Penford loses lawsuit over flood insurance

A Cedar Rapids corn milling company has lost its lawsuit claiming two insurance companies reneged on paying  millions in insurance claims from the 2008 flood.

Penford Products Corp.'s plant at 1001 First St. SW was indundated by the record Cedar River flood of 2008, resulting in a temporary plant closure and damages the company  expected to exceed $56 million.

National Union Fire Insurance Co. of Pittsburgh and Ace American Insurance Co. paid $20 million on the company's policies, but denied many of Penford's claims.

Among other defenses, the companies claimed their obligations were capped by two $10 million “sublimits” applicable to flooding in two zones at the Cedar Rapids plant.

Chief Judge Linda Reade dismissed Penford's case Tuesday before it went to jury on motions filed by the insurance companies.

The motions filed by Attorney Matthew Ponzi of Chicago argued Penford tried to convince the court that the policy's zone sublimits apply only to property damage and not business interruption losses, but failed to offer “extrinsic” or external evidence to support its position.

The insurers argued that they provided evidence supporting their interpretation of the policy in the form of testimony from a witness employed by Penford's risk management advisor, Marsh Inc., of Chicago.

The insurers also filed a motion that Penford could not recover on a claim for bad faith actions.

Ponzi argued that Penford failed to prove that the insurers' conduct was unreasonable. By the judge's determining that the insurance policy was ambiguous, the insurers argued that the court also determined that their interpretation of the policy's flood sublimit was reasonable.

Penford Corp. manufactures ethanol and starch. Officials of the Colorado-based company were not immediately available for comment on the ruling.

Judge Reade ruled that Penford must pay the insurers' legal costs.