Hamm v. Allied Mut. Ins. Co.

• Decision Date: 01 June 2000
• Docket Number: No. 98-1283.,98-1283.
• Citation: 612 N.W.2d 775
• Parties: Darlene HAMM and Ronald Hamm, Appellants, v. ALLIED MUTUAL INSURANCE COMPANY, Appellee, and Allstate Insurance Company, Defendant.
• Court: Iowa Supreme Court

612 N.W.2d 775

Darlene HAMM and Ronald Hamm, Appellants, v. ALLIED MUTUAL INSURANCE COMPANY, Appellee, and Allstate Insurance Company, Defendant.

No. 98-1283.

Supreme Court of Iowa.

June 1, 2000.

Ted Harrison Engel, Des Moines, for appellants.

Stanley J. Thompson and Amy C. Churchill of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellee.

Considered en banc.

McGIVERIN, Chief Justice.

The question here is: when does the policy limitation period begin to run on an insured's claim for underinsured motorist (UIM) benefits under provisions of the insured's automobile insurance policy. The district court concluded that the limitation period began to run on the date of the automobile accident that caused injury to the insureds. Based on this conclusion, the district court dismissed the petition of plaintiff-insureds Darlene and Ronald Hamm against defendant Allied Mutual Insurance Company for UIM benefits because it was not filed within two years of the date of the automobile accident and therefore was time-barred. Upon our review, we conclude that the policy language of the Allied policy requires that an insured bring suit against or settle with the tortfeasor within two years of the accident in order to preserve his or her right to recover UIM benefits under the Allied policy. We further conclude, however, that the policy does not establish the limitations period concerning the Hamms' claim against Allied for UIM benefits and does not specify when the limitations period begins to run. Therefore, we conclude that the limitations period governing plaintiffs' suit against Allied for UIM benefits is ten years and that the ten-year period did not begin to run until the date that Allied denied plaintiffs' request for UIM benefits under the Allied policy. Because plaintiffs filed their suit against Allied within ten years of the date that Allied denied their claim, the district court incorrectly concluded that their suit against Allied was time-barred. We therefore reverse the judgment of the district court and remand for further proceedings.

I. Background facts and proceedings.

The relevant facts are not in dispute. On December 16, 1995, plaintiff Darlene Hamm was a passenger in a vehicle, which was being driven by Allen J. Breese and insured under a policy issued by defendant Allstate Insurance Company. While stopped at a stoplight, the Breese vehicle was struck from behind by a vehicle being driven by Minh Bao Vien. Plaintiff Darlene Hamm sustained personal injuries as a result of the collision. At the time of the accident, Darlene and Ronald Hamm were insured under an automobile insurance policy issued by defendant Allied Mutual Insurance Company, which included underinsured motorist coverage in the amount of $25,000.

On August 5, 1996, Darlene and her husband Ronald Hamm settled Darlene's personal injury claim and Ronald's loss of consortium claim with Vien and his automobile liability insurance carrier for $20,000, the limits of Vien's automobile insurance policy. Plaintiffs contend that amount, however, was insufficient to compensate Darlene for her injuries and damages.

The Hamms were unable to settle their UIM claim with their insurer, Allied. As a result, the Hamms filed a petition in district court against both Allstate (the insurer of the vehicle in which Darlene was a passenger) and Allied on January 15, 1998, seeking to recover the policy limits of underinsured motorist coverage.

Allied filed an answer to the Hamms' petition, raising expiration of a policy limitations period as an affirmative defense. Allied also filed a motion for summary judgment, contending that any claim by the Hamms for underinsured motorist coverage was barred because it was not brought within two years of the accident as Allied asserts is required by the language of the policy.

After a hearing, the district court agreed with Allied and sustained Allied's summary judgment motion and dismissed plaintiffs' petition against Allied. The Hamms appeal. The Hamms' claim against Allstate Insurance Company is not involved in this appeal.

II. Standard of review.

Our review of a grant or denial of summary judgment is at law. Iowa R.App.P. 4; Krause v. Krause, 589 N.W.2d 721, 724 (Iowa 1999). In this appeal, the facts are undisputed. In such cases, we determine whether the district court correctly applied the law. Krause, 589 N.W.2d at 724. "Summary judgment is properly granted if the only controversy concerns the legal consequences flowing from undisputed facts." Diggan v. Cycle Sat, Inc., 576 N.W.2d 99, 102 (Iowa 1998).

III. Language of the policy.

The dispute in this case centers upon: (1) what is the applicable limitations period for an insured's claim against Allied for underinsured motorist (UIM) coverage under the policy, and (2) when does the limitations period begin to run? To resolve this case, we must review and interpret provisions of the insurance policy. In doing so, we are guided by well-established principles concerning the construction and interpretation of insurance policies:

"Construction of an insurance policy— the process of determining its legal effect—is a question of law for the court. Interpretation—the process of determining the meaning of words used—is also a question of law for the court unless it depends on extrinsic evidence or a choice among reasonable inferences to be drawn."

Allied Mut. Ins. Co. v. Costello, 557 N.W.2d 284, 286 (Iowa 1996) (quoting A.Y. McDonald Indus. v. Insurance Co. of N. Am., 475 N.W.2d 607, 618 (Iowa 1991)). We have also said that when language in an insurance policy is ambiguous, requires interpretation or is susceptible to two equally plausible constructions, we will adopt the construction that is most favorable to the insured. Costello, 557 N.W.2d at 286. Additionally, an insurer has a duty to define any limitations or exclusionary clauses in clear and explicit terms. Id.

The Allied insurance policy here contains the following language concerning UIM coverage:

A. We will pay all sums which an "insured" is legally entitled to recover as compensatory damages from the owner or operator of an "underinsured motor vehicle" resulting from "bodily injury" to any person caused by an accident.

. . . .

We will pay only after an "insured's" rights to the proceeds of all liability insurance bonds or policies have been determined by judgment or settlement agreement.

. . . .

SUIT AGAINST US

We may not be sued unless all the terms of this policy are complied with. We may not be sued under the Underinsured Motorist coverage on any claim that is barred by the tort statute of limitations.

The Iowa tort statute of limitations for personal injuries is two years. See Iowa Code § 614.1(2) (1995).

As stated above, the narrow questions we must answer in this appeal are: absent express language in the policy,¹ or applicable statutory provision,² what is the applicable limitations period concerning an insured's claim under the Allied policy for UIM benefits and when does that limitations period begin to run? Related questions are: (1) what is the effect of language in Allied's policy which states that Allied will pay benefits "only after an `insured's' rights to the proceeds of all liability insurance bonds or policies have been determined by judgment or settlement agreement," and (2) what effect does that language have on the provision which states "[w]e may not be sued until all the terms of this policy are complied with."

IV. Relevant Iowa authorities.

We believe it helpful to first review our Iowa authorities that bear on a claim for benefits under the UIM provisions of an automobile insurance policy.

We have explained that "[t]he purpose of uninsured motorist coverage is to ensure minimum compensation to victims of uninsured motorists." Veach v. Farmers Ins. Co., 460 N.W.2d 845, 848 (Iowa 1990) (emphasis added). "The goal of underinsured motorist coverage, on the other hand, is full compensation to the victim to the extent of the injuries suffered." Id. (emphasis added). Keeping these goals in mind, "we have adopted a `broad coverage' view of underinsured motorist coverage, while taking a `narrow coverage' view of uninsured motorist (UM) coverage." Id.; accord Waits v. United Fire & Cas. Co., 572 N.W.2d 565, 573 (Iowa 1997)

. This means that in examining a case involving a claim for UIM benefits, we consider whether the victim will be fully compensated. Id.

We have said that a claim for UM or UIM benefits is essentially a contractual one. See Douglass v. American Family Mut. Ins. Co., 508 N.W.2d 665, 666 (Iowa 1993)

("direct suit for uninsured motorist benefits is considered to be an action on a contract, not in tort"); Vasquez v. LeMars Mut. Ins. Co., 477 N.W.2d 404, 409 (Iowa 1991) (claim for UIM benefits "is essentially a contractual one"). The applicable statutory limitations period for bringing a claim against the insurer for UM or UIM benefits is ten years. See Iowa Code § 614.1(5) (actions founded upon written contracts must be brought within ten years).

In Leuchtenmacher v. Farm Bureau Mutual Insurance Co., 461 N.W.2d 291, 292-93 (Iowa 1990), we addressed the issue of whether the statutory language "legally entitled to recover," see Iowa Code § 516A.1³, makes suit against the tortfeasor a condition precedent to an action against the insurer for UIM benefits. We said that nothing in Iowa Code section 516A.1, and nothing in the language of the insurance policy, which tracked section 516A.1, required that the damages to which an insured is "legally entitled to recover" under a UIM provision must be determined by a separate lawsuit, as opposed to being raised in a direct claim against the insurer. 461 N.W.2d at 294. Our statements in Leuchtenmacher, however, are not necessarily controlling in this case because that case dealt with whether section 516A.1 established a condition precedent to recovery of UM or UIM coverage benefits and the policy language also...