Leuchtenmacher v. Farm Bureau Mut. Ins. Co., No. 89-741

• Court: United States State Supreme Court of Iowa
• Writing for the Court: LARSON
• Citation: 461 N.W.2d 291
• Decision Date: 18 July 1990
• Docket Number: No. 89-741
• Parties: David LEUCHTENMACHER, Administrator of the Estate of Alice Leuchtenmacher, Deceased, Appellee, v. FARM BUREAU MUTUAL INSURANCE COMPANY, Appellant.

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461 N.W.2d 291 David LEUCHTENMACHER, Administrator of the Estate of Alice Leuchtenmacher, Deceased, Appellee,
v.
FARM BUREAU MUTUAL INSURANCE COMPANY, Appellant. No. 89-741. Supreme Court of Iowa. July 18, 1990.
As Amended on Denial of Rehearing
Oct. 26, 1990.

Page 292

James A. Pugh of Morain, Burlingame, Pugh, Juhl & Peyton, West Des Moines, for appellant.

Kevin C. Neylan of Neylan Law Office, Elkader, for appellee.

Considered by LARSON, P.J., and CARTER, LAVORATO, NEUMAN, and ANDREASEN, JJ.

LARSON, Justice.

Alice Leuchtenmacher was killed in an automobile accident with an underinsured driver, and her estate sued her insurance company, Farm Bureau Mutual, to recover under the underinsured motorist benefits of its policy. Prior to trial, the estate settled with the driver of the other car for the amount of his liability limits of $55,000. After trial to a jury, the district court entered a judgment for the plaintiff for the policy limit of her underinsured motorist coverage. Farm Bureau appealed, contending the district court erred by (1) allowing the plaintiff to bring a direct action against it without first obtaining a judgment against the underinsured driver to determine the amount of damages, and (2) admitting into evidence the liability and underinsured policy limits. The plaintiff estate cross-appealed, claiming that the court improperly deducted from its underinsured motorist benefits the amount of Farm Bureau's previous payments under the medical portion of the policy. We affirm on the appeal and reverse on the cross-appeal.

In April 1987, Alice Leuchtenmacher was killed when a drunken driver named Odegard crossed the centerline and struck her car. Odegard had insurance on his car, but Alice's estate representative considered it to be inadequate to cover the damages sustained by the estate. The estate filed suit against both Odegard, for negligence, and Farm Bureau under the policy provisions for underinsured motorist benefits. Farm Bureau responded by claiming that the estate could not bring an action directly against it under its underinsured motorist provisions until there had been a determination, through a suit against Odegard, to determine the amount of damages sustained.

The court disagreed with Farm Bureau on this issue, ruling that the phrase "legally entitled to recover," under the underinsured motorist provisions of Iowa Code section 516A.1 (1987), and the language of Alice's automobile policy, does not mean that the injured party must obtain a judgment against the third party prior to a suit on the policy.

Although the estate settled its case against Odegard prior to trial, its suit against Farm Bureau proceeded to trial and judgment. The jury returned a verdict for the plaintiff for $223,251.57, which it determined to be the total amount the estate was "legally entitled to recover" against Odegard. The court entered judgment against Farm Bureau for $97,263, which represented the policy limits of $100,000 under the provisions for underinsured motorist benefits less Farm Bureau's previous payments under the medical provisions of its policy.

I. The Suit Against the Third Party.

Farm Bureau contends that, when a dispute arises over the amount its insured is "legally entitled to recover" from an underinsured motorist, that amount must be determined through a judgment against the third party. It argues that, under Iowa Code section 516A.1, and the language of Alice's policy which tracks that language, it is implicit that "legally entitled to recover" means the insured may not pursue a direct action against the insurance company for underinsured motorist benefits until a judgment against the third party has established the amount of damages.

Farm Bureau contends that allowing the insured to bring a direct action is unfair and prejudicial to its rights in three respects: First, a direct action against one's own insurance company places the focus of the action on the insured's own coverage rather than on the civil liability of the third party underinsured motorist. Second, the costs of defending the liability case will necessarily be shifted from the liability carrier (here, Odegard's company), which

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contracted to bear that cost, to the insured's own company, which did not. Finally, it argues, a direct action requires the underinsured motorist's insurer to take on the defense of a tort action without the benefit of the "cooperation clause" which is available to the tortfeasor's own liability carrier.

Both parties rely on Hall v. Allied Mutual Insurance Co., 261 Iowa 1258, 158 N.W.2d 107 (1968), to support their respective positions. Farm Bureau contends that Hall, while not addressing this exact issue, made it clear that it is the tort recovery which controls the amount of underinsured benefits available to a claimant. The estate counters that Hall permitted a recovery against the insurer even though the insured had not brought an action against the tortfeasor.

Our court has apparently never ruled on this precise issue, but courts in other jurisdictions have looked to the intent of the legislature in passing their uninsured and underinsured motorist statutes to determine whether the insured has a right to bring a direct action against the underinsured motorist insurer. See Annotation, Insured's Right To Bring Direct Action Against Insurer For Uninsured Motorist Benefits, 73...