Scott E. Thomas And Rhonda R. Thomas Vs. Progressive Casualty Insurance Company

IN THE SUPREME COURT OF IOWA
No. 23 / 06–1094
Filed May 16, 2008
SCOTT E. THOMAS and RHONDA R. THOMAS,
Appellees,
vs.
PROGRESSIVE CASUALTY INSURANCE COMPANY,
Appellant.
Appeal from the Iowa District Court for Pottawattamie County,
Greg W. Steensland, Judge.
Insurer appeals from summary judgment ruling determining
underinsured motorist coverage applied to excluded driver’s damage
claim. REVERSED AND REMANDED.
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.
2
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
3
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
1The precise basis of the district court’s coverage decision is not clear. The court
noted that Scott claimed the exclusion was “ambiguous” and alternatively that “public
policy demands coverage for him under the underinsured motorist provisions of the
policy.” The court discussed both theories together, concluding they were “inextricably
intertwined.” After a short discussion of Iowa’s UIM statute, the court ruled:
In order to comply with the dictates of Chapter 516A of the Iowa
Code and at the same time be clear and unambiguous, exclusions should
very clearly state which coverages within the policy it intends to exclude
certain persons from. Progressive has not done that in this case and this
Court concludes that coverage under the underinsured motorist
provisions of the policy must apply to Scott under the undisputed facts
of this case.
2We do not address the insurer’s liability under the UIM coverage for Rhonda’s
loss-of-consortium claim, as that issue is not raised on appeal.
4
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
5
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
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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
3Terms defined in the policy appear in boldface. The all-capital-letters emphasis
is also found in the policy. In subsequent quotations of the exclusion in this opinion,
we have eliminated the boldface as well as the emphasis supplied by using all capital
letters.
4The complete contents of this document follows:
You have named the following persons as excluded drivers under this
policy:
SCOTT THOMAS Date of Birth: 9/17/74
No coverage is provided for any claim arising from an accident or loss
involving a motorized vehicle operated by an 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.
I understand and agree that this Named Driver Exclusion election shall
apply to this policy and any renewal, reinstatement, substitute,
amended, altered, modified, or replacement policy with this company or
any affiliated company, unless a named insured revokes this election.
Signature of Named Insured Date
[signed by Rhonda Thomas] 8-3-04
7
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.
8
It is significant there is no limiting language in the first sentence of
the exclusion that would indicate an intent that the exclusion does not
apply to claims brought under the UM/UIM coverage. To the contrary,
the exclusion encompasses “any claim.” We have previously held that
the use of the word “any” in a statute “means all or every.”5 State v.
Bishop, 257 Iowa 336, 341, 132 N.W.2d 455, 458 (1965); accord Lopez v.
Dairyland Ins. Co., 890 P.2d 192, 195 (Colo. Ct. App. 1994) (interpreting
word “any” in named driver exclusion to “mean[] ‘every,’ ‘all,’ ‘the whole
of,’ and ‘without limit’ ” (quoting Webster’s Third New International
Dictionary 97 (1986)); State Farm Auto. Ins. Co. v. Kiehne, 641 P.2d 501,
502 (N.M. 1982) (interpreting word “any” in named driver exclusion to
mean “without limit”). The word “claim” means “a demand for
compensation, benefits or payment.” Webster’s Third New International
Dictionary 414 (unabr. ed. 2002). See generally Iowa Comprehensive
Petroleum Underground Storage Tank Fund Bd. v. Farmland Mut. Ins. Co.,
568 N.W.2d 815, 818 (Iowa 1997) (stating that in searching for the
ordinary meaning of a policy term, “we often look to dictionaries”).
Giving the words in the contract their ordinary meaning, we think the
first sentence of the named driver exclusion clearly encompasses the UIM
5Cases interpreting language in statutes are persuasive authority in interpreting
contractual language. In both situations, the court strives to determine intent, the
legislature’s intent in the case of a statute and the parties’ intent in the case of a
contract. See A.Y. McDonald Indus., Inc., 475 N.W.2d at 619 (stating with respect to
contracts of insurance that “the cardinal principle is that the intent of the parties must
control”); State v. Bishop, 257 Iowa 336, 339, 132 N.W.2d 455, 457 (1965) (stating “[t]he
first principle in construing a statute” is that “the courts search for legislative intent as
shown by what the legislature said”). Additionally, in both contexts the words of the
statute or contract are given their ordinary meaning in the absence of a definition in the
statute or contract. See State v. Muhlenbruch, 728 N.W.2d 212, 214 (Iowa 2007) (“In
the absence of a legislative definition, words in a statute are given their ordinary
meaning.”); Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v.
Farmland Mut. Ins. Co., 568 N.W.2d 815, 818 (Iowa 1997) (“When a policy term is not
defined in the policy, . . . we give the term its ordinary meaning.”).
9
claim asserted by Scott, unless other provisions in the policy give rise to
an ambiguity. See Progressive N. Ins. Co. v. Schneck, 813 A.2d 828, 831
(Pa. 2002) (holding nearly identical exclusion of “ ‘any claim’ . . .
unambiguously operates to bar recovery of UIM benefits under policy
when driver is excluded”); cf. Nelson v. Progressive Cas. Ins. Co., 162 P.3d
1228, 1234 (Alaska 2007) (holding nearly identical policy language
“plainly indicates that any claim arising from [the excluded driver’s]
operation of the automobile is not covered,” including negligent
entrustment claim against the named insured); O’Brien v. Dorrough, 928
P.2d 322, 325–26 & n.10 (Okla. Civ. App. 1996) (holding similar
exclusion excluding coverage for “any loss” was “clear and unambiguous”
and excluded coverage for UM claims even though such claims were not
expressly mentioned in the exclusion).
We turn now to the plaintiffs’ contention that the exclusion is
ambiguous when considered in context. The plaintiffs assert the second
sentence of the exclusion clouds the meaning of the first sentence. They
argue that, when the two sentences are read together, the “clear
meaning” of the exclusion is that it “applies only when the excluded
person is liable for an accident.” Based on the ordinary meaning of the
words used in the named driver exclusion, we do not think this provision
is subject to the interpretation suggested by the plaintiffs.
The second sentence of the exclusion states: “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.” As the plaintiffs
acknowledge, this sentence addresses vicarious liability claims arising
out of the excluded driver’s operation of a motorized vehicle. The
sentence begins with the words “this includes.” The word “this,” which
10
immediately follows the first sentence of the exclusion, obviously refers to
the exclusion set forth in the preceding sentence. Thus, the exclusion
described in the first sentence “includes” vicarious liability claims arising
out of the excluded driver’s operation of a motor vehicle. See Webster’s
Third New International Dictionary 1143 (defining “include” as “to take in,
enfold, or comprise as a discrete or subordinate part or item of a larger
aggregate, group, or principle”). We agree with the insurer that the
second sentence of the exclusion clarifies that, when Scott Thomas is the
driver, coverage of “any claim” is excluded, not only for Scott, but for
others who are alleged to be vicariously liable.
The plaintiffs point out, if the first sentence of the exclusion is
interpreted to be all-inclusive, the second sentence is superfluous. In
light of the insurer’s duty to define “exclusionary clauses in clear and
explicit terms,” Hornick, 511 N.W.2d at 374, we doubt that the clarifying
language of the second sentence could properly be considered
superfluous. In any event, notwithstanding our desire to interpret a
policy so as not to render any part superfluous, “we will not do so when
that [interpretation] is inconsistent with the structure and format of the
[provision] and when that [interpretation] is otherwise unreasonable.”
Kibbee, 525 N.W.2d at 869. In the named driver exclusion, the first
sentence unambiguously excludes “any claim” arising out of the excluded
driver’s operation of a motor vehicle. The second sentence clearly states
that this exclusion “includes” claims of vicarious liability. To interpret
the second sentence as limiting the scope of the first sentence to only
instances when the excluded driver is liable would result in a strained
and unnatural interpretation of the contractual language. See id. at
868–69 (“We do not indulge in a strained or unnatural interpretation of
policy language merely to find ambiguity.”).
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For these reasons, we conclude the second sentence of the named
driver exclusion cannot reasonably be interpreted as a limitation on the
exclusion of “any claim” as stated in the first sentence of the provision.
See Nelson, 162 P.3d at 1234–35 (holding second sentence of a nearly
identical exclusion did not limit the scope of the exclusion).
Consequently, the second sentence of the exclusion does not create an
ambiguity. See id. at 1234 (holding exclusion was not ambiguous). To
the contrary, the second sentence confirms the broad scope of the
exclusion stated in the first sentence by expressly stating that the
exclusion “includes” claims of vicarious liability asserted against persons
other than the excluded driver.
The plaintiffs claim an ambiguity also arises from the fact that the
named driver exclusion is placed at the end of the policy rather than in
the UM/UIM coverage part. But the placement of the exclusion after the
“general provisions” of the policy is entirely consistent with an
interpretation of the exclusion as applying to “any claim,” regardless of
the specific coverage under which the claimant seeks to recover. If, in
fact, the exclusion applies only to the liability coverage, as plaintiffs
contend, it is more logical that the exclusion would have been placed in
the policy part for “liability to others.” We do not think the location of
the exclusion supports an interpretation limiting the exclusion to the
liability coverage. See Rockford Mut. Ins. Co. v. Econ. Fire & Cas. Co., 576
N.E.2d 1141, 1144–45 (Ill. App. Ct. 1991) (holding location of named
driver exclusion in endorsement did not make it ambiguous; exclusion
applied to “all coverage afforded by [the] policy,” including the UM
coverage).
In summary, we hold the named driver exclusion is unambiguous.
By the plain meaning of its terms, this provision excludes coverage for
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any claim that arises from the excluded driver’s operation of a motor
vehicle, including underinsured motorist claims. Cf. Castaneda v.
Progressive Classic Ins. Co., 166 S.W.3d 556, 561 (Ark. 2004) (holding
nearly identical named driver exclusion “was plain and unambiguous”
and excluded claim brought under UM coverage); Kiehne, 641 P.2d at
502 (holding named driver exclusion excluding “any kind” of liability was
“clear and unambiguous” and excluded coverage for UM claim even
though UM coverage was not specifically mentioned in the exclusion).
V. Effect of Underinsured Motorist Statute.
Having determined the policy unambiguously excludes coverage for
UIM claims arising from Scott’s operation of a motor vehicle, we must
now consider whether that interpretation is inconsistent with Iowa’s
underinsured motorist statute. The plaintiffs claim the “Named Driver
Exclusion Election” signed by Rhonda does not satisfy the statutory
requirement that UIM coverage be rejected in writing. In addition, they
contend the public policy evidenced by the UIM statute is violated by the
named driver exclusion.
A. Compliance with Chapter 516A. Iowa Code section 516A.1
requires that automobile liability policies issued in this state include
uninsured and underinsured motorist coverage “for the protection of
persons insured under such policy.” Iowa Code § 516A.1 (2001).
“However, the named insured may reject [some or all of such coverages],
by written rejections signed by the named insured.” Id. “If rejection is
made on a form or document furnished by an insurance company, . . . it
shall be on a separate sheet of paper which contains only the rejection
and information directly related to it.” Id. The plaintiffs argue the
statutory rejection requirement was not satisfied because the separate
13
writing signed by Rhonda Thomas did not clearly state which coverages
were excluded.
Before we address this issue, however, we must determine whether
Progressive was obligated to provide UIM coverage to Scott so as to
trigger the written-rejection requirement. As this court observed in
Hornick, we have adopted the “prevailing view” that “persons who must
be insured by the underinsured motorist insurance are those who are
protected by the liability coverage.” 511 N.W.2d at 373 (citing Kats v.
Am. Family Mut. Ins. Co., 490 N.W.2d 60, 62 (Iowa 1992)); accord Iowa
Code § 516A.1 (providing underinsured motorist coverage is only
required “for the protection of persons insured under such policy”). In
Kats, the named insured signed an amendment to his automobile
liability policy that added a named driver exclusion listing his stepson.6
490 N.W.2d at 62. We concluded the stepson was not otherwise insured
under the policy “because of the specific exclusion for the [stepson].” Id.
Therefore, we held the insurer was not required to provide UIM coverage
for the stepson. Id.
The same result is required here. Like the stepson in Kats, Scott
was specifically excluded from coverage by the named driver exclusion.
Because Scott had no liability coverage under the policy, Progressive was
not required to offer UIM coverage to him. See id. Therefore, section
516A.1 does not require a written rejection of UIM coverage as a
condition of Progressive’s exclusion of Scott from UIM coverage. See
6The exclusion in Kats provided:
This policy does not apply under any of the coverages to any
vehicle in the care, custody, or control of, or while operated by Mulder,
Keith A. or any other person with his or her permission or at his or her
direction.
Kats, 490 N.W.2d at 62.
14
Castaneda, 166 S.W.3d at 563 (Imber, J., concurring) (stating because
statute required UM coverage “only when there is liability coverage” and
since named insured’s son, who was driving vehicle at time of accident,
was subject of named driver exclusion, insurer was not required to
obtain a rejection of coverage).
B. Public Policy. The plaintiffs argue that, even if the insurance
policy excludes UIM coverage for Scott when he is operating a motorized
vehicle, the contract should not be enforced because to do so would
violate the public policy underlying section 516A.1. “We have stated that
the term ‘public policy’ is not susceptible of an exact definition, but ‘a
court ought not enforce a contract which tends to be injurious to the
public or contrary to the public good.’ ” Principal Cas. Ins. Co. v. Blair,
500 N.W.2d 67, 69 (Iowa 1993) (quoting Walker v. Am. Family Mut. Ins.
Co., 340 N.W.2d 599, 601 (Iowa 1983)).
“[P]ublic policy” is not determined by this court’s “generalized
concepts of fairness and justice” or our determination of
what might be most just in a particular case. “ ‘We must
look to the Constitution, statutes, and judicial decisions of
[this] state, to determine [our] public policy and that which is
not prohibited by statute, condemned by judicial decision,
nor contrary to the public morals contravenes no principle of
public policy.’ ”
Claude v. Guaranty Nat’l Ins. Co., 679 N.W.2d 659, 663 (Iowa 2004)
(quoting Harvey v. Care Initiatives, Inc., 634 N.W.2d 681, 686 (Iowa 2001)
and In re Marriage of Witten, 672 N.W.2d 768, 780 (Iowa 2003)). “ ‘The
power to invalidate a contract on public policy grounds must be used
cautiously and exercised only in cases free from doubt.’ ” Grinnell Mut.
Reins. Co. v. Jungling, 654 N.W.2d 530, 540 (Iowa 2002) (quoting
DeVetter v. Principal Mut. Life Ins. Co., 516 N.W.2d 792, 794 (Iowa 1994)).
The plaintiffs assert section 516A.1 evidences a public policy that
all automobile insurance policies include UIM coverage unless rejected
15
by the named insured. The public policy underlying the UIM statute is
not so broad, however. As we have discussed, this court has consistently
recognized that section 516A.1 requires UIM coverage only for persons
“who are protected by the liability coverage.” Hornick, 511 N.W.2d at
373. Here, Scott is not protected by the liability coverage, and therefore,
chapter 516A does not require that he be protected by the UIM coverage.
Consequently, the public policy of chapter 516A is not thwarted by
enforcement of the named driver exclusion. Cf. Lopez, 890 P.2d at 196
(holding public policy of UM statute not violated by exclusion of UM
coverage for passenger of vehicle driven by excluded driver); Gheae v.
Founders Ins. Co., 854 N.E.2d 419, 422–23 (Ind. Ct. App. 2006) (holding
named driver exclusion eliminating liability coverage as well as UM
coverage did not contravene UM statute because statute required UM
coverage “only if the claimant otherwise qualifies for liability coverage
under the policy”).
The plaintiffs also contend that, because Scott would arguably
have been covered under the UIM provision had he been a pedestrian, it
does not further the purpose of UIM protection to deny coverage when he
is the victim of an underinsured motorist. They claim it should not
matter whether he was a pedestrian or a driver. But that distinction is at
the core of the public interest underlying named driver exclusions.
States that have upheld the validity of named driver exclusions note
such exclusions further
[the] public policy of protecting all potential claimants from
damages resulting from automobile accidents by enabling
drivers with family members having poor driving records to
procure affordable insurance, rather than obtaining coverage
from an assigned risk pool at a greater cost or not securing
insurance at all.
16
St. Paul Fire & Marine Ins. Co. v. Smith, 787 N.E.2d 852, 858 (Ill. App. Ct.
2003) (citing cases from Delaware, Oklahoma, Texas and Utah).
Importantly, these exclusions also deter “insured drivers from entrusting
their vehicles to unsafe excluded drivers which [keeps] those unfit drivers
off the road.” Id.
Requiring coverage of an excluded driver whenever the excluded
driver is not at fault (an after-the-fact determination) would encourage
such unfit drivers to take a chance driving, hoping they would not drive
negligently, rather than deterring them from driving. Not only would the
deterrent effect of the exclusion be undermined, the general public would
be put at greater risk. Under the plaintiffs’ argument, if an excluded
driver is in an accident while operating a motor vehicle and is not at
fault, the excluded driver will have uninsured or underinsured coverage
for his damages. Unfortunately, if the excluded driver is at fault, victims
of his fault will not be so fortunate. In that instance, the exclusion
would apply, so there would be no liability coverage for damages
sustained by the unfit driver’s victims and the public policy of protecting
potential claimants from such drivers would be undermined. We
question whether it is in the public interest to “rewrite” the named driver
exclusion in such a way that more protection is provided to the excluded
driver than to the general public. Because the exclusion as written
promotes the public policy underlying named driver exclusions, we will
not invalidate it or restrict its application as urged by the plaintiffs. See
O’Brien, 928 P.2d at 324, 326 (refusing to limit named driver exclusion to
instances when named driver was negligent, rejecting argument that
applying exclusion to UM coverage violated public policy); Schneck, 813
A.2d at 832 (holding identical exclusion was consistent with “public
policy of cost containment and consumer choice” evidenced by statutory
17
scheme that tied UIM coverage to liability coverage and authorized
named driver exclusions).
Finally, we note that our legislature has implicitly authorized
named driver exclusions in automobile insurance policies issued in Iowa,
apparently in recognition of the public value of such exclusions. Section
515D.4 provides:
A person shall not be excluded from the [automobile
insurance] policy unless the exclusion is based on one or
more of the following reasons, or is agreed upon by both the
named insured and the insurer . . . .
Iowa Code § 515D.4(2) (emphasis added). Significantly, section
515D.4(2) allows the parties to an insurance contract to exclude a person
“from the policy.” (Emphasis added.) The statutory authorization is not
limited to the liability coverage of the insurance policy. Thus, our
legislature has made a policy decision that exclusions such as the one at
issue here are not contrary to the public good.
In view of the legislature’s authorization of named driver exclusions
and its decision to require UIM coverage only for drivers protected by the
liability coverage of the policy, we conclude the named driver exclusion in
Progressive’s policy does not violate the public policy of this state. See
Schneck, 813 A.2d at 834 (holding nearly identical exclusion “did not
violate public policy,” noting “there is no clear legislative pronouncement
of public policy requiring UM/UIM coverage for a named driver
exclusion”). Therefore, we reject the plaintiffs’ argument that the
exclusion is unenforceable.
VI. Summary and Disposition.
The named driver exclusion is unambiguous and excludes
coverage for Scott’s underinsured motorist claim arising out of his
operation of a motorized vehicle. Enforcement of the exclusion under the
18
circumstances before us does not violate Iowa’s underinsured motorist
statute and is not contrary to public policy.
The district court erred in granting summary judgment to Scott
Thomas and in denying summary judgment to Progressive on Scott’s
claim. We reverse the district court’s summary judgment ruling and
remand this case to the district court for entry of summary judgment in
favor of Progressive on Scott Thomas’s claim.
REVERSED AND REMANDED.