Vasquez v. LeMars Mut. Ins. Co.

• Decision Date: 20 November 1991
• Docket Number: No. 90-1536,90-1536
• Citation: 477 N.W.2d 404
• Parties: Robert Gerald VASQUEZ, Appellee, v. LEMARS MUTUAL INSURANCE COMPANY, Appellant.
• Court: Iowa Supreme Court

Page 404

477 N.W.2d 404

Robert Gerald VASQUEZ, Appellee, v. LEMARS MUTUAL INSURANCE COMPANY, Appellant.

No. 90-1536.

Supreme Court of Iowa.

Nov. 20, 1991.

William H. Roemerman of Crawford, Sullivan, Read, Roemerman & Brady, Cedar Rapids, for appellant.

H.P. Folkers and William J. Keen of Folkers & Keen, Mason City, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, LAVORATO, and SNELL, JJ.

LAVORATO, Justice.

An insured sued his insurer under two underinsured motorist policies. Following a jury determination in favor of the insured, the district court entered judgment for prejudgment interest according to Iowa Code section 535.3 (1983) rather than Iowa Code section 668.13. In addition, the court awarded prejudgment interest in excess of the combined limits of the policies. We affirm the district court's judgment in both instances.

I. Background Facts and Proceedings.

The following facts are gleaned from an "Agreed Statement of the Case" filed by the parties in this appeal. See Iowa R.App.P. 15(f).

Robert Gerald Vasquez sued LeMars Mutual Insurance Company on January 21, 1988. Vasquez's petition alleged the following. On July 16, 1984, Vasquez was injured while occupying a vehicle owned by Sheila Rae Peters. The Peters' vehicle was hit by a car owned by Ardith A. Wyborny and operated by Marcus Coty.

In addition, the petition alleged that Coty was negligent and was underinsured for this accident. Finally, the petition alleged that LeMars issued separate underinsured motorist policies to Peters and Vasquez and that Vasquez claimed damages under each policy.

In its answer and response to requests for admissions, LeMars admitted issuing the two policies and that each policy carried limits of $200,000.

LeMars asserted no exclusions. But it did dispute Coty's fault as alleged in the petition. LeMars also disputed the nature, extent, and cause of Vasquez's damages.

In a pretrial ruling, the district court determined that the two policies were cumulative and provided total available policy limits of $400,000. LeMars does not challenge this ruling.

At trial, there was no dispute about the policies or their limits. The parties stipulated that the policy limits for Wyborny and Coty were $50,000 and had been paid.

Under the district court's instructions, the jury was limited to determining the fault to be assigned to Coty and Vasquez, proximate cause, Vasquez's total damages, and what part of the total damages were future damages.

In the statement of the case, the district court told the jury the following:

In this case your duty is to determine the relative fault of [Vasquez] and [Coty] which contributed to [Vasquez's] injuries; and if required in accordance with these instructions and special verdict forms to determine damages, if any, sustained by [Vasquez]. Your determinations in this regard will establish whether [Coty] was an "underinsured motorist" under the terms of the insurance policies issued by [LeMars]. The terms and conditions of the insurance policies including limited coverage are not in dispute and therefore do not need to be considered by you in determining the issues set forth above.

The district court used the special verdict forms found in I Iowa Uniform Civil Jury Instructions 300.4 (1986) (single plaintiff-single defendant-comparative fault).

The jury assessed 100% of the fault to Coty and found Vasquez's total damages (without reduction for the Wyborny/Coty policy limits) were $500,000. The jury attributed $305,000 of this amount to future damages.

After trial, the district court entered judgment against LeMars for $400,000 "plus interest at the rate of ten percent per annum from and after the 21st day of January, 1988." Several days later LeMars moved to correct the judgment, challenging the district court's application of the interest provisions of section 535.3. LeMars insisted that the case was tried pursuant to our comparative fault statute, Iowa Code chapter 668. In these circumstances, LeMars argued, the court should have used section 668.13, the interest provision governing comparative fault cases.

In addition, LeMars challenged the district court's allowance of prejudgment interest in excess of the combined limits of the policies. LeMars pointed out that the underinsured motorist policies provide that "[t]he limit of liability shown in the schedule for this coverage [$200,000 on each policy or a total of $400,000] is our maximum limit of liability for all damages resulting from any one accident." LeMars argued that prejudgment interest is an element of damages covered by the policies and so is subject to the limits of liability--$400,000--stated in the policies.

Although the district court found LeMars' arguments persuasive, it was not convinced. The court overruled both grounds of the motion. It is from this ruling that LeMars appeals to this court. On appeal LeMars again raises the two issues raised in its motion to correct judgment filed in the district court.

This case was tried as a law action, and so our review is for correction of errors at law. See Iowa R.App.P. 4.

II. Interest.

A legal encyclopedia defines interest as "the compensation allowed by law, or fixed by the parties, for the use, detention, or forbearance of money or its equivalent." 45 Am.Jur.2d Interest and Usury § 1, at 15 (1969).

Interest is also considered in another sense: as an element of damages. In this sense interest

means compensation allowed by law as additional damages for the lost use of money during the time between the accrual of the claim and the date of the judgment. Such interest may be allowed in actions for breach of contract or tort for the unlawful detention of money found to be due. "Damages" in such a case include both the original debt or damages and whatever interest ought to be added to make a just verdict. Interest, as a part of damages, is allowed, not by application of arbitrary rules, but as a result of the justice of the individual case and as compensation to the injured party. This type of interest is frequently called "moratory interest."

22 Am.Jur.2d Damages § 648, at 709-10 (1988).

There is a difference between interest fixed by contract that is to be paid before breach and interest recoverable as damages after breach. Contract interest is recoverable strictly according to the terms of the contract. In contrast, when a contract is breached the "nondefaulting party has sustained a wrong for which the law gives him redress by way of damages, including, in many cases, interest for retention of the funds due on breach." Id., § 649, at 710-11. In addition a contract for interest ends at maturity unless there is an agreement to the contrary. In these circumstances, interest is allowed as damages after maturity. Id. at 711.

Iowa follows the general rule that interest runs from the time money becomes due and payable. Mrowka v. Crouse Cartage Co., 296 N.W.2d 782, 783 (Iowa 1980).

In 1980, section 535.3 was amended to allow prejudgment interest from the commencement of the action. See 1980 Iowa Acts ch. 1170, § 1. Before that date Iowa followed the rule that interest on an unliquidated claim did not run until the claim became liquidated. Mrowka, 296 N.W.2d at 783. "Liquidated" means the claim is certain and known. 22 Am.Jur.2d Damages § 652, at 713-14 (1988).

This court recognized one exception to the no interest rule on unliquidated claims: "in cases in which the entire damage for which recovery is demanded was complete at a definite time before the action was begun." Mrowka, 296 N.W.2d at 783. An action for wrongful death was one notable example of the exception. Id.

Personal injury actions, however, were not excepted. Id. So the general rule was that a personal injury never created a debt and did not become one until it was judicially ascertained and determined. Id. at 784. This was so even though certain damages--like medical expenses--might be fixed in amount and time of accrual before trial. The rule was likely based on practicalities. Future damages--like pain and suffering--were not so fixed. This technical distinction between past medical expenses and future damages would require separate awards on the various elements to be fixed by the jury, a procedure this court was probably not ready to accept.

In Mrowka, this court did, however, signal the beginning of the end for the common law principle of no interest on unliquidated damages:

Finally, we note that the 1980 amendment to section 535.3, The Code 1979 (see 2 Iowa Legislative Service 146 (1980), providing that "interest [on all money due on judgments and decrees] shall accrue from the date of the commencement of the action,") apparently will mandate a change in our existing common law and uniform instructions.

Mrowka, 296 N.W.2d at 785.

Against this backdrop, we turn first to the section 535.3 issue and then to the prejudgment interest issue.

III. The Section 535.3 Issue.

As the district court properly noted, this issue is a narrow one: Is the interest to be awarded on the judgment to be governed by section 535.3 or section 668.13?

As we mentioned, section 535.3 was amended in 1980 to allow prejudgment interest. The statute now provides:

Interest shall be allowed on all money due on judgments and decrees of courts at the rate of ten percent per year, unless a different rate is fixed by the contract on which the judgment or decree is rendered, in which case the judgment or decree shall draw interest at the rate expressed in the contract, not exceeding the maximum applicable rate permitted by the provisions of section 535.2, which rate must be expressed in the judgment or decree. The interest shall accrue from the date of the commencement of the action.

This section does not apply to the award of interest for judgments and decrees subject to section 668.13.

Iowa Code § 535.3 (1991) (emphasis added).

The 1980 amendment did two things. It changed the interest rate on...