M-Z Enterprises, Inc. v. Hawkeye-Security Ins. Co., M-Z

• Citation: 318 N.W.2d 408
• Decision Date: 21 April 1982
• Docket Number: HAWKEYE-SECURITY,No. 65375,M-Z,65375
• Parties: ENTERPRISES, INC., d/b/a M. Z. Davis Crane Service, a/k/a M. Z. Davis Crane Service, Appellee, v.INSURANCE COMPANY, Appellant.
• Court: United States State Supreme Court of Iowa

Page 408

318 N.W.2d 408

M-Z ENTERPRISES, INC., d/b/a M. Z. Davis Crane Service, a/k/a M. Z. Davis Crane Service, Appellee, v. HAWKEYE-SECURITY INSURANCE COMPANY, Appellant.

No. 65375.

Supreme Court of Iowa.

April 21, 1982.

J. W. Conway of Allbee, Wilson, Conway & Allison, and Mark R. Gillett of Gillett & Gillett, Muscatine, for appellant.

Craig D. Warner of Pryor, Riley, Jones & Aspelmeier, Burlington, for appellee.

Considered en banc.

REYNOLDSON, Chief Justice.

April 24, 1978, plaintiff, M-Z Enterprises, Inc. (M-Z), was using a crane to lift a dredge from the Mississippi River when the crane tipped over and was substantially damaged. Defendant, Hawkeye-Security Insurance Company (Hawkeye), had sold a Scheduled Property Floater Policy that covered the crane. Hawkeye eventually denied M-Z's claim, and this lawsuit ensued.

The petition filed in district court contained two claims, pleaded in separate divisions. Division I was a contract action based on the insurance policy. Division II was an action based on the tort of bad faith failure to pay insurance benefits. Plaintiff asked for both compensatory and punitive tort damages. Following trial, and in conformance with the jury's verdicts, trial court entered judgment for M-Z in the amounts of $27,618.84 on the contract, $1600 compensatory tort damages, and $30,000 punitive tort damages. Hawkeye appeals. We reverse and remand for further proceedings consistent with this opinion.

I. Plaintiff's petition originally was filed under the name of M. Z. Davis Crane Service, Inc. However, during trial the parties discovered that the crane's owner and real party in interest was M-Z Enterprises, Inc. M. Z. Davis Crane Service, Inc., was not an Iowa corporation or a registered assumed name of an Iowa corporation. See generally § 496A.7(4)(5), The Code. We infer from the record before us the latter name was picked up by plaintiff's counsel from Hawkeye's policy, and so appeared on the policy through a clerical error of Hawkeye's agent. Trial testimony indicated M. Z. Davis Crane Service was a business name that M. Z. Davis had used for many years, but it was not the official name of Mr. Davis' construction corporation.

Plaintiff successfully moved for leave to amend to substitute M-Z as plaintiff. See Iowa R.Civ.P. 88. Hawkeye challenges trial court's ruling because the amendment was filed a year after the accident and the insurance policy contained a one-year time limitation for bringing action. Hawkeye argues: (1) the amendment substituting the real corporation for the fictitious corporation did not relate back to the date of the original filing and, therefore, the case was barred by the contractual time limitation; and (2) the case was not brought by the real party in interest and our rules of civil procedure do not allow amendments to cure this defect.

The petition contained the allegation that plaintiff was a corporation organized under Iowa law. Hawkeye's answer denied this statement for lack of knowledge. Of course this denial was not sufficient to place plaintiff's capacity to sue squarely in issue before the court. See Burr v. Apex Concrete Co., 242 N.W.2d 272, 274-75 (Iowa 1976); Winterset Savings Bank v. Iiams, 211 Iowa 1226, 1227, 233 N.W. 749, 749 (1930); Iowa R.Civ.P. 98.

We must determine whether trial court erred in granting leave to amend under rule 88 and, if not, whether the amendment related back to the date of filing of the petition under rule 89. These rules are derived from rule 15 of the federal rules of civil procedure. See 2 Iowa R.Civ.P.Ann. 88, 89 advisory committee comments (West Supp. 1981-82).

We have not announced a standard of review for rule 88 since it was amended in 1976. However, there is no reason to change our former standard. In Atlantic Veneer Corp. v. Sears, 232 N.W.2d 499, 503 (Iowa 1975), we said:

Allowance of an amendment to a pleading is the rule and denial the exception, although an amendment is not permissible which will substantially change the issue. Additionally, a trial court has considerable discretion as to whether an appropriate request for leave to amend should be granted or denied and we will reverse only where a clear abuse of discretion is shown.

Similar standards are applied under federal rule 15(a). Beeck v. Aquaslide 'N' Dive Corp., 562 F.2d 537, 539-40 (8th Cir. 1977).

The issues in this case were not changed by the amendment. Hawkeye advances no reasons why allowance of this amendment was a clear abuse of discretion, and we find none.

Iowa Rule of Civil Procedure 89 ("Making and construing amendments") in part states:

Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision is satisfied and, within the period provided by law for commencing the action against him, the party to be brought in by amendment (1) has received such notice of the institution of the action that he will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against him.

This language is identical to the first paragraph of federal rule 15(c).

On its face rule 89 appears to involve only the situation of changing defendants. However, federal rule 15(c) is also applicable when plaintiffs are changed. The rule 15 advisory committee note is instructive.

The relation back of amendments changing plaintiffs is not expressly treated in revised Rule 15(c) since the problem is generally easier. Again the chief consideration of policy is that of the statute of limitations, and the attitude taken in revised Rule 15(c) toward change of defendants extends by analogy to amendments changing plaintiffs.

Fed.R.Civ.P. 15 advisory committee note, 39 F.R.D. 69, 83-84 (1966).

The threshold requirement for relation back under rule 89 is that the claim pleaded in the amendment arose from the conduct, transaction, or occurrence described in the original pleading. If the amendment is made to substitute plaintiffs and the correct defendant is already in the case, the rule also requires that within the period of the statute of limitations the defendant had received sufficient notice of the action to avoid prejudice in maintaining a defense. Courts have applied three tests to determine if the latter requirement is met: (1) whether defendant received adequate notice before the statute ran, (2) whether defendant would be prejudiced by the amendment, and (3) whether the original and new plaintiffs have an "identity of interest." See 3 J. Moore, Moore's Federal Practice p 15.15 [4.--2], at 15-231 to -233 (2d ed. 1980); 6 C. Wright & A. Miller, Federal Practice and Procedure § 1501 (1971); Annot., 12 A.L.R.Fed. 233, 239, 250-54 (1972). Notice and prejudice to the defendant are the key inquiries.

Paraphrased in terms of substitution of plaintiffs, the test is whether the defendants had fair notice of the action and whether the substitution of plaintiffs will alter the claim to the prejudice of the defendants.

Unilever (Raw Materials) Ltd. v. M/T Stolt Boel, 77 F.R.D. 384, 390 (S.D.N.Y.1977); see Paskuly v. Marshall Field & Co., 494 F.Supp. 687, 688 (N.D.Ill.1980), aff'd, 646 F.2d 1210 (7th Cir. 1981).

There is nothing in this record to demonstrate Hawkeye was prejudiced when this amendment was allowed to relate back. Its sales agent had accepted premiums from the nonexistent corporation. It was notified promptly of the accident, and within one day Hawkeye's claims representative and "loss control representative" were both aware of the claim underlying this lawsuit. We hold trial court did not abuse its discretion in allowing this amendment to relate back.

Hawkeye points out the federal real party in interest rule, Federal Rule of Civil Procedure 17(a), contains language that authorizes amendments and the Iowa rule, Iowa Rule of Civil Procedure 2, does not. We find no merit in its argument that this language difference is significant. First, Iowa Rule of Civil Procedure 2 was not derived from federal rule 17(a). Both rules spring from the New York Field Code rule. See F. James & G. Hazard, Civil Procedure § 9.2, at 394-95 (2d ed. 1977). Second, even though rule 2 does not explicitly authorize amendments to substitute as plaintiff the real party in interest, such amendments have long been condoned in Iowa. Richardson v. Clark Bros., 202 Iowa 1371, 1373, 212 N.W. 133, 134 (1927); Norton v. Ferguson, 203 Iowa 317, 318, 211 N.W. 417, 418 (1926). Although when first promulgated in 1943 Iowa Rule of Civil Procedure 88 deleted language contained in comparable section 11182, The Code 1939, relating to amendments to correct mistakes in the names of parties, this court held the rule should have substantially the same interpretation. See Terpstra v. Schinkel, 235 Iowa 547, 551-52, 17 N.W.2d 106, 109 (1945); 2 Iowa R.Civ.P.Ann. 88 advisory committee comment, at 22 (West 1970) ("The prior decisions regarding amendments are still effective."). The 1976 amendment of rule 88 did not alter its relationship to rule 2.

II. M-Z's proof on division I was designed to show a sudden gust of wind upset the crane. Hawkeye affirmatively pleaded a policy exclusion relating to excessive loads, and it introduced proof the crane mishap was caused by a lift that exceeded the crane's capacity.

The insurance policy contained the following exclusionary clause:

THIS POLICY DOES NOT INSURE AGAINST: 1. Loss or damage occasioned by the weight of a load exceeding the registered lifting or supporting capacity of any machine.

(Emphasis added.) Displayed inside the cab of the damaged crane was a chart labeled "Rated Lifting Capacities in Pounds." Defendant...