noting that “it is clear under Iowa law that an insurance company is to look at the allegations of fact in the third-party plaintiffs petition against the insured and not the legal theories on which the third-party claims the insured is liable.”
How later courts described this case
- noting that “it is clear under Iowa law that an insurance company is to look at the allegations of fact in the third-party plaintiffs petition against the insured and not the legal theories on which the third-party claims the insured is liable.”
- holding that, under Iowa law, the term “malicious prosecution” in an insurance policy means the common-law definition of that claim
- an insurer’s defense obligations are triggered if the allegations “arguably or potentially bring the action within the policy coverage.”
- “[I]t is clear under Iowa law that an insurance company is to look at the allegations of fact in the third-party plaintiffs petition against the insured and not the legal theories on which the third-party claims insured is liable.”
Written by the judges who cited it.
The opinion
CARTER, Justice,
dissenting.
I dissent. The district court and this court’s majority have overreacted to appel-lee’s plaintive lament that the question of whether an alleged tortfeasor is insured should not be determined by the plaintiffs choice of legal theory. The district court reacted to this lament by declaring that:
Insurance coverage is predicated on the assessment of the risk involved should the insured participate in a particular type of conduct and not the risk of the plaintiffs choice of legal theories.
In fact, insurance coverages are determined by the terms of the contract, and liability policies frequently define coverages in terms of specific torts. As we noted in another recent coverage dispute:
The policy defines the term “personal injury” in two ways. It lists specific types of damages that are personal injuries such as “bodily harm” and “mental anguish.” It also lists specific torts — such as “false arrest,” “slander” and “assault and battery” — that qualify as personal injury.
Kibbee v. State Farm Fire & Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994).
There are good reasons why insurers seek to tie liability coverages to the legal theory of recovery. The theory of recovery can directly affect the extent of the risk. Because some types of claims are more difficult to sustain than others, the ease of establishing liability will vary among legal theories. Moreover, certain legal theories involve an expanded measure of damages or, by their very nature, apply to factual situations that produce a much higher risk of exposure than other legal theories. This point is graphically illustrated by the present case in which business tort liability, which is traditionally broad, is contrasted with malicious prosecution damages that are traditionally narrow.
The decision of the court is clearly contrary to the position that we took in North Iowa State Bank v. Allied Mutual Insurance Co., 471 N.W.2d 824 (Iowa 1991). In that case, certain plaintiffs had recovered damages from the insured on theories of conversion and abuse-of-proeess. The same award was also predicated on a jury’s favorable finding on other legal theories. The conversion and abuse-of-process claims were covered by the liability policies. The claims based on other theories of legal liability were not. On appeal it was determined that, although a prima facie case had been presented on the conversion and abuse-of-proeess theories, the court’s instructions on those theories were faulty. The trial was found to have been error-free on the other legal theories. Because the damages awarded under the other legal theories included all damages that could have been recovered for conversion or abuse of process, those issues were not retried.
If the theory now espoused by the majority had been applied in the North Iowa State Bank case, there clearly. would have been coverage to indemnify the insured for the judgment entered on facts supporting recovery under covered legal theories. That these facts did support recovery under those theories was established by our determination on the appeal of the tort action that plaintiffs had made a prima facie case under those legal theories. Nevertheless, we held in the subsequent insurance coverage litigation that the policy only covered damages actually adjudicated by the court under covered legal *645 theories. North Iowa State Bank, 471 N.W.2d at 827 . 1
The North Iowa State Bank case applies a rule based on the legal theory under which damages are in fact awarded. The rule the district court applied and that the majority of this court would apply purports to turn on what damages might have been awarded under a legal theory covered by the policy if that claim could have been made on the facts of the ease. Even that rule, however, does not support the result that the district court reached.
The Employers Mutual policy covers personal injury damages for malicious prosecution and makes no reference to business liability. There is a substantial question whether participation in a public hearing process conducted by a regulatory agency is the type of action that will support a malicious prosecution claim. See Lebbos v. State Bar of California, 211 Cal.Rptr. 847 , 165 Cal.App.3d 656 (1985) (disciplinary investigation); Greenberg v. City of New York, 89 Misc.2d 803 , 392 N.Y.S.2d 547 (1977) (internal affairs investigation of city employee).
In many jurisdictions, no civil action for malicious prosecution will lie unless there has been an arrest of the person or a seizure of property. Aalfs v. Aalfs, 246 Iowa 158, 160 , 66 N.W.2d 121, 124 (1954). We have expanded the civil action slightly in this state to allow it to also lie for special injury to the party against whom an unfounded claim is made that would not ordinarily result in all similar eases involving such a claim. Id. The Aalfs case involved a malicious prosecution claim based on a prior unsuccessful action seeking rescission of a contract affecting a business. The court held that the consequential damages that befell the other contracting party as a result of the impact the suit had on the business did not constitute “special damages” because it was the normal and expected consequence of an action challenging a contract with a direct relation to the business.
A similar view of special injury for purposes of maintaining a civil malicious prosecution action is found in Buck v. Gale, 271 Or. 90 , 530 P.2d 1248, 1249-50 (1975). In that case, the court held that the loss of sale of a business as a result of an unsuccessful civil action relating to the business was not an item of special damage because such a consequence would ordinarily flow from litigation of that type. The present case involved the loss of a sale of a business. The similarity of the Buck case and the present ease on the special-damage issue is remarkable. Thus, while the majority urges that it is only finding coverage because the interference-with-business-relationship claim was pursued on facts that would also show malicious prosecution, that is not true. It was predicated on facts that clearly would not support a malicious prosecution claim. Because the coverage for malicious prosecution claims falls under the “personal injury” coverage of the policy, a forceful argument may "be made that this coverage is limited to the narrow definition of malicious prosecution involving arrest of the person. But, even if the expanded definition of the Aalfs case is used, there was no malicious prosecution claim on the facts alleged by the appellee. This is because the “special injury” requirement is not a rule of damages but a substantive element of a civil claim for malicious prosecution. Aalfs, 246 Iowa at 160 , 66 N.W.2d at 124 . The effect of the majority’s ruling is to make coverage available for a business tort of wide dimension when language of the policy only extends coverage to a personal injury tort of malicious prosecution, which is of narrow dimension. All of this is done notwithstanding the fact that the latter claim was not sustainable on the facts alleged in the petition.
Contrary to the majority’s suggestion, the duty to defend and the duty to indemnify both depend on whether the policy extends to the claims presented. The determination of whether these duties exist will ordinarily be made at different times, however. If, while an action is pending, the pleadings or other circumstances suggest a possibility that the *646 plaintiff will ultimately recover under a theory embraced by the policy, then the insurer must defend that claim. In these ambiguous pleading situations, an insurer may be required to defend a suit that is not ultimately within the scope of its liability coverage. That result is justified by the insurer’s duty to defend against frivolous claims of the type insured. In the present case, however, there was no ambiguity at the pleading stage. The tort of malicious prosecution had been clearly identified in the initial pleading and then cleanly and unequivocally withdrawn from the case.
It is important in deciding these matters not to confuse the obligation to pay for a defense with the obligation of a lawyer to show up at the counsel table. There may be situations in which coverage issues are not clarified early enough in a case to make it feasible for a particular attorney to withdraw from the case. This is a matter of trial administration and should not affect who is responsible to pay for the attorney’s services. This situation is illustrated by a Florida appellate court decision. There, the court observed:
It is the general rule that an original pleading is superseded by an amendment of it which does not express an intention to save any portion of the original pleading. Consequently, when an original complaint has been superseded by an amended complaint, the original complaint can no longer furnish a basis for determining the insurer’s duty to defend. It follows, therefore, that where an amended complaint alleges facts that clearly bring the entire cause of action within a policy exclusion, and the amended complaint contains no additional counts or causes of action which show coverage, the allegations in the amended complaint control and the insurer’s duty to defend comes to an end.
Baron Oil Co. v. Nationwide Mut. Fire Ins. Co., 470 So.2d 810, 815 (Fla.App.1985). The court then went on to hold that the insurer in the Baron Oil Co. case was required to reimburse the defendant for attorney fees for only those attorney fees incurred prior to the time that the complaint was amended to remove the covered claims from the case.
Because I find that the obligation of the insurer in the present case to defend its insured ended when the malicious prosecution claim was withdrawn, I would reverse the judgment of the district court.
NEUMAN and ANDREASEN, JJ., join this dissent.
. The majority seeks to portray the North Iowa State Bank case as an unsuccessful collateral attack on an unappealed declaratory judgment. Clearly, it was not. The unappealed declaratory judgment had held that the conversion and abuse-of-process claims were covered by the policy. Thus, those issues were still available to be argued in the later coverage litigation.