Farm Bureau Life Ins. Co. v. Holmes Murphy &A Associates, Inc.

• Decision Date: 17 May 2013
• Docket Number: No. 12–0650.,12–0650.
• Court: Iowa Supreme Court
• Parties: FARM BUREAU LIFE INSURANCE COMPANY, Appellant, v. HOLMES MURPHY & ASSOCIATES, INC., Appellee.

831 N.W.2d 129

FARM BUREAU LIFE INSURANCE COMPANY, Appellant,

v.HOLMES MURPHY & ASSOCIATES, INC., Appellee.

No. 12–0650.

Supreme Court of Iowa.

May 17, 2013.

Jason T. Madden and Thomas M. Boes of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, and James A. Pugh of Munro Law Office, P.C., Des Moines, for appellant.

Matthew J. Dendinger and Lewis K. Loss of Loss, Judge & Ward, LLP, Washington, DC, and Richard A. Malm of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines, for appellee.

HECHT, Justice.

A husband and wife applied for life insurance policies from Farm Bureau Life Insurance Company. The applicants later sued Farm Bureau alleging it negligently failed to notify them of their HIV-positive status. Farm Bureau settled the negligence claims, sued its insurers for indemnity, and sued its insurance broker for breach of contract and negligence in failing to provide timely notice to the insurers. We affirmed a summary judgment in favor of the insurers on the ground Farm Bureau had failed to give them timely notice of the applicants' liability claims. Farm Bureau Life Ins. Co. v. Chubb Custom Ins. Co., 780 N.W.2d 735 (Iowa 2010).

Thereafter the district court granted summary judgment for the broker after concluding that even if the insurers had been given timely notice of the applicants' tort claims against Farm Bureau, coverage for those claims would have been precluded under two separate exclusions. Farm Bureau has again appealed. As we conclude the underwriting exclusion precluded coverage for the applicants' claims, we affirm the district court's ruling.

I. Factual and Procedural Background.

The events giving rise to the present dispute commenced in Wyoming in October 1999 when John and Mary Smith ¹ applied for life insurance through Farm Bureau. Farm Bureau denied the Smiths' applications for life insurance after a blood screening revealed they were both infected with the Human Immunodeficiency Virus (HIV). In November 1999 Farm Bureau sent the Smiths a letter informing them their applications were denied “due to the blood profile results” and requesting authorization to disclose the results to their physician(s). The Smiths did not respond or grant Farm Bureau the requested authorization, and they did not discover their HIV-positive status until July 2001.

The Smiths filed a complaint in June 2002 in Wyoming Federal District Court alleging Farm Bureau and other parties involved in the analysis of the blood samples were negligent in:

(1) failing to report the HIV-positive status to the State of Wyoming; (2) failing, in violation of Wyoming common law, to report the HIV-positive results to them; and (3) failing to inform them before their blood was drawn that Farm Bureau would not tell them if the blood tests were positive for HIV.

Id. at 737. The Smiths sought damages for loss of present and future income, bodily injury, past and future pain and suffering, mental anguish, loss of enjoyment of life, total disability, inability to care for themselves as their diseases progressed, and other general damages.²

The federal district court concluded Farm Bureau owed no legal duty to inform the Smiths of their HIV-positive status and granted Farm Bureau's motion for summary judgment. The Smiths appealed to the United States Court of Appeals for the Tenth Circuit, which reversed the summary judgment order. The court held:

[I]f an insurance company, through independent investigation by it or a third party for purposes of determining policy eligibility, discovers that an applicant is infected with HIV, the company has a duty to disclose to the applicant informationsufficient to cause a reasonable applicant to inquire further.

Pehle v. Farm Bureau Life Ins. Co., 397 F.3d 897, 900 (10th Cir.2005).

The Smiths then filed an amended complaint in Wyoming district court seeking punitive damages and alleging Farm Bureau had breached the legal duty recognized by the Tenth Circuit. The damages the Smiths alleged in their amended complaint were similar to those alleged in the original complaint and included: “loss of past, present, and future income”; past and future “pain and suffering, mental anguish, loss of enjoyment of life, psychological damage, total disability, inability to care for themselves as the disease progresse[d], and other general damages.” In June 2006 Farm Bureau and the Smiths reached a confidential settlement agreement and the suit was dismissed.

Farm Bureau subsequently sought indemnity, for the amounts paid in settling the Smiths' claims, under an Insurance Company Professional Liability (ICPL) policy issued by Federal Insurance Company (Federal) and in effect at the time the Smiths filed their lawsuit. Under Insuring Clause 1 of the ICPL policy Federal was obligated:

To pay on behalf of the Insureds for Loss which the Insureds shall become legally obligated to pay as a result of any Claim first made against the Insureds during the Policy Period or, if elected, the Extended Reporting Period, arising out of any Wrongful Act committed by the Insureds or any person for whose acts the Insureds are legally liable during or prior to the Policy Period while performing Insurance Services including the alleged failure to perform Insurance Services.

Insuring Clause 2 of the same policy covered Farm Bureau for wrongful acts committed while performing financial services.

The policy defined “a claim” as:

a. a written demand for monetary damages;

b. a civil proceeding commenced by the service of a complaint or similar pleading;

c. a criminal proceeding commenced by the return of an indictment; or

d. a formal administrative or regulatory proceeding brought by or on behalf of policyholders or customers commenced by the filing of a notice of charges, formal investigative order, or similar document.

The policy required written notice to Federal of claims “as soon as practicable, but in no event later than ninety (90) days after the termination of the policy period.” ³

Farm Bureau notified its insurance broker, Holmes Murphy & Associates, Inc., of the Smiths' claims on February 11, 2003. Holmes Murphy did not notify Federal about the claims, however, until more than two years after the ICPL policy notice period had expired. Farm Bureau, 780 N.W.2d at 740.

By letter dated April 1, 2005, Federal denied coverage based on Farm Bureau's failure to provide timely notice of the Smiths' claims. Federal also denied coverage based on the policy's exclusions for claims “for bodily injury” ⁴ and claims “based upon, arising from, or in consequence of the underwriting of insurance” (the “underwriting exclusion”).⁵

Farm Bureau filed suit against Federal and Holmes Murphy.⁶ We affirmed a summary judgment in favor of Federal on the ground Farm Bureau had failed to timely notify Federal of the Smiths' claims as required by the ICPL policy. Id. at 744.

Farm Bureau then filed an amended petition against Holmes Murphy alleging breach of contract and negligence for failing to provide Federal with notice of the Smiths' claims. The parties stipulated that, in the interest of judicial efficiency, the court would first determine whether the ICPL policy would have covered Farm Bureau for the Smiths' claims had Holmes Murphy given Federal timely notice. Both parties moved for summary judgment. The district court granted summary judgment in favor of Holmes Murphy, concluding the bodily injury and underwriting exclusions in the ICPL policy would have precluded coverage even if Federal had received timely notice of the Smiths' claims. Farm Bureau appeals.

II. Scope of Review.

We review rulings on summary judgment motions for correction of errors of law. Id. at 739. Summary judgment is only appropriate when a “moving party has affirmatively established the existence of undisputed facts entitling that party to a particular result under controlling law.” Travelers Indem. Co. v. D.J. Franzen, Inc., 792 N.W.2d 242, 245–46 (Iowa 2010) (alteration, citation, and internal quotation marks omitted). When no extrinsic evidence is offered on the meaning of language in a policy, interpretation and construction of an insurance policy are questions of law for the court. Farm Bureau, 780 N.W.2d at 739.

III. Discussion.

The parties advance diverging interpretations of the bodily injury and underwriting exclusions found in the ICPL policy. While at least some, if not all, of the damages the Smiths seek against Farm Bureau may be characterized as losses in connection with a claim for bodily injury and would therefore be excluded from coverage under the policy's bodily injury exclusion, we need not decide whether that exclusion is dispositive. Instead, we conclude the underwriting exclusion precludes coverage for any of the Smiths' claims.

The controlling consideration in construction of insurance policies is the intent of the parties. Thomas v. Progressive Cas. Ins. Co., 749 N.W.2d 678, 681 (Iowa 2008). We determine intent by what the policy itself says except in cases of ambiguity. A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 618 (Iowa 1991). Ambiguity exists when the language of a policy is susceptible to more than one reasonable interpretation. First Newton Nat'l Bank v. Gen. Cas. Co. of Wis., 426 N.W.2d 618, 628 (Iowa 1988). We read the insurance contract in its entirety, rather than reading clauses in isolation, to determine whether a policy provision is subject to two equally proper interpretations. Thomas, 749 N.W.2d at 681. We refrain from straining the meaning of the words and phrases of the policy to avoid imposing liability that was not intended and coverage that was not purchased. Id. at 682.

When words are left undefined in a policy, we give them their ordinary meanings—meanings which a reasonable person would give them. A.Y. McDonald, 475 N.W.2d at 619. We do not typically give them meanings only specialists or experts would understand. City of Spencer v. Hawkeye Sec. Ins. Co., 216 N.W.2d 406, 408–09 (Iowa 19...