Hernandez v. Farmers Ins. Co., 89-1740

Decision Date19 September 1990
Docket NumberNo. 89-1740,89-1740
Citation460 N.W.2d 842
PartiesJane M. HERNANDEZ and Steven Hernandez, Appellants, v. FARMERS INSURANCE COMPANY, Appellee.
CourtIowa Supreme Court

David A. O'Brien of O'Brien, Galvin & Moeller, Sioux City, for appellants.

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

Considered by McGIVERIN, C.J., and LAVORATO, NEUMAN, SNELL, and ANDREASEN, JJ.

ANDREASEN, Justice.

Steven Hernandez was severely injured while a passenger in a vehicle driven by an underinsured motorist. The parties have stipulated that after the underinsured motorist paid out the limits afforded by his automobile liability policy, Hernandez still retains a personal injury claim for over $225,000 in uncompensated damages.

At the time of the accident, Steven Hernandez was the named insured in a policy issued to him by Farmers Insurance Company, Inc. (Farmers). The underinsured motorist coverage under this policy had a limit of $25,000 per person. Steven Hernandez was a resident of his mother's household. As such he was an "insured person" under two policies issued by Farmers to his mother, Jane Hernandez. The underinsured motorist limits for each of these policies was $100,000.

Each of the three policies issued to the Hernandezes contained, under the heading "Other Insurance," the following clause:

5. If any applicable insurance other than this policy is issued to you by us or any other member company of the Farmers Insurance Group of Companies, the total amount payable among all such policies shall not exceed the limits provided by the single policy with the highest limits of liability.

Citing this clause, Farmers paid $25,000 to Steven Hernandez as the named insured of the policy issued to him, and $75,000 as an "insured person" under the policies issued to his mother.

The Hernandezes filed an action at law against Farmers claiming breach of contract, misrepresentation, and bad faith. Farmers filed a motion for partial summary judgment on the contract claim. The court sustained the motion and the Hernandezes appealed. We reverse.

I. Our review of the court's summary judgment is at law. Iowa R.App.P. 4. Entry of summary judgment is proper if, under the entire record, the only conflict concerns the legal consequences flowing from undisputed facts. Brown v. Monticello State Bank, 360 N.W.2d 81, 84 (Iowa 1984). Because the facts are not disputed, our task is to construe the provisions of the insurance policies. When construing the underinsured motorist provisions of an insurance policy, we recognize Iowa Code section 516A.2 forms a basic part of the policy and is treated as if it had actually been written into the policy. Tri-State Ins. Co. of Minn. v. De Gooyer, 379 N.W.2d 16, 17 (Iowa 1985). The terms of the policy are to be construed in light of the purposes and intent of the applicable statute. Id. Section 516A.2 permits an insurer to write exclusions and limitations into an auto policy relating to underinsured coverage, so long as those conditions are designed to avoid duplication of insurance or other benefits. Poehls v. Guaranty Nat'l Ins. Co., 436 N.W.2d 62, 64 (Iowa 1989).

II. The district court concluded the "other insurance" clause in the three policies are valid and enforceable. It granted partial summary judgment to Farmers relying upon our prior cases, Tri-State v. De Gooyer, 379 N.W.2d 16 (Iowa 1985), and Kluiter v. State Farm Mutual Auto Ins. Co., 417 N.W.2d 74 (Iowa 1987), and the Tennessee case of Jones v. Mulkey, 620 S.W.2d 498 (Tenn.App.1981).

In De Gooyer, we recognized Iowa Code section 516A.2 would permit an insurer to provide limitations designed to prevent stacking of underinsured motorist benefits. We held a "limit of liability" provision contained in the underinsured motorist endorsement was valid. Although the policy provided insurance coverage on two separate vehicles, the limit of liability shown on the declarations page was the maximum limit of liability for all damages resulting from any one accident. The policy expressly provided the maximum limit was the most the insured would receive regardless of the number of vehicles shown in the declarations. De Gooyer involved intra-policy stacking. As pointed out in Kluiter, potential duplication existed because the insured was seeking to recover as if he had two separate policies. 417 N.W.2d at 76. Because separate policies were issued to the Hernandezes, De Gooyer has limited application.

In Kluiter the insureds were injured by an underinsured motorist while riding their motorcycle. After recovering damages from the underinsured motorist, they recovered under their motorcycle policy. They then sought underinsured motorist coverage under three separate policies covering three other automobiles they owned. These policies contained a clause excluding from coverage any vehicle which the insured owned but did not cover under the policy. Although under the terms of these policies the insureds were not entitled to recover, they claimed the exclusion violated public policy as expressed in chapter 516A and should not be enforced. We held the exclusion was valid and enforceable. Id. Because we found the policy exclusion was aimed at potential duplication, we held the exclusion prevented the insured from receiving underinsured motorist benefits under a particular policy when the insured is injured while occupying a vehicle he or she owns, but has chosen not to insure under that policy. Id. Without the exclusion the insured could have received duplicate coverage by recovering under all the policies. Id.

In Jones the insured was covered under four separate insurance policies issued by one insurer. Three policies provided underinsured motorist coverage of $50,000 per person per accident and the fourth policy provided $10,000 coverage. The Tennessee Court of Appeals held that under the applicable statute and the...

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