Opinion ID: 2066521
Heading Depth: 1
Heading Rank: 4

Heading: Is the language of the uninsured motorist coverage endorsement ambiguous?

Text: Although we have upheld family member exclusions in insurance policies, we have never before addressed the validity of a family member exclusion in conjunction with language that reduces UM coverage to an amount specified by statute. Before addressing the merits of the issue presented in this case, we believe it helpful to first review the applicable statutory provisions and relevant portions of the insurance policy.
Iowa Code section 516A.1 requires that motor vehicle liability insurance policies contain uninsured motorist coverage at least in the amount stated in section 321A.1(10) unless expressly rejected by the named insured. [1] Thus, the UM coverage amounts resulting from section 321A.1(10) are $20,000 per person and $40,000 per accident. Debra and Paul Krause, as named insureds, did not reject UM coverage.
The declarations page of the policy lists the limits for UM coverage at $100,000 for each person and $300,000 for each accident. By virtue of endorsements to the policy, however, IMT has attempted to reduce the limits of UM coverage in the event that the policy provides no liability coverage for any insured concerning a claim for bodily injury to another insured or any family member. The separate endorsement to the uninsured motorist coverage portion of the policy states in pertinent part: If Uninsured Motorists Coverage is payable because liability coverage for your covered auto under Part A of the policy is excluded for damages sustained in the accident: 1. That part of the limit of liability shown for each person for Uninsured Motorists Coverage in the Declarations that does not exceed the limit specified in the financial responsibility law of Iowa, is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of bodily injury sustained by any person in any one accident. 2. Subject to this limit of each person, that part of the limit of liability shown in the Declarations for each accident for Uninsured Motorists Coverage that does not exceed the limit specified in the financial responsibility law of Iowa is our maximum limit of liability for all damages arising out of bodily injury resulting from any one accident. (Emphasis added.) IMT suggests that the above reference to the financial responsibility law of Iowa is to Iowa Code section 321A.1(10), which establishes the statutorily required amounts of liability at $20,000 per person and $40,000 per accident. Under the policy language, IMT contends that because the family member exclusion eliminates any liability coverage to Paul, making him an uninsured driver, the amount of UM coverage available to Debra under the policy for her claim against Paul is reduced from the amounts specified on the declarations page to the amounts specified in Iowa Code section 321A.1(10), i.e., from $100,000 to $20,000 per person, and from $300,000 to $40,000 for each accident.
Because insurance policies are in the nature of adhesive contracts, we construe their provisions in a light most favorable to the insured. A.Y. McDonald Indus. v. Insurance Co. of N. Am., 475 N.W.2d 607, 619 (Iowa 1991). 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. Id. at 618. In deciding whether the endorsement language reducing the uninsured motorist coverage was enforceable, the district court considered whether the language was ambiguous. The court noted the rule that [p]olicy ambiguity exists when, after application of principles of contract interpretation, a genuine uncertainty remains as to which one of two or more meanings is the proper one. See Kibbee v. State Farm Fire & Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994). Following this analysis, the district court concluded that the UM endorsement language was ambiguous, not because it believed there were multiple possible interpretations of the policy language, but because it believed a layperson would not understand that the phrase financial responsibility law of Iowa used in the UM endorsement refers to Iowa Code chapter 321A. The court also believed a layperson would not understand that the liability limits specified in section 321A.1(10) would be the applicable limits of UM coverage in the event that there was no liability coverage due to the family member exclusion. Upon our consideration of the language of the policy as a whole, including the declarations page and attached endorsements, see Ferguson v. Allied Mut. Ins. Co., 512 N.W.2d 296, 299 (Iowa 1994) (in construing insurance policies, court considers effect of policy as a whole, in light of all declarations, riders, or endorsements), we conclude that the district court incorrectly determined that the language of the UM coverage endorsement is ambiguous. We believe the endorsement plainly states that when there is no liability coverage available to an insured, because the family member exclusion is triggered, then the amount of uninsured motorist coverage available to an insured under the policy is reduced or limited. The amount of UM coverage available to Debra under the policy is reduced to the limit specified in the financial responsibility law of Iowa, or from $100,000 to $20,000 for injuries to one person. This is the only reasonable interpretation of the language; it is not susceptible to multiple meanings or interpretations. Cf. Georgia Farm Bureau Mut. Ins. Co. v. Burch, 222 Ga.App. 749, 476 S.E.2d 62, 63 (1996) (family member exclusion that limited liability coverage for bodily injury to the extent the limits of liability ... exceed the limits of liability required by [Georgia] law held not to violate public policy); Universal Underwriters Ins. Co. v. Hill, 24 Kan.App.2d 943, 955 P.2d 1333, 1336-37 (1998) (holding that although step-down provision and language in addendum to auto insurance policy that limited liability for permissive users to limits required by Kansas law might be stylistically inelegant, language was not ambiguous because a reasonable person would not be misled as to the policy limits for permissive users); Pribble v. State Farm Mut Auto. Ins. Co., 933 P.2d 1108, 1113 (Wyo.1997) (household exclusion that limited liability coverage for bodily injury to the limits of liability required by [Wyoming] law, and did not identify specific limits of coverage was not ambiguous; exclusion language was not ambiguous simply because insured had to refer to statutory law to understand the language of the exclusion). The fact that the parties disagree as to the proper amount of uninsured motorist benefits does not mean that the policy language itself is ambiguous. See Morgan v. American Family Mut. Ins., 534 N.W.2d 92, 99 (Iowa 1995) (court will not give a strained or unnatural reading to the words of the policy to create ambiguity where there is none); Cairns v. Grinnell Mut. Reinsurance Co., 398 N.W.2d 821, 824 (Iowa 1987) (ambiguity does not exist merely because provision could have been worded more clearly or precisely than it was). We recognize that the UM endorsement does not identify a code section where the applicable limits of coverage may be found or the specific amounts of coverage, but instead simply refers to the limit specified in the financial responsibility law of Iowa. While the absence of a specific code section or monetary amount may make the language of the endorsement vague, this fact does not mean that the endorsement language is susceptible to multiple interpretations, which is the standard that Debra must meet in order to have the policy language declared ambiguous and thus unenforceable. If anything, the absence of a specific code section or monetary amount relates more to the issue of reasonable expectations of the insured which will be discussed below. We also point out that the endorsement language does not seek to reduce the availability of uninsured motorist coverage to plaintiff below the amounts required by sections 516A.1 and 321A.1(10). Cf. Joffer, 574 N.W.2d at 311 (owned-but-not-insured exclusion upheld where potential for duplication of benefits was clear and enforcing the exclusion did not leave the insureds without coverage equal to the statutorily required minimum amount); see also Gray v. Midland Risk Ins. Co., 925 P.2d 560, 562-63 (Okla.1996) (owned-but-not-insured exclusion in policy reducing liability for bodily injury to Oklahoma statutory limits was enforceable); American Nat'l Fire v. Farmers Ins., 927 P.2d 186, 191-92 (Utah 1996) (step-down provision limiting liability coverage for guest drivers to the amount required by the Idaho Financial Responsibility Law, which did not specify actual amount, was enforceable); 7 Am.Jur.2d Automobile Insurance § 251, at 849, 851 (1997) (discussing cases upholding family member exclusions in automobile insurance policies to extent they did not eliminate the minimum statutory coverage required). But cf. Cullum v. Farmers Ins. Exch., 857 P.2d 922, 927 (Utah 1993) (policy provision reducing liability coverage to limits of the Financial Responsibility Law, but not specifying monetary amount, was not enforceable because it violated Utah statute which prohibits incorporation of provisions not appearing in the insurance contract or in documents attached to the policy). We conclude that the district court erred in refusing to enforce the UM policy endorsement language based on its finding that the uninsured motorist endorsement was ambiguous.