                   IN THE COURT OF APPEALS OF IOWA

                                  No. 19-0207
                              Filed April 29, 2020


UNKRICH AG, INC., MONTY UNKRICH, and STACY UNKRICH,
    Plaintiffs-Appellees,

vs.

FARM BUREAU PROPERTY & CASUALTY INSURANCE COMPANY,
     Defendant-Appellant.
________________________________________________________________


      Appeal from the Iowa District Court for Jefferson County, Crystal S. Cronk,

Judge.



      An insurance company appeals the district court’s finding a breach of the

insurance contract.    AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED.




      James W. Russell and Tucker F. Levis of Parker & Geadelmann, P.L.L.C.,

West Des Moines, for appellant.

      Douglas A. Fulton of Brick Gentry, P.C., West Des Moines, for appellees.




      Heard by Bower, C.J., and Greer and Ahlers, JJ.
                                         2


BOWER, Chief Judge.

       Farm Bureau Property & Casualty Insurance Company (Farm Bureau)

appeals a district court judgment in favor of Unkrich Ag, Inc., Monty Unkrich, and

Stacy Unkrich (collectively “the Unkriches”). We find substantial evidence supports

a determination that farm equipment was damaged by a power surge at the

Unkriches’ property but does not support a finding the electrical systems of two

buildings were damaged by a power surge. Consequently, the court’s award for

loss-of-income and damages requires recalculation. We affirm in part, reverse in

part, and remand for a recalculation of damages.

       I. Background Facts & Proceedings

       The Unkriches own a farming operation that includes row-crop farming,

cattle, and hogs. The Unkriches own several hog-confinement buildings of varying

ages at multiple locations in southeast Iowa. The hog-confinement buildings are

not on a regular maintenance program, and things are repaired “as needed.” The

Unkriches have insurance coverage through Farm Bureau.

       On June 20, 2015, a severe thunderstorm caused power outages in the

counties where the Unkriches’ hog operations are located. At one location with

two confinement buildings, the back-up generator initially started and was

functioning, but then failed. Once on site, Monty was able to restart the generator.

While the power was out, most of the hogs suffocated due to the lack of ventilation

in the buildings.1




1The hogs were owned by a third party and not covered or claimed under the
Unkriches’ insurance policy.
                                           3


       After the generator restarted, the electrical systems resumed normal

function and did not exhibit problems. Following the storm, the Unkriches noticed

some fan motors, washing machines, dryers, an air conditioner, and refrigerators

began to fail. New fan motors failed within a short time. The Unkriches’ electrician,

Center Point Electric, refused to warranty any new motors unless the buildings

were rewired. The Unkriches made plans to rewire the buildings.

       In September, the Unkriches filed a claim with Farm Bureau asserting a

lightning strike damaged the electrical systems. Farm Bureau hired an electrical

engineer, Ghattas Bitar, to examine the system and determine the cause of the

claim. Bitar visited the Unkriches’ property on September 15 and November 18,

and produced a report after each visit. At the first visit, Bitar was primarily looking

for evidence of lightning damage. The first report ruled out lightning as a cause of

the damages; the inspection included some testing of wiring insulation, confirming

there were no signs of lightning damage. In the first report, Bitar concluded,

       Based on my physical examination of the insured’s electrical panels
       and facility, and the inspection of controllers, light fixtures, motors and
       the information provided by the insured party and the utility company,
       with the insulation testing provided by an independent company, it is
       my opinion that the malfunctions reported by the insured party were
       the result of a power surge event and power fluctuation that resulted
       from high wind damages confirmed by the utility research. . . .
               This opinion is also confirmed by the gradual failure of the
       insured’s equipment from the date of loss till [sic] the date of my
       inspection. . . .
               The insured’s environment is . . . wet humid and corrosive due
       to the hydrogen sulfide gas in the manure. This environment
       exposure will lead to failures that are consistent with the reported
       failures and similar patterns as found in the physical examination of
       the claimed equipment.

       During the follow-up visit, and included in the second report, Bitar noted the

damaged equipment and that the tests of the buildings’ wiring did not identify
                                          4


evidence or signs of a high-voltage surge event. He expressly concluded, “None

of the observed or reported damages are the result of lightning damage.” In both

reports, Bitar noted clear evidence of corrosion and deterioration in the electrical

systems and equipment. Farm Bureau determined the electrical system problems

were routine and related to the aging electrical systems and, therefore, did not

establish a compensable loss.2 Farm Bureau denied the Unkriches’ claim.

         The Unkriches replaced the electrical systems in both buildings at a cost of

$171,246.99. They reported a loss of income during the repairs of $172,134.25—

consisting of six months of lost rent at $27,000 per month, and one month’s rent

reduction of $10,134.25.

         On March 24, 2017, the Unkriches filed suit against Farm Bureau, claiming

breach of contract. Farm Bureau filed two motions in limine: one to exclude

causation testimony by the electrician, and one to exclude all evidence of the

Unkriches’ claim for loss-of-income damages.

         The matter was tried to the court on August 21, 2018. The court heard

testimony from Monty and Stacy Unkrich, electrician Randy DeVries, Bitar, and

Farm Bureau property claims manager Ron Rydberg. Monty testified about the

much-higher rate of fan motor failure and appliance failure following the storm.

DeVries testified he never figured out what was causing the outages but

recommended a rewiring of the buildings due to the pattern of motor outages

observed.      DeVries agreed the electrical system in the buildings could be

considered older and that corrosion develops over time. He qualified this by stating



2   The Unkriches’ buildings and electrical systems were eighteen years old.
                                         5


the age of the system did not necessarily mean the electrical system needs

“serious remodeling,” stating, “We’ve got barns we wired twenty years ago and

never been back since.” He also agreed corrosion could cause problems with

functionality of the system.

         Bitar’s testimony described the damage he would expect to see if the

equipment was damaged by lightning or a power surge and stated he did not see

evidence of either at the Unkrich facilities. Bitar further testified that equipment

affected by a power surge would fail after the surge, not gradually over a period of

several weeks. Bitar attributed the damage exclusively to wear and tear and

corrosion but admitted the testing on the wiring did not reach any definitive

conclusion as to the cause of the damage. When questioned why he needed to

re-investigate and provide a second report, Bitar responded he was “asked

specifically to look into some issues of some motors that were replaced. Evaluate

an air conditioner condensing unit that had the trip breaker. Evaluate the wiring in

general, because it was insisted that the wiring of the building needs to be

replaced.”

         The court found a power surge caused all the damage to the Unkriches’

property, ruling in their favor. The court awarded the Unkriches $171,246.99 in

property damages and $175,500.00 for loss-of-income damages plus interest and

costs.

         Farm Bureau filed a motion to reconsider, which the court summarily

denied. The motion to reconsider had included a request for a ruling on Farm

Bureau’s motion in limine regarding the Unkriches’ loss of income. Farm Bureau

appeals.
                                           6


       II. Relevant Policy Provisions

       The Unkriches’ property was covered by a Farm Bureau Member’s Choice

policy. The declarations page of the policy pertaining to the confinement buildings

specifies they are insured for replacement cost and subject to special, rather than

named, causes of loss. The general coverage limits are in excess of the amount

at issue in this case.

       The hog operations the Unkriches allege are damaged generally fall within

the “Property” section of the policy.     The buildings themselves fall under the

“Garages, Outbuildings, and Other Structures” module. The equipment within the

buildings fall under a “Farm/Ranch Equipment Breakdown” endorsement. The

Unkriches’ policy also included a “Farm/Ranch Operations Interruption”

endorsement.      Each building’s coverage limit for “Farm/Ranch Operations

Interruption” is $15,000 with a $2500 deductible.

       The relevant policy provisions include:

                            PROPERTY SECTION
       Covered Causes Of Loss
       Special Causes of Loss
             When the Declarations indicate coverage for Special Causes
       of Loss, coverage is provided for accidental direct physical loss
       except as excluded.

       Additional Exclusions
       Power Failure
              There is no coverage for loss “arising out of” the failure of
       power or other utility service if the failure takes place off the “insured
       premises.”
              If power failure results in a Covered Cause of Loss, We will
       pay for the loss or damage “caused by” that Covered Cause of Loss.

       Weather Conditions
              There is no coverage for loss “arising out of” weather
       conditions. This exclusion applies only if weather conditions
       contribute in any way with a cause or event subject to the Exclusions
                                         7


      in the General Section and Additional Exclusions in the Property
      Section . . .

      Special Causes of Loss Index
             When the Declarations indicate coverage for Special Causes
      of Loss, we insure your property as described in the Declaration for
      accidental direct physical loss except as excluded under the
      exceptions and limitations outlined below. The coverage provided is
      subject to the General Section Exclusions, the Additional Exclusions
      in this Property Section, and any applicable property module
      exclusions.

      Exceptions and Limitations
      Gradual or Sudden Loss
             A. There is no coverage for loss “arising out of”:[3]
             1. Wear and tear; marring, scratching or deterioration;
             ....
             8. Rust, electrolysis or other corrosion . . . ;
             ....
             E. If loss or damage not precluded by any other provision in
      this policy results, we will pay for that resulting loss or damage.

      Electrical Current
      There is no coverage for loss “arising out of” artificially generated
      electric current, including electric arcing, that damages electrical
      devices, appliances, or wires.

          GARAGES, OUTBUILDINGS AND OTHER STRUCTURES
                                    MODULE
      Garages, Outbuildings And Other Structures Coverage
              A. We cover garages, outbuildings and other structures
      described in the Declarations with a specific limit of insurance for the
      covered causes of loss indicated in the Declarations.
              B. We cover attachments or additions to insured garages,
      outbuildings or other structures including permanent fixtures in or on
      them, if you own them and they are not insured separately in this
      policy . . . .

                FARM/RANCH EQUIPMENT BREAKDOWN4
      Additional Definitions
      “Equipment breakdown” as used herein means:

3 Under the policy, “arising out of” means “[o]riginating from, growing out of, or
flowing from, and requires only that there be some causal relationship between the
loss, injury or damage and the activity or event.”
4 The Farm/Ranch Equipment Breakdown endorsement is covered by a different

insurance company—Mutual Boiler Re.
                                        8


      Physical loss or damage originating within:
               ....
             A. All mechanical, electrical, electronic, or fiber optic
      equipment including “Farm/Ranch” personal property, covered
      power generating equipment, . . .
      And caused by, resulting from, or consisting of:
             B. Mechanical breakdown;
             C. Electrical or electronic breakdown; or
             D. Rupture, bursting, bulging, implosion, or steam explosion.
             However, “equipment breakdown” does not mean physical
      loss or damage caused by[5] or resulting from any of the following:
             E. Wear and Tear;
             F. Rust or other corrosion, decay, deterioration, mold, hidden
      or latent defect or any other quality in property that causes it to
      damage or destroy itself.
             ....
             M. Loss, damage, cost, or expense directly caused by,
      contributed to, resulting from, or arising out of the following causes
      of loss:
             Fire, lightning, combustion explosion, windstorm or hail, [etc.]
             However, if loss or damage not otherwise excluded results,
      then we will pay for such resulting damage.

      Farm/Ranch Equipment Breakdown Coverage
      We will pay for accidental direct physical loss to covered property
      caused by “equipment breakdown” except as otherwise stated in this
      policy.

      The following changes are made to the Special Causes of Loss
      Index:
      Electrical Current
             With regards to Farm/Ranch Equipment Breakdown, the
      provisions and limitations for Electrical Current in the Special Causes
      of Loss Index under Exceptions and Limitations are deleted.

                FARM/RANCH OPERATIONS INTERRUPTION
      Farm/Ranch Operations Interruption Coverage
      We cover loss of earnings and extra expenses resulting directly from
      the interruption of “farm/ranch” operations “caused by” a covered
      cause of loss as indicated in the declarations.
      ....
      Limits of Insurance
      The limit of insurance for this endorsement is indicated in the
      Declarations for each building covered by this endorsement.

5“Caused by” is defined as “[t[he primary or efficient event which produces, brings
about or gives rise to the loss, injury or damage.”
                                            9


               We will pay your actual loss of earnings and extra expenses
       resulting from a covered loss, subject to the following:
               A. Monthly Limit – We will pay no more than 25% of our limit
       of insurance for loss of earnings for each 30 day period following the
       loss.
               B. Overall Limit – We will pay no more in total for loss of
       earnings and extra expenses than our limit of insurance.

       III. Standard of Review

       “We review a district court’s interpretation of an insurance policy for

correction of errors at law. The district court’s factual findings in a bench trial ‘are

binding on appeal if supported by substantial evidence.’ We review the district

court’s legal conclusions for correction of errors at law.” Walnut Creek Townhome

Ass’n v. Depositors Ins. Co., 913 N.W.2d 80, 87 (Iowa 2018) (citations omitted).

“We review for abuse of discretion discovery rulings on whether to exclude

evidence as a sanction for untimely disclosure.” Hagenow v. Schmidt, 842 N.W.2d

661, 669 (Iowa 2014), overruled on other grounds by Alcala v. Marriott Int’l, Inc.,

880 N.W.2d 699, 708 n.3 (Iowa 2016).

       IV. Analysis

       A. Causation Ruling. Farm Bureau claims the district court’s finding that

the damages to the electrical systems were caused by a power surge is not

supported by substantial evidence. “Evidence is substantial ‘[w]hen reasonable

minds would accept the evidence as adequate to reach the same findings.’”

Ludman v. Davenport Assumption High Sch., 895 N.W.2d 902, 916–17 (Iowa

2017) (alteration in original) (citation omitted).

       An insured who has experienced loss and seeks coverage under an

insurance policy initially bears the burden “to prove both the property and the peril

were covered by the terms of the policy.” Salem United Methodist Church v.
                                        10

Church Mut. Ins. Co., No. 16-0170, 2017 WL 512494, at *1 (Iowa Ct. App. Feb. 8,

2017) (citation omitted). “Insurers relying on exclusions from coverage have the

burden to prove their applicability.” Farm Bureau Life Ins. Co. v. Chubb Custom

Ins. Co., 780 N.W.2d 735, 742 (Iowa 2010). “We construe exclusions strictly

against the insurer. Nevertheless, ‘we must enforce unambiguous exclusions as

written.’” City of West Liberty v. Emp’rs Mut. Cas. Co., 922 N.W.2d 876, 879 (Iowa

2019) (citations omitted). Disagreement over the meaning of a policy’s terms or

the fact a provision could be worded more clearly or precisely does not necessarily

mean the provision is ambiguous. See id.

      In this case, causation is fundamental to the applicability of any exclusion.

If the damage was caused by corrosion, the Unkriches’ loss would not be covered.

On the other hand, damage caused by a power surge would result in coverage.

The parties approach the causation issue as an either/or decision—neither party

addresses the possibility both causes could be contributing factors. Cf. Amish

Connection, Inc. v. State Farm Fire & Cas. Co., 861 N.W.2d 230, 240–41 (Iowa

2015) (examining an “anticoncurrent-cause” provision when a loss event has two

causes).

      The reports provided by Bitar, Farm Bureau’s engineer, found two separate

causes.    The first report concluded a power surge or power fluctuation and

corrosion caused the equipment malfunctions. The second report specifically

examined the electrical systems’ wiring and attributed that damage to corrosion,

finding no evidence of lightning damage or a power surge in the system

components.
                                          11


       Although some fan motors had been replaced earlier in the year, the fan

motors failed at an increased rate following the storm. Other machines, which had

been functioning without problem, failed in the weeks after the storm. We also

consider Bitar’s initial conclusion that the equipment malfunctions “were the result

of a power surge event and power fluctuation that resulted from high wind

damages.” While the corrosion may have exacerbated the damages, substantial

evidence supports the district court’s conclusion a power surge event caused

damage to the Unkriches’ equipment.

       However, the evidence is undisputed corrosion existed in the electrical

system in the Unkriches’ confinement buildings. No evidence showed a worsening

in the electrical system’s condition that could be attributed to any kind of power

surge. Bitar did not extensively test the electrical system during his first evaluation.

But during the second evaluation, testing all the wiring revealed damage

“consistent with the corrosive environment in the two hog nursery buildings. No

evidence of blown components or connections was noted in the panels or

components in the building.”       At trial, Bitar testified some of the damage—

particularly to light bulbs and fixtures—were the result of long-term issues rather

than a single surge. He specifically noted heavy corrosion of some equipment and

wiring. DeVries testified an eighteen-year-old hog confinement building is an older

electrical system and agreed corrosion develops over time and can result in a need

to rewire the building.

       Monty testified his electricity—both the generator and then from the power

lines—worked following the storm. While fan and feed motors were failing, he did

not assert any further power failures or problems with the electricity. No testimony
                                         12


or evidence indicated the new equipment would not work on the current wiring.

Rather, the testimony showed simply that the electrician would not warranty the

replacement equipment due to the condition of the wiring.          We do not find

substantial evidence supports the district court’s finding the electrical system

damage was caused by a power surge.

       B. Equipment Breakdown Endorsement. Farm Bureau also asserts the

court misconstrued the Equipment Breakdown endorsement. Farm Bureau is

correct that the district court used the wrong cause-of-loss index in its ruling. The

Unkriches’ policy calls for using the Special Causes of Loss Index for applicable

exceptions to the Unkriches’ coverage. However, electrical current damage is

covered under the endorsement’s changes to the Special Causes of Loss Index;

instead of the affirmative assumption of coverage from artificially-generated

current as a Named Cause of Loss, the Farm/Ranch Equipment Breakdown

endorsement deleted an electrical current exception to coverage. The Unkriches’

policy endorsement covers power surges.

       We found above the Unkriches had not established coverage as to the

electrical system, but they did provide substantial evidence showing a power surge

affected some of their equipment. Because the electrical system is not a covered

loss, we need not address Farm Bureau’s wiring damage argument. As to the

equipment, at oral argument Farm Bureau conceded that if a power surge

occurred, it would be covered. We find the equipment damage is covered. We

remand to the district court for a recalculation of damages not including the costs

attributable to the replacement of the electrical system.
                                         13


       C. Loss of Income Damages.

       Policy limits. Farm Bureau further asserts the loss-of-income damages

awarded by the court exceed policy limits. The Unkriches do not contest the policy-

limits claim but rather argue this is an equitable case and the loss of income was

attributable to delays caused by Farm Bureau. Consequently, they argue, the

award is akin to a bad-faith denial award.

       The Unkriches did not file a bad-faith claim against Farm Bureau. Despite

the Unkriches’ argument, this case is fundamentally a breach-of-contract claim,

with the Unkriches seeking to enforce the contract against Farm Bureau. The

Unkriches’ policy specifically addresses loss of earnings resulting from an

interruption of operations caused by a covered loss. The cases cited by the

Unkriches are inapposite because in all the cited cases, the plaintiffs brought bad-

faith claims in tort as well as their contract claims. See, e.g., Thornton v. Am.

Interstate Ins. Co., 897 N.W.2d 445, 451 (Iowa 2017) (“The employee sued the

insurer for common law first-party bad faith.”); Dolan v. Aid Ins. Co., 431 N.W.2d

790, 791 (Iowa 1988) (“Dolan filed this action against [insurer] for bad faith failure

to settle . . . .”). Moreover, even if the case was filed in equity, the Unkriches

sought money damages, not equitable relief, and the case was tried at law with the

court ruling on evidentiary objections. See In re Coe College, 935 N.W.2d 581,

586 (Iowa 2019) (basing the standard of review based on how the matter was tried,

not how it was filed).

       The insurance contract clearly limits the loss-of-earnings coverage due to

an operations interruption to the limit “indicated in the Declarations page for each

building covered by this endorsement.” The declarations page limits coverage for
                                         14


“Farm/Ranch Operations Interruption” of the buildings at the affected address to

$15,000 with a $2500 deductible for each building. 6 We enforce the contract

equally as to both parties. The Unkriches’ loss-of-income coverage is limited to

$15,000 per building. We direct the district court to modify the loss-of-income

award accordingly.

       Trial evidence.    Farm Bureau asserts the Unkriches did not provide

documents supporting their claim of loss of income until immediately before trial,

in violation of discovery rules. It argues the documents should have been excluded

as a sanction.

       In reviewing a district court’s ruling in a discovery matter, we remain
       mindful that “a trial should be a search for the truth, and our rules of
       discovery are an avenue to achieving that goal. The discovery
       process seeks to make a trial into a fair contest with the basic issues
       and facts disclosed to the fullest practicable extent.”

Hagenow, 842 N.W.2d at 672 (citation omitted).

       While the Unkriches were late in providing supporting documentation for

their claimed loss-of-income damages, the claim was not a surprise to Farm

Bureau of which it had no knowledge prior to trial. Loss of income was part of the

initial claim to Farm Bureau. Loss-of-income damages were also listed as an item

of recovery requested in the petition filed. Farm Bureau was on notice of the claim

for loss of income, even if it lacked the specific numbers provided in the

documentation. Farm Bureau’s counsel was able to effectively cross-examine the

Unkriches as to the contents of the documentation despite the short notice.

Particularly in light of our modification to policy limits on loss-of-income damages—


6This does not appear to be a standard limit set by Farm Bureau. Several other
confinement buildings have significantly higher operation interruption limits.
                                       15


which Farm Bureau is obliged to cover in the case of a covered loss—Farm Bureau

was not prejudiced by the loss-of-income evidence.        We find no abuse of

discretion.

       We therefore affirm the district court’s evidentiary ruling denying Farm

Bureau’s motion to exclude the loss-of-income documentation.

       Substantial evidence supports a determination that farm equipment was

damaged by a power surge at the Unkriches’ property, and we affirm on that issue.

Substantial evidence does not support the district court’s finding the electrical

systems of two buildings were damaged by a power surge, and we reverse that

portion of the damages award. We modify the loss-of-income award to policy

limits. We remand to the district to recalculate damages in accordance with our

opinion.

       AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
