Red Giant Oil Co. v. Lawlor, No. 93-1566

CourtUnited States State Supreme Court of Iowa
Writing for the CourtLAVORATO
Citation528 N.W.2d 524
PartiesRED GIANT OIL COMPANY, A Corporation, Appellant, v. William LAWLOR and LeMars Mutual Insurance Company, A Corporation, Appellees.
Decision Date29 March 1995
Docket NumberNo. 93-1566

Page 524

528 N.W.2d 524
RED GIANT OIL COMPANY, A Corporation, Appellant,
v.
William LAWLOR and LeMars Mutual Insurance Company, A Corporation, Appellees.
No. 93-1566.
Supreme Court of Iowa.
March 29, 1995.

Page 526

Robert V. Rodenburg of Rodenburg Law Office, P.C., Council Bluffs, for appellant.

Patrick G. Vipond, William R. Settles, John M. French, and Frederick T. Harris of Kennedy, Holland, DeLacy & Svoboda, Omaha, NE, and David F. McCann of Dippel & McCann, P.C., for appellee Lawlor.

William Kevin Stoos, Rene Charles Lapierre, and James R. Villone of Klass, Hanks, Stoos, Stoik & Villone, Sioux City, for appellee LeMars Mut.

Considered by CARTER, P.J., and LAVORATO, NEUMAN, SNELL, and TERNUS, JJ.

LAVORATO, Justice.

Red Giant Oil Company appeals from a summary judgment ruling against it in its

Page 527

action against William Lawlor and LeMars Mutual Insurance Company. The action against Lawlor is based on Lawlor's alleged failure to procure coverage for Alfred Coyle, d/b/a Alco. The action against LeMars is based on its alleged bad faith in denying coverage and representation to Coyle.

Previous to this action Red Giant had sued Coyle for alleged negligent work on its premises. Ultimately, Red Giant and Coyle settled. As part of the settlement, Coyle confessed judgment for the full amount of Red Giant's damages and assigned his rights against Lawlor and LeMars to Red Giant. In exchange, Red Giant agreed not to execute on the judgment. Also, as part of this settlement, Coyle and Union Insurance Company--an additional insurer of Coyle's--agreed to loan Red Giant $16,500 at no interest. Red Giant agreed to pursue the claims against Lawlor and LeMars and, if successful, to repay a part of the loan.

After Lawlor and LeMars moved for summary judgment, Red Giant, Coyle, and Union Insurance amended their settlement agreement to exclude Red Giant's agreement not to execute on the judgment against Coyle. The district court then sustained Lawlor's and LeMars' motions for summary judgment.

We reverse and remand for further proceedings consistent with this opinion.

I. The Facts.

In September 1992, Red Giant sued Lawlor and LeMars. Division I of the petition alleges the following facts. Red Giant is the assignee of Coyle as to all claims, rights, causes of action, and choses in action that Coyle has against LeMars and its agent Lawlor.

LeMars had issued Coyle an insurance policy and represented that the policy insured Coyle for liability for negligent welding and related work activities.

Coyle did negligent welding on Red Giant's oil tanks in January 1990, causing damage to Red Giant in excess of $58,351. This damage occurred about a year after the work was done.

Coyle notified LeMars which investigated the incident, denied coverage, and willfully failed and refused to defend Coyle in Red Giant's suit against Coyle.

Lawlor--as agent for LeMars--had told Coyle that the LeMars policy covered losses like those Red Giant had suffered because of Coyle's negligent work. Coyle relied on this representation of coverage, causing damage to Coyle and to Red Giant as Coyle's assignee.

Red Giant obtained a judgment against Coyle for $58,351.32 together with interest and costs. Coyle suffered damages proximately caused by LeMars' breach of its policy. Red Giant prays for judgment against LeMars and Lawlor.

Division II repleads all of these facts and further alleges that LeMars and Lawlor are guilty of bad faith in the handling of Coyle's liability claim and in the sale and administration of the policy. This division also alleges that Red Giant has been damaged by this conduct and prays for judgment against both defendants.

Division III repleads all of the facts of Division I. It further alleges that Lawlor intentionally and recklessly misrepresented to Coyle the nature and extent of the insurance policy after Coyle expressly asked Lawlor for the precise coverage for liability for damages like Red Giant had suffered. In this division, Red Giant also prays for judgment against both defendants.

In July 1992--before the present lawsuit was filed--Red Giant, Coyle, and Union Insurance reached a settlement of Red Giant's suit against Coyle which had been filed in April 1991. According to the agreement, the parties acknowledge that coverage to Coyle under his policy with Union Insurance is doubtful but Coyle's claims for "coverage and other causes of action" against LeMars and its agent Lawlor "exist and are viable." The parties further acknowledge that they "desire to protect their rights and extinguish their liability in the controversy as to the claims, each against the other."

The parties go on to agree in pertinent part as follows:

1. Coyle and Union will loan Red Giant $16,500 without interest.

Page 528

2. Coyle and Union do not admit liability to Red Giant because of the alleged negligent work.

3. Judgment can be entered by Red Giant against Coyle for Red Giant's actual damages in the amount of $58,351.32.

4. In consideration of the loan, Coyle assigns to Red Giant all his rights of action against LeMars for its failure to defend him or LeMars and/or Lawlor for failure to provide coverage for Red Giant's action against Coyle.

5. In consideration for the assignment, Red Giant agrees not to institute suit against Coyle or Union for any claims and agrees not to execute upon any judgment against Coyle and/or Union arising out of Red Giant's suit against Coyle.

6. Red Giant agrees to pursue the claims against LeMars and/or Lawlor and to collect any judgment it may obtain against the two.

7. In the event Red Giant recovers anything, it agrees to pay Union a proportionate amount of the recovery less an attorney fee and costs. If Red Giant recovers nothing, the loan is satisfied and extinguished.

8. In consideration of the $16,500 loan to Red Giant, Coyle releases any policy rights he may have against Union for any claims relating to Red Giant's suit against him.

On July 30, 1992, on Coyle's previous offer to confess judgment, the district court rendered judgment against Coyle in favor of Red Giant in the amount of $58,351.32.

After LeMars and Lawlor moved for summary judgment, Red Giant, Coyle, and Union Insurance amended their agreement by striking Red Giant's agreement not to execute any judgment against Coyle. In the amendment, Red Giant agrees, however, not to enforce against Union Insurance any judgment obtained against Coyle.

II. The Scope of Review.

We review the grant or denial of summary judgment under well-known standards. Our review is at law. Iowa R.App.P. 4. Summary judgment is proper only when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Iowa R.Civ.P. 237. To determine whether a genuine issue of material fact exists, the court must examine the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits. Id. The burden is on the moving party to show the absence of a material fact issue, and the resisting party is accorded all possible inferences reasonably deducible from the evidence. Central Nat'l Ins. Co. v. Insurance Co. of N. Am., 522 N.W.2d 39, 42 (Iowa 1994) (citations omitted). On appeal, our task is to determine whether a genuine issue of material fact exists and whether the law was correctly applied. Ottumwa Hous. Auth. v. State Farm Fire & Casualty Co., 495 N.W.2d 723, 726 (Iowa 1993).

III. The Issue and the Two Lines of Authority.

The commercial general liability policy Coyle had obtained from LeMars provides in pertinent part:

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.

(Emphasis added.)

In determining that summary judgment for LeMars and Lawlor was proper, the district court focused on the policy language legally obligated to pay and relied on two federal cases: Freeman v. Schmidt Real Estate & Insurance, Inc., 755 F.2d 135 (8th Cir.1985), and Roach v. Estate of Ravenstein, 326 F.Supp. 830 (S.D.Iowa 1971).

In Freeman, the facts were similar to those here. Freeman and Mrs. Catron were involved in an automobile collision. Mrs. Catron was operating a vehicle owned by her husband. In settlement of the resulting litigation, the Catrons confessed judgment and assigned to Freeman their rights against their insurance agent and insurer for failing to procure insurance that would have covered

Page 529

the liability that Freeman asserted against the Catrons. In consideration, Freeman promised not to execute on the judgment. Thereafter, Freeman sued the insurance agent and insurer alleging--as the Catrons' assignee--that the insurance agent and insurer were negligent and breached an oral contract in failing to obtain additional insurance that would have covered the full judgment. (The Catrons had $50,000 of liability insurance and confessed judgment for $350,000 and costs.)

The trial court sustained the defendants' motion for summary judgment. It concluded that because the Catrons never became legally obligated to make any payments to Freeman because of the covenant not to execute, the Catrons would have been entitled to nothing under the policy and for that reason suffered no damages. The trial court further concluded that as a result Freeman received no enforceable rights from the Catrons against either the agent or the insurer. (In reaching this conclusion, the trial court was obliged to follow Iowa law but acknowledged there was no Iowa case directly on point.)

The issue on appeal was "whether an insurer may be liable to the injured party when the insured before judgment is protected by an agreement not to execute." Id. at 137. This is precisely the issue in this appeal.

In deciding the issue, the Freeman court recognized there were two lines of authority on whether an insurer may be...

To continue reading

Request your trial
84 practice notes
  • Oeltjenbrun v. Csa Investors, Inc., No. C 96-3136-MWB.
    • United States
    • United States District Courts. 8th Circuit. Northern District of Iowa
    • April 19, 1998
    ...is subject to the same defenses an obligor on the contract could have raised against the original party. See Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa 1995); Smith v. Brown, 513 N.W.2d 732, 733-34 (Iowa 1994). Furthermore, this court has explained that, under Iowa law, fraudule......
  • Liberty Mut. Ins. Co. v. Wheelwright Trucking Co.
    • United States
    • Supreme Court of Alabama
    • November 27, 2002
    ...covenant not to enforce against one party automatically releases that party's insurance carrier'). See also Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524[, 529] (Iowa 1995) (holding that a plaintiff's agreement to collect only against a defendant's insurance company was merely a covenant and ......
  • Behm v. City of Cedar Rapids & Gatso United States, Inc., No. 16-1031
    • United States
    • United States State Supreme Court of Iowa
    • August 31, 2018
    ...603 N.W.2d 751, 756 (Iowa 1999)); K & W Elec., Inc. v. State, 712 N.W.2d 107, 112 (Iowa 2006) (same); Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 528 (Iowa 1995) ("The burden is on the moving party to show the absence of a material fact issue . . . ."). This burden remains wi......
  • Brownstone Homes Condo. Ass'n v. Brownstone Forest Heights, LLC, CC 0606–06804
    • United States
    • Supreme Court of Oregon
    • November 19, 2015
    ...Iowa Supreme Court later addressed the issue, it rejected the Eighth Circuit's view of that state's law. In Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524 (Iowa 1995), the Iowa Supreme Court concluded that the Eighth Circuit's concern about the possibility of collusive settlements was misplace......
  • Request a trial to view additional results
84 cases
  • Oeltjenbrun v. Csa Investors, Inc., No. C 96-3136-MWB.
    • United States
    • United States District Courts. 8th Circuit. Northern District of Iowa
    • April 19, 1998
    ...is subject to the same defenses an obligor on the contract could have raised against the original party. See Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 533 (Iowa 1995); Smith v. Brown, 513 N.W.2d 732, 733-34 (Iowa 1994). Furthermore, this court has explained that, under Iowa law, fraudule......
  • Liberty Mut. Ins. Co. v. Wheelwright Trucking Co.
    • United States
    • Supreme Court of Alabama
    • November 27, 2002
    ...covenant not to enforce against one party automatically releases that party's insurance carrier'). See also Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524[, 529] (Iowa 1995) (holding that a plaintiff's agreement to collect only against a defendant's insurance company was merely a covenant and ......
  • Behm v. City of Cedar Rapids & Gatso United States, Inc., No. 16-1031
    • United States
    • United States State Supreme Court of Iowa
    • August 31, 2018
    ...603 N.W.2d 751, 756 (Iowa 1999)); K & W Elec., Inc. v. State, 712 N.W.2d 107, 112 (Iowa 2006) (same); Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 528 (Iowa 1995) ("The burden is on the moving party to show the absence of a material fact issue . . . ."). This burden remains wi......
  • Brownstone Homes Condo. Ass'n v. Brownstone Forest Heights, LLC, CC 0606–06804
    • United States
    • Supreme Court of Oregon
    • November 19, 2015
    ...Iowa Supreme Court later addressed the issue, it rejected the Eighth Circuit's view of that state's law. In Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524 (Iowa 1995), the Iowa Supreme Court concluded that the Eighth Circuit's concern about the possibility of collusive settlements was misplace......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT