Case 1:09-cv-00013-LRR Document 119-1 Filed 08/24/10 Page 1 of 13

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF IOWA
CEDAR RAPIDS DIVISION

PENFORD CORPORATION and PENFORD )

PRODUCTS CO., )
)
Plaintiffs, )
) Case No.: 1:09cv13-LRR
v. )
) MEMORANDUM IN SUPPORT OF
NATIONAL UNION FIRE INSURANCE ) PLAINTIFFS MOTION FOR
COMPANY OF PITTSBURGH, PA and ) JUDGMENT AS A MATTER OF
ACE AMERICAN INSURANCE ) LAW UNDER F. R. CIV. P. 50(a)
COMPANY, )
)
Defendants. )

AND NOW COME Plaintiffs, Penford Corporation and Penford Products Co.

(collectively, Penford ), by and through their undersigned counsel, and respectfully submit this

Memorandum in Support of Plaintiffs Motion for Judgment as a Matter of Law Under Federal

Rule of Civil Procedure 50(a).

SIMMONS PERRINE PLC K&L GATES LLP

Stephen J. Holtman, AT0003594 Neal R. Brendel
115 Third Street SE, Suite 1200 Douglas J. Simmons
Cedar Rapids, IA 52401 Christopher C. French
p: (319) 366-7641 K&L Gates Center
f: (212) 366-1917 210 Sixth Avenue
sholtman@simmonsperrine.com Pittsburgh, PA 15222-2613
p: (412) 355-6500
f: (412) 355-6501
neal.brendel@klgates.com
doug.simmons@klgates.com
christopher.french@klgates.com

PI-2421487
 Case 1:09-cv-00013-LRR Document 119-1 Filed 08/24/10 Page 2 of 13

TABLE OF CONTENTS

I. LEGAL STANDARD ......................................................................................................... 1

II. ARGUMENT ...................................................................................................................... 1

A. The Court Already Has Ruled That The Policy Language Is Ambiguous, And
Therefore The Court Should Construe That Ambiguity In Favor Of Penford
And Enter Judgment As A Matter Of Law. ............................................................ 1

B. The Undisputed Record Demonstrates That The Insurers Selected The

Ambiguous Policy Language, And Therefore The Rule Of Contra
Proferentem Requires The Ambiguity To Be Construed In Penford s Favor......... 2

C. Even If The Court Rules That Extrinsic Evidence Could Be Considered In An

Effort To Resolve The Policy Language Ambiguity, No Relevant Extrinsic
Evidence Was Presented At The Trial. ................................................................... 4

1. To Be Relevant In The Determination Of Intent Extrinsic Evidence

Must Have Been Manifested To The Other Party At The Time Of
Contracting. ................................................................................................. 5

2. No Evidence of the Parties Intent at the Time of Contracting

Regarding the Application of the Zones A and B Flood Sublimits to
Time Element Losses Was Presented During the Trial............................... 6

3. In the Absence of Relevant Extrinsic Evidence Regarding the Intent

of the Parties, the Court Should Deny the Insurers Motion for
Judgment as a Matter of Law and Construe the Policy in Penford s
Favor ........................................................................................................... 8

III. CONCLUSION ................................................................................................................... 9

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I. LEGAL STANDARD

A Rule 50(a) motion for judgment as a matter of law may be presented to the court any

time after a party has been fully heard on an issue and there is no legally sufficient evidentiary

basis for a reasonable jury to find for that party on that issue. Fed. R. Civ. P. 50(a). A Rule

50(a) motion should be granted only when all of the evidence points one way and is susceptible

of no reasonable inference sustaining the position of the nonmoving party. Keenan v. Computer

Assocs. Int l, Inc., 13 F.3d 1266, 1268-69 (8th Cir. 1994) (quotation omitted). [A] directed

verdict is mandated where the facts and the law will reasonably support only one conclusion.

McDermott Int l, Inc. v. Wilander, 498 U.S. 337, 356 (1991).

II. ARGUMENT

A. The Court Already Has Ruled That The Policy Language Is Ambiguous, And
Therefore The Court Should Construe That Ambiguity In Favor Of Penford And
Enter Judgment As A Matter Of Law.

In its January 19, 2010 Order denying the parties respective motions for summary

judgment, this Court held that the language of the insurance policy at issue is ambiguous with

respect to the application of the Zones A and B Flood sublimits. (See Doc. # 64, at 25-26.)

For all intents and purposes, that finding by the Court resolves the breach of contract

claim in Penford s favor, because the longstanding, well-recognized Iowa doctrine of construing

ambiguous insurance policy language in the favor of the policyholder (Penford) must be applied.

See Grinnell Mut. Rein. Co. v. Jungling, 654 N.W.2d 530, 536 (Iowa 2002) ( We interpret

ambiguous policy provisions in favor of the insured because insurance policies are in the nature

of adhesion contracts ); see also Iowa Comprehensive Petro. Underground Storage Tank Fund

Bd. v. Farmland Mut. Ins. Co., 568 N.W.2d 815, 818 (Iowa 1997) ( If the term is susceptible to

two reasonable interpretations, the interpretation favoring the insured is adopted. ) (citation
 Case 1:09-cv-00013-LRR Document 119-1 Filed 08/24/10 Page 4 of 13

omitted). Penford was, and still is, entitled to the benefit of this rule of Iowa law. Penford

therefore requests that the Court apply that doctrine, and enter judgment as a matter of law that

the policy language ambiguity must be construed in Penford s favor, meaning that the Zones A

and B Flood sublimits do not capture and cap Penford s time element claims. The jury then

should retire to deliberate only on the question of damages recoverable by Penford.

B. The Undisputed Record Demonstrates That The Insurers Selected The Ambiguous
Policy Language, And Therefore The Rule Of Contra Proferentem Requires The
Ambiguity To Be Construed In Penford s Favor.

Even if the Court rejects Penford s request that the ambiguous insurance policy language

be construed as a matter of course in Penford s favor, the undisputed trial record demonstrates

that the Insurers selected the ambiguous policy language. Therefore, the longstanding rule of

contra proferentem requires that the contract ambiguity be construed against the Insurers and in

Penford s favor.

The record is uncontroverted that AIG not Penford or Marsh specifically selected the

form that was used for the policy bound to Penford as of March 1, 2007, after AIG rejected the

previous form due to a corporate divorce with the Managing General Agent for ACE, Starr

Technical Risks Agency. (Rehmer Dep. Tr. at 49:12-50:12; 50:17-53:3; Scott Dep. Tr. at 85:14-

87:6; Gunty Testimony, 8/23/2010 Trial Tr. at 106:14-108:18; 110:22-111:12; Scott Testimony,

8/23/2010 Trial Tr. at 153:8-24.)

The record is uncontroverted that the Limits language of the policy is standard-form

insurers policy language, not language written by Marsh (Scott Dep. Tr. at 80:21-83:14; 101:12-

102:1; Lafferty Dep. Tr. at 136:18-137:15; 138:2-138:11; 138:21-139:3; Rehmer Dep. Tr. at

40:7-40:24; 41:4-41:18; 42:13-42:24; 60:15-61:18; 61:22-62:2; 62:19-62:22; Scott Testimony,

8/23/2010 Trial Tr. at 154:3-7.)

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The record is uncontroverted that, after Marsh retrieved the form specifically requested

by AIG in February 2007, the Insurers made multiple changes to the form, while Marsh and

Penford made none. (Rehmer Dep. Tr. at 52:3-53:3; Gunty Testimony, 8/23/2010 Trial Tr. at

111:13-113:14; Scott Testimony, 8/23/2010 Trial Tr. at 154:8-21; Weltscheff Testimony,

8/24/2010 Trial Tr. at ___.)1

The record is uncontroverted that this same form was used to bind coverage as of March

1, 2008, again with no substantive changes by Marsh or Penford. (Rehmer Dep. Tr. at 47:19-

48:8; Gunty Testimony, 8/23/2010 Trial Tr. at 113:15-23; Weltscheff Testimony, 8/24/2010

Trial Tr. at ___.)

Given these undisputed facts, Penford is entitled to application, as a matter of law, of the

doctrine of contra proferentem, wherein ambiguity in the policy form must be resolved against

the party that selected it. See Iowa Civil Jury Instruction § 2400.5 ( Ambiguous language in a

written contract is interpreted against the party who selected it. ) (citing, among other cases,

Village Supply Co. v. Iowa Fund, Inc., 312 N.W.2d 551, 555 (Iowa 1981) (resolving doubts

concerning the meaning of an agreement against the drafter); DeJong v. Sioux Center, 168 F.3d

1115, 1121 (8th Cir. 1999) (referring to the rule that ambiguous terms are to be construed against

the drafter as a standard rule of Iowa contract law ), affirming 980 F. Supp. 1010 (N.D. Iowa

1997)). This is particularly true where the ambiguity appears in a limitation on coverage, on

which the insurer bears the onus of ensuring clarity. See Dairyland Ins. Co. v. Concrete Prods.

Co., 203 N.W.2d 558, 562-63 (Iowa 1973) (It is a fundamental Iowa rule that an insurer, having

affirmatively expressed coverage through broad promises, assumes a duty to define any

1
At the time of the drafting of this memorandum, the transcript of Mr. Weltscheff s trial
testimony had not been made available by the court reporter. Accordingly, all citations to Mr.
Weltscheff s testimony herein are to 8/24/2010 Trial Tr. at ____. )

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limitations upon that coverage in clear and explicit terms. ); Draper v. Wellmark, Inc., 478

F.Supp. 1101, 1108 (N.D. Iowa 2007) (citing Hamm v. Allied Mut. Ins. Co., 612 N.W.2d 775,

778 (Iowa 2000)); Northwestern Flyers, Inc. v. Olson Bros. Mfg. Co., 679 F.2d 1264, 1273 (8th

Cir. 1982); Roach v. Churchman, 431 F.2d 849, 851 (8th Cir. 1970)); Farm & City Ins. Co. v.

Gilmore, 539 N.W.2d 154, 157 (Iowa 1995). Because this Court already has found such

ambiguity to exist (see Doc. # 64, at 25-26), the doctrine of contra proferentem requires that

Penford s reasonable interpretation of the policy to be accepted.

C. Even If The Court Rules That Extrinsic Evidence Could Be Considered In An

Effort To Resolve The Policy Language Ambiguity, No Relevant Extrinsic Evidence
Was Presented At The Trial.

If this Court rejects Penford s request in Sections II.A and II.B. above and determines

that extrinsic evidence may be considered for the purpose of attempting to resolve the

insurance policy language ambiguity before rules of contract construction are applied, the Court

nonetheless should enter judgment as a matter of law in Penford s favor because no relevant

extrinsic evidence was admitted at the trial on the issue of intent. Specifically, all of the

witnesses confirmed that they never had any communications (orally or in writing) regarding

how the policy s Flood sublimits would apply (i.e., whether they capture and cap just property

damage losses or also time element losses). Likewise, the witnesses confirmed that none of the

documents (e.g., the insurers quotes or binders ) addressed this issue directly either.

Therefore, the extrinsic evidence of intent cannot be deemed sufficient to allow a reasonable

juror to resolve the policy ambiguity, and the Court must apply the rules of insurance policy

contract construction, which require entry of judgment as a matter of law in Penford s favor.

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1. To Be Relevant In The Determination Of Intent Extrinsic Evidence Must

Have Been Manifested To The Other Party At The Time Of Contracting.

Under Iowa law only extrinsic evidence that is manifested to the other party is relevant to

determining a party s intent. If a party had no knowledge of the extrinsic evidence purportedly

demonstrating the other party s intent, such evidence has no bearing on the determination of

intent. In searching for that intention [of the parties to a contract], we look to what the parties

did and said, rather than to some secret, undisclosed intention they may have had in mind, or

which occurred to them later. Waechter v. Aluminum Co. of Am., 454 N.W.2d 565, 568 (Iowa

1990) (emphasis added).2 Moreover, to be relevant, extrinsic evidence must be from the time of

contracting. See NevadaCare, Inc. v. Dep t of Human Servs., 783 N.W.2d 459, 466 (Iowa 2010)

( The determination of the intent of the parties at the time they entered into the contract is the

cardinal rule of contract interpretation. ).

As this Court recognized in its June 17, 2010 Order on the parties motions in limine, the

Iowa Supreme Court has articulated a seemingly broad standard for the admissibility of extrinsic

evidence regarding intent that sheds light on the situation of the parties, antecedent negotiations,

the attendant circumstances, and the objects they were striving to attain. (Doc. # 94 at 13

(quoting Clinton Phys. Therapy Servs., P.C. v. John Deere Health Care, Inc., 714 N.W.2d 603,

615 (Iowa 2006)).) However, the application of this language by Iowa courts has been

significantly more narrow and does not stand for the proposition that undisclosed or post-

contracting evidence is relevant to the determination of intent. Indeed, in Hamilton v. Wosepka,

2
Waechter dealt with the interpretation of a settlement agreement, but describes the legal
principle applicable to the interpretation of all contracts under Iowa law. As the Waechter Court
itself recognized, because settlement agreements are essentially contracts, we look to the legal
principles applicable to contracts when interpreting them. As with any contract, [w]hen we do
interpret settlement agreements, our primary concern is to ascertain the intention of the parties.
454 N.W.2d at 568 (emphasis added).

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 Case 1:09-cv-00013-LRR Document 119-1 Filed 08/24/10 Page 8 of 13

the decision first articulating the above-quoted standard, the Iowa Supreme Court recognized the

necessary limitation that should be placed on the evidence used in the search for the parties

intent:

[T]he meaning to be discovered and applied is that which each

party had reason to know would be given to the words by the other
party. Antecedent and surrounding factors that throw light upon
this question may be proved by any kind of relevant evidence.

154 N.W.2d 164, 169 (Iowa 1967) (emphasis added) (quoting 3 Corbin on Contracts, § 579).

Likewise, in Clinton Physical Therapy Services, the decision quoted by this Court in its prior

Order and during trial, the Iowa Supreme Court held that post-contract evidence (specifically, a

contract amendment agreed to by the parties subsequent to the execution of the ambiguous

contract at issue) did little to shed light on the situation of the parties or any attendant

circumstances at the time of executing the original contract. 714 N.W.2d at 615-16. Thus, the

extrinsic evidence presented in Penford s case must be evaluated in light of these well-

established principles of contract interpretation.

2. No Evidence of the Parties Intent at the Time of Contracting Regarding the

Application of the Zones A and B Flood Sublimits to Time Element Losses
Was Presented During the Trial

No extrinsic evidence has been presented during this trial demonstrating any intent that

was manifested to the other contracting party(ies). The underwriters involved for the Insurers

testified that they never discussed with Marsh or Penford whether the flood sublimits would

apply to time element loss in the event of a flood loss at Zones A or B of the Cedar Rapids plant.

((Gunty Testimony, 8/23/2010 Trial Tr. at 117:12-20; 118:8-12; Scott Testimony, 8/23/2010

Trial Tr. at 170:11-16.; Weltscheff Testimony, 8/24/2010 Trial Tr. at ___.) Ms. Rehmer of

Marsh confirmed that at no time prior to or after the June 2008 flood did she recall any

discussions with anyone from the Insurers regarding how the Zones A and B flood sublimits

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would apply to a time element loss at the Cedar Rapids facility. (Rehmer Dep. Tr. at 92:8-92:14;

95:24-96:11; 96:20-24.) Mr. Michaels of Marsh also testified that he was not aware of any such

discussions. (Michaels Testimony, 8/20/2010 Trial Tr. at 73:9-74:4.) Mr. Cordier of Penford

likewise confirmed that at the time the policy was placed he did not receive any communication

from the Insurers, either directly or indirectly, indicating that the Insurers contended that the

zone sublimits applied to a flood-related business interruption claim. (Cordier Testimony,

8/17/2010 Tr. at 72:4-18.)

Likewise, none of the documentary evidence relied upon by the Insurers shows any pre-

contracting expressed intent by either party regarding the application of the Zones A and B flood

sublimits to time element losses. Neither the program specifications for the March 1, 2008 to

March 1, 2009 policy year (Trial Ex. 1000), nor the Insurers quotations (Trial Exs. 1018 [and

1410]3), nor the binders (Trial Exs. 1096 [and 74]4) say anything explicit about whether time

element losses would be encompassed by the Zones A and B flood sublimits. The Insurers

internal underwriting guidelines (Trial Exs. 1092 [and 1022]5) are the quintessential example of

unexpressed intent, and also do not actually prohibit the Insurers from writing the coverage to

which Penford contends it is entitled. (Scott Testimony, 8/23/2010 Trial Tr. at 160:16-160:23;

Weltscheff Testimony, 8/24/2010 Trial Tr. at ___). Finally, Ms. Rehmer s e-mail of June 11,

2008, which both post-dates the agreement of the parties regarding the applicable policy

language and was neither sent to nor relied upon by the Insurers, does not discuss whether time

element losses are included within the Zones A and B flood sublimits. (See Trial Ex. 1024.)

3
Not yet admitted as of the drafting of the motion.
4
Not yet admitted as of the drafting of the motion.
5
Not yet admitted as of the drafting of the motion.

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 Case 1:09-cv-00013-LRR Document 119-1 Filed 08/24/10 Page 10 of 13

Indeed, the undisputed evidence is that no party ever considered let alone formed an

intent that was shared with the other how a flood-related business interruption loss at Penford s

Cedar Rapids Plant could be calculated under the geographic Flood zones of the policy. The

Insurers underwriters certainly did not consider that issue (see Scott Testimony, 8/23/2010 Trial

Tr. at 155:21-158:13) even though they knew that Penford s facility was an integrated one (see

Trial Ex. 57, 65).

3. In the Absence of Relevant Extrinsic Evidence Regarding the Intent of the

Parties, the Court Should Deny the Insurers Motion for Judgment as a
Matter of Law and Construe the Policy in Penford s Favor

As the Court recognized in its January 19, 2010 Order on the parties respective motions

for summary judgment, in the context of insurance policies, ambiguous policy provisions and

especially any limitations or exclusionary clauses are interpreted against the insurer and in

favor of the insured. (Doc. # 64, January 19, 2010 Order, at 15 (citing Grinnell Mut. Reins. Co.

v. Jungling, 654 N.W.2d 530, 536 (Iowa 2002))); see also, e.g., Comprehensive Petro.

Underground Storage Tank Fund Bd. v. Farmland Mut. Ins. Co., 568 N.W.2d 815, 818 (Iowa

1997) ( If the term is susceptible to two reasonable interpretations, the interpretation favoring the

insured is adopted. ) (citation omitted); West Bend Mut. Ins. Co. v. State Farm Mut. Auto. Ins.

Co., 624 N.W.2d 422, 424 (Iowa 2001) ( When the meaning of the terms in an insurance policy

is susceptible to two interpretations, the one favoring the insured is adopted. ); IMT Ins. Co. v.

Crestmoor Golf Club, 702 N.W.2d 492, 496 (Iowa 2005) ( Even in cases of doubt as to whether

a claim is covered by the policy, the doubt must be resolved in the insured s favor. ).

Indeed, in Iowa, the courts have applied this rule in favor of the policyholder regardless

of the size or sophistication of the policyholder. The Iowa Supreme Court has not recognized an

exception to this rule based on the purported sophistication of the policyholder or the

involvement of an insurance broker in the procurement of the policy. To the contrary, the Iowa

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Supreme Court has applied this rule equally to individual policyholders and more sophisticated

corporate policyholders. See, e.g., Bituminous Cas. Corp. v. Sand Livestock Sys., Inc., 728

N.W.2d 216, 220 (Iowa 2007) (corporate policyholder constructed livestock confinement

facilities), A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 619 (Iowa 1991)

(corporate policyholder operated brass foundry). Accordingly, because the evidence of record

does not show by any measure, let alone the high hurdle for judgment as a matter of law, that the

parties manifested a shared intent at the time of contracting regarding the application of the

Zones A and B flood sublimits to time element losses, the Court should construe the sublimit

provision which clearly acts as a limitation on coverage in Penford s favor.

III. CONCLUSION

For all the foregoing reasons, Penford respectfully requests that Defendants Motion for

Judgment as a Matter of Law Under Rule 50(a) be denied in its entirety.

Respectfully submitted:

Dated: August 24, 2010 /s/ Neal R. Brendel

SIMMONS PERRINE PLC

Roger W. Stone, AT0007519
Stephen J. Holtman, AT0003594
Jeffrey K. McGinness, AT0009493
115 Third Street SE, Suite 1200
Cedar Rapids, IA 52401
p: (319) 366-7641
f: (212) 366-1917
rstone@simmonsperrine.com
sholtman@simmonsperrine.com
jmcginness@simmonsperrine.com

K&L GATES LLP

Neal R. Brendel
Douglas J. Simmons
Christopher C. French
K&L Gates Center
210 Sixth Avenue

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Case 1:09-cv-00013-LRR Document 119-1 Filed 08/24/10 Page 12 of 13

Pittsburgh, PA 15222-2613
p: (412) 355-6500
f: (412) 355-6501
neal.brendel@klgates.com
doug.simmons@klgates.com
christopher.french@klgates.com

Attorneys for Plaintiffs Penford Corporation and

Penford Products Co.

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CERTIFICATE OF SERVICE

I certify that a true and correct copy of the foregoing Penford s Opposition to

Defendants Motion for Judgment as a Matter of Law was served upon the following counsel of

record on August 24, 2010, via hand delivery and the Court s ECF system:

COUNSEL FOR DEFENDANTS:

Matthew S. Ponzi mponzi@fgppr.com

Thomas B. Orlando torlando@fgppr.com
Richard A. Buchanan rbuchanan@fgppr.com
J. Michael Weston mweston@lwclawyers.com
Gregory M. Lederer glederer@lwclawyers.com
Brenda K. Wallrichs bwallrichs@lwclawyers.com

COUNSEL FOR PLAINTIFFS:

Neal R. Brendel neal.brendel@klgates.com

Thomas M. Reiter thomas.reiter@klgates.com
Douglas J. Simmons doug.simmons@klgates.com
Christopher C. French christopher.french@klgates.com
Paul C. Fuener paul.fuener@klgates.com
Roger W. Stone rstone@simmonsperrine.com
Stephen J. Holtman sholtman@simmonsperrine.com
Jeffrey K. McGinness jmcginness@simmonsperrine.com

/s/ Neal R. Brendel

Neal R. Brendel
neal.brendel@klgates.com

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