Trask v. Iowa Kemper Mut. Ins. Co.

• Decision Date: 15 December 1976
• Docket Number: No. 2--57250,2--57250
• Citation: 248 N.W.2d 97
• Parties: James E. TRASK, Appellant, v. IOWA KEMPER MUTUAL INSURANCE COMPANY, Appellee.
• Court: Iowa Supreme Court

Page 97

248 N.W.2d 97

James E. TRASK, Appellant, v. IOWA KEMPER MUTUAL INSURANCE COMPANY, Appellee.

No. 2--57250.

Supreme Court of Iowa.

Dec. 15, 1976.

Levinson & Enabnit, Mason City, for appellant.

Patterson, Lorentzen, Duffield, Timmons, Irish & Becker, Des Moines, for appellee.

Heard by MOORE, C.J., and MASON, UHLENHOPP, HARRIS and McCORMICK, JJ.

UHLENHOPP, Justice.

The pivotal question in this appeal is whether a liability insurer acted in bad faith in not accepting a third-party offer to settle for the policy limit. Two lawsuits are involved, the original damage action and the present one for the excess over the amount of the policy.

A truck driven by plaintiff James E. Trask collided with a car insured by defendant Iowa Kemper Mutual Insurance Company. Trask sustained personal juries. The driver of the car died in the collision. Trask sued Kemper's insureds for $96,000 for personal injuries, and the truck owner sued them for property damage. The insureds--the car driver's personal representative and the car owner--sued Trask and the truck owner for substantial damages for the death of the car driver and for property damage. The parties tried these claims together. Prior to trial of that lawsuit Trask offered to take $25,000 in settlement. Kemper did not accept the offer. In that lawsuit Trask obtained judgment for $37,000 against Kemper's insureds, and the jury denied the claims of the insureds. We affirmed the judgment. Trask v. Gibbs, 200 N.W.2d 565 (Iowa). Kemper paid $25,000 on the judgment.

Trask's execution for the balance was returned unsatisfied, and he thereupon sued Kemper for $12,000--the present action for the excess. On Kemper's motion at the conclusion of Trask's evidence, the trial court directed a verdict for Kemper on two bases: (1) Kemper's insureds own any claim for excess against Kemper, and (2) Trask did not introduce substantial evidence that Kemper acted in bad faith in handling the Trask claim.

Trask appealed, asserting that the two bases are untenable.

I. Trask's Right to Sue. Trask claims he is entitled to sue for the excess under our direct action statute, § 516.1, Code 1975:

All policies insuring the legal liability of the insured, issued in this state by any company, association or reciprocal exchange shall, notwithstanding any other provision of the statutes, contain a provision providing that, in event an execution on a judgment be returned unsatisfied in an action by a person who is injured or whose property is damaged, the judgment creditor shall have a right of action against the insurer To the same extent that such insured could have enforced his claim against such insurer had such insured paid such judgment.' (Italics added.)

This statute constituted a part of the policy. 43 Am.Jur.2d Insurance § 289 at 350; 44 C.J.S. Insurance § 302 at 1214.

Kemper asserts any excess claim belongs to its insureds, and Trask did not acquire such claim by levy and sheriff's sale or in any other manner.

Kemper is right as a matter of common law. See Steffens v. American Standard Ins. Co., 181 N.W.2d 174 (Iowa). But the legislature could cut across the procedural steps; it could provide that a third party need not go through a procedure such as levy and sale but may sue the insurer directly not only for the policy amount but also for the excess. This appears to be what our legislature did by the statutory language that the judgment creditor shall have a right of action against the insurer 'to the same extent that such insured could have enforced his claim against such insurer . . ..' The legislature used the unrestricted words 'his claim,' not his claim 'under the policy.' We see no basis for adding the latter three words by judicial decision. Giving the words 'his claim' their ordinary meaning, they would encompass the amount of any excess the insured is entitled to recover. We hold Trask properly sued under the direct action statute. See Koppie v. Allied Mut. Ins. Co., 210 N.W.2d 844 (Iowa); Greer v. Mid-West Nat'l Fire & Cas. Ins. Co., 434 F.2d 215, n. 2 (8 Cir.); Kleinschmit v. Farmers Mut. Hail Ins. Assn., 101 F.2d 987 (8 Cir.); Turgeon v. Shelby Mut. Plate Glass & Cas. Co., 112 F.Supp. 355 (D.Conn.); Auto Mut. Indem. Co. v. Shaw, 134 Fla. 815, 184 So. 852. In suing under the statute, Trask proceeded on a claim of the insureds against Kemper which the statute permits him to enforce. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1176.

The trial court erred in upholding the first ground of Kemper's motion to direct a verdict in Trask's suit for the excess.

II. Bad Faith. We do not follow the scintilla rule; Trask had to introduce substantial evidence that Kemper acted in bad faith in handling the Trask claim. Ellingson v. Kramer, 255 Iowa 1257, 125 N.W.2d 777. We proceed to examine the evidence on liability and damages in Trask's original damage claim against Kemper's insureds as well as the conduct of the parties with respect to that claim.

As to liability of Kemper's insureds on Trask's damage claim, the evidence shows that Trask was driving a truck on a highway protected by stop signs. Kemper's insured driver drove the car in question onto the highway and a collision occurred. The jury could find that the car driver failed to stop or yield. The exact place of collision was in dispute--either near the side of the highway where the insured entered or farther into the intersection. The district court in the collision case submitted to the jury negligence charges against the insured of failure to have control, failure to keep a lookout, and failure to stop and to yield. Against Trask, the district court submitted negligence charges of failure to have control, failure to keep a lookout, and excessive speed, but refused to let the insureds amend to allege Trask was negligent in failing to sound his horn. We upheld the district court in denying the insureds permission to amend. Trask v. Gibbs, supra, 200 N.W.2d 565 (Iowa).

As to Trask's injuries from the collision, the record shows that Trask had an existing arthritic condition, probably from prior accidents. Prior to the present events, Trask was in a motor vehicle accident in 1952 and sustained a low back sprain; in another one in 1956 and sustained a brain concussion, neck sprain, and fracture of the spinous processes of the sixty and seventh vertebrae; in a third one in 1958 and sustained a neck and shoulder sprain; and in a fourth one in 1966 and sustained a neck sprain. He had two other accidents but the injuries apparently were of no moment.

In the instant collision Trask received no fractures but sustained a brain concussion, a concussion of the left hip, and concussion and abrasions of the right elbow. He was hospitalized six to eight days, part of the time in Dubuque and part in Mason City, Iowa. His injuries cleared up except for head and neck ache and tingling in a thumb and finger. The ache was severe and persisted to time of trial of the damage case in August 1970. He was unable to work as a trucker up to the time of trial in 1970, and his medical expenses amounted to $1515.43. His physician had released him only for light work at time of trial. The physician opined that the collision aggravated pre-existing arthritis in the midcervical spine, a permanent condition. He thought that 'the accident at least was a factor in the degree of progression of the arthritis.' See Woode v. Kabela, 256 Iowa 622, 128 N.W.2d 241. As to the future, the physician did not expect surgery. He testified that Trask would be under a doctor's care for another six to eighteen months, and would have expense for drugs and office calls from $75 to $200.

Kemper retained competent counsel in the damage action, Reynolds, Kenline, Roedell, Breitbach & McCarthy, of Dubuque. Those counsel notified Kemper's insureds that Trask's action exceeded policy limits and that the insureds might have their own counsel. The insureds elected to have the Reynolds firm defend and present the insureds' own claims. That firm thoroughly investigated the case and also employed a reconstruction expert. The expert gave the opinion that the insured driver did not stop for the stop sign; that Trask could have been driving from 30 to 50 miles per hour and the insured from 10 to 35 miles per hour; and that if Trask thought the insured was going to stop because of low speed, he did not have time to react by the time he realized the insured was not going to stop.

The Reynolds firm kept the insureds advised throughout. No indication appears of dissatisfaction by the insureds with the Reynolds firm's conduct of the case or of any action by the insureds to collect the excess from Kemper. The insureds concurred in Kemper's not accepting Trask's offer to take $25,000.

After its investigation of the case, the Reynolds firm evaluated the Trask claim and concluded that an issue existed as to Trask's contributory negligence. During trial the firm made Trask an offer of $10,000 on Kemper's behalf. Presumably this offer would also have required Kemper's insureds to give up their...