                    IN THE COURT OF APPEALS OF IOWA

                                   No. 13-1552
                            Filed September 23, 2015


STATE FARM FIRE AND CASUALTY
COMPANY,
     Plaintiff-Appellee,

vs.

TIM MRZLAK and DAWN MRZLAK,
     Defendants-Appellants.
________________________________________________________________


      Appeal from the Iowa District Court for Grundy County, Joel A. Dalrymple,

Judge.



      The Mrzlaks appeal from the district court’s declaratory ruling that there

was no coverage under their insurance policy with State Farm Fire and Casualty

Company. AFFIRMED.




      Carter Stevens of Roberts, Stevens, Prendergast & Guthrie, P.L.L.C.,

Waterloo, for appellants.

      Mark W. Thomas and Laura N. Martino of Grefe & Sidney, P.L.C., Des

Moines, for appellee.



      Considered by Danilson, C.J., and Vaitheswaran and Doyle, JJ.
                                          2


DANILSON, Chief Judge.

        Tim and Dawn Mrzlak appeal from the district court’s declaratory ruling

that there was no coverage under their insurance policy with State Farm Fire and

Casualty Company.

I. Background Facts.

        The Mrzlaks own a manufactured home covered by a State Farm Fire and

Casualty Manufactured Home Policy.            The policy provides the insurance

company will “pay the necessary medical expenses incurred . . . to a

person . . . .”   However, the insurance policy also provides: “Coverage L and

Coverage M do not apply to:”

        (b) bodily injury or property damage arising out of business pursuits
        of any insured or the rental or holding for rental of any part of any
        premises by an insured. This exclusion does not apply:
                (1) to activities which are ordinarily incident to non-business
        pursuits.
                (2) with respect to Coverage L to the occasional or part-time
        business pursuits of an insured who is under 19 years of age;
                ....
        (i) any claim made or suit brought against any insured by:
                (1) any person who is in the care of any insured
        because of childcare services provided by or at the direction
        of:
                       (a) any insured. . . .
                (2) any person who makes a claim because of bodily
        injury to any person who is in the care of any insured
        because of childcare services provided by or at the direction
        of:
                       (a) any insured.
        This exclusion does not apply to the occasional childcare services
        provided by any insured, or to the part-time childcare services
        provided by any insured who is under 19 years of age.

        During the summer of 2010 the Mrzlaks’ daughter, Brittany, provided

babysitting services for the children of Bryan Johnson. When Brittany went back

to school, Dawn Mrzlak entered into an arrangement to care for the Johnson
                                             3


children within Bryan’s residence on Mondays, Tuesdays, and Thursdays. In

addition to caring for the children, Dawn also occasionally performed light

housekeeping.        From August 2010 through December 2010, Dawn regularly

provided the agreed upon services and was compensated by Bryan for her

services. The mother of Bryan’s children, Jennifer Woodbury,1 was not living in

the residence for most of the period Dawn provided childcare services to the

Johnson children. However, “the week before Christmas” Jennifer moved into

Bryan’s home.        Bryan and Dawn discussed Dawn continuing to babysit the

children. Specifically, Dawn inquired whether she would continue to have a “job”

and if not, she would “need to see about finding another job.” On Tuesday,

December 28, 2010, Dawn provided childcare to the Johnson children—not at

the Johnson residence—but at the Mrzlak residence. Unfortunately, that day the

Johnsons’ minor daughter was bitten by the Mrzlaks’ dog.

         A personal injury claim was filed on behalf of the minor and the Mrzlaks

sought coverage under their State Farm policy. State Farm filed this declaratory

judgment action, asking that the court declare there was no coverage under its

policy. The matter was tried to the district court without a jury, after which the

court ruled there was no coverage. The Mrzlaks appeal.

II. Scope and Standard of Review.

         We review a declaratory action tried at law for the correction of legal error.

See Clarke Cnty. Reservoir Comm’n v. Robins, 862 N.W.2d 166, 171 (Iowa

2015). “‘The trial court’s findings have the effect of a special verdict and are

binding if supported by substantial evidence.’” Arnevik v. Univ. of Minn. Bd. of

1
    Dawn testified Jennifer was Tim Mrzlak’s niece.
                                        4

Regents, 642 N.W.2d 315, 318 (Iowa 2002) (citation omitted).         “‘Evidence is

substantial when a reasonable mind would accept it as adequate to reach a

conclusion.’” Id. (citation omitted). “In determining whether substantial evidence

exists, we view the evidence in the light most favorable to the district court’s

judgment.” Chrysler Fin. Co. v. Bergstrom, 703 N.W.2d 415, 418 (Iowa 2005).

III. Discussion.

      The heart of this dispute concerns the interpretation and application of

exclusions in the Mrzlaks’ insurance policy. “Determining the legal effect of an

insurance policy is a question of law for the court.” Keppler v. Am. Family Mut.

Ins. Co., 588 N.W.2d 105, 106 (Iowa 1999). “The burden to prove applicability of

an exclusion is placed on the insurer.” Moncivais v. Farm Bureau Mut. Ins. Co.,

430 N.W.2d 438, 440 (Iowa 1988). “The object of contract interpretation is to

ascertain from the language ‘the intent of the contracting parties at the time the

contract was made.’” Id. (citation omitted); see also Iowa R. App. P. 6.904(3)(n).

“The insurer must define clearly and explicitly any limitations or exclusions to

coverage expressed by broad promises. When there is no ambiguity, we will not

write a new contract of insurance between the parties.”       Id. (internal citation

omitted).

      Here, State Farm invoked two exclusions: (1) for “bodily injury . . . arising

out of business pursuits of any insured” and (2) for “any claim made or suit

brought against any insured by . . . any person who is in the care of any insured

because of childcare services provided by . . . any insured.” The court concluded

the insurer had proved both exclusions applied and the exceptions to the

exclusions did not.
                                            5

       A. Childcare exclusion. Because the childcare exclusion “does not apply

to the occasional childcare services provided by any insured” the trial court

observed, “The primary issue before the court is whether the circumstances of

Tuesday, December 28, 2010, constituted ‘occasional child care services’

provided by the insured.”     Because Dawn provided services to the Johnson

children “frequently and habitually on a weekly basis,” the trial court found the

childcare services was not “occasional.” This finding is supported by substantial

evidence, which is binding upon us.         See Grinnell Mut. Reinsurance Co. v.

Voeltz, 431 N.W.2d 783, 786 (Iowa 1988) (“Because this case was tried to the

court, the distinction between interpretation and construction becomes important

in relation to our scope of review. When, as here, extrinsic evidence is offered

for the interpretation of policy words, the court’s interpretation if supported by

substantial evidence is binding on us.”).

       The Mrzlaks argue the exclusion does not apply under the explicit

exception stated therein—“This exclusion does not apply to the occasional

childcare services provided by any insured[.]” Again the district court disagreed,

specifically finding:

       Dawn asserts the Tuesday in question was a planned day off.
       Despite the previous arrangements, . . . [Jennifer] allegedly made
       repeated contacts via text messaging in an effort to secure Dawn
       for childcare purposes. Dawn alleges the text messages were
       persistent to which she repeatedly responded indicating it was her
       day off and she was not feeling well. Dawn asserts Jennifer
       eventually arrived at her residence and dropped the children off
       without her consent. The [Mrzlaks] claim this particular Tuesday
       daycare arrangement was different than all other days preceding as
       this was a favor to Jennifer. The [insurance company] asserts the
       testimony provided through Bryan Johnson suggests the Tuesday,
       December 28 childcare arrangements within the Mrzlak home were
                                          6


       due solely to the fact the Johnson household was without cable
       television.
               Dawn asserts she was never paid for the December 28,
       2010, services provided; however, the Mrzlaks’ and Johnsons’
       relationship soured as a result of that incident. They have not
       communicated since. The Court specifically finds any effort on the
       part of the Mrzlaks to suggest the childcare services rendered on
       December 28, 2010, as a favor without pay is a subsequent to the
       incident, self-serving attempt to avoid the result of an exclusion
       from coverage pursuant to the policy.

Again, there is substantial evidence to support the court’s finding, which is

binding on this court. See id.

       B. Business pursuit exclusion. The court also found the business pursuit

exclusion was applicable. The policy defines “Business” as “mean[ing] a trade,

profession or occupation.” Prior case law has defined business pursuits:

       To constitute a business pursuit, there must be two elements: first,
       continuity, and secondly, the profit motive; as to the first, there must
       be a customary engagement or a stated occupation; and, as to the
       latter, there must be shown to be such activity as a means of
       livelihood, gainful employment, means of earning a living, procuring
       subsistence of profit, commercial transaction or engagements.

Aid (Mut.) Ins. v. Steffen, 423 N.W.2d 189, 191-92 (Iowa 1988); see also

Moncivais, 430 N.W.2d at 440 (noting the insured did not dispute her child care

activities constituted a business pursuit).

       Here, the trial court found, “Despite the relative menial pay, the Court finds

the childcare services provided by Mrzlak were continuous and motivated for

profit.” Substantial evidence also supports this finding. See id. We note, too,

that Dawn testified that had the dog bite incident not occurred, she believed she

would have continued to provide care to the children at their house.

       The Mrzlaks assert Dawn’s care of the Johnson girls on December 28,

2010, was outside of the arrangement between herself and Johnson and fell
                                                 7


within the exception to the business pursuit exclusion (“This exclusion does not

apply:    (1)    to   activities   which   are       ordinarily   incident   to   non-business

pursuits . . . .”).    The district court rejected this assertion, finding Dawn’s

testimony that she provided the care on December 28 as a favor to be “self-

serving attempt to avoid the result of an exclusion.” We find no reason to disturb

this finding.2

         C. Reasonable expectations.         Finally, the Mrzlaks assert even if State

Farm’s interpretation of the policy is correct, the doctrine of reasonable

expectations mandates coverage. As has been stated on a prior occasion, “The

doctrine [of reasonable expectations] is carefully circumscribed and does not

contemplate the expansion of coverage on a general equitable basis.” Johnson

v. Farm Bureau Mut. Ins. Co., 533 N.W.2d 203, 206 (Iowa 1995); accord Am.

Family Mut. Ins. Co. v. Corrigan, 697 N.W.2d 108, 118 (Iowa 2005).                       “The

doctrine can only be invoked when an exclusion (1) is bizarre or oppressive,

(2) eviscerates terms explicitly agreed to, or (3) eliminates the dominant purpose

of the transaction.”       Corrigan, 697 N.W.2d at 118 (citation, alterations, and

2
  In Grams v. IMT Insurance Co., No. 13-0434, 2014 WL 467795, at *2 (Iowa Ct. App.
Feb. 5, 2014), this court affirmed summary judgment for an insurer that sought to invoke
a business exclusion provision of a homeowner’s policy where a child was bitten while in
the care of a person operating an in-home daycare business. The Mrzlaks argue
“geographical location played an important role in the holding of the Grams case, making
it a crucial aspect in determining whether a ‘business pursuit’ exists.” But the policy
language at issue in Grams made geographical location important: the IMT policy
provision stated coverage did not apply to “‘Bodily injury’ or ‘property damage’ arising out
of or in connection with a ‘business’ conducted from an ‘insured location’ or engaged in
by an ‘insured’, whether or not the ‘business’ is owned or operated by an ‘insured’ or
employs an ‘insured’.” See Grams, 2014 WL 467795, at *1 (emphasis added). No such
language is included in the policy at issue here, and we decline to interpret the policy to
include a geographical location.
        The Mrzlaks urge Dawn’s services on this particular day “are more akin to child-
rearing activities of family than childcare.” We note there is no exception to the
exclusion where the child or children are related to the insured.
                                            8


internal quotation marks omitted). “Moreover, as a precondition to reliance on

this doctrine, an insured must establish that an ordinary layperson would

misunderstand the policy coverage or that there are circumstances attributable to

the insurer that led the insured to expect coverage.” Id.

       In Grinnell Mutual, the trial found the contract’s business exclusion3 was

ambiguous, and determined the insureds’ had a reasonable expectation of

coverage. The Grinnell Mutual court wrote:

       Here extrinsic evidence bearing on the meaning of the business
       pursuit exclusion was offered and received. The district court
       considered this evidence in interpreting the exclusion to be
       ambiguous. Our task is to determine whether substantial evidence
       exists to support the court’s interpretation. The operative effect of
       the exclusion—that is, its construction—still remains a matter of law
       for our determination.
              Mindful of the foregoing principles, we have examined the
       record and conclude that substantial evidence exists to support the
       court's interpretation. Critical to that interpretation are three
       documents prepared by Grinnell Mutual. These documents belie
       the company’s contention here that the business pursuit exclusion
       was not ambiguous.
              ....
              Referring to these documents, the district court found that as
       early as 1980 Grinnell Mutual recognized that the definitions and
       business pursuit exclusion were ambiguous but took no steps to
       remove the ambiguity from the policy. It is in this context that the
       agent dealt with the Voeltzes [insureds] in 1984. He had been
       writing homeowners policies for Grinnell Mutual since 1972. He
       was well aware of the company’s undisclosed interpretation of the
       business pursuit exclusion as it pertained to baby-sitting activities.
       Yet when he asked about Tiara’s occupation and learned that she
       baby-sat, he made no further inquiries.




3
  The language in the Grinnell Mutual policy read: “We do not cover bodily injury or
property damage arising out of business pursuits of an insured person. But, we will
cover activities of that person not ordinarily incident to the business pursuits.” Grinnell
Mut., 431 N.W.2d at 785. The policy defined “business” as “any full or part-time trade,
profession, or occupation.” Id.
                                            9

431 N.W.2d at 787-88. There, the court contrasted the case to Moncivais, in

which the supreme court directed judgment in the insurer’s favor under a

business pursuit exclusion,4 because in Grinnell Mutual there existed “evidence

of the Voeltzes’ reasonable expectations of coverage and of conduct on the part

of the agent fostering such expectations.         Consequently, interpretation of the

exclusion was a fact question which the district court correctly resolved in favor of

the insured.” Id. at 789.

       There was no similar finding of ambiguity in the case before us.              The

evidence does not reflect the agent fostered any expectations of coverage under

these facts. Moreover, Dawn testified at trial,

              Q. Prior to the 28th of December, 2010, had you ever sat
       down and read through your State Farm policy? A. Yes, I did.
              Q. And did you note in your policy that there was an
       exclusion for claims based upon childcare services? A. Yes.
              Q. Okay. So was it your understanding then that your
       childcare services would not be covered by your policy? A. Yes.
       That’s why I did not do childcare in my home.

       Because there was no evidence the insureds expected coverage and no

circumstances attributable to the insurer which would foster expectations of

coverage, the insureds’ reasonable-expectations contention is without merit. See

Aid (Mut.) Ins., 423 N.W.2d at 192. For all these reasons, we affirm.

       AFFIRMED.




4
  The supreme court explained that in Moncivais, 430 N.W.2d at 441-42, “[t]he insured
did not dispute that her child day care service, which she had operated for fifteen years,
constituted a business pursuit. She relied instead on that portion of the exclusion that
excepted activities ordinarily incident to non-business pursuits, which we held did not
apply.” Grinnell Mut., 431 N.W.2d at 789.
