Opinion ID: 1647455
Heading Depth: 1
Heading Rank: 3

Heading: The Section 535.3 Issue.

Text: As the district court properly noted, this issue is a narrow one: Is the interest to be awarded on the judgment to be governed by section 535.3 or section 668.13? As we mentioned, section 535.3 was amended in 1980 to allow prejudgment interest. The statute now provides: Interest shall be allowed on all money due on judgments and decrees of courts at the rate of ten percent per year, unless a different rate is fixed by the contract on which the judgment or decree is rendered, in which case the judgment or decree shall draw interest at the rate expressed in the contract, not exceeding the maximum applicable rate permitted by the provisions of section 535.2, which rate must be expressed in the judgment or decree. The interest shall accrue from the date of the commencement of the action. This section does not apply to the award of interest for judgments and decrees subject to section 668.13. Iowa Code § 535.3 (1991) (emphasis added). The 1980 amendment did two things. It changed the interest rate on judgments and decrees from seven percent to ten percent per year. It also added language to section 535.3, advancing the interest accrual date to the date the action was commenced. We recently had this to say about the amendment: One of the primary purposes for the amendment to section 535.3 was to prevent persons obligated to pay money to another from profiting through delays in litigation. The statute is intended to discourage delay in trials and appeals. In general, prejudgment interest is not awarded as a penalty, but rather it reflects the lost value of the use of the money awarded. In re Marriage of Baculis, 430 N.W.2d 399, 401 (Iowa 1988) (citations omitted). In another recent case we left no doubt but that section 535.3 permits prejudgment interest on future damages: [The defendant] strenuously argues that allowing interest to accrue from the date of commencement of the action on those portions of the judgment compensating [the plaintiff] for its lost profits and future expenses is unfair. In the case of lost profits, [the plaintiff] will receive prejudgment interest on money to which it had no claim of right at the commencement of the action; in the case of future expenses, [the plaintiff] will receive prejudgment interest on money which it has not yet spent. Notwithstanding these complaints, we are bound to respect the plain language of Iowa Code section 535.3. Perhaps it is only rough justice, but application of the statute's plain language will nevertheless further its goal of preventing persons rightfully obligated to pay money to another from profiting through delays in litigation. Mercy Hosp. v. Hansen, Lind & Meyer, P.C., 456 N.W.2d 666, 674 (Iowa 1990). In 1987 the legislature fine-tuned the law on prejudgment interest in comparative fault cases. See 1987 Iowa Acts ch. 157, § 8 (now codified as Iowa Code section 668.13). Section 668.13 provides: Interest shall be allowed on all money due on judgments and decrees on actions brought pursuant to this chapter, subject to the following: 1. Interest, except interest awarded for future damages, shall accrue from the date of the commencement of the action. 2. If the interest rate is fixed by a contract on which the judgment or decree is rendered, the interest allowed shall be at the rate expressed in the contract, not exceeding the maximum rate permitted under section 535.2. 3. Interest shall be calculated as of the date of judgment at a rate equal to the coupon issue yield equivalent, as determined by the United States secretary of the treasury, of the average accepted auction price for the last auction of fifty-two week United States treasury bills settled immediately prior to the date of the judgment. The state court administrator shall distribute notice monthly of that rate and any changes to that rate to all district courts. 4. Interest awarded for future damages shall not begin to accrue until the date of the entry of the judgment. 5. Interest shall be computed daily to the date of the payment, except as may otherwise be ordered by the court pursuant to a structured judgment under section 668.3, subsection 7. 6. Structured, periodic, or other non-lump-sum payments ordered pursuant to section 668.3, subsection 7, shall reflect interest in accordance with annuity principles. (Emphasis added.) As reflected in the italicized language, section 668.13 does four things. First, the legislation is a special statute pertaining to comparative fault cases only. Second, interest on tort judgments begins to run from the commencement of the action except in the case of future damages. So in this regard section 535.3 and section 668.13(1) treat interest on liquidated claims the same. Third, prejudgment interest is not allowed on future damages or unliquidated claims. This represents a significant departure from section 535.3. Last, the interest rate is a variable one. This also is a significant departure from section 535.3. Section 668.13 applies to all causes of action accruing on or after July 1, 1987, and those accruing before July 1, 1987, which are filed on or after September 15, 1987. See 1987 Iowa Acts ch. 157, § 11. This action accrued on July 16, 1984, but was filed on July 21, 1988. So these time limits do not bar the application of section 668.13 to this case. Turning to the immediate issue, we think the determination whether section 535.3 or section 668.13 controls depends on the language brought pursuant to this chapter in section 668.13. Section 668.13 by its terms includes only actions brought pursuant to chapter 668. Conversely, the language excludes any action to which chapter 668 has no application. Our conclusion is fortified by the last sentence of section 535.3 which was added by 1987 Iowa Acts ch. 157, § 1. It reads: This section does not apply to the award of interest for judgments and decrees subject to section 668.13. (Emphasis added.) As already mentioned, the language of section 668.13 came out of the same piece of legislation. We think this underscores a legislative intent that the interest provisions in chapters 668 and 535 be mutually exclusive. Chapter 668 is triggered by any claim involving the fault of more than one party to the claim. Iowa Code § 668.3(2); Johnson v. Junkmann, 395 N.W.2d 862, 867 (Iowa 1986). Fault is broadly defined to encompass many types of tort claims, including those submitted in this case: negligence as to Vasquez and Coty, and unreasonable failure to avoid injury or an unreasonable failure to mitigate damages as to Vasquez. See Iowa Code § 668.1. A party on the other hand is strictly limited to (1) a claimant; (2) a person named as a defendant; (3) a person who has been released from liability by the claimant; or (4) a third-party defendant. See Iowa Code § 668.2. Here the claim is essentially a contractual one. Vasquez (the insured) sued LeMars (the insurer) for breach of the insurance policies. Recently, we recognized that an underinsured claim may be founded on contract. Veach v. Farmers Ins. Co., 460 N.W.2d 845, 849 (Iowa 1990). We also recognized that the measure of recovery for an underinsured claim is for unpaid damages for personal injury resulting from a motor vehicle accident where the amount the insured person is legally entitled to recover against the owner of the underinsured motor vehicle exceeds such owner's bodily injury policy limit. Id. In the present case, the district court wisely noted this blend of contract and tort principles: In the underinsured claim context, one sees a striking example of an intricate and interdependent meld of contract and tort principles. Although plaintiff's claim is brought upon the contract of insurance, in order to determine liability under such policy, resort must be had to traditional tort principles of fault as modified by chapter 668. However, traditional tort principles are not all that may be or are relied upon to base a claim under the underinsured motorist policy. Plaintiff must still prove the existence of coverage and in the bringing of such claim faces the possibility of a myriad of contract defenses which may be brought by its insurer. In this case, defendant stipulated to the existence of the insurance policies and the only remaining issue left for the jury's determination was plaintiff's underinsured status under the policy. To simply focus upon the determination of plaintiff's underinsured status in this case where all other aspects of the contract were admitted and characterize plaintiff's claim as sounding in tort would, in the opinion of this court, amount to ignoring the true nature of plaintiff's claim to recover on this contract of insurance. The parties to this underinsured claim are, of course, Vasquez and LeMars. To be sure, Vasquez had to prove that Coty was at fault. This was an element of Vasquez's underinsurance claim against LeMars. LeMars could have escaped liability under the policies by proving Vasquez was more than fifty percent at fault. See Iowa Code § 668.3. The underlying tort claim involved Vasquez, who was injured, and Coty, who allegedly injured him in a negligent manner. Had Vasquez sued Coty on the tort claim and had the fault of each been placed in issue as it was in this case, chapter 668 would have applied. This is so because of the provisions of section 668.3(2) (claim involving the fault of more than one party to the claim). Under this provision we would have a claim [Vasquez's] involving the fault [negligence] of more than one party to the claim [Vasquez and Coty]. Iowa Code § 668.3(2); see Junkmann, 395 N.W.2d at 867-68 (using similar analysis where the defendant's fault and a released party's fault were placed in issue but plaintiff's fault was not). In contrast, the claim here is contractual. The parties to this claim are Vasquez and LeMars. Only Vasquez's fault has been placed in issue. So we do not have a claim involving the fault of more than one party to the claim as section 668.3(2) requires. At most we have a claim (contract) involving the fault (negligence) of only one party (Vasquez) to the claim. Simply put, the underinsured motorist claim did not trigger chapter 668 because the requirements of section 668.3(2) were not met. We hold therefore that Vasquez's underinsured motorist claim against LeMars was not brought pursuant to chapter 668. We conclude the district court correctly determined that section 535.3 and not section 668.13 controlled the application of interest on the judgment.