Continental Western Ins. Co. v. Krebill, 91-1663

• Decision Date: 25 November 1992
• Docket Number: No. 91-1663,91-1663
• Citation: 492 N.W.2d 405
• Parties: CONTINENTAL WESTERN INSURANCE COMPANY, Appellant, v. Kori KREBILL and Kathy Nafziger, Appellees.
• Court: Iowa Supreme Court

Page 405

492 N.W.2d 405

CONTINENTAL WESTERN INSURANCE COMPANY, Appellant, v. Kori KREBILL and Kathy Nafziger, Appellees.

No. 91-1663.

Supreme Court of Iowa.

Nov. 25, 1992.

Douglas A. Haag of Patterson, Lorentzen, Duffield, Timmons, Irish, Becker & Ordway, Des Moines, for appellant.

Joseph M. Barron of Peddicord, Wharton, Thune, and Spencer, P.C., Des Moines, for appellee Kori Krebill.

Gerald D. Goddard of Cray, Goddard & Miller, Burlington, for appellee Kathy Nafziger.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, SNELL, and ANDREASEN, JJ.

HARRIS, Justice.

The trial court entered summary judgment on stipulated facts. Defendants Kori Krebill and Kathy Nafziger were seriously injured in a multi-vehicle collision involving a drunken driver. Each defendant was insured under an automobile policy issued by plaintiff Continental Western Insurance Company. Both policies, identical in all respects relevant here, provided underinsured motorist coverage of $25,000. Continental paid each insured the $25,000 limit, and each insured signed a release and trust agreement in favor of Continental.

One insured, the defendant Krebill, subsequently recovered a total of $92,200 from three tortfeasors: $20,000 from the drunken driver; $200 from the owner of the vehicle driven by the drunken driver; and $72,000 from a tavern owner (under his dramshop policy). When added to the $25,000 payment by Continental, Krebill has received a total of $117,200. It is stipulated that Krebill's injuries equal or exceed this sum. The other insured, defendant Nafziger, recovered $20,000 from the drunken driver, $300 from the owner, and $108,000 from the same tavern owner. When added to the $25,000 payment by Continental, her total recovery is $153,300. It is stipulated that Nafziger's injuries equal or exceed this sum.

Continental demands that each defendant repay the $25,000, less reasonable attorney fees incurred in obtaining recovery from the tortfeasors. The defendants refuse, asserting they are under no legal obligation to repay any money to Continental.

Because the facts are undisputed, the case was submitted on motions by each party for summary judgment. The trial court ruled against Continental and for each insured, the court finding "that the defendants are under no obligation to repay the sums paid by plaintiff under their underinsured motorist coverage." Continental appeals.

I. Well-established principles control the construction and interpretation of insurance policies. They were spelled out in A.Y. McDonald Industries v. INA, 475 N.W.2d 607, 618-19 (Iowa 1991), and need not be repeated here. The parties agree that our scope of review is on error. Iowa R.App.P. 4.

II. The underinsured motorist coverage in both policies was qualified by this provision:

OUR RIGHT TO RECOVER PAYMENT

....

B. If we make a payment under this policy and the person to or for whom payment is made recovers damages from another, that person shall:

1. Hold in trust for us the proceeds of the recovery; and

2. Reimburse us to the extent of our payment.

(Emphasis added.) Continental's reimbursement claim is derived from this language.

It is clear, and defendants apparently concede, this clause is consistent with the language and spirit of Iowa Code chapter 516A (1991). See Kapadia v. Preferred Risk Mut. Ins. Co., 418 N.W.2d 848, 851 (Iowa 1988) ("We hold that such subrogation clauses are consistent with the language and spirit of chapter 516A and that they may be protected by the use of consent-to-settlement clauses."). ¹

Defendants take the position, however, that an insurer's right of reimbursement cannot mature until the insured has been fully compensated for all damages. A right of reimbursement exists, but is limited to that amount of total compensation (insurance coverage, settlements and judgments) received by the insured which exceeds the insured's damages. Stated another way, defendants argue an insurer's right of reimbursement cannot impair an insured's entitlement under Iowa Code chapter 516A to full compensation for damages.

Iowa Code chapter 516A has generated a number of appeals in recent years. See Veach v. Farmers Ins. Co., 460 N.W.2d 845 (Iowa 1990); In re Estate of Rucker, 442 N.W.2d 113 (Iowa 1989); Poehls v. Guaranty Nat'l Ins. Co., 436 N.W.2d 62 (Iowa 1989); McClure v. Northland Ins. Cos., 424 N.W.2d 448 (Iowa 1988); Kapadia, 418 N.W.2d 848; Kluiter v. State Farm Mut. Auto. Ins. Co., 417 N.W.2d 74 (Iowa 1987); Tri-State Ins. Co. of Minn. v. De Gooyer, 379 N.W.2d 16 (Iowa 1985); and American States Ins. Co. v. Estate of Tollari, 362 N.W.2d 519 (Iowa 1985).

Iowa Code chapter 516A contains four sections. The concern in this case is section 516A.4. It reads in pertinent part as follows:

In the event of payment to any person under the coverage required by...