McClure v. Northland Ins. Companies, 87-175

• Decision Date: 15 June 1988
• Docket Number: No. 87-175,87-175
• Citation: 424 N.W.2d 448
• Parties: Jerry W. McCLURE, Appellant, v. NORTHLAND INSURANCE COMPANIES and LeMars Mutual Insurance Company of Iowa, Appellees.
• Court: Iowa Supreme Court

Page 448

424 N.W.2d 448

Jerry W. McCLURE, Appellant, v. NORTHLAND INSURANCE COMPANIES and LeMars Mutual Insurance Company of Iowa, Appellees.

No. 87-175.

Supreme Court of Iowa.

June 15, 1988.

John C. Heinicke and J.W. McGrath of McGrath & McGrath, P.C., Keosauqua, and Arthur Buzzell of Buzzell & Semel, Davenport, for appellant.

Betty J. Ratekin and Craig D. Warner of Aspelmeier, Fisch, Power, Warner & Engberg, Burlington, for appellee LeMars Mut. Ins. Co. of Iowa.

Michael D. Huppert of Patterson, Lorentzen, Duffield, Timmons, Irish, Becker & Ordway, Des Moines, for appellee Northland Ins. Companies of Iowa.

Considered by HARRIS, P.J., and SCHULTZ, NEUMAN, SNELL, and ANDREASEN, JJ.

HARRIS, Justice.

The question here is whether an injured driver's recovery under his two automobile insurance policies is reduced because of workers' compensation benefits he received for the same injury. On the basis of exclusions and limitations in the policies, the trial court answered the question in the affirmative. The court of appeals disagreed and so do we.

Plaintiff McClure suffered severe injuries in an automobile accident. He was driving his employer's vehicle at the time and was acting in the course of his employment. The tortfeasor's insurer paid McClure $100,000 and McClure also received a $251,024.19 settlement from his employer's workers' compensation carrier.

Claiming he was damaged in excess of $25,000,000 McClure brought this suit under coverages he purchased from defendants Northland Insurance Companies ($100,000) and LeMars Mutual Insurance Company ($25,000). Both policies contained provisions which allowed the insurers to reduce the underinsured motorist coverage limits by the amounts received from workers' compensation and other insurance. Because the $351,024.19 McClure had already received exceeded the underinsured motorist coverage limits of the policies, both insurance companies denied they owed McClure anything.

Northland and LeMars based their denials of coverage on the policies' exclusions and limitations. It remains the insurers' position that their coverage should be reduced (in effect erased) by the amount recovered from workers' compensation and other insurance.

The trial court accepted the insurers' view and affirmed their motions for summary judgment. It held that the exclusion and limitation clauses cited are permissible under Iowa Code section 516A.2 (1985). The court stated:

An "other insurance" limitation or exclusion is a valid limitation or exclusion provided it does not reduce uninsured and underinsured protection below the statutory minimum of $10,000 for each person and $20,000 for each accident.

Because in each case the exclusion reduced McClure's right of recovery to zero he was held barred from any recovery. On appeal the court of appeals reversed this holding. We granted further review.

In American States Insurance Co. v. Tollari, 362 N.W.2d 519, 522 (Iowa 1985), we stated that a buyer of underinsurance coverage is entitled to recover for the amount of his loss which the tortfeasor's liability insurance does not reach, up to the total coverage purchased. We expressly rejected the contention that the coverage should be reduced by the amount received by an insured from a tortfeasor.

As pointed out in Comment, Underinsured Motorist Coverage in Iowa: American States Insurance Co. v. Tollari, 71 Iowa L.Rev. 1569, 1575-76 (1986), there are two competing views on who is an underinsured motorist. Under what has become called the broad coverage view a motorist is underinsured when the tortfeasor's liability coverage is less than the damages suffered by the victim of the underinsured motorist. Under the narrow coverage view a motorist is underinsured when the applicable liability coverage is less than the victim's underinsured motorist policy limit. See also Kluiter v. State Farm Mut. Auto. Ins. Co., 417 N.W.2d 74, 75 (Iowa 1987). Under the broad coverage definition of underinsured, any payments received from the tortfeasor are subtracted from the total amount of damages sustained by the victim, and the underinsurance coverage makes up the difference, up to the total amount of underinsurance provided by the policy. Under the narrow coverage definition of underinsured, any amount received from the tortfeasor is subtracted from the underinsured motorist limit and the insurer is liable for the difference, up to the policy limit.

These two different approaches reflect contrasting views of the underlying purpose of underinsured motorist coverage. The broad coverage rationale is that the underinsured motorist coverage was intended to indemnify insureds for unpaid judgments. Kluiter, 417 N.W.2d at 75. Since the goal is full compensation, underinsurance coverage should apply when the tortfeasor has less insurance than the victim has injury. Id. The narrow coverage argument, on the other hand, is that underinsurance coverage was designed...