Waits v. United Fire & Cas. Co., 96-937

CourtUnited States State Supreme Court of Iowa
Writing for the CourtTERNUS
Citation572 N.W.2d 565
PartiesLori Gail WAITS, Appellee, v. UNITED FIRE & CASUALTY CO., Appellant.
Docket NumberNo. 96-937,96-937
Decision Date24 December 1997

Page 565

572 N.W.2d 565
Lori Gail WAITS, Appellee,
No. 96-937.
Supreme Court of Iowa.
Dec. 24, 1997.

Page 568

David L. Phipps and John F. Fatino of Whitfield & Eddy, P.L.C., Des Moines, for appellant.

R. Ronald Pogge and Hugh J. Cain of Hopkins & Huebner, P.C., Des Moines, for appellee.


TERNUS, Justice.

Appellee, Lori Gail Waits, brought this action to recover underinsured motorist benefits under an automobile liability policy issued to her by appellant, United Fire & Casualty Company. In response to a special interrogatory, the jury found Waits had sustained damages of $178,616.78 as a result of the underinsured motorist's negligence. After reducing the verdict in an amount equal to the settlement payment received by Waits from the underinsured motorist, the court entered judgment against United Fire for $88,318.92, and interest. United Fire appealed. We hold the trial court abused its discretion in admitting evidence of the amount of Waits' settlement with the tortfeasor, and so we reverse and remand for a new trial.

I. Background Facts and Proceedings.

Waits was injured on February 15, 1992, when the vehicle she was driving was struck by a car driven by Theresa Fay. The accident occurred on a residential street in Knoxville, Iowa shortly before 1:00 a.m. Waits observed Fay's vehicle coming toward her in Waits' lane of travel, and in an attempt to avoid a collision, drove her car over the right curb and up on the sidewalk. Despite Waits' evasive action, Fay struck Waits' vehicle on the driver's side, causing extensive damage to Waits' automobile. Waits sustained a low back injury in the accident and eventually had surgery to remove a herniated disc.

At the time of the collision, Fay was insured by Allied Mutual Insurance Company. Waits was insured by United Fire under a policy providing underinsured motorist benefits. Waits reached a settlement with Allied, who agreed to pay its remaining policy limits, $90,297.86, to settle Waits' claim against Fay. (A portion of the limits had already been paid to settle other claims.) United Fire consented to this settlement.

Waits then brought this action to recover the $100,000 limits of the underinsured motorist (UIM) coverage in United Fire's policy. Prior to trial, United Fire stipulated to the following: (1) Fay was 100% at fault in causing the automobile accident; (2) Waits was covered by a policy of insurance issued by United Fire and containing underinsured motorist coverage; (3) the limits of the underinsured motorist coverage were $100,000; and (4) Waits had received the full amount available to her under Fay's insurance policy. Both parties agreed the jury would simply determine the total amount of Waits' damages caused by Fay; the court would then deduct the Allied payment from the jury's verdict and enter judgment for the difference, subject to United Fire's UIM limits.

The case was submitted to the jury on a special interrogatory, asking it to itemize the damages sustained by Waits in the collision with Fay. The jury set Waits' total damages at $178,616.78. The court then reduced this figure by the amount paid by Allied, entering judgment against United Fire for $88,318.92, plus interest. United Fire filed this appeal.

United Fire seeks reversal of the judgment, claiming the trial court erred or abused its discretion in several ways: (1) in striking United Fire's affirmative defense of release and satisfaction; (2) in admitting testimony regarding how the accident occurred; (3) in admitting evidence of and instructing the jury regarding the amount of Waits' settlement with the underinsured motorist; and (4) in giving an "eggshell plaintiff" instruction. Because we think United Fire's third assignment of error requires reversal of the judgment, we consider that issue first. We will discuss additional facts as they relate to the matters at issue.

II. Tortfeasor's Settlement Payment.

Prior to trial, United Fire filed a motion in limine to exclude evidence of Allied's policy limits and the settlement amount paid by Allied to Waits on behalf of the tortfeasor,

Page 569

claiming (1) this information was not relevant to any issue before the jury, and (2) any limited relevance of this evidence was outweighed by its prejudicial impact. 1 The court ruled the challenged evidence was admissible.

At trial, Waits introduced into evidence the amount paid by Allied to settle Waits' claim against Fay. Additionally, the trial court stated the amount of this settlement three separate times in its instructions to the jury: once in its statement of the case, a second time in an instruction telling the jury not to reduce its verdict by the amount of the tortfeasor's settlement because the court would do that later, and a third time in the special interrogatory, again telling the jury to calculate Waits' damages "[w]ithout taking into consideration any reduction of damages due to the previous recovery of $90,297.86." United Fire preserved its challenge to this evidence and the court's instructions by making timely objections.

A. Scope of review. "We review the trial court's determination of the relevancy of this evidence for an abuse of discretion." Iowa Mut. Ins. Co. v. McCarthy, 572 N.W.2d 537, 544 (Iowa 1997). The party claiming an abuse of discretion must show "that the court exercised [its] discretion on grounds or for reasons clearly untenable or to an extent clearly unreasonable." State v. Maghee, 573 N.W.2d 1, 5 (Iowa 1997). One way in which a ground or reason is shown to be clearly untenable is when it is not based on substantial evidence or is based on an erroneous application of the law. See City of Windsor Heights v. Spanos, 572 N.W.2d 591, 592 (Iowa 1997).

We review a trial court's instructions for correction of legal error. See McCarthy, 572 N.W.2d at 545. An erroneous instruction does not entitle the party claiming error to reversal unless the error was prejudicial. See Grefe & Sidney v. Watters, 525 N.W.2d 821, 824 (Iowa 1994).

B. Principles of relevancy and unfair prejudice. Relevant evidence means "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Iowa R. Evid. 401. Even relevant evidence should not be admitted when "its probative value is substantially outweighed by the danger of unfair prejudice." Iowa R. Evid. 403. Unfair prejudice arises when the evidence prompts the jury to make a decision on an improper basis, often an emotional one. See State v. Casady, 491 N.W.2d 782, 786 (Iowa 1992); see also 2 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence p 403[i][c], at 403-37 to 403-39 (Joseph M. McLaughlin ed., 2d ed.1997) (defining prejudicial evidence as "[e]vidence that appeals to the jury's sympathies[,] ... arouses [its] sense of horror[,] ... provokes [its] instinct to punish[,] ... [or] triggers other intense human reactions").

C. Relevancy. Waits argues the payment made by Allied on behalf of the tortfeasor is relevant in this case because

[t]he issues in the underlying trial were not only the amount of damages sustained by Lori Waits, but whether the Defendant had breached this insurance agreement by refusing to pay benefits to her to which she was entitled. To prove that, Waits must prove the extent of her damages and that they exceed $90,297.86. Thus, the amount paid by the tortfeasor is relevant....

Waits' argument ignores the manner in which this case was submitted to the jury. Although Waits certainly had to prove that her damages exceeded $90,297.86 before she would be entitled to recover under the policy, that issue was not disputed by either party and therefore was not submitted to the jury; the calculation of Waits' recovery was left to the court. The only issue before the jury was the amount of damages sustained by Waits as a result of Fay's fault. Waits has

Page 570

not suggested how Allied's decision to pay its policy limits is relevant to that issue.

Waits' reliance on our decision in Leuchtenmacher v. Farm Bureau Mutual Insurance Co., 461 N.W.2d 291 (Iowa 1990), is misplaced. In Leuchtenmacher, the administrator of the insured's estate brought suit against the decedent's underinsured motorist carrier, seeking to recover UIM benefits. 461 N.W.2d at 292. Prior to trial, the plaintiff settled with the tortfeasor for the tortfeasor's liability limits of $55,000. Id. On appeal from a judgment entered against the insurance company for the limits of the UIM coverage, the insurer argued the trial court erred in admitting evidence of the tortfeasor's liability limits. Id. This court held evidence of the insurance limits was admissible to "prove the existence of the insurance contract and its terms." Id. at 294. We said, "Any direct claim against an insurer on a contract dispute necessarily involves introduction of the insurance policy and its terms." Id. at 294-95.

This case is distinguishable from Leuchtenmacher. There is no discussion in the Leuchtenmacher opinion with respect to any stipulations by the UIM insurer, so we assume that all elements of the insured's UIM claim were at issue. Consequently, it was incumbent upon the insured in Leuchtenmacher to prove the terms of the contract and the insured's entitlement to recover pursuant to those terms, including the amount paid by the tortfeasor and damages in excess of this figure. That situation does not exist here because United Fire did not contest the existence of the policy or its terms or the fact that Waits was entitled to recover the amount by which her damages, as determined by the jury, exceeded the tortfeasor's payment. Thus, the payment made by Allied was not relevant to any disputed issue of fact upon which the jury was to make a determination. See Johnson v. State Farm...

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