Iowa Court of Appeals Affirms Jury's Liquidated-Damages Verdict in Favor of Derecho Contractor
In Aesthetic Elements, Inc. v. Meera Enterprise, LLC, 2025 WL 52447 (Iowa Ct. App. Jan. 9, 2025), the Iowa Court of Appeals affirmed a jury’s liquidated-damages verdict in favor of a contractor. Meera Enterprise, LLC, was owner of a Cedar Rapids hotel damaged by the August 2020 derecho storm. It signed a Service Agreement with Aesthetic Elements, Inc., “as general contractor of record for the purpose of inspecting, evaluating and creating an estimate for the scope of work necessary to repair or replace the damage.” The Service Agreement provided, “If [Meera's] insurance company (the ‘Insurer’) approves a claim for the Work (the ‘Claim’), [Meera] acknowledges and agrees that [Meera] shall promptly enter into a Construction Agreement with [Aesthetic Elements] to set forth the terms and conditions upon which [Aesthetic Elements] shall perform the Work. The cost of the Work shall be equal to the amount of the replacement cost value authorized by the Insurer (including all overhead and profit), plus the insurance deductible which shall be paid by [Meera] to [Aesthetic Elements] (the ‘Agreed Price’).” It also stated that if Meera failed to enter a construction agreement or authorize repairs following approval of the claim, Meera was required to pay Aesthetic Elements “twenty percent ... of the replacement cost value of the Claim.”
After signing the Service Agreement, Aesthetic Elements immediately began its work by inspecting the property and evaluating the damage, and later provided an inspection report and a scope of work to Meera and its insurer. Unbeknownst to Aesthetic Elements, at the same time Meera was also talking with another contractor named North-West Roofing about the damaged hotel. Meera eventually signed a construction agreement with North-West Roofing to repair the damaged hotel, and North-West Roofing completed the repair work. Meera never signed a construction agreement with Aesthetic Elements for the repair work. Aesthetic Elements sued Meera for breach of the Service Agreement and sought liquidated damages. At trial, the jury found the Service Agreement was a valid contract, determined that Meera breached it, and awarded Aesthetic Elements $93,329.00 in liquidated damages. Meera appealed.
On appeal, Meera argued that the Service Agreement was not a valid contract because its terms were too indefinite. Specifically, it argued that it was an unenforceable “agreement to agree” because “it required the parties to execute a separate contract upon approval of a claim by Meera's insurer,” that it failed “to define the essential terms of Aesthetic Elements’ performance—particularly, the approved scope, price, and schedule for the repair work,” and that it does not include a schedule for Aesthetic Elements’ performance.” The Iowa Court of Appeals rejected those arguments.
The Court explained that the “essential terms of the work Aesthetic Elements promised to perform were ‘understandable or ascertainable’ from the service agreement. For starters, although the agreement does not specify a total price for Aesthetic Elements’ work, it does fix the method by which Aesthetic Elements’ compensation would be determined: ‘the amount of the replacement cost value authorized by the Insurer (including all overhead and profit), plus the insurance deductible.’ Nothing about payment was left for further negotiation.” The Court also stated that “the service agreement states that the scope of Aesthetic Elements’ performance was for work ‘necessary to repair or replace the damage to the Property.’ The agreement expressly defines that scope as ‘the Work’ and makes Aesthetic Elements’ performance contingent upon the insurer's approval of ‘a claim for the Work.’ In other words, the scope of Aesthetic Elements’ work would consist of whatever repairs the insurer approved. That an essential term must be determined by reference to outside facts does not make a contract indefinite.” Finally, the Court concluded that the absence of a work schedule was “not enough” to make the Service Agreement too indefinite because “‘[w]hen a contract fails to specify time for performance, the parties must perform within a reasonable time.” In summary, the Court upheld the validity of insurance-restoration agreements against the contention that they are too indefinite to enforce.
On the liquidated-damages issue, Meera argued that it was an unenforceable penalty because “Aesthetic Elements failed to adequately explain why its standardized service agreement sets liquidated damages at 20%,” and that it “‘defies reason to suggest 20% of the replacement cost value of every single Construction Agreement Aesthetic Elements enters into approximates the anticipated or actual losses of preparing an estimate on any particular project.’” The Court rejected the arguments, and explained that “[l]quidated damages under the service agreement must be measured against the entire benefit of the bargain Aesthetic Elements stood to receive, including the profits from its anticipated repair work.” Evidence at trial supported the finding that Aesthetic Elements “typically bakes in a 20% profit margin when preparing estimates on insurance restoration projects,” and that this percentage is “industry standard.” Further, testimony established that Aesthetic Elements expected to make more than 20% profit on the Meera project. Because the evidence supported the finding that the 20% liquidated-damages amount in the Service Agreement was a reasonable approximation of the amount of profit Aesthetic Elements would have made on repairing the derecho-damaged hotel, the liquidated-damages amount was enforceable.
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