Penford to appeal dismissal of flood insurance lawsuit

Penford Corp. plans to appeal a judge's dismisal of its lawsuit against two insurance companies it says reneged on paying flood insurance claims..

The Cedar Rapids corn milling company lost its lawsuit this week against the two insurance companies it says failed to pay millions in insurance claims from the June 2008 flooding on the Cedar River.

Penford Products Corp.'s plant at 1001 First St. SW was indundated by the record Cedar River flood  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 used in the paper industry.

The company said it is disappointed in the ruling in a brief statement issued Friday, August 27, and said it plans to appeal.

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