                   IN THE COURT OF APPEALS OF IOWA

                                    No. 16-1189
                              Filed January 11, 2017


CARL BUDNY,
     Plaintiff-Appellant,

vs.

MEMBERSELECT INSURANCE COMPANY,
     Defendant-Appellee.
________________________________________________________________


      Appeal from the Iowa District Court for Johnson County, Christopher L.

Bruns, Judge.



      Insured appeals from district court’s order granting summary judgment to

insurer in policy dispute. AFFIRMED.




      L. Craig Nierman of Nierman Law, P.L.C., Coralville, for appellant.

      Matthew J. Nagle and Cassandra C. Wolfgram of Lynch Dallas, P.C.,

Cedar Rapids, for appellee.



      Considered by Danilson, C.J., and Doyle and McDonald, JJ.
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MCDONALD, Judge.

      Carl Budny appeals from the district court’s order granting summary

judgment in favor of MemberSelect Insurance Co. (MemberSelect).            Budny

claims the district court erred in granting summary judgment.

                                        I.

      On or around August 11, 2014, Budny purchased homeowners insurance

from AAA Insurance, a MemberSelect company. He was given the option to

purchase several riders. Budny purchased two riders, “H-290: Personal Property

Replacement Cost,” and “H-500: Protection Plus Homeowners Package.” The

latter also included within it “H-210: Special Jewelry and Furs Coverage.” There

were approximately twenty riders Budny did not select, including, relevantly, “H-

95: Sewer, Drain and Sump Water Backup Coverage.”           Budny subsequently

renewed his coverage in August 2015.

      Budny’s insurance policy provides:

            13. [We cover direct physical loss caused by] [a]ccidental
      discharge or overflow of water or steam from within a plumbing,
      heating, air conditioning or automatic fire protection sprinkler
      system or domestic appliance.

             We will not cover loss:

             a. to the system or appliance from which the water or steam
                escapes;
             b. caused by or resulting from freezing;
             c. caused by or resulting from water or any other substance
                from outside the residence premises plumbing system
                that enters the dwelling or additional structure through
                household sewers, drains or drainage fixtures or a sump
                pump, sump pump well or any other system designed to
                remove subsurface water which is drained from the
                foundation area; or
             d. water or any other substance originating from inside the
                dwelling or additional structure which escapes the
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                plumbing system through a floor drain inside the dwelling
                or additional structure.

Additionally, under the heading “EXCLUSIONS,” the policy provides:

             3. [We will not cover loss which consists of or is caused by]
      [w]ater damage, meaning:

             a. flood, surface water, waves, storm surge, tidal water,
                tsunami, seiche or overflow of a body of water from any
                source. We do not cover spray from any of these,
                whether or not driven by wind; or
             b. water or any other substance from outside the residence
                premises plumbing system that enters the dwelling or
                additional structure through household sewers, drains or
                drainage fixtures or a sump pump, sump pump well or
                any other system designed to remove subsurface water
                which is drained from the foundation area; or
             c. water or any other substance originating from inside the
                dwelling or additional structure which escapes the
                plumbing system through a floor drain inside the dwelling
                or additional structure; or
             d. water or any other substance originating from any source
                on or below the surface of the ground. This includes
                water which exerts pressure on or flows, seeps or leaks
                through any part of a building or an additional structure,
                sidewalk, driveway, foundation or swimming pool.

The H-95 rider Budny did not purchase provides:

            We will pay for accidental direct physical loss to covered
      property described below caused by:

             1. water or any other substance from outside the residence
                premises plumbing system that enters the dwelling or
                additional structure through household sewers, drains or
                drainage fixtures or a sump pump, sump pump well or
                any other system designed to remove subsurface water
                which is drained from the foundation area; or
             2. water or any other substance originating from inside the
                dwelling or additional structure which escapes the
                plumbing system through a floor drain inside the dwelling
                or additional structure.

      In November 2015, sewage backed up into Budny’s basement, causing

water damage. He reported the damage to his insurance agent, Marty Lee, on
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November 19. According to Budny, Lee (or Lee’s staff) told Budny the loss was

covered. Lee denied making such a representation. Budny hired ServPro to

clean and restore the basement. According to Budny, he hired ServPro based

on Lee’s representation.

       On December 14, the insurance company denied Budny’s claim, citing the

EXCLUSIONS paragraph. On January 12, 2016, Budny filed the instant petition,

asserting claims for breach of contract, waiver, promissory estoppel, unjust

enrichment, reasonable expectations, implied warranty, and bad faith.          The

district court granted MemberSelect’s motion for summary judgment, and Budny

filed a timely notice of appeal.

                                        II.

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

errors at law. See Boelman v. Grinnell Mut. Reins. Co., 826 N.W.2d 494, 500

(Iowa 2013).     Summary judgment should be granted 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). The court views the summary judgment record in the light most

favorable to the party resisting the motion for summary judgment and “indulge[s]

in every legitimate inference that the evidence will bear in an effort to ascertain

the existence” of a genuine issue of material fact.     Crippen v. City of Cedar

Rapids, 618 N.W.2d 562, 565 (Iowa 2000). If the summary judgment record

shows that the “resisting party has no evidence to factually support an outcome

determinative element of that party’s claim, the moving party will prevail on
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summary judgment.” Wilson v. Darr, 553 N.W.2d 579, 582 (Iowa 1996).             In

addition, summary judgment is correctly granted where the only issue to be

decided is what legal consequences follow from otherwise undisputed facts. See

Emmet Cty. State Bank v. Reutter, 439 N.W.2d 651, 653 (Iowa 1989).

                                       III.

                                       A.

      Budny contends MemberSelect waived any policy defenses when Lee told

Budny the claim was covered.          Waiver is “the voluntary or intentional

relinquishment of a known right.” Scheetz v. IMT Ins. Co., 324 N.W.2d 302, 304

(Iowa 1982). The essential elements of waiver are the existence of a right, actual

or constructive knowledge of the right, and an intention to relinquish the right.

See IMT Ins. Co. v. Paper Sys., Inc., No. 00-373, 2001 WL 98545, at *3 (Iowa Ct.

App. Feb. 7, 2001).

      Whether Lee represented to Budny that his claim would be covered is a

disputed fact. But it is not a material one. See, e.g., Iowa Arboretum, Inc. v.

Iowa 4-H Found., 886 N.W.2d 695, 701 (Iowa 2016) (“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.”). Even if we assume, viewing the

record in the light most favorable to the nonmoving party, Lee did make such a

statement, Budny cannot prevail. Lee lacked the authority to waive the clear

dictates of the policy, including the provision stating, “No change or waiver may

be effected in this policy except by endorsement issued by us.” Budny contends

otherwise, citing several cases. See Carver v. Preferred Accident Ins. Co. of

N.Y., 256 N.W. 274, 276 (Iowa 1934); Ruthven v. Am. Fire Ins. Co., 71 N.W. 574,
                                           6

575 (Iowa 1897); Stevens v. Citizens’ Ins. Co., 29 N.W. 769, 770–71 (Iowa

1886).      However, each of those cases deals with notice provisions of the

insurance policy, viz. technical defenses and procedural issues. In Iowa, “the

doctrine of waiver or estoppel cannot be successfully invoked to create a liability

for benefits not contracted for at all.” Westfield Ins. Cos. v. Econ. Fire & Cas.

Co., 623 N.W.2d 871, 879 (Iowa 2001) (collecting cases).             The district court

concluded Budny’s breach-of-contract claim failed as a matter of law because the

policy specifically excluded coverage of the claim. Budny has not appealed that

issue. Under the circumstances, waiver cannot create liability for coverage not

part of the policy. The district court did not err in granting summary judgment on

this claim.

                                           B.

         Budny makes a related promissory-estoppel claim, arguing Lee’s

representation along with Budny’s detrimental reliance thereon entitles Budny to

relief. “The theory of promissory estoppel allows individuals to be held liable for

their promises despite an absence of the consideration typically found in a

contract.” McKee v. Isle of Capri Casinos, Inc., 864 N.W.2d 518, 532 (Iowa

2015). “Promissory estoppel requires a party to prove ‘(1) a clear and definite

oral agreement; (2) proof that plaintiff acted to his detriment in reliance thereon;

and (3) a finding that the equities entitle the plaintiff to this relief.’” Id. (citation

omitted).

         Budny’s claim fails on all three counts. First, there was no “clear and

definite” oral agreement for services Budny did not contract for.           Indeed, as

explained above, such an agreement would be contrary to Iowa law.                   See
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Westfield, 623 N.W.2d at 879. And given the dispute on this issue, we fail to see

how any such agreement would have been “clear and definite.” See Ziskovsky v.

Ziskovsky, No. 13-0360, 2014 WL 69620, at *4 (Iowa Ct. App. Jan. 9, 2014)

(finding no meeting of the minds where parties to alleged contract could not

articulate what contract terms were). Second, Budny cannot prove he acted to

his detriment in reliance on Lee’s representation. Budny argues he would not

have hired ServPro but for Lee’s statements to him. Even viewing the record in

the light most favorable to Budny, we find this unlikely. Budny had raw sewage

in his basement. If he did not hire ServPro, he would have hired someone else.

Whatever difference in expense might have resulted is not sufficient to satisfy

this element. See Gaia House Mezz L.L.C. v. State St. Bank & Tr. Co., 720 F.3d

84, 92 (2d Cir. 2013) (requiring “substantial” detriment); Harris Constr. Co. v.

GGP-Bridgeland, L.P., 698 F. Supp. 2d 723, 726 n.5 (S.D. Tex. 2010) (requiring

a showing one “materially” changed his position); Peluso v. Kistner, 970 A.2d

530, 533 (Pa. Commw. Ct. 2009) (requiring “substantial” change in position).

Third, we would not necessarily say the equities favor Budny’s relief.             He

contracted for certain services and now seeks additional ones he opted not to

buy. While his situation is unfortunate, it would be inequitable to force insurers to

provide coverages policyholders request ex post. “We will not strain the words or

phrases of the policy in order to find liability that the policy did not intend and the

insured did not purchase.” Amish Connection, Inc. v. State Farm Fire & Cas.

Co., 861 N.W.2d 230, 236 (Iowa 2015). Inherent in most insurance coverage is

the risk of damage not covered by the policy. The district court did not err in

granting summary judgment on this claim.
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                                       C.

      Budny argues it was error to dismiss his claim of implied warranty

because there was a factual dispute as to the intended purpose of his insurance

purchase.

      Insurance policies in Iowa come with an implied warranty.        See Farm

Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d 104, 110 (Iowa 1981).            To

recover on a theory of implied warranty, an insured must show “(1) that the

insurer had reason to know the particular purpose for which the policy is

purchased; (2) that the insured relied upon the company’s skill or judgment in

furnishing such coverage; and (3) that the resulting implied warranty was

breached.” Id. “Whether or not such a warranty arises is usually a question of

fact to be determined from the circumstances of the parties’ negotiations.” Id. A

“particular purpose” differs from an ordinary purpose “in that it envisages a

specific use by the buyer which is peculiar to the nature of his business whereas

the ordinary purposes for which goods are used are those envisaged in the

concept of merchantability and go to uses which are customarily made of the

goods in question.” Id. A “particular purpose” thus “respond[s] to a particular

need.” Id.

      We find no error in the district court’s dismissal of this claim. First, the

coverage Budny seeks was excluded by the plain language of the policy. There

was a rider available to provide the coverage Budny sought.          He did not

purchase this rider in 2014 or when he renewed his policy in 2015. The law of

implied warranty cannot be used to create coverage for risk specifically excluded

by the policy. Second, a “‘particular purpose’ differs from the ordinary purpose
                                          9


for which the goods are used in that it envisages a specific use by the buyer

which is peculiar to the nature of his business.” Id. “To give rise to an implied

warranty, the furnishing of the policy must respond to a particular need;

furnishing it for general purposes is not enough.” Id. There is nothing in the

summary judgment record supporting the inference Budny purchased the policy

for a particular purpose distinct from those of other persons purchasing

homeowners insurance. To hold the implied warranty created coverage where

specifically excluded by the policy would mean “there would be virtually no limits

of exposure to liability” and the “policy would be merely a framework of coverage

to be filled in as occurrences arose.” Id. at 112. The result is untenable.

                                         D.

       Finally, Budny asserts MemberSelect acted in bad faith. The elements of

bad faith are (1) the insurer lacked a reasonable basis for denying the claim and

(2) it knew or had reason to know it lacked a reasonable basis. See Galbraith v.

Allied Mut. Ins. Co., 698 N.W.2d 325, 328 (Iowa 2005). A reasonable basis

exists for denial of policy benefits if the insured’s claim is fairly debatable either

on a matter of fact or law. See Sampson v. Am. Standard Ins. Co., 582 N.W.2d

146, 149 (Iowa 1998). “A claim is ‘fairly debatable’ when it is open to dispute on

any logical basis.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473

(Iowa 2005).     “Stated another way, if reasonable minds can differ on the

coverage-determining facts or law, then the claim is fairly debatable.” Id.

       MemberSelect had a reasonable basis for denying the requested

coverage—to wit, that Budny did not contract for said coverage. The district
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court held Budny did not contract for the coverage. Budney has not appealed the

issue. The district court did not err in granting summary judgment on this issue.

                                        IV.

      It was not error for the district court to grant summary judgment on all

claims. For the foregoing reasons, we affirm the judgment of the district court.

      AFFIRMED.
