Johnson v. Fireman's Fund Ins. Co.

• Decision Date: 20 December 1978
• Docket Number: No. 60931,60931
• Parties: Carolyn JOHNSON, Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 870

272 N.W.2d 870

Carolyn JOHNSON, Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Appellee.

No. 60931.

Supreme Court of Iowa.

Dec. 20, 1978.

Beving, Swanson & Forrest by Charles S. Crook, III, Des Moines, for appellant.

Jones, Hoffman & Davison, Des Moines, for appellee.

Considered en banc.

McCORMICK, Justice.

The trial court sustained defendant's motion to dismiss plaintiff's petition on the ground she did not submit her uninsured motorist claim to arbitration before bringing suit on it. We hold that arbitration was not a condition precedent to her action. Therefore we reverse and remand.

Plaintiff Carolyn M. Johnson filed a petition in three counts seeking recovery from defendant Fireman's Fund Insurance Company on its uninsured motorist coverage of Dave Ostrem Imports, Inc. She alleged she was an insured under the policy while operating a vehicle owned by Ostrem which was struck by one driven by an uninsured motorist. She asserted the negligence of the uninsured motorist proximately caused injuries for which she is entitled to recover damages under the uninsured motorist endorsement of the Fireman's Fund policy. She recited that Fireman's Fund refused to pay her claim on the ground the matter would have to be arbitrated but that, despite her written demand for arbitration, Fireman's Fund failed to put the arbitration process in motion.

In the first count of the petition she asked $10,000 under the uninsured motorist coverage. In the second count she alternatively alleged that she was a third-party beneficiary of the insurance contract, that it was breached by Fireman's Fund through its failure to pay or to arbitrate, and that as a result she was entitled to damages. In the third count she alleged that she had demanded arbitration in accordance with the policy but that Fireman's Fund had sought to impose the costs of arbitration on her. She asked that Fireman's Fund be enjoined from now attempting to arbitrate.

A copy of the uninsured motorist endorsement was made a part of plaintiff's petition. She also attached a copy of her letter demanding arbitration, which was dated approximately one month before suit was commenced.

In its motion to dismiss, Fireman's Fund alleged the petition showed on its face a failure of plaintiff "to abide by and perform in accordance with the rules of the American Arbitration Association . . ." A purported copy of those rules was attached to the motion. The only other material allegation of the motion is: "That Plaintiff is bound by the provisions of the policy of insurance under which she claims benefits, and accordingly, must pursue the initiation of a claim with the appropriate arbitration authority, the American Arbitration Association, as a condition precedent to any cause of action."

The trial court's ruling on the motion was as follows:

Plaintiff's commencing arbitration with American Arbitration Association is a contractual condition precedent to her entitlement to bring an action on the insurance contract re uninsured motorist coverage. Plaintiff's Petition fails to allege compliance as condition satisfied by defendant's failure to arbitrate after she has duly commenced proceedings. Plaintiff's Petition is dismissed at Plaintiff's costs without prejudice to file against carrier should it fail to arbitrate after Plaintiff duly commences same with AAA or it fails to honor arbitration award or is in breach of its insurance agreement otherwise.

In this appeal plaintiff does not challenge the validity or enforceability of the arbitration clause of the Fireman's Fund policy. Instead she contends she attempted to invoke arbitration but Fireman's Fund did not perform its duty to arbitrate and she is therefore entitled to maintain her lawsuit. We have no occasion to determine in this case whether plaintiff could have been required to submit her claim to arbitration if she did not wish to do so. See Joseph L. Wilmotte & Co. v. Rosenman Bros., 258 N.W.2d 317, 325 (Iowa 1977).

Principles governing the scope of review of a ruling on a motion to dismiss are delineated in Weber v. Madison, 251 N.W.2d 523, 525 (Iowa 1977). The motion may not be supported by its own allegations of fact nor may it rely on facts not alleged in the petition, except those subject to judicial notice. Berger v. General United Group, Inc., 268 N.W.2d 630, 634 (Iowa 1978).

I. The language of the arbitration clause. The relevant provisions of the uninsured motorist endorsement of the Fireman's Fund policy are as follows:

The Company will pay all sums which the insured or his legal representative shall be legally entitled to recover as damages from the owner or operator of an uninsured highway vehicle because of bodily injury sustained by the insured, caused by accident and arising out of the ownership, maintenance or use of such uninsured highway vehicle; provided, for the purposes of this coverage, determination as to whether the insured or such representative is legally entitled to recover such damages, and if so the amount thereof, shall be made by agreement between the insured or such representative and the Company or, if they fail to agree, by arbitration.

If any person making claim hereunder and the Company do not agree that such person is legally entitled to recover damages from the owner or operator of an uninsured highway vehicle because of bodily injury to the insured, or do not agree as to the amount of payment which may be owing under this insurance, then upon written demand of either, the matter or matters upon which such person and the Company do not agree shall be settled by arbitration, which shall be conducted in accordance with the rules of the American Arbitration Association unless other means of conducting the arbitration are agreed to between the insured and the Company, and judgment upon the award rendered by the arbitrators may be entered in any Court having jurisdiction thereof. Such person and the Company each agree to consider itself bound and to be bound by any award made by the arbitrators pursuant to this insurance.

The first provision purports to require the insured and insurer to submit the issue of the uninsured motorist's liability for damages and their amount to arbitration when the insured and insurer are unable to agree. Under the second provision, arbitration may then be invoked "upon written demand of either. . . ." The insured and insurer also purport "to be bound by any award made by the arbitrators. . . ."

These provisions do not make arbitration a condition precedent to suit as alleged by Fireman's Fund in its motion to dismiss and as held by the trial court in its order sustaining the motion. Instead, when arbitration is utilized it becomes the sole method of resolving the dispute. It is a substitute for litigation rather than an essential prelude to it.

Moreover, these provisions do not make arbitration a substitute for litigation in all cases. The clause purports to make arbitration mandatory only upon written demand of either party to the dispute. Otherwise the case may proceed to suit.

Therefore the trial court erred both in holding that the clause makes arbitration a condition precedent to suit and that it makes arbitration essential in all cases.

II. Application of the clause to the facts alleged in the petition. In seeking to invoke arbitration, plaintiff's attorney wrote the following letter to Fireman's Fund:

April 15, 1977

Mr. Raymond Hutchison

Senior Claims Representative

Fireman's Fund Insurance

4515 Fleur Drive

Des Moines, IA 50321

Re: Your File No.: B 470 PA 158436

Your Insured: Dave Ostrem Imports, Inc. D/A 10/25/74

Dear Ray:

Please consider this letter to be a demand for immediate arbitration, pursuant to the terms of the policy, and subject to Chapter 679 of the Code of Iowa (1977).

According to the policy language, I must make written demand to arbitrate upon you. The matter in dispute is the amount of payment owing under the insurance. My client demands the sum of $10,000.00 for her injuries.

Sincerely,

Beving, Swanson & Forrest

(signed) Charles C. Crook

CSC:pjb

cc: Carolyn Johnson

Plaintiff alleges in her petition that Fireman's Fund sought to impose costs on her before agreeing to arbitrate and failed to perform its duty to settle the dispute by arbitration upon her demand. She also alleges that the policy is read against Fireman's Fund which drafted it and that doubts are resolved in her favor.

The policy language must be given its ordinary meaning in accordance with the objectively reasonable expectations of the insured. Rodman v. State Farm Mutual Automobile Ins. Co., 208 N.W.2d 903, 906-907 (Iowa 1973). Because an insurance policy is an adhesion contract, its provisions are construed in the light most favorable to the insured. Connie's Const. v. Fireman's Fund Ins., 227 N.W.2d 207, 210 (Iowa 1975).

We believe it was reasonable for plaintiff to think she had done all she was required to do to initiate arbitration when she did what the policy said she should do to invoke it. The arbitration clause does not purport to command additional steps of her, such as the advancing of costs. Even though it states arbitration "shall be conducted in accordance with the rules of the American Arbitration Association," unless other means are agreed upon, it does not compel an insured to do more to initiate the process than demand it in writing. The rules of the American Arbitration Association may govern the means by which the dispute is arbitrated, but they do not affect the insured's right to obtain arbitration upon written demand.

We hold that when an insured invokes arbitration by written demand under a clause like the one involved here the obligation rests with the insurer to do what is necessary to obtain the services of the American Arbitration Association unless the parties agree on other means of arbitration. Plaintiff had a right to rely upon Fireman's Fund to fulfill this duty. For purposes of reviewing the trial...