## Facts

- Deere & Company historically carried property insurance with Factory Mutual Insurance Company (FM), later shifting to primary coverage with Royal and Chubb while FM provided excess coverage.
- After FM ceased being Deere’s primary insurer, Deere paid FM under a separate contract to continue loss-prevention engineering and inspection services.
- In 2000, Deere considered leasing a Davenport, Iowa warehouse and asked FM to inspect the facility’s fire protection system as part of FM’s engineering services.
- FM engineers inspected and approved the fire-protection system but did not perform certain tests, including tests of water supply and sprinkler water pressure.
- Deere leased the warehouse and stored substantial equipment there.
- On February 20, 2001, a fire destroyed Deere’s stored property; firefighting was hindered by inadequate sprinkler water pressure.
- Royal and Chubb paid more than $70 million for Deere’s loss and, as subrogees, sued FM and others; all other defendants settled before trial.
- At trial, the district court directed a verdict for FM on negligence for lack of proof of proximate cause; the jury found for Royal on breach of contract and awarded $39.5 million, later reduced by a settlement credit.

## Issues

1. Whether sufficient evidence supported a finding that FM breached its engineering/loss-prevention services contract with Deere.
2. Whether the warehouse-fire losses were within the parties’ contemplation and within the scope of contractual liability for any breach.
3. Whether the district court properly directed a verdict for FM on negligence due to lack of proximate cause.
4. Whether Iowa Code § 517.5 (2001) barred claims arising from an insurer’s safety inspections.
5. Whether the trial court correctly reduced the contract verdict by a pro tanto settlement credit.

## Decision

- The Iowa Supreme Court reversed the contract judgment against FM and remanded with directions to dismiss all claims.
- The court held that, even assuming deficient performance, the claimed fire-loss damages were not within the parties’ contemplation and were outside FM’s scope of contractual liability under the engineering-services arrangement.
- The court affirmed the directed verdict for FM on negligence, concluding Royal failed to establish proximate cause under Iowa law.
- Because dismissal was required on common-law grounds, the court did not rely on Iowa Code § 517.5 to resolve the appeal.
- The court did not reach the merits of the settlement-credit dispute given the complete dismissal of claims.

## Legal Principles

- Contract damages are limited to losses that were reasonably foreseeable and within the parties’ contemplation at the time of contracting; liability does not extend to losses outside the risks the contract can fairly be read to allocate.
- A safety-inspection or loss-prevention services agreement, without clear allocation of catastrophic loss risk, does not make the service provider responsible for the insured’s full downstream property losses.
- Proximate cause is a required element of negligence and may also constrain recovery where the causal link between alleged deficient inspection and the ultimate loss is not sufficiently established.
- Appellate courts may dispose of statutory defenses without decision when common-law grounds independently require judgment for the defendant.

## Conclusion

The Iowa Supreme Court ordered dismissal of the subrogated insurers’ claims against FM, ruling that the catastrophic warehouse-fire losses were outside the contractual scope of liability contemplated by the parties and that the negligence claim failed for lack of proximate cause.


Royal Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839 (Iowa 2010)