State Farm Auto. Ins. Co. v. Malcolm

• Decision Date: 23 November 1977
• Docket Number: No. 59357,59357
• Citation: 259 N.W.2d 833
• Parties: STATE FARM AUTOMOBILE INSURANCE COMPANY, Appellant, v. Ferris L. MALCOLM, Donna J. Malcolm and AID Insurance Services, Appellees.
• Court: Iowa Supreme Court

Page 833

259 N.W.2d 833

STATE FARM AUTOMOBILE INSURANCE COMPANY, Appellant, v. Ferris L. MALCOLM, Donna J. Malcolm and AID Insurance Services, Appellees.

No. 59357.

Supreme Court of Iowa.

Nov. 23, 1977.

M. Gene Blackburn, of Mitchell, Murray, Blackburn & Coleman, P.C., Fort Dodge, for appellant.

Jerry C. Estes, of Kersten, Opheim, Carlson & Estes, Fort Dodge, for appellees Ferris L. Malcolm and Donna J. Malcolm.

Michael H. Figenshaw, of Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellee AID Insurance.

Heard by MOORE, C. J., and MASON, LeGRAND, REYNOLDSON and HARRIS, JJ.

MOORE, Chief Justice.

Plaintiff-insurer appeals judgment sustaining defendants' motion for summary judgment and dismissing its petition for declaratory judgment as to the applicability of an exclusionary clause in an automobile insurance policy. We affirm.

The background of this case can be chronologically summarized as follows. On July 22, 1972, Ferris Malcolm was operating a motor vehicle in the performance of his duties as a rural mail carrier in the employment of the United States Postal Service when he was involved in an automobile accident with a private citizen, Estelle Williams, who was seriously injured.

Shortly before the Iowa statute of limitations was to run, Williams brought an action in the Pocahontas District Court on July 18, 1974, naming as defendants Ferris L. Malcolm and his wife, Donna J. Malcolm. The theories of recovery alleged were negligent operation of a motor vehicle by Ferris and co-ownership of the motor vehicle by both defendants.

Pursuant to 28 U.S.C. section 2679, The Federal Drivers Act, the United States intervened in the case, successfully moved to remove the case to federal district court and was substituted as a party defendant. Ultimately the action was dismissed because the plaintiff had failed to follow the proper administrative procedure under the federal act as required by 28 U.S.C. section 2401(b). The effect of the ruling is that Ferris, the federal employee, is now out of the case. That same day, December 5, 1974, the action as to Donna was remanded to state district court where it still remains awaiting trial. The federal court judge ruled the claim against her was a separate and distinct action based on the Iowa ownership statute, Code section 321.493.

On July 18, 1975, State Farm Insurance Company filed a petition seeking a declaratory judgment against its insureds, Ferris and Donna Malcolm to interpret an exclusion in Malcolms' insurance policy. Also named defendants were AID Insurance Services (The Workmen's Compensation Carrier of Williams's employer) and the United States of America (Ferris Malcolm's employer). State Farm alleged that the exclusion clause "this insurance does not apply to any obligation for which the United States may be held liable under the Federal Tort Claims Act" relieved them of the duty to defend under the policy. The company's position was that at the time the original suit was filed there existed the possibility of federal tort claim liability because there were four days remaining to perfect an administrative remedy.

Defendant Donna Malcolm answered denying that the exclusion relieved State Farm of the duty to defend and raised estoppel as an affirmative defense "because the company had never raised the issue prior to the dismissal of the suit against Ferris." Defendant AID Insurance answered denying applicability of the exclusion.

On September 18, 1975, defendants Malcolm filed a motion for summary judgment asserting because Ferris Malcolm had been dismissed in the federal case the exclusion was irrelevant as to him. The motion further stated Donna as owner of the car under section 321.49 was not covered by the FTCA and the State Farm exclusion was therefore inapplicable as to her. State Farm resisted the motion.

On March 11, 1976, the trial court generally sustained defendant-insureds' motion for summary judgment holding the exclusion was inapplicable. This appeal followed. Prior to submission State Farm dismissed the appeal and its claim against the United States.

I. State Farm's standard automobile policy covers fifteen pages relating to insuring agreements, definitions, conditions and exclusions. The "insuring agreements" include:

"COVERAGE A BODILY INJURY LIABILITY

"COVERAGE B PROPERTY DAMAGE LIABILITY

"To 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, and

"B. property damage.

"caused by accident arising out of the ownership, maintenance or use . . . of the owned motor vehicle ; and to defend, . . . any suit against the insured alleging such bodily injury or property damage and seeking damages which are payable hereunder even if any of the allegations of the suit are groundless, false or fraudulent . . . ."

The definitions and conditions further explain coverage as follows:

"Insured the unqualified word 'insured' includes

"(1) the name of the insured, and

"(2) if the named insured is a person or persons also includes his or their spouse(s) if a resident of the same household."

" * * * th

"Joint and Several Interests. If two or more insureds are named in the declarations, this policy shall apply to them jointly and severally, unless otherwise specifically stated herein. * * *."

The "exclusions" include:

"This insurance does not apply under:

" * * *.ura

"(d) COVERAGES A AND B,

" * * *ERA

"(2) TO ANY OBLIGATION FOR WHICH THE UNITED STATES MAY BE HELD LIABLE UNDER THE FEDERAL TORT CLAIMS ACT."

II. We recognize the Insurance Company's duty to defend is contractual and is therefore ultimately based on the policy provisions. In determining whether under a given case the company is obligated to defend we must construe the policy in question, the pleadings of the injured party and any other admissible and relevant facts in the record. The company is not required to defend if it would not be bound to indemnify the insured even though the claim against him should prevail in that action. New Hampshire Insurance Company v. Christy, Iowa, 200 N.W.2d 834, 838, 839; Stover v. State Farm Mutual Insurance Company, Iowa, 189 N.W.2d 588, 592; Central Bearings Co. v. Wolverine Insurance Company, Iowa, 179 N.W.2d 443, 445.

Whether State Farm is obligated to defend in this case thus turns on whether the "Federal Tort Claims Act" exclusion effectively delineates the coverage provisions of the policy. The insurer, having affirmatively expressed coverage through broad promises, assumes a duty to define any limitations or exclusionary clause in clear and explicit terms. Benzer v. Iowa Mutual Tornado Insurance Ass'n., Iowa, 216 N.W.2d 385, 388. Furthermore, the company has the burden to prove the applicability of the policy exclusion. Long v. Glidden Mutual Insurance Association, Iowa, 215 N.W.2d 271, 274; Rich v. Dyna Technology, Inc., Iowa, 204 N.W.2d 867, 871.

State Farm strongly contends the meaning of the exclusion is clear and therefore our rules for construing ambiguous contracts are inapplicable; the parties' intent is to be determined solely by what the contract itself says. Rule 14(f)(14), Rules of Appellate Procedure. It is axiomatic the words and phrases of the policy should not be strained to impose liability that was not intended and not purchased. Central Bearings Co. v. Wolverine Insurance Company, supra, 179 N.W.2d at 445. And it is equally well established that if there is no ambiguity in the contract there is no right or duty on the part of the court to write a new contract of insurance between the parties. Stover v. State Farm Mutual Insurance Co., supra, 189 N.W.2d at 591; State Auto. & Cas. Under. v. Hartford Acc. & Ind. Co., Iowa, 166 N.W.2d 761, 764.

The crux of the company's arguments is that an obligation under the Federal Tort Claims Act was still possible when the injured party filed his petition against the Malcolms and therefore this insurance coverage is excluded.

Mrs. Malcolm also contends the contract exclusion is clear but argues it only becomes applicable where the theory of liability is under the Federal Tort Claims Act. Thus it does not apply where liability is based on the Iowa Motor Vehicle Ownership Liability statute, Code section 321.493.

Because we believe the language of the policy is without violence, susceptible to two interpretations, we believe the exclusion is ambiguous and should be construed by this court. See State Auto. & Cas. Under. v. Hartford Acc. & Ind. Co., supra, 166 N.W.2d at 763.

III. An insurance policy is a contract of adhesion and therefore its provisions will be construed in a light most favorable to the insured. Connie's Const. v. Fireman's Fund Ins., Iowa, 227 N.W.2d 207, 210; Benzer v. Iowa Mutual Tornado Insurance Ass'n., supra, 216 N.W.2d at 389. In keeping with that principle, exclusions are strictly construed against the insurer. Connie's Const. v. Fireman's Fund Ins., supra ; Dirgo v. Associated Hospitals Service, Inc., Iowa, 210 N.W.2d 647, 650. In construction and application of this standardized insurance contract, courts strive to effectuate the reasonable expectations of the average member of the public who accepts it. Steinbach v. Continental Western Ins. Co., Iowa, 237 N.W.2d 780, 782; C & J Fert., Inc. v. Allied Mut. Ins. Co., Iowa, 227 N.W.2d 169, 176.

The purposes of the exclusion shed light on the construction it should receive. These purposes can only be understood by a brief discussion of litigation under the Federal Tort Claims Act. 28 U.S.C. section 1346(b), section 2671 et seq.

Prior to 1961 a person injured due to the negligent operation of a motor vehicle by an employee of the federal government while in the scope of his employment could seek damages under the Federal Tort Claims Act, 28 U.S.C. section 1346(b), section 2671 et seq. If the federal employee had automobile liability coverage from a private insurance carrier (because the driver was...