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Grinnell Mutual Reinsurance Company v. Jungling6/19/2002
Grinnell Mutual Reinsurance Company appeals the district court's declaratory judgment that it was obligated to reimburse Henry Jungling, Jr., for $344,400, which he owed pursuant to a settlement agreement in a fraud suit. REVERSED.
Grinnell Mutual Reinsurance Company (Grinnell) appeals the district court's declaratory judgment that it was obligated to reimburse Henry Jungling, Jr., and Jungling Farms, Inc., (together referred to as Jungling) for $344,400, which was owed to William and Natalie Steckel pursuant to a settlement agreement in a fraud suit. Grinnell claims: (1) it is contrary to public policy to require it to pay for Jungling's losses caused by his fraud and deceit; (2) the terms of the insurance policy do not cover losses for intentional fraud; and (3) the district court erred in finding Jungling's failure to comply with the notice requirements of the policy was legally excused.
I. Background Facts and Proceedings
The Steckels filed suit against Jungling claiming fraudulent misrepresentation, based on statements made during their purchase of Jungling's farm. A jury awarded the Steckels $323,300. On appeal, we determined the district court had erred in granting Jungling's motion for directed verdict on the issue of punitive damages, and remanded for a new trial on this issue. Steckel v. Jungling, No. 96-1819 (Iowa Ct. App. Feb. 25, 1998). We determined:
The record contains ample evidence of malice on the part of Jungling. Jungling was well aware of the death loss, reduced milk production, and water problems on his farm. He sought to sell the property, but showed the property only to potential buyers outside the state of Iowa. When the Steckels directly asked Jungling about the farm's worthiness to support a dairy herd, he lied to them. He actively concealed information. In light of his knowledge about the poor prospects of his farm, Jungling required fifty-two percent downpayment from the Steckels. There is substantial evidence supporting Steckels' contention Jungling's conduct was in willful and wanton disregard for the rights of the Steckels. Id.
After our decision, the parties entered into a settlement agreement for Jungling to pay the Steckels $465,000.
During this time, Jungling had a personal excess policy with Grinnell, and he made a demand under the policy for the payment of $344,400. Grinnell denied the claim, and filed the present action for a declaratory judgment. In ruling on motions for summary judgment filed by both parties, the district court determined public policy did not mandate that Grinnell should not be responsible for Jungling's intentional acts. The court noted that in other cases where insurance coverage has been denied on public policy grounds, the acts involved violence, not fraud. The case then proceeded to a bench trial, where the court concluded Jungling was entitled to a declaratory judgment that Grinnell was obligated to indemnify him for $344,400.
II. Public Policy
On appeal, Grinnell contends insurance coverage for intentional and criminal acts committed by the insured defeats the essential premise of insurance, which is to protect an insured against contingent events. Grinnell asserts that it is contrary to public policy to require it to pay Jungling's losses which were caused by his fraud and deceit.
We will not enforce a contract which "tends to be injurious to the public or contrary to the public good." Walker v. Am. Family Mut. Ins. Co., 340 N.W.2d 599, 601 (Iowa 1983). A contract may be invalidated if it would violate any established interest of society. Rogers v. Webb, 558 N.W.2d 155, 157 (Iowa 1997); Restatement (Second) of Contracts ยง 178,
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