Lee v. Grinnell Mut. Reinsurance Co., 00-1656.

• Decision Date: 12 June 2002
• Docket Number: No. 00-1656.,00-1656.
• Citation: 646 N.W.2d 403
• Parties: Laurie LEE, Appellant, v. GRINNELL MUTUAL REINSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

646 N.W.2d 403

Laurie LEE, Appellant, v. GRINNELL MUTUAL REINSURANCE COMPANY, Appellee.

No. 00-1656.

Supreme Court of Iowa.

June 12, 2002.

Rehearing Denied July 10, 2002.

Mindi M. Vervaecke of Fitzsimmons & Vervaecke Law Firm, P.L.C., Mason City, for appellant.

Rustin T. Davenport and David E. Schrock of De Vries, Price & Davenport, Mason City, for appellee.

TERNUS, Justice.

The appellee, Laurie Lee, was injured in a motor vehicle accident while a passenger in a car owned by Rex Bergo, Jr. She sued the appellant, Grinnell Mutual Reinsurance Company (Grinnell Mutual), seeking underinsured motorist (UIM) benefits under an automobile policy issued to Bergo by Grinnell Mutual. The district court granted summary judgment to the insurer because Lee was not an "insured person" under the policy definition of that term contained in the UIM coverage.

On appeal, Lee argues that Iowa Code section 516A.1 (1997) requires that any person insured under the liability coverage of a policy also be provided UIM benefits. Although the Grinnell Mutual policy at issue here did not include passengers as insureds under the liability coverage, Lee contends that Iowa Code chapter 321 requires that liability policies issued to owners of motor vehicles registered in Iowa must insure any person "using" the insured vehicle with the permission of the named insured, a category that includes passengers. See Iowa Code §§ 321.1(24A), .20B (Supp.1997). Lee reasons that, as a consequence of these statutory provisions, liability coverage for passengers should be read into the Grinnell Mutual policy. Once passengers become insured under the liability coverage, Lee asserts, they are automatically insured under the UIM coverage pursuant to section 516A.1.¹

Grinnell Mutual disputes Lee's interpretation of the pertinent statutes and contends chapter 321 does not require it to insure—for liability purposes—persons using the insured vehicle. It also asserts that its failure to include persons merely using the insured vehicle as insureds under the UIM coverage is designed to avoid a duplication of coverage and therefore is permitted by Iowa Code section 516A.2 (1997).

Upon our review of the applicable statutes and the legislative intent evidenced by the statutory scheme, we agree with Lee that coverage for persons "using" the insured motor vehicle must be read into liability policies issued pursuant to chapter 321 and not otherwise extending such protection. Additionally, insurers must provide UIM coverage to those persons included as insureds under the liability coverage, absent a valid exclusion. It follows then that any UIM coverage provided in a motor vehicle liability policy must likewise insure persons "using" the insured motor vehicle with the named insured's consent, notwithstanding a more restrictive policy definition of "insured person."

With respect to the policy before us, we reject Grinnell Mutual's contention that the narrow policy definition of insured set forth in its UIM coverage was designed to avoid duplication of coverage. Therefore, Lee is insured under the UIM provisions of the Grinnell Mutual policy to the extent her use of the insured vehicle was with the permission of the named insured.

In view of our interpretation of the governing statutes, we hold the district court erred in granting summary judgment to the insurer. Consequently, we reverse and remand for trial. A more detailed explanation of the basis for this decision follows.

I. Background Facts and Proceedings.

On March 17, 1998, Lee was a passenger in a motor vehicle driven by Katie Bergo and owned by Katie's father, Rex Bergo, Jr. This vehicle was in an accident with a car owned and operated by Marian Johnson. Johnson allegedly ran a stop sign and collided with the Bergo vehicle, causing injuries to Lee.

Lee brought suit against Johnson seeking tort damages and against Grinnell Mutual seeking UIM benefits. Her claim against Johnson was eventually settled. Meanwhile, Grinnell Mutual filed a motion for summary judgment, asserting that, under its policy, "underinsured coverage is only provided to the policyholder, relative, or another person driving the policyholder's car." Because it was undisputed that Lee did not fall within any of these categories, the district court granted Grinnell Mutual's motion and entered judgment in its favor on Lee's UIM claim. This appeal followed.

II. Applicable Principles of Review.

This court reviews a summary judgment ruling on error. Nicodemus v. Milwaukee Mut. Ins. Co., 612 N.W.2d 785, 786 (Iowa 2000); Iowa R.App. P. 6.4. "A summary judgment will be affirmed when the moving party has shown no genuine issues of material fact exist and the party is entitled to judgment as a matter of law." Whicker v. Goodman, 576 N.W.2d 108, 110 (Iowa 1998); accord Iowa R. Civ. P. 1.981(3). In a case such as the one before us, where the facts are undisputed, this court simply determines "whether the district court correctly applied the law." Krause v. Krause, 589 N.W.2d 721, 724 (Iowa 1999).

When the parties offer no extrinsic evidence on the meaning of policy language, the interpretation and construction of an insurance policy are questions of law for the court. Pudil v. State Farm Mut. Auto. Ins. Co., 633 N.W.2d 809, 811 (Iowa 2001); Tropf v. Am. Family Mut. Ins. Co., 558 N.W.2d 158, 159 (Iowa 1997). We view the provisions of an insurance policy "in a light favorable to the insured." A.Y. McDonald Indus. v. Ins. Co. of N. Am., 475 N.W.2d 607, 619 (Iowa 1991). "[T]he cardinal principle is that the intent of the parties must control; and except in cases of ambiguity this is determined by what the policy itself says." Id. at 618.

Notwithstanding the principle that the meaning of an insurance contract is generally determined from the language of the policy, statutory law may also affect our interpretation of policy provisions. In discussing the application and effect of Iowa's uninsured/underinsured motorist statute, chapter 516A, this court has stated:

A statute that authorizes a contract of insurance has application beyond merely permitting or requiring such a policy. The statute itself forms a basic part of the policy and is treated as if it had actually been written into the policy. The terms of the policy are to be construed in light of the purposes and intent of the applicable statute.

Tri-State Ins. Co. v. De Gooyer, 379 N.W.2d 16, 17 (Iowa 1985) (citations omitted). Consequently, when a policy provision conflicts with a statutory requirement, the policy provision is ineffective and the statute controls. Matthess v. State Farm Mut. Auto. Ins. Co., 548 N.W.2d 562, 564 (Iowa 1996). Thus, a determination of the coverage provided by the Grinnell Mutual policy also requires an interpretation of the pertinent statutes.

Our goal in the interpretation of legislative enactments is to give effect to the intent of the legislature. Mewes v. State Farm Auto. Ins. Co., 530 N.W.2d 718, 722 (Iowa 1995). This intent is gleaned from the words used in the statute. Lockhart v. Cedar Rapids Cmty. Sch. Dist., 577 N.W.2d 845, 847 (Iowa 1998). Although the court cannot enlarge or otherwise change the terms of a statute, "[w]e will not construe a statute in a way that would produce impractical or absurd results." Carolan v. Hill, 553 N.W.2d 882, 887 (Iowa 1996). Rather, we seek a reasonable interpretation that will accomplish "the purpose of the statute and redress the wrongs the legislature sought to remedy." Mewes, 530 N.W.2d at 722. With these general principles in mind, we turn to the issues at hand.

III. Is Lee Insured Under the UIM Coverage of the Grinnell Mutual Insurance Policy?

A. Policy provisions. The Grinnell Mutual insurance policy contains the following definition of "insured" for purposes of liability coverage:

As used in this Part, "insured person" or "insured persons" means:

(1) You;

(2) A relative;

(3) Any person driving your insured car;

(4) Any other person or organization, but only with respect to legal liability for:

(a) The acts or omission of you or a relative while driving or occupying your insured car;

(b) The acts or omissions of any person while driving your insured car; or

(c) The acts or omissions of you or a relative while driving or occupying any private passenger car or utility car which is not owned, hired, rented, or leased by that person or organization.

The definition of insured in the UIM coverage is similar:

As used in this Part:

(1) "Insured person" means:

(a) You or a relative;

(b) Any other person driving your insured car; or

(c) Any person for damages that person is entitled to recover because of bodily injury to you, a relative, or another driver of your insured car.

The policy defines the words "you" and "your" to mean "the policyholder named in the declarations and spouse if living in the same household."

It is undisputed that Lee does not fall within the policy definitions of "insured person." Lee is not the policyholder, nor is she related to the policyholder. To otherwise qualify as an insured she must be "driving" the insured auto. Lee concedes that as a mere passenger she was not driving the insured vehicle.

Notwithstanding the language of the policy, Lee asserts we should incorporate into the contract the requirements of chapters 321 and 516A as if those requirements had been written into the policy. We first turn to the requirements of chapter 321.

B. Chapter 321 and liability coverage. In 1997 the legislature enacted a new law relating to "financial liability coverage for motor vehicles." 1997 Iowa Acts ch. 139 (codified in part at Iowa Code chapter 321 (Supp.1997)). Before we discuss the substantive provisions of this statute, we address Grinnell Mutual's assertion that the new law does not apply to the policy issued to Bergo because the law had not gone into effect at the time of the accident.

The accident at issue here occurred on March 17, 1998. The 1997 act was approved on May 9, 1997...