Opinion ID: 1917296
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Heading: Effect of Underinsured Motorist Statute.

Text: 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 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 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 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. St. Paul Fire & Marine Ins. Co. v. Smith, 337 Ill.App.3d 1054, 272 Ill.Dec. 666, 787 N.E.2d 852, 858 (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 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.