Opinion ID: 1817011
Heading Depth: 1
Heading Rank: 2

Heading: The Effect of the Consent-to-Settle Clause in the USF & G Policy.

Text: In seeking to save the judgment in its favor should the claim of issue preclusion fail, USF & G relies on the clause in its policy requiring its consent to any settlement with a tortfeasor. We held in Kapadia v. Preferred Risk Mutual Insurance Co., 418 N.W.2d 848 (Iowa 1988), that such clauses are not contrary to the provisions of Iowa Code chapter 516A and are not against public policy. We cautioned, however, that such clauses may only be invoked if prejudice to the insurer can be demonstrated. Kapadia, 418 N.W.2d at 852. The theory of prejudice relied on in both the Kapadia case and the present case is that the insured's action cut off the insurer's subrogation rights against the tortfeasors. We agree with USF & G that in this regard the acceptance of the offer to confess judgment was the equivalent of a settlement for purposes of its policy clause. Since our decision in Kapadia, we have decided the case of In re Estate of Rucker, 442 N.W.2d 113 (Iowa 1989). That case did not involve a consent-to-settle clause, but rather dealt with a policy requirement that the insured must first exhaust the policy limits of the tortfeasor's liability policy before resort may be had to that party's own underinsured motorist coverage. We held that this requirement was against public policy. We concluded in Rucker that the unexhausted portion of the tortfeasor's liability policy is only a pro tanto credit to be applied against the total amount of loss established against the underinsured motorist insurer rather than a complete defense. We think that a similar result should prevail as to an underinsured motorist insurer's claim of prejudice from the insured's release of a potential subrogation claim. The insurer must establish not only that the claim has been released but also that it was collectible and establish within a reasonable approximation the dollar amount that might be collected. In seeking to obtain summary judgment based on its consent-to-settle clause, USF & G relied on deposition testimony and other discovery revealing the extent of the Sextons' nonexempt personal assets. The fact that these assets exist does not establish USF & G's right to summary judgment. A factual issue remains as to the amount that could be realized from these assets toward the satisfaction of a subrogation judgment USF & G might obtain had the administrator not released the insurer's subrogation rights. That is the amount that, along with the $300,000 unexhausted limit of the Sextons' insurance, should be applied as a pro tanto reduction of USF & G's liability for the administrator's damages above $350,000. We are also convinced that the determination of what the insurer might recover from the tortfeasor on a subrogation claim must be made as reasonably close as possible to the time the insurer's subrogation interest would have arisen if not released by the insured. Evidence obtained at the discovery stage of the present litigation may be stale for purposes of resolving that issue. For all of these reasons, we conclude that summary judgment was improperly granted as to both appellees. The judgment of the district court is reversed, and the case is remanded to that court for further proceedings not inconsistent with this opinion. REVERSED AND REMANDED.