Sandbulte v. Farm Bureau Mut. Ins. Co.

• Decision Date: 18 January 1984
• Docket Number: No. 83-314,83-314
• Citation: 343 N.W.2d 457
• Parties: Kenneth SANDBULTE and Florence Sandbulte, Appellants, v. FARM BUREAU MUTUAL INSURANCE CO., Richard L. Simonson and Gary L. Horstman, Appellees.
• Court: Iowa Supreme Court

Page 457

343 N.W.2d 457

Kenneth SANDBULTE and Florence Sandbulte, Appellants, v. FARM BUREAU MUTUAL INSURANCE CO., Richard L. Simonson and Gary L. Horstman, Appellees.

No. 83-314.

Supreme Court of Iowa.

Jan. 18, 1984.

Randall A. Roos, Sioux Center, for appellants.

Wendell Pendleton and W. Ted Brown of Pendleton Law Firm, P.C., Storm Lake, for appellee Farm Bureau Mut. Ins. Co.

Marvin F. Heidman and Lance D. Ehmcke of Gleysteen, Harper, Eidsmoe, Heidman & Redmond, Sioux City, for appellees Simonson and Horstman.

Considered by UHLENHOPP, P.J., and McGIVERIN, LARSON, SCHULTZ and CARTER, JJ.

McGIVERIN, Justice.

Plaintiffs' petition consisted of two counts. Count I asserted a claim against defendant Farm Bureau Mutual Insurance Co. (FBM) alleging the breach of an implied good faith duty to defend insured against a third party claimant. Count II asserted a claim against defendants Simonson, Horstman and FBM alleging the breach of an implied expanded agency agreement. Plaintiffs contend that the trial court improperly relied upon a two year statute of limitations, Iowa Code section 614.1(2), in sustaining defendant Farm Bureau Mutual Insurance Co.'s motion for summary judgment with respect to Count I. They argue that this claim's timeliness should be measured by the five year statute of limitations for claims based on "unwritten contracts" provided for in Iowa Code section 614.1(4). We agree and therefore reverse the trial court's entry of summary judgment for defendant FBM on Count I of plaintiffs' petition. Plaintiffs further contend that the court erred in granting defendant FBM's and defendants Simonson and Horstman's separate motions for summary judgment in disposition of plaintiffs' claim for negligent breach of an implied expanded agency agreement. They argue again that the court erred by not applying a five year statute of limitation, section 614.1(4), to this claim and also that this claim was not a compulsory counterclaim to defendant FBM's prior declaratory judgment action. We agree with both of these contentions and therefore reverse the entry of summary judgment for defendant FBM on Count II of plaintiffs' petition. However, the court was correct in entering summary judgment for defendants Simonson and Horstman based on their argument, not asserted by FBM in its separate motion, that the uncontroverted facts failed to establish the existence of an implied expanded agency agreement. We, therefore, affirm the court's entry of summary judgment for defendants Simonson and Horstman. We also affirm the trial court's implicit denial of plaintiffs' motion for partial summary judgment as to Count I due to the existence of a genuine issue of material fact concerning the question of FBM's good faith defense of Sandbulte.

This case was commenced on October 22, 1981, and arose out of events that were set in motion by a collision involving a pickup truck driven by Wendell Sandbulte--owned by his father Kenneth Sandbulte--and a motorcycle operated by Kenneth Vander Lugt on April 22, 1976. Vander Lugt suffered serious injuries as a result of this accident which was indisputably the fault of Wendell Sandbulte who failed to yield the right of way at a road intersection. A personal injury lawsuit against Kenneth and Wendell Sandbulte was commenced by Vander Lugt on April 20, 1978.

At the time of this accident, Kenneth Sandbulte owned an automobile insurance policy with a liability limit of $50,000 and a farm liability policy with a limit of $300,000. Both of these policies were issued by Farm Bureau Mutual Insurance Co.

Sandbulte and Vander Lugt negotiated, through their counsel, in an attempt to settle the Vander Lugt claim. These negotiations were hampered by the unsettled question of the extent of Sandbulte's liability coverage under his insurance policies. FBM agreed to tender the full $50,000 limit on the automobile policy. However, FBM claimed that Sandbulte's liability arising out of the accident was not covered by the contractual terms of the farm liability policy and, therefore, refused to tender any amount under this policy for settlement purposes.

In an attempt to resolve the coverage question, FBM filed a declaratory judgment action against both Kenneth Sandbulte and Vander Lugt on April 24, 1979, seeking a judicial interpretation of its contractual obligations to Sandbulte under the farm liability policy. This action was ultimately decided by this court in Farm Bureau Mutual Ins. Co. v. Sandbulte, 302 N.W.2d 104 (Iowa 1981), in which we found that Sandbulte was not covered, as to the Vander Lugt accident, by the farm liability policy.

Shortly after FBM's declaratory judgment action was filed, Sandbulte and Vander Lugt settled the Vander Lugt suit for $375,000. The terms of this settlement, to be effective as of May 25, 1979, provided for Sandbulte to pay $25,000 in addition to the $50,000 tendered by FBM under the automobile policy, with the remaining $300,000 entered as a consent judgment against Kenneth and Wendell Sandbulte. Execution on the consent judgment was ordered withheld until final disposition of the declaratory judgment action at the trial court level, which occurred on October 28, 1979.

Our decision on the declaratory judgment action in Sandbulte was filed on February 18, 1981. Execution on the consent judgment commenced shortly thereafter resulting in the Sandbulte farm being sold at a sheriff's sale to Vander Lugt on July 15, 1981.

This action was then commenced by plaintiffs Kenneth Sandbulte and his wife, Florence Sandbulte, on October 22, 1981. The petition consisted of two counts. Count I asserted a claim against defendant Farm Bureau Mutual Insurance Co. alleging the breach of an implied good faith duty to defend the insured under the automobile insurance policy against third party claimants. Count II asserted a claim against defendants insurance agents Simonson and Horstman and FBM alleging the breach of an implied expanded agency agreement to "advise plaintiffs of the extent of their liability insurance coverage, and suggest and implement for plaintiffs proper, complete and adequate liability insurance coverage."

Separate motions for summary judgment were filed by the plaintiffs, FBM, and Simonson and Horstman. The trial court entered summary judgment for FBM on Counts I and II holding that the applicable statute of limitations was section 614.1(2) which barred both of plaintiffs' counts and, furthermore, that plaintiffs' second count also was barred by Iowa R.Civ.P. 29 because it was a compulsory counterclaim to FBM's declaratory judgment action. Summary judgment also was entered for defendants Simonson and Horstman as to Count II based on the court's holding that the statute of limitations barred this action, and, in addition, the court found that the plaintiffs "failed to show as a matter of law any duty or breach of duty to perform in an expanded agency relationship, or of any duty to the Plaintiffs in the acquisition of insurance."

On appeal, plaintiffs raise several issues.

I. As to Count I. Plaintiffs argue that the trial court's entry of summary judgment for FBM on Count I was erroneous because the court did not apply the appropriate statute of limitations.

A. Appropriate statute of limitations. Sandbultes contend that section 614.1(4) is the appropriate statute of limitations for a cause of action based on the breach of an insurer's good faith duty to defend an insured against third party claimants and that the court erred by relying on section 614.1(2).

Iowa Code subsections 614.1(2), (4) (1981) provide for two separate statutory periods for limiting particular types of legal actions as follows:

Actions may be brought within the times herein limited, respectively, after their causes accrue, and not afterwards, except when otherwise specially declared:

....

2. Injuries to person or reputation--relative rights--statute penalty. Those founded on injuries to the person or reputation, including injuries to relative rights, whether based on contract or tort, or for a statute penalty, within two years.

....

4. Unwritten contracts--injuries to property--fraud--other actions. Those founded on unwritten contracts, ... and all other actions not otherwise provided for in this respect, within five years....

(Emphasis added.)

In determining the appropriate statute of limitations for a specific cause of action, the Code requires us to look to the foundation of the action. This means that the appropriate statute of limitations is to be ascertained by characterizing the actual nature of the action. Clark v. Figge, 181 N.W.2d 211, 213 (Iowa 1970).

We have said that an excess liability claim against an insurer based on its bad faith handling of a third party claim against its insured is a claim based on the implied covenant of good faith found in the insurance contract. Kooyman v. Farm Bureau Mutual Insurance Co., 315 N.W.2d 30, 33 (Iowa 1982). Furthermore, this court has consistently held that contracts implied in law or by operation of law are regarded as "founded on unwritten contracts" so far as the applicable period of limitation is concerned. In re Trust of Lunt, 237 Iowa 1097, 1101, 24 N.W.2d 467, 469 (1946); Anderson v. Anderson, 234 Iowa 277, 285, 12 N.W.2d 571, 575-76 (1944). See also Keen v. Mid-Continent Petroleum Corp., 58 F.Supp. 915, 922 (N.D.Iowa 1945).

It follows, therefore, that section 614.1(4), which provides a five year statute of limitations for actions founded on "unwritten contracts," is the appropriate statute of limitations for an action based on an insurer's breach of a good faith duty to defend an insured against third party claimants.

We note that this result is not affected by the elements of damages sought for this claim. It is the nature of the right sued upon and not the elements of relief requested that governs the selection of the appropriate statutory period for the basic right.

B. Accrual of claim. Actual application of the...