                   IN THE COURT OF APPEALS OF IOWA

                                   No. 17-1671
                             Filed October 24, 2018


STEVEN DEVOLDER and STEPHANIE DEVOLDER,
     Plaintiffs-Appellants,

vs.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and STATE
FARM FIRE & CASUALTY COMPANY,
     Defendants-Appellees.
________________________________________________________________


      Appeal from the Iowa District Court for Polk County, David M. Porter, Judge.



      Steven and Stephanie DeVolder appeal the grant of summary judgment in

favor of the appellee insurers. AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED.



      S.P. DeVolder of The DeVolder Law Firm, PLLC, Norwalk, and William L.

Kutmus of Kutmus, Pennington & Hook, PC, West Des Moines, for appellants.

      Guy R. Cook and Adam D. Zenor of Grefe & Sidney, PLC, Des Moines, for

appellees.



      Considered by Danilson, C.J., McDonald, J., and Carr, S.J.*

      *Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2018).
                                        2


CARR, Senior Judge.

      Steven and Stephanie DeVolder appeal the grant of summary judgment in

favor of State Farm Mutual Automobile Insurance Company and State Farm Fire

& Casualty Company (collectively, State Farm1). The DeVolders claim State Farm

committed breach of contract, first-party bad faith, and fraud in processing their

insurance claim. We agree with the district court that summary judgment is

appropriate on the fraud and first-party bad faith claims. However, we find a

genuine issue of material fact regarding the breach-of-contract claim. Therefore,

we reverse on the breach claim and remand for further proceedings.

      I.     Background Facts and Proceedings

      On or about April 23, 2004, the DeVolders purchased a ring from Josephs

Jewelers (Josephs) in West Des Moines for $28,514.         On April 26, Josephs

prepared a “jewelry appraisal report” describing the ring as a “lady’s 18K yellow

and white gold engagement ring mounting, center set with one round brilliant cut

diamond weighing 3.35 cts, Color K, Clarity VS1, GM (GIA Grading Report

#12607644), and also prong set with 15 full cut diamonds weighing .75 cts.” The

report stated the replacement value of the ring was $39,200.

      The DeVolders insured the ring and their other jewelry through State Farm

in a personal articles policy with inflation coverage. Premiums were based on the

replacement value of the jewelry. On or about June 15, 2016, the DeVolders lost




1
 State Farm Replacement Services—a wholly-controlled department or entity of State
Farm—assisted in processing the DeVolders’ claim. “State Farm” also includes State
Farm Replacement Services.
                                          3


the ring. At the time, the coverage limit on the ring was $46,081 with a $500

deductible.

       Prior to filing a claim with State Farm, the DeVolders contacted Josephs for

an updated appraisal for the ring. On June 20, 2016, Josephs emailed State Farm

for assistance finding a replacement diamond to calculate the replacement cost for

a possible claim, but they did not mention the DeVolders at the time. State Farm

responded with information about two diamonds with lot numbers ZB12-2802 and

G16103.3 Josephs used information about diamond ZB12-280 to calculate an

updated replacement cost of $52,827.23. In his deposition, Steven acknowledged

diamond ZB12-280 is higher quality than their lost diamond. The DeVolders also

submitted a signed “Report” from Neal Prati, a retired appraiser for Josephs who

originally sold the ring to the DeVolders.      According to the Report, diamond

G16103 is lower quality than the DeVolders’ diamond because the two diamonds

are at opposite ends of the VS1 clarity grade and the DeVolders’ diamond has two

inclusions—or imperfections—compared to thirteen inclusions for diamond

G16103.

       On or around June 21, 2016, the DeVolders filed a claim with State Farm

for their lost ring. The insurance policy contains the following conditions:

       We [State Farm] have the option of repairing or replacing the lost or
       damaged property. Unless otherwise stated in this policy, covered
       property values will be determined at the time of loss or damage. We
       will pay the cost of repair or replacement, but not more than the
       smallest of the following amounts:


2
  The provided information for diamond ZB12-280 includes: shape round, carat weight
3.34, color J, clarity VS1, and price $43,336.50.
3
  The provided information for diamond G16103 includes: shape round, carat weight 3.35,
color K, clarity VS1, and price $26,967.50.
                                          4


        a. the full amount of our cost to repair the property to its condition
           immediately prior to the loss or damage;
        b. the full amount of our cost to replace the item with one
           substantially identical to the item lost or damaged;
        c. any special limit of liability described in this policy; or
        d. the limit of liability applicable to the property.

        State Farm subsequently obtained information about another ring from

Solomon Brothers Fine Jewelry (Solomon) in Atlanta, Georgia.               Solomon

described its ring as “18K Y&W eng ring w/ (1) RBC center @ 3.35ct K/VS1. Also

has (15) full cut dias @ .75ct tw.” Solomon provided a cost of $36,985.52 for the

ring.   However, Stephanie testified at deposition that Solomon asked her for

information about their ring instead of talking directly to Josephs even though

Josephs would be the most knowledgeable about their ring.

        On or about July 8, State Farm offered the DeVolders their choice of the

Solomon ring or its cost of $36,985.52, less the $500 deductible, in satisfaction of

their claim. The DeVolders rejected both options.         In his deposition, Steven

testified State Farm wanted them to accept the Solomon ring “sight unseen” and

“they refused to even describe [it] to me.”

        On August 16, 2016, the DeVolders filed their petition alleging breach of

contract, first-party bad faith, and fraud on the part of State Farm. On July 19,

2017, State Farm filed for summary judgment on all claims. On October 6, the

district court granted summary judgment in favor of State Farm on all claims. The

DeVolders now appeal.

        II.    Standard of Review

        We review a district court ruling granting a motion for summary
        judgment for correction of errors at law. Summary judgment is
        appropriate when there is no genuine issue of material fact and the
        moving party is entitled to judgment as a matter of law. An issue is
                                          5


       genuine if the evidence in the record is such that a reasonable jury
       could return a verdict for the nonmoving party. We . . . view the
       record in the light most favorable to the nonmoving party and will
       grant that party all reasonable inferences that can be drawn from the
       record. Summary judgment is appropriate if the only conflict
       concerns the legal consequences of undisputed facts.

Honomichi v. Valley View Swine, LLC, 914 N.W.2d 223, 230 (Iowa 2018)

(alteration in original) (internal quotations and quotation marks omitted).

       III.   Breach of Contract

       The DeVolders argue State Farm breached the insurance contract by failing

to appropriately value “the loss of Stephanie DeVolder’s engagement/wedding ring

(stone and setting) with a like kind and comparable diamond stone and setting as

required by the policy terms.” The policy terms require State Farm to provide the

DeVolders with either (1) a ring that is “substantially identical” to the DeVolders’

ring, or (2) an amount equal to State Farm’s cost to replace the DeVolders’ ring

with a “substantially identical” ring.   The policy does not define “substantially

identical.” Therefore, we use the ordinary meaning of “substantially identical.” See

Nat’l Sur. Corp. v. Westlake Inv., LLC, 880 N.W.2d 724, 734 (Iowa 2016) (“When

interpreting an insurance policy, we give each policy term not defined in the policy

its ordinary meaning.”).

       The DeVolders assert State Farm is obligated to use Josephs as the

exclusive arbiter of “substantially identical” rings in the area. However, nothing in

the record supports this assertion. At most, the record shows State Farm typically

relies on Josephs to value jewelry in the area, but the policy does not require them

to do so. Even if we accept the DeVolders’ assertion that State Farm took the

“unprecedented” step of using a jeweler other than Josephs to find a “substantially
                                           6


identical” ring in the area, nothing in the policy prevents State Farm from taking

such a step.

       The DeVolders point to the appraisals Josephs provided as evidence the

Solomon ring is not “substantially identical” to their lost ring. The original 2004

appraisal of their ring from Josephs was $39,200, which is more than the

$36,985.52 cost of the Solomon ring. However, the policy only requires State Farm

to pay their “cost to replace the [lost] item with one substantially identical.” Nothing

in the policy or elsewhere in the record requires State Farm to pay the full

appraised value of the lost ring. Additionally, the DeVolders only paid $28,514 for

the ring, which suggests the cost to State Farm to replace the ring in 2004 would

have been significantly less than its $39,200 appraised value.

       Josephs also provided an updated appraisal of $52,827.23. However, this

appraisal uses diamond ZB12-280, which Steven acknowledged is higher quality

than their diamond. It is therefore not an appraisal for a “substantially identical”

ring, and State Farm never admitted this diamond would make a “substantially

identical” ring when it provided the information to Josephs. The email exchange

in the record shows Josephs contacted State Farm for help finding suitable

diamonds for an appraisal without connecting the request to the DeVolders, and

State Farm merely suggested two diamonds with similar characteristics based on

the brief description Josephs provided.

       Additionally, the DeVolders point to vagaries in the rings’ descriptions as

evidence the rings are not “substantially identical.” The district court found the

DeVolders’ ring and the Solomon ring are substantially identical because they have
                                              7


diamonds with identical carat weights and grades for color and clarity. 4 Using the

ordinary meaning of “substantially identical,” we cannot agree two rings are

“substantially identical” merely because they contain diamonds with identical carat

weights and grades for color and clarity. The record shows carat weight and

grades for color and clarity, without more, are insufficient to accurately value a

diamond.     For example, diamond G16103 and the DeVolders’ diamond have

identical carat weights and grades for color and clarity. However, Prati’s Report

explains diamond G16103 is inferior to the DeVolders’ diamond due to other

factors, specifically variances within the same clarity grade and inclusions within

the diamonds. Additionally, the record contains little information to compare the

settings of the two rings beyond sparse descriptions from Josephs and Solomon.

       Prati’s Report is sufficient to generate a genuine issue of material fact as to

whether the Solomon ring and the DeVolders’ ring are “substantially identical.”

Prati notes diamond G16103 is “inferior” to the DeVolders’ diamond, and if they

had used diamond G16103 in their valuation it “would have been right at” the

Solomon valuation. Instead, Josephs provided a much higher valuation using

diamond ZB12-280, which is “slightly better” than the DeVolders’ diamond but still

represents “a good replacement value match.” Prati does “not in any way agree

with the Solomon Brothers’ appraisal of $36,985.52 as the correct replacement


4
  According to an affidavit from a procurement specialist for State Farm, the DeVolders’
diamond had a cut grade of very good and the Solomon diamond had a higher cut grade
of triple excellent. Like the district court, we do not find this information elsewhere in the
record. As we must take the facts in the light most favorable to the DeVolders, we do not
rely on this information from the appellee for this summary judgment. Even if we were to
accept the cut grade of the Solomon diamond as equal or superior to that of the DeVolders’
diamond, we would still find a genuine issue of material fact exists as to whether the two
diamonds could be used to make “substantially similar” rings for the same reasons
discussed herein.
                                          8


value of” the DeVolders’ ring. He criticizes Solomon for valuing the DeVolders’ for

using a “paper” valuation method of the DeVolders’ ring instead of visually

inspecting it as he has done. Therefore, the DeVolders have raised a genuine

issue of material fact as to whether the Solomon ring is “substantially identical” to

their ring, and summary judgment is not appropriate.

       IV.    First-Party Bad Faith

       A first-party bad faith claim against a defendant insurer requires the plaintiff

to prove “the absence of a reasonable basis for denying benefits of the policy and

defendant’s knowledge or reckless disregard of the lack of a reasonable basis.”

Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988). However, the insurer is

entitled to debate a “fairly debatable” claim. Id.

       State Farm has not denied the DeVolders’ claim. Instead, State Farm

located a ring they argue is “substantially identical” to the DeVolders’ ring. While

a genuine issue of material fact remains as to whether the rings are “substantially

identical,” the record shows the rings share many characteristics. The DeVolders

have not provided any evidence State Farm lacked a reasonable basis to offer the

Solomon ring or its cost in satisfaction of their claim. Therefore, the district court

correctly granted summary judgment in favor of State Farm on the DeVolders’ first-

party bad faith claim.

       V.     Fraud

       A successful fraud claim “requires clear-and-convincing evidence of (1)

materiality, (2) falsity, (3) representation, (4) scienter, (5) intent to deceive, (6)

justifiable reliance, and (7) resulting injury and damage.” Clark v. McDaniel, 546

N.W.2d 590, 592 (Iowa 1996). The DeVolders specifically allege State Farm
                                          9


committed fraud when it rejected Josephs in favor of Solomon. However, the

record contains no indication State Farm committed to following guidance from

Josephs, nor does the record show State Farm falsely represented any material

fact. Therefore, the district court correctly granted summary judgment in favor of

State Farm on the DeVolders’ fraud claim.

       VI.    Conclusion

       We find a genuine issue of material fact remains as to whether State Farm

identified a “substantially identical” ring when it offered the Solomon ring to satisfy

the DeVolders’ claim. However, we find nothing in the record to support the

DeVolders’ claims of first-party bad faith or fraud. Therefore, we affirm the grant

of summary judgment on the first-party bad faith and fraud claims, and we reverse

the grant of summary judgment on the breach-of-contract claim and remand for

further proceedings.

       AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

       Danilson, C.J., concurs; McDonald, J., dissents.
                                          10


McDONALD, Judge (dissenting)

       I respectfully dissent. Rule 1.981(3) provides the district court shall grant

summary judgment “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). Here, the question presented to the

district court was whether the Solomon diamond was “substantially identical” to the

DeVolders’ lost diamond within the meaning of the policy. On this record, it is

undisputed that it was. The district court thus correctly granted State Farm’s

motion for summary judgment.

       I disagree with the rationale for reversing the judgment of the district court.

The majority reverses the judgment of the district court because additional

examination of the Solomon diamond using the methodology in the Prati Report

might show it is not “substantially identical” to the DeVolders’ lost diamond.

However, it was the DeVolders’ obligation to create the record to support their

resistance to State Farm’s motion for summary judgment. See Iowa R. Civ. P.

1.981(5) (“When a motion for summary judgment is made and supported as

provided in this rule, an adverse party may not rest upon the mere allegations or

denials in the pleadings, but the response, by affidavits or as otherwise provided

in this rule, must set forth specific facts showing that there is a genuine issue for

trial. If the adverse party does not so respond, summary judgment, if appropriate,

shall be entered.”). In the alternative, it was the DeVolders’ obligation to seek

additional time to conduct further discovery to prepare their resistance. See Iowa

R. Civ. P. 1.981(6) (“Should it appear from the affidavits of a party opposing the
                                           11


motion that the party for reasons stated cannot present by affidavit facts essential

to justify the opposition, the court may refuse the application for judgment or may

order a continuance to permit affidavits to be obtained or depositions to be taken

or discovery to be had or may make such other order as is just.”). In resisting

summary judgment, the DeVolders could have sought additional time for their

expert to inspect the ring. They did not do that. The fact that discovery the

DeVolders bothered not to conduct might have revealed the existence of a

disputed issue of fact is insufficient to create a genuine issue of fact for trial.

       The district court correctly decided the motion for summary judgment on the

record actually made. I respectfully dissent.
