Nationwide Agribusiness Insurance Company, as subrogee of Farmers Cooperative Company v. PGI International Cox Manufacturing Company d/b/a Dalton AG Products, Inc., and CNH Corp. a/k/a CNH America, LLC, a/s/o DMI, Inc.

Citation: Not availableDocket: 18-1315

Court: Court of Appeals of Iowa; December 17, 2019; Iowa; State Appellate Court

Original Court Document: View Document

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Nationwide Agribusiness Insurance Company appeals the Iowa District Court's denial of its motion for a new trial regarding a contribution claim against PGI International, Dalton Ag Products, Inc., and CNH Corporation. The court affirmed its decision based on several findings: 

1. Evidence of an OSHA violation by Farmers Cooperative Company (FCC) was deemed relevant to FCC's negligence.
2. Nationwide failed to preserve error on its claims about similar incidents due to the lack of an offer of proof.
3. The directed verdict for Dalton Ag on the design defect claim was upheld.
4. The directed verdict for PGI regarding the breach of an implied warranty of fitness for a particular purpose was also upheld.
5. Including the Shaws on the special verdict form was not considered an error.

The background involves a tragic incident on October 29, 2011, when Richard Shaw died and his son Michael was injured due to the accidental release of anhydrous ammonia while applying it to a field using rented equipment from FCC. Following this, FCC and Nationwide compensated the Shaw family approximately $4 million, leading to Nationwide’s subrogation claim against the defendants in June 2013.

Nationwide initiated an action on June 4, 2013, against PGI, Dalton Ag, and CNH for contribution following a settlement with the Shaws. The claims included design defects against PGI and Dalton Ag, as well as allegations against all defendants for failure to warn, negligence, breach of warranty of fitness for a particular purpose, and breach of warranty of merchantability. The defendants asserted an affirmative defense of negligence against FCC and the Shaws. They sought summary judgment on the grounds that the releases signed by the Shaws did not extinguish the defendants' liability, which the district court initially granted. However, upon appeal, the court found the summary judgment was improperly granted and remanded the case, allowing for reformation of the releases to grant Nationwide contribution rights against the defendants.

Before the jury trial starting on April 30, 2018, the district court ruled on motions in limine, permitting evidence of OSHA violations as negligence but excluding evidence of subsequent remedial measures by FCC and other incidents involving anhydrous ammonia leaks. The court also included the Shaws in the verdict form under Iowa Code section 668.2 (2013) and excluded evidence regarding Dalton Ag's design changes.

During the trial, expert testimony was presented, including Duane Wolf, who stated the excess flow valve could fail to close under certain conditions, indicating PGI's inadequate testing and failure to identify valve limitations. Additionally, Dr. Thomas Schnell testified that PGI and Dalton Ag did not provide appropriate warnings related to anhydrous ammonia, and CNH shared responsibility for the warnings needed to inform users about the hazards of ammonia release. He emphasized that the necessary warnings were not adequately presented in the final product.

The defendants sought a directed verdict, which the court granted to PGI on the breach of warranty claim and to Dalton Ag on design defect and breach of warranty claims. The jury, after a two-week trial with twenty-one witnesses, found PGI, Dalton Ag, and CNH not at fault, assigning fault to FCC (51%) and Richard Shaw (49%). The jury deemed the settlement amount reasonable. Nationwide subsequently filed a motion for a new trial, asserting several claims: improper admission of OSHA violations, exclusion of similar incidents, errors in granting directed verdicts, inclusion of the Shaws on the verdict form, improper jury instructions, inappropriate closing arguments by PGI's counsel, and cumulative errors causing prejudice. The district court denied the new trial motion, leading to Nationwide's appeal.

Regarding the motion in limine, Nationwide argued that OSHA violations by FCC should not have been admitted as evidence, contending their relevance was limited to FCC’s relationship with employees, not third parties like the Shaws. The court's admissibility ruling on the OSHA evidence did not require further objection at trial. Citing precedent, the court stated that OSHA violations can indicate negligence towards anyone potentially exposed to injury, regardless of employment status. Since the equipment used by FCC employees was also rented to farmers, including Richard Shaw, they were deemed likely to be injured from such violations. Thus, the district court's decision to admit evidence of the OSHA violation was not an abuse of discretion.

Nationwide contends that the district court improperly exercised its discretion by excluding evidence of prior similar incidents involving the defendants. The court had ruled that such evidence was not admissible, although evidence of similar past incidents might be allowed to demonstrate a dangerous condition if they occurred under similar circumstances. The court specifically excluded evidence related to defendants Svendson, Fast, and Blazek as their incidents occurred after the current case, while reserving judgment on Phipps. During trial, the court reaffirmed the inadmissibility of the Phipps incident. Nationwide did not preserve error regarding the exclusion of evidence since it failed to make an offer of proof demonstrating the relevance and similarity of the other incidents. 

Furthermore, Nationwide argues that the district court erred in granting directed verdicts to Dalton Ag on the design defect claim and to PGI on the breach of warranty claim, asserting it had substantial evidence to support these claims. The court's decision on a directed verdict is reviewed for legal error, with evidence considered in the light most favorable to the opposing party. A directed verdict is improper if reasonable minds could differ on the issue's resolution. For a design defect claim, a product is deemed defective if foreseeable risks could have been mitigated by a reasonable alternative design. Due to the absence of a transcript for the directed verdict ruling, the review relies on the available record for substantial evidence on these claims.

A plaintiff alleging a design defect must demonstrate several key elements, including the existence of a reasonable alternative design that could have mitigated foreseeable harm from the product. Specifically, the plaintiff must provide evidence that: (1) the defendant sold or distributed the product; (2) the defendant was in the business of selling or distributing the product; (3) the product was defective when it left the defendant's control; (4) a safer alternative design was available at the time of sale; (5) this design would have reduced the risks of harm; (6) the absence of this design made the product unsafe; (7) the defect caused the plaintiff's damages; and (8) the extent of damages.

Expert testimony indicated that a hose stand, which could have supported the hose and prevented it from dragging on the ground, was available for less than $100 but was not offered to the plaintiff's company, FCC. This stand could be considered a safety device, yet Dalton Ag, the manufacturer, chose not to include it with their running gear, fearing it would hurt sales. Additionally, while evidence showed that other manufacturers in different industries had implemented safety features like emergency stop devices, there was no indication that other running gear manufacturers used hose stands. The expert acknowledged that the design of Dalton Ag's running gear was state of the art at the time of manufacture and had no information on whether a hose stand was offered when the product was sold through a vending house.

The court affirmed the district court's decision to grant a directed verdict to Dalton Ag regarding Nationwide's design defect claim, finding no error in that ruling. Nationwide argued that the district court incorrectly granted a directed verdict to PGI concerning the breach of an implied warranty of fitness for a particular purpose. Nationwide claimed there was substantial evidence that PGI was aware the excess flow valves were intended for use with anhydrous ammonia but were unfit for that purpose due to their failure to close under certain foreseeable conditions.

The legal basis for this claim rests on Iowa Code section 554.2315, which establishes an implied warranty when a seller knows a buyer's specific purpose for goods and that the buyer is relying on the seller's expertise. To succeed in a claim for breach of this warranty, a plaintiff must demonstrate that the defendant knew the buyer's particular purpose, that the buyer was relying on the seller's skill or judgment, and that the buyer indeed relied on that expertise.

The Iowa Supreme Court differentiates a "particular purpose" from an ordinary use, emphasizing that it pertains to a specific use unique to the buyer's business. A warranty of fitness for a particular purpose necessitates the buyer's special reliance on the seller. The court noted that a seller's knowledge of the buyer's purpose is crucial, and while the buyer does not need to explicitly communicate this purpose, the seller must have had reason to know it.

In this case, the court found insufficient evidence showing that PGI knew of FCC's specific purpose for the excess flow valve. Notably, FCC purchased the valve from a third-party supplier, not directly from PGI, and relied solely on that supplier's expertise. As a result, there was no basis for submitting the warranty issue to the jury, leading to the conclusion that PGI was not aware of FCC's particular purpose.

PGI was not aware of the ultimate purchaser or the specific purpose for which the excess flow valve was intended. There was no evidence suggesting that PGI should have known that FCC was relying on its skill and judgment regarding the valve's use. As a result, the district court correctly granted a directed verdict for PGI concerning Nationwide’s claim of breach of an implied warranty of fitness for a particular purpose.

Nationwide contended that the district court mistakenly included the Shaws on the special verdict form, arguing they were not parties to the lawsuit. Challenges to a special verdict form are reviewed for legal errors. According to Iowa Code section 668.3(1)(a), contributory fault does not bar recovery unless the claimant is more at fault than the combined fault of defendants and others released from liability. The term “party” includes claimants, defendants, and released persons under Iowa law. The Shaws had entered into a release with FCC, which qualifies them as claimants. Section 668.7 clarifies that a release discharges the released person from liability for contribution but does not discharge others unless explicitly stated; however, the claim against others is reduced by the released person's share of the obligation. 

Nationwide sought contribution from other alleged tortfeasors, and section 668.5 establishes a right of contribution among those liable for the same injury. This right considers each person's equitable share of obligations, including the claimant's share of fault. Therefore, the inclusion of the Shaws on the special verdict form was justified. The district court's decision was affirmed.