Rodman v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 03 July 1973
• Docket Number: No. 55837,55837
• Citation: 208 N.W.2d 903
• Parties: James RODMAN, Appellee, Cross-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Appellant, Cross-Appellee.
• Court: Iowa Supreme Court

Page 903

208 N.W.2d 903

James RODMAN, Appellee, Cross-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Appellant, Cross-Appellee.

No. 55837.

Supreme Court of Iowa.

July 3, 1973.

Richard Langdon of Harrick, Langdon, Belin & Harris, Des Moines, for appellant, cross-appellee.

Thomas L. McCullough, Sac City, for appellee, cross-appellant.

Heard before MOORE, C.J., and RAWLINGS, LeGRAND, UNLENHOPP and McCORMICK, JJ.

McCORMICK, Justice.

This case involves interpretation of an automobile insurance policy. Plaintiff James Rodman was injured as a passenger in his own automobile in an accident on November 25, 1967. He insured the automobile with defendant State Farm Mutual Automobile Insurance Company. In a lawsuit the insurer refused to defend, plaintiff obtained judgment for $26,555.47 against the driver, James Louis Bluml, for his injuries sustained in the accident. Plaintiff then, in the present action, sued defendant on the insurance policy, alleging it covered Bluml's liability to him. Trial court held plaintiff was excluded from liability coverage but awarded him $10,000 judgment based on the policy's uninsured motorist coverage. Both parties appeal. We affirm.

We will first consider plaintiff's appeal and then defendant's appeal.

PLAINTIFF'S APPEAL

Three questions are presented in plaintiff's appeal: (1) Did trial court err in holding the principle of reasonable expectations would not enable plaintiff to overcome the policy's exclusion of Bluml's liability to him? (2) Does the exclusion of liability violate chapter 321A, The Code? (3) Is the exclusion void because inserted in the policy without approval of the insurance commissioner?

I. The doctrine of reasonable expectations. Plaintiff alleged trial court erred in refusing to apply his version of the principle of reasonable expectations to vitiate a policy exclusion of liability coverage to plaintiff.

In its bodily injury liability insuring agreement defendant covenanted '(t)o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of (A) bodily injury sustained by other persons * * *.' The term 'insured' is defined to include (1) the named insured, (2) spouse if a resident of the same household, (3) if residents of the same household, relatives of the first-named insured or his spouse, (4) those using the automobile with permission of the named insured or his spouse, and (5) any person or organization legally responsible for the use of the automobile by an insured.

In its exclusion section the policy provided: 'This insurance does not apply under: * * * (i) coverage (A), to bodily injury to the insured or any member of the family of the insured residing in the same household as the insured.'

The parties agree Bluml's liability for bodily injury sustained by 'other persons' is covered by the policy. He was within the definition of 'insured' as a permissive user of the automobile. Plaintiff does not deny the exclusion unambiguously deprives plaintiff of coverage for his own bodily injury.

However, plaintiff introduced evidence that he insured the vehicle with defendant only because he continued the insurance his wife had on it when she owned it prior to their marriage. He was added to the policy, renewed it, and later increased the liability limits and added uninsured motorist coverage. Plaintiff testified he had not read the policy but had expected it to cover liability to him and would not have kept it if he had known it did not. An insurance agent testified for plaintiff that to the best of his knowledge defendant is the only automobile insurer in Iowa whose policies exclude the insured from bodily injury liability recovery. Policies from four other companies were introduced to illustrate absence of the exclusion in other policies.

From this evidence plaintiff argues he had an objectively reasonable expectation his injuries would be covered and trial court erred in holding the principle could not override the policy exclusion in the facts of this case.

The principle advocated by plaintiff is explained in Allen v. Metropolitan Life Ins. Co., 44 N.J. 294, 305, 208 A.2d 638, 644 (1965):

'While insurance policies and binders are contractual in nature, they are not ordinary contracts but are 'contracts of adhesion' between parties not equally situated. * * * The company is expert in its field and its varied and complex instruments are prepared by it unilaterally whereas the assured or prospective assured is a layman unversed in insurance provisions and practices. He justifiably places heavy reliance on the knowledge and good faith of the company and its representatives and they, in turn, are under correspondingly heavy responsibility to him. His reasonable expectations in the transaction may not justly be frustrated and courts have properly molded their governing interpretative principles with that uppermost in mind. Thus we have consistently construed policy terms strictly against the insurer and where several interpretations were permissible, we have chosen the one most favorable to the assured.'

In Gray v. Zurich Insurance Company, 65 Cal.2d 263, 54 Cal.Rptr. 104, 107--108, 419 P.2d 168, 171--172 (1966) the court observed:

'Although courts have long followed the basic precept that they would look to the words of the contract fo find the meaning which the parties expected from them, they have also applied the doctrine of the adhesion contract to insurance policies, holding that in view of the disparate bargaining status of the parties we must ascertain that meaning of the contract which the insured would reasonably expect.'

The principle is also expressed in Keeton, Insurance Law--Basic Text, § 6.3(a) at 351 (1971): 'The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.' Professor Keeton maintains this principle underlies the more specific principles of insurance contract interpretation. He says it is an outgrowth of recognition that in obtaining insurance one is left little choice beyond electing among standardized provisions offered to him and that judicial regulation through application of the principle of reasonable expectations is essential. Id. at 350.

He points out the principle 'incorporates the proposition that policy language will be construed as laymen would understand it and not according to the interpretation of sophisticated underwriters.' Id. at 351. In this respect we have long applied the principle. See e.g., Qualls v. Farm Bureau Mutual Insurance Company, 184 N.W.2d 710, 712 (Iowa 1971) ('a contract of insurance should be interpreted from the standpoint of an ordinary man's viewpoint, not a specialist or expert'); Central Bearings Co. v. Wolverine Insurance Company, 179 N.W.2d 443, 445 (Iowa 1970) ('the court should ascertain what an insured as a reasonable person would understand the policy to mean, not what the insurer actually intended'); Goodsell v. State Auto & Cas. Underwriters, 261 Iowa 135, 140, 153 N.W.2d 458, 461 (1967) ('a contract of insurance should not be construed through the magnifying eye of the technical lawyer but rather from the standpoint of what an ordinary man would believe it to mean'); Umbarger v. State F. Mut. Auto. Ins. Co., 218 Iowa 203, 208, 254 N.W. 87, 89 (134) ('How would the assured, as a reasonable person, naturally and ordinarily understand and interpret this language?').

Keeton acknowledges most courts apply the doctrine of reasonable expectations as an interpretive tool where the language of a policy is deemed ambiguous. However, as the cases cited Supra demonstrate, we have employed the concept in its broader meaning as an independent and fundamental approach to insurance policy interpretation, although we have not identified it by same label. It is clear the principle of reasonable expectations undergirds the congeries of rules applicable to construction of insurance contracts in Iowa.

The real question here is whether the principle of reasonable expectations should be extended to cases where an ordinary layman would not misunderstand his coverage from a reading of the policy and where there are no circumstances attributable to the insurer which foster coverage expectations. Plaintiff does not contend he misunderstood the policy. He did not read it. He now asserts in retrospect that if he had read it he would not have understood it. He does not say he was misled by conduct or representations of the insurer. He simply asked trial court to rewrite the policy to cover his loss because if he had purchased his automobile insurance from another company the loss would have been covered, he did not know it was not covered, and if he had known it was not covered he would have purchased a different policy. Trial court declined to do so. We believe trial court correctly refused in these circumstances to extend the principle of reasonable expectations to impose liability.

What we said in Central Bearings Co. v. Wolverine Insurance Company, Supra, 179 N.W.2d at 448, is applicable here:

'Whether this problem is approached from the standpoint of manifestation of mutual assent by contracting parties (meeting of the minds) or purchase of a pre-prepared contract; i.e., a commodity (which seems more realistic), the result is the same. Modern tort and warranty litigation and the complexity of modern business require complex offerings of insurance protection. It is not unreasonable to give the effect intended by the draftsman if it is reasonably clear a purchaser would understand the coverage offered.

'No such document is immune from attack by use of various canons of interpretation. The fact that the industry has continued to attempt to clarify the language (as plaintiff points out in its appendix material) should not obscure the...