Emotional Decision of Jury Overturned

Two Juries Give Verdict to Church and Ignores Law

Juries are made of humans who wish to provide justice. On a rare occasion a jury will ignore the law to help a plaintiff they feel is more righteous than the defendant, especially when the plaintiff is a church.

In Salem United Methodist Church Of Cedar Rapids, Iowa v. Church Mutual Insurance Company, Court of Appeals of Iowa, 2017 WL 512494, No. 16-0170, (2/8/17) two juries awarded the church more than $700,000 for damages due to flood even though they were instructed that the insurer, Church Mutual, specifically, clearly and unambiguously excluded damage caused by flood.

FACTS

Salem United Methodist Church (hereinafter “Salem”) was damaged during the Cedar Rapids flood of 2008. At issue is whether damage to the church basement was the result of sewage backup and/or flood and consequently whether the loss was covered or excluded. A jury returned a verdict in favor of Salem in the amount of $705,765.07. On appeal, this court vacated the judgment and remanded the matter for new trial. (Salem United Methodist Church v. Church Mut. Ins. Co., No. 13-2086, 2015 WL 1546431, at (Iowa Ct. App. Apr. 8, 2015).

The Iowa Court of Appeal concluded the insurance policy excluded coverage for “damages that are concurrently caused by a covered cause—such as a sewer backup—and an uncovered cause—such as flooding.” It further concluded the district court erred in instructing the jury to the contrary. This court remanded the case for a new trial. Following remand, a jury again returned a verdict in favor of Salem, this time in the amount of $717,000. Church Mutual moved for judgment notwithstanding the verdict, arguing it was undisputed the cause of loss was the flood and consequently the loss was excluded.

The district court granted the motion, and Salem timely filed this appeal.

POLICY EXCLUSION

The policy provides:

“1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. …

  1. Water.

(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;

(2) Mudslide or mudflow,

(3) Water which backs up through sewers or drains except as provided under F. Additional Coverage – Back Up Through Sewers and Drains.

(4) Water under the ground surface pressing on or flowing or seeping through:

(a) Foundations, walls, floors, or paved surfaces;

(b) Basements, whether paved or not; or

(c) Doors, windows, or other openings.

The policy also included extra coverage for water that backs up through sewers and drains.

ANALYSIS

When an insured seeks to enforce a provision of an insurance policy, the burden of proof initially is on the insured to prove that both the property and the peril were covered by the terms of the policy. Generally speaking, the insured bears the burden of proving all elements of a prima facie case including the existence of a policy, payment of applicable premiums, compliance with policy conditions, the loss as within policy coverage, and the insurer’s refusal to make payment when required to do so by the terms of the policy.

Once the insured has established a prima facie case, the burden of proving that coverage is excluded by an exclusion or exception in the policy rests upon the insurer. Until a prima facie case of coverage is shown, the insurer has no burden to prove a policy exclusion. The insurer bears the burden of proving the applicability of policy exclusions and limitations or other types of affirmative defenses, in order to avoid an adverse judgment after the insured has sustained its burden and made its prima facie case.

In the prior decision related to this case, the court determined the flood exclusion language was clear and unambiguous.

The court of appeal agreed with the district court that there was no question of fact for the jury because it was undisputed the flood was a direct or indirect cause of damage to the church basement. A member of the church’s building committee even testified the sewer backup was caused by the flood. The Church’s expert testified that where there are not flood conditions, the sewage pipes will not run full and water will flow downstream. But under the conditions of June 11 and 12, the floodwaters altered the way the system was supposed to operate. He testified on cross examination that the “flood was the one and only cause of the backup.”

Notwithstanding the state of the evidence, Salem argues judgment notwithstanding the verdict was not proper because causation is always a question of fact for the jury.

While Salem correctly states causation, generally, is a question of fact for the jury, this presupposes there is evidence from which the jury could make a particular finding of fact. Here, there was no evidence from which the jury could infer the loss was caused by something other than the flood. The policy explicitly excluded flood damage from coverage.

While the policy did provide additional coverage for sewer backup, such coverage was not applicable where the sewer backup occurred as a result of, either before or after, the excluded flood. Here, it was undisputed the flood either directly caused the damage to the basement or indirectly caused the damage by causing the sewer to backup. No reasonable mind could reach a contrary conclusion.

The purpose of judgment notwithstanding the verdict is to allow the district court an opportunity to correct any error in failing to direct a verdict. While it is true even when the facts are not in dispute or contradicted, if reasonable minds might draw different inferences from them, a jury question is engendered.

That was not the situation here.

The evidence is so palpable, flagrant and manifest that reasonable minds may fairly reach no other conclusion than the floodwaters were a direct or indirect cause of all of Salem’s claimed damages.

ZALMA OPINION

When the evidence was so clear that reasonable minds may reach only one conclusion the court is obligated to set aside the jury verdict no matter how much the court – like the jury – would rather an insurer pay for the damages than the insurer. In this case the jury did justice and the court had to apply the law.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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