.
In the fall of 2008, the Deters Estate settled the tort cases filed by Jon and Jason's estates. Jon and Jason's estates
accepted an offer by the Deters Estate to confess judgment in the amount of $375,000 per estate and in exchange
received $5000 per estate and an assignment of the Deters Estate's right to indemnification under the USF policy.
Jon and Jason's estates also agreed to a covenant not to execute against Tower Inc. or the Deters Estate and agreed to
