Thomas v. Progressive Cas. Ins. Co., 06-1094.

• Citation: 749 N.W.2d 678
• Decision Date: 16 May 2008
• Docket Number: No. 06-1094.,06-1094.
• Parties: Scott E. THOMAS and Rhonda R. Thomas, Appellees, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

749 N.W.2d 678

Scott E. THOMAS and Rhonda R. Thomas, Appellees, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, Appellant.

No. 06-1094.

Supreme Court of Iowa.

May 16, 2008.

Steven T. Durick and Joseph M. Barron of Peddicord, Wharton, Spencer, Hook, Barron & Wegman, LLP, Des Moines, for appellant.

Anthony W. Tauke of Porter, Tauke & Ebke, Council Bluffs, for appellees.

TERNUS, Chief Justice.

The appellant, Progressive Casualty Insurance Company, claims it provides no coverage under an insurance policy issued to appellee Rhonda R. Thomas for damages sustained by her husband, appellee Scott E. Thomas, in an accident with an underinsured motorist. Progressive relies on a named driver exclusion that listed Scott as an excluded driver. The district court granted the plaintiffs' motion for summary judgment on the coverage issue, concluding the exclusion did not apply to the underinsured motorist coverage of the policy. We disagree and therefore reverse the district court's ruling and remand for entry of judgment in favor of the defendant on Scott's claim.

I. Background Facts and Proceedings.

In 2004 Rhonda Thomas purchased an automobile liability insurance policy from Progressive. While this policy was in effect, her husband, Scott, was driving the insured vehicle when he was involved in an accident. Scott was injured, and the insurer of the other driver paid its policy limits to Scott. The Thomases, believing their damages exceeded their recovery from the other driver, sought payment from Progressive under the underinsured motorist (UIM) coverage of Rhonda's policy. Progressive denied coverage for Scott's claim because Scott was listed on a named driver exclusion that excluded coverage for any claim arising from Scott's operation of a motor vehicle.

The Thomases then filed this suit, seeking UIM benefits under the Progressive policy. In its answer, Progressive asserted it had no coverage for Scott's damages due to the named driver exclusion. Both parties filed motions for summary judgment on the coverage issue. The district court determined the named driver exclusion did not apply to the underinsured motorist coverage of the policy, but refused to rule the plaintiffs were entitled to recover under the policy as a matter of law because there was a genuine issue of material fact as to the degree of Scott's comparative fault and his damages.¹ Progressive filed an application for interlocutory appeal, which this court granted.²

II. Scope of Review.

Summary judgment rulings are reviewed for correction of errors of law. Lee v. Grinnell Mut. Reins. Co., 646 N.W.2d 403, 406 (Iowa 2002). "To obtain a grant of summary judgment on some issue in an action, the moving party must affirmatively establish the existence of undisputed facts entitling that party to a particular result under controlling law." Interstate Power Co. v. Ins. Co. of N. Am., 603 N.W.2d 751, 756 (Iowa 1999).

III. Governing Legal Principles.

In the present case, the pertinent facts are undisputed. The disagreement centers on the proper construction and interpretation of the insurance policy. The construction of an insurance policy is the process of determining the policy's legal effect; interpretation is the process of determining the meaning of the words used in the policy. See Hornick v. Owners Ins. Co., 511 N.W.2d 370, 371 (Iowa 1993). "When the parties offer no extrinsic evidence on the meaning of policy language, the interpretation and construction of an insurance policy are questions of law for the court." Lee, 646 N.W.2d at 406.

"In the construction of insurance policies, the cardinal principle is that the intent of the parties must control; and except in cases of ambiguity this is determined by what the policy itself says." A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 618 (Iowa 1991). "The test for ambiguity is an objective one: Is the language fairly susceptible to two interpretations?" Iowa Fuel & Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 863 (Iowa 1991). "Only when the policy language is susceptible to two reasonable interpretations do we find an ambiguity." Kibbee v. State Farm Fire & Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994). In determining whether a policy provision is subject to two equally proper interpretations, we read the insurance contract "`as an entirety rather than seriatim by clauses.' " Cairns v. Grinnell Mut. Reins. Co., 398 N.W.2d 821, 825 (Iowa 1987) (quoting Archibald v. Midwest Paper Stock Co., 176 N.W.2d 761, 763 (Iowa 1970)). Moreover, the court "avoids straining the words or phrases of the policy `to impose liability that was not intended and was not purchased.'" Id. at 824 (quoting Gateway State Bank v. N. River Ins. Co., 387 N.W.2d 344, 346 (Iowa 1986)).

"An insurer assumes a duty to define any limitations or exclusionary clauses in clear and explicit terms." Hornick, 511 N.W.2d at 374. Thus, when an exclusionary provision is fairly susceptible to two reasonable constructions, the construction most favorable to the insured will be adopted. Cairns, 398 N.W.2d at 824. Nonetheless, if there is no ambiguity, the court "will not `write a new contract of insurance'" for the parties. Id. (quoting Stover v. State Farm Mut. Ins. Co., 189 N.W.2d 588, 591 (Iowa 1971)).

Notwithstanding the principle that the plain meaning of an insurance contract generally prevails, this court has recognized that statutory law may also affect the interpretation and validity of policy provisions. Lee, 646 N.W.2d at 406. When a statute authorizes a contract of insurance, "`[t]he statute itself forms a basic part of the policy and is treated as if it had actually been written into the policy.' " Id. (quoting Tri-State Ins. Co. v. De Gooyer, 379 N.W.2d 16, 17 (Iowa 1985)). Consequently, when construing a contract provision that affects underinsured motorist coverage, we must review not only the language of the policy but the terms of the UIM statute, Iowa Code chapter 516A, as well. Hornick, 511 N.W.2d at 372.

IV. Interpretation of Policy.

A. Policy Provisions. Because exclusions must be interpreted in the context of the entire contract, we commence our analysis with a brief overview of the policy. The policy begins with a section entitled "general definitions." The contract then has five parts, with each part dedicated to a particular type of coverage. These coverages include "liability to others," "medical payments," "uninsured/underinsured motorist," "damage to a vehicle," and "roadside assistance." Each part contains an insuring agreement, additional definitions, exclusions, and other matters specific to that particular coverage. After the parts relating to these five coverages, the contract contains sections entitled "general provisions" and "named driver exclusion." The named driver exclusion provides:

If you have asked us to exclude any person from coverage under this policy, then we will not provide coverage for any claim arising from an accident or loss involving a motorized vehicle being operated by that excluded person. THIS INCLUDES ANY CLAIM FOR DAMAGES MADE AGAINST YOU, A RELATIVE, OR ANY OTHER PERSON OR ORGANIZATION THAT IS VICARIOUSLY LIABLE FOR AN ACCIDENT ARISING OUT OF THE OPERATION OF A MOTORIZED VEHICLE BY THE EXCLUDED DRIVER.³

The policy also contains a declarations page that shows Rhonda as a "Named insured" and Scott as an "excluded driver." In addition to the contract itself, a separate document entitled "Named Driver Exclusion Election" similarly states: "No coverage is provided for any claim arising from an accident or loss involving a motorized vehicle operated by an excluded person." Scott was identified as an excluded driver in this document, and the document was signed by Rhonda.⁴

B. Parties' Arguments. Progressive argues the exclusion is unambiguous and by its clear terms applies to "any claim arising from an accident or loss involving a motorized vehicle being operated by [the] excluded person." (Emphasis added.) The insurer points out it is undisputed Scott was an excluded person, he was operating a motorized vehicle at the time of the accident, and his claim arises from that accident.

The plaintiffs contend an ambiguity is created when one views in context the language upon which Progressive relies. They note the named driver exclusion is included in the general provisions section of the policy, not in the specific exclusions listed in the uninsured/underinsured motorist (UM/UIM) coverage part. They also rely on the second sentence of the exclusion, which specifically refers to coverage for vicarious liability, a claim falling within the liability coverage, but does not expressly mention the UM/UIM coverage. These circumstances, the plaintiffs argue, might lead an ordinary person to conclude the named driver exclusion affected liability coverage only, thus creating an ambiguity that should be resolved in favor of the insured.

C. Discussion. To address these arguments, we consider "what the policy itself says." A.Y. McDonald Indus., Inc., 475 N.W.2d at 618. The first sentence of the exclusion states: "If you have asked us to exclude any person from coverage under this policy, then we will not provide coverage for any claim arising from an accident or loss involving a motorized vehicle being operated by that excluded person." We agree with the insurer that this sentence, at least when considered in isolation, clearly and unambiguously excludes coverage for Scott's UIM claim. The word "you" is defined in the policy as the person shown as the named insured on the declarations page. For this policy, that person is Rhonda. There is no dispute that Rhonda asked the insurer "to exclude [a] person from coverage under this policy" and that person was Scott. It is also undisputed that the UIM claim asserted by Scott arose from an accident involving a motorized vehicle being operated by Scott, the excluded person.

It is significant there is no limiting language in the...