Krause v. Krause

• Decision Date: 17 February 1999
• Docket Number: No. 97-739,97-739
• Parties: Debra Jayne KRAUSE, Appellee, v. Paul Raymond KRAUSE, Defendant, IMT Insurance Company, Intervenor-Appellant.
• Court: Iowa Supreme Court

Page 721

589 N.W.2d 721

Debra Jayne KRAUSE, Appellee, v. Paul Raymond KRAUSE, Defendant, IMT Insurance Company, Intervenor-Appellant.

No. 97-739.

Supreme Court of Iowa.

Feb. 17, 1999.

Rehearing Denied March 12, 1999.

Robert D. Houghton and Theresa C. Davis of Shuttleworth & Ingersoll, P.C., Cedar Rapids, for intervenor-appellant.

James A. Schall, Storm Lake, for appellee.

Considered by McGIVERIN, C.J., and LAVORATO, SNELL, TERNUS, and CADY, JJ.

McGIVERIN, Chief Justice.

The question here is whether a "step-down" provision in an endorsement to an automobile insurance policy, which reduces uninsured motorist benefits to the minimum liability limits in the Iowa financial responsibility law, is enforceable.

We believe that it is. Therefore, we reverse the district court ruling to the contrary and remand for entry of judgment accordingly.

I. Background facts and proceedings.

On November 21, 1995, Debra Jayne Krause and her husband, Paul Raymond Krause, were involved in a one-motor vehicle accident. The accident occurred when Paul, who was driving the couple's pickup, fell asleep and failed to negotiate a curve in the road. Paul lost control and the pickup rolled three times. Debra was severely injured.

The pickup was insured by a policy issued by IMT Insurance Company (IMT). Debra and Paul are listed as named insureds for liability and other coverages. The policy includes language known as a "family member exclusion." It states that there is no liability coverage for any insured for bodily injury sustained by another insured or family member. In other words, a named insured would have no liability coverage for his or her actions which cause injuries to another named insured or family member. Thus, Paul was an uninsured motorist in regard to a claim by Debra against him for personal injuries arising from the accident.

The declarations page of the policy lists uninsured motorist (UM) coverage as $100,000 for each person and $300,000 for each accident. An endorsement to the policy, however, reduces or "steps down" the amount of UM coverage to an amount "that does not exceed the limit specified in the financial responsibility law of Iowa" in the event there is no liability coverage under the policy for injury to a family member or named insured due to the family member exclusion.

According to IMT, the phrase "financial responsibility law of Iowa" refers to Iowa Code chapter 321A (1995), which is entitled Motor Vehicle Financial Responsibility. The minimum liability limits specified in Iowa Code section 321A.1(10) are $20,000 per person and $40,000 per accident. Thus, IMT asserted that because Paul was regarded as an uninsured motorist, the "step-down" provision limits its uninsured motorist coverage here to $20,000 per person for Debra's personal injury claim against Paul.

On June 25, 1996, Debra filed a petition in district court against Paul, asserting a claim for negligence and seeking damages for injuries she received from the accident. The record shows that although Paul was served with an original notice and copy of the petition, he never filed an answer or appearance. As a result, a default judgment was entered in Debra's favor and against Paul in the amount of $1,284,456.

Thereafter, IMT filed a petition of intervention and a request for declaratory relief, see Iowa rules of civil procedure 75 and 261, asking the court to clarify the applicable limits of UM coverage under the policy covering the pickup. In its petition, IMT asserted that because there was no liability coverage available to Paul under the policy due to the family member exclusion, thereby making Paul an uninsured motorist, the amount of UM coverage benefits available to Debra was reduced from $100,000 to $20,000.

IMT and Debra entered into an agreement and partial release whereby IMT paid Debra $20,000 for uninsured motorist benefits. In return, Debra released all claims against IMT arising from the accident, subject to her claim for uninsured motorist benefits above $20,000.

IMT filed a motion for summary judgment, see Iowa rule of civil procedure 237(c), and Debra filed a resistance and cross motion for summary judgment.

A hearing concerning the motions was held. For purposes of the hearing, the parties stipulated that due to the family member exclusion, Paul had no liability coverage under the policy and thus was considered to be an uninsured motorist. The parties therefore stipulated that the only issue to be decided by the court was the proper amount of UM coverage available to Debra to apply on her damages claim against Paul. IMT argued that the limit of its liability under the UM coverage was $20,000, while Debra argued that she was entitled to $100,000 of UM benefits based on her assertion that the step-down provision was unenforceable.

The district court sustained Debra's motion for summary judgment and overruled IMT's motion. The court concluded that the step-down language in the UM coverage endorsement was ambiguous and unenforceable. The court believed that a layperson would not understand that the reference to "financial responsibility law of Iowa" was a reference to Iowa Code chapter 321A or limits set forth therein, or that the limits of uninsured motorist coverage would be reduced to $20,000 per person/$40,000 per accident when the family member exclusion was triggered. Based on the alleged ambiguous language of the step-down provision, and construing the remaining language of the policy in Debra's favor, the court concluded that the applicable limit of UM coverage available to Debra was $100,000.

IMT appeals the decision of the district court.

II. Standard of review.

Our review of a grant or denial of summary judgment is at law. Iowa R.App. P. 4; Gabrilson v. Flynn, 554 N.W.2d 267, 270 (Iowa 1996). In this appeal, the facts are undisputed. In such cases, we determine whether the district court correctly applied the law. Diggan v. Cycle Sat, Inc., 576 N.W.2d 99, 102 (Iowa 1998). "Summary judgment is properly granted if the only controversy concerns the legal consequences flowing from undisputed facts." Id. Interpretation and construction of provisions of an insurance policy are questions of law for the court. LeMars Mut. Ins. Co. v. Joffer, 574 N.W.2d 303, 306-07 (Iowa 1998).

III. Preliminary matters.

IMT asserts that the district court wrongly concluded that the UM endorsement language reducing the amount of UM coverage benefits to an amount "that does not exceed the limit specified in the financial responsibility law of Iowa" is ambiguous and not enforceable. IMT contends that the district court applied the wrong analysis in reaching its conclusion.

As noted above, the dispute involved the proper amount of uninsured motorist coverage available to Debra under the policy. We point out that Debra does not challenge the validity of the family member exclusion in the policy. Indeed, such a challenge would fail because we have upheld the validity of family member exclusions in the past. See United Fire & Cas. Co. v. Victoria, 576 N.W.2d 118, 121 (Iowa 1998) (upholding family member exclusion in auto insurance policy); Principal Cas. Ins. Co. v. Blair, 500 N.W.2d 67, 69 (Iowa 1993) (upholding family member exclusion in homeowner's insurance policy); Walker v. American Family Mut. Ins. Co., 340 N.W.2d 599, 603 (Iowa 1983) (upholding family member exclusion in auto insurance policy). In doing so, we rejected the argument by plaintiff-insureds that the family member exclusion was void as contrary to public policy. See Blair, 500 N.W.2d at 68-69; Walker, 340 N.W.2d at 602-03.

Debra did not assert in the district court that the endorsement language reducing the limits of available UM coverage to the "limit specified in the financial responsibility law of Iowa" was void as contrary to public policy. Rather, she only contended that the endorsement language was not enforceable either because it is ambiguous or because the doctrine of reasonable expectations applies so as to prevent enforcement of the endorsement language.

IV. Is the language of the uninsured motorist coverage endorsement ambiguous?

Although we have upheld family member exclusions in insurance policies, we have never before addressed the validity of a family member exclusion in conjunction with language that reduces UM coverage to an amount specified by statute.

Before addressing the merits of the issue presented in this case, we believe it helpful to first review the applicable statutory provisions and relevant portions of the insurance policy.

A. Applicable statutory provisions.

Iowa Code section 516A.1 requires that motor vehicle liability insurance policies contain uninsured motorist coverage at least in the amount stated in section 321A.1(10) unless expressly rejected by the named insured. ^{1 1} Thus, the UM coverage amounts resulting from section 321A.1(10) are $20,000 per person and $40,000 per accident. Debra and Paul Krause, as named insureds, did not reject UM coverage.

B. Relevant insurance policy provisions.

The declarations page of the policy lists the limits for UM coverage at $100,000 for each person and $300,000 for each accident.

By virtue of endorsements to the policy, however, IMT has attempted to reduce the limits of UM coverage in the event that the policy provides no liability coverage for any insured concerning a claim for bodily injury to another insured or any family member. The separate endorsement to the uninsured motorist coverage portion of the policy states in pertinent part:

If Uninsured Motorists Coverage is payable because liability coverage for "your covered auto" under Part A of the policy is excluded for damages sustained in the accident:

1. That part of the limit of liability shown for each person for Uninsured Motorists Coverage in the Declarations that does not exceed the limit specified in the financial responsibility law of Iowa, is our maximum limit of liability for all damages, including...