Faeth v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 23 December 2005
• Docket Number: No. 03-1552.,03-1552.
• Citation: 707 N.W.2d 328
• Parties: Lynn FAETH, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

707 N.W.2d 328

Lynn FAETH, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.

No. 03-1552.

Supreme Court of Iowa.

December 23, 2005.

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Nicholas G. Pothitakis of Pothitakis Law Firm, P.C., Burlington, for appellant.

Matthew J. Nagle and Corinne R. Butkowski of Lynch Dallas, P.C., Cedar Rapids, for appellee.

CARTER, Justice.

Plaintiff, Lynn Faeth, who was injured in a motor vehicle collision involving Umthun Trucking Company (Umthun), a self-insured motor carrier that later became insolvent, appeals from the denial of his motion for summary judgment against defendant, State Farm Mutual Automobile Insurance Company (State Farm), on a claim made under the uninsured-motorist coverage provided to Faeth by State Farm. State Farm cross-appeals from the denial of its motion for summary judgment. The appeals concern the efficacy of a contractual limitation on the time for bringing suit contained in the State Farm policy. The policy provision at issue requires that actions to recover on uninsured motor-vehicle coverage must be commenced within two years of the date of the accident.

After reviewing the record and considering the arguments presented, we find that the mandatory protection against uninsured motorists contained in Iowa Code section 516A.1 (1997) extends to legally sanctioned, self-insured motorists who become insolvent after the accident occurs. An uninsured-motorist claim in that situation does not accrue until the occurrence of the insolvency. Because the application of the contractual limitation on time to sue contained in State Farm's policy would serve to extinguish Faeth's uninsured-motorist claim before it accrued, it is unreasonable and may not be enforced. By default, Iowa Code section 614.1(5) becomes the applicable period of limitation. As a result of these conclusions, we reverse the district court on Faeth's appeal and affirm the district court on State Farm's appeal.

Faeth was injured on November 15, 1997, when the motor vehicle he was driving was rear-ended by a truck owned by Umthun and operated by its driver, Danyiel L. Simmons. On November 4, 1999, Faeth filed an action against Umthun and Simmons in the State of Illinois, seeking to recover for the injuries he had sustained in the November 15, 1997 collision. On the date of the collision, Umthun was self-insured under the authority of the United States Department of Transportation for the first $300,000 of liability incurred on bodily injury claims. However, on February 28, 2002, Umthun became insolvent. It was thereafter unable to make payments on claims made against it during its self-insured status. Subsequently, Faeth, on September 25, 2002, brought this action for uninsured-motorist benefits against State Farm.¹

I. The Summary Judgment Rulings.

The first motion for summary judgment was filed by State Farm. The motion asserted that the action was barred by the limitations on the time to sue contained in its policy. The policy provision in question provides:

Suit Against Us

There is no right of action against us:

....

d. under uninsured motor vehicle coverage unless such action is commenced within two years after the date of the accident.

The district court denied State Farm's motion for summary judgment, stating, in part:

The Plaintiff [Faeth] rightly argues that if the suit had been brought within two years from the date of the accident, the claim for uninsured motorist benefits would have been denied because Umthun was not uninsured during that period.

....

Reasonable limitations on an uninsured motorist policy must take into consideration the practical application of how that benefit is to be realized.

The second motion for summary judgment was filed by Faeth and was considered by a different judge. In denying Faeth's motion, the judge concluded that the contractual limitation on the time to sue was clear and unambiguous and required an uninsured-motorist claim to be brought within two years of the accident. The court also ruled that State Farm's uninsured-motorist coverage did not apply to claims against self-insured motor vehicles in any event.

Because the second summary judgment ruling involved a motion filed by Faeth, the district court concluded that the ruling denying the motion could not include a dismissal of the action. Because the two inconsistent rulings on summary judgment motions left the case in an interlocutory impasse, this court granted the parties permission to appeal in advance of final judgment.

II. Standard of Review.

Summary judgment rulings are reviewed for correction of errors at law. Kiesau v. Bantz, 686 N.W.2d 164, 171 (Iowa 2004). Summary judgment is appropriate if there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 1.981(3). Further considerations when reviewing a motion for summary judgment are summarized as follows:

"A factual issue is material only if the dispute is over facts that might affect the outcome of the suit. The burden is on the party moving for summary judgment to prove the facts are undisputed. In ruling on a summary judgment motion, the court must look at the facts in a light most favorable to the party resisting the motion. The court must also consider on behalf of the nonmoving party every legitimate inference that can be reasonably deduced from the record."

Estate of Harris v. Papa John's Pizza, 679 N.W.2d 673, 677 (Iowa 2004) (citations omitted).

III. Whether Uninsured-Motorist Protection Extends to Claims Against Self-Insured Entities.

Prior to determining the issues involving the application of the contractual period of limitations, we consider the district court's conclusion on Faeth's motion for summary judgment that under State Farm's policy uninsured-motorist coverage did not apply to claims against self-insured motor vehicles in any event. The provision on which the court relied for this conclusion was:

An uninsured motor vehicle does not include a land motor vehicle:

....

2. owned or operated by a self-insurer under any motor vehicle financial responsibility law, a motor carrier or any similar law....

Faeth argues that this policy provision is only intended to make it clear that those motor vehicle operators who enjoy a legally sanctioned, self-insured status are not to be considered as uninsured. We agree with Faeth's interpretation of the policy provision involving self-insurers. However, as recognized by a New Jersey court in interpreting a similar provision, policy provisions removing legally sanctioned self-insurers from uninsured status for purposes of uninsured-motorist coverage only apply to solvent self-insured entities. Goodwin v. Rutgers Cas. Ins. Co., 223 N.J.Super. 195, 538 A.2d 425, 427 (1988).

The court in Goodwin described the situation as follows:

An effective self-insurer must be an entity which can pay claims in the usual course, not an empty or shallow pocket left to personal injury claimants who are reduced to general creditors' status awaiting payment from the debtor's estate after liquidation or reorganization proceedings are finally concluded.

Id. The district court was wrong in concluding that the policy provision excepting a legally sanctioned, self-insured entity from the status of an uninsured motorist applies to self-insurers who have become insolvent.

If the provision in State Farm's policy excluding self-insurers from being considered as uninsured motorists were to be applied to insolvent self-insurers, the policy would not provide the coverage mandated by Iowa Code section 516A.1. As recognized by the New Jersey court in Goodwin:

The instruction of that provision is that an authorized and financially responsible self-insurer is not to be deemed "uninsured." Such a self-insurer has provided an acceptable equivalent of liability insurance. An insolvent self-insurer is neither insured nor financially responsible. There is no reason to conclude that the statute permits a person injured by such an owner to be deprived of UM coverage.

538 A.2d at 427.

IV. Whether Self-Insurers Who Become Insolvent After the Accident Are Considered in the Same Manner as Conventional Liability Insurers Under Iowa Code Section 516A.3.

Although the application of State Farm's time limit on bringing suit in cases involving conventional liability insurers is not before us, it is nevertheless necessary to consider that matter in deciding Umthun's situation. Had Umthun been insured by a conventional liability insurer at the time of the accident and that insurer had become insolvent at a time subsequent to the accident, Iowa Code section 516A.3 would provide that those claiming against Umthun for motor-vehicle negligence would be confronting an uninsured motorist, thus triggering any UM coverage that they might have.² In the present case, we must decide whether the postaccident insolvency of a legally sanctioned self-insurer triggers the same result. We are convinced that it does.

The financial liability coverage recognized under Iowa Code section 321.20B(1) (as defined in Iowa Code section 321.1(24B)) includes both insurance policies issued by carriers licensed to do business in Iowa and a valid certificate of sanctioned self-insurance. To be a sanctioned self-insurer, a motor carrier must satisfy the Iowa Department of Transportation that it has and will continue to have the ability to pay judgments arising out of the ownership or operation of a motor vehicle in this state. Iowa Code § 321A.34. For interstate carriers such as Umthun, Iowa authorities accept the determination of federal regulators as to the carrier's self-insured status pursuant to 49 U.S.C. § 13906(d) and 49 C.F.R. § 387.3. Iowa Admin. Code r. 761-524.7(2).

As a result of this statutory scheme, we conclude that Umthun was the equivalent of an insured motorist at the time of the collision of its vehicle with Faeth's vehicle. Conversely, when...