Opinion ID: 1842845
Heading Depth: 1
Heading Rank: 6

Heading: Binding Effect of the Judgment.

Text: The final issue on appeal is whether American Family may relitigate the issue of tort liability and damages. The district court passed upon the issue after finding there was no UM coverage under the policy. Because we determine there was coverage, we address the issue presented and preserved by American Family at trial. We begin by turning to the language of the insurance policy. Under the uninsured motorist provision, American Family was obligated to pay damages for bodily injury which the insured is legally entitled to recover from the uninsured motorist or owner. Petersen argues the prior default judgment obtained against Adcock establishes her legal entitlement to recover and requires American Family to pay the damages specified in the judgment pursuant to the terms of the policy. American Family attempts to avoid the policy language by relying upon the doctrines of res judicata and collateral estoppel. It argues the prior judgment obtained by Petersen against Adcock cannot be used against it because it was not a party to the action and had no duty to defend Adcock, had inadequate notice of the proceedings, and the judgment did not constitute an actual litigation of the same issues that would be presented in an uninsured motorist claim. American Family relies secondarily on the policy provision requiring the insured to give notice of any suit against the uninsured motorist and to obtain the insurer's written consent to be bound by any resulting judgment. In considering the binding effect of the judgment, we are mindful that the issue is presented only in the context of an action to enforce the UM provisions of an insurance policy requiring the insurer to pay the insured damages which the insured is legally entitled to recover from the uninsured motorist. Consequently, the binding effect of the tort judgment at issue in this case is not necessarily governed by the doctrine of res judicata and collateral estoppel; the language of the contract between the parties is the primary source of the parties' respective rights. See generally 2 Widiss § 28.12, at 553-54. If an insured establishes legal entitlement to damages against an uninsured motorist, then the insurer is contractually obligated to pay the insured the damages as specified in the insurance policy. An insured generally satisfies the legally entitled to recover condition of UM coverage when a valid judgment has been entered against the uninsured motorist. [3] See Mizer v. State Auto. & Cas. Underwriters, 195 N.W.2d 367, 371 (Iowa 1972); see also Handley v. Farm Bureau Mut. Ins. Co., 467 N.W.2d 247, 250 (Iowa 1991) (stating in dicta that an insurer may be bound by a determination of damages in a trial against a tortfeasor). Although a valid judgment can establish a legal entitlement to recover for the purposes of UM coverage, the UM coverage provisions impose other conditions that could require relitigation of the issues of liability and damage in a claim for UM benefits. First, the policy in this case limits recovery to bodily injury caused by accident and aris[ing] out of the use of the uninsured vehicle. Second, the policy requires the insured to notify the insurer of a suit against an uninsured motorist to determine liability or damages, and further provides that the insurer is not bound by any judgment without its consent to the suit. Initially, we recognize that some of the damages awarded under the judgment represent bodily injuries suffered by Petersen that were not covered under the policy. Although the most serious injuries arose from the use of the vehicle, the initial injuries from the assault did not arise from the use of the vehicle. Thus, the damages awarded under the judgment cannot be used to establish the damages under the policy. The remaining question is whether the issue of liability must also be relitigated based on the claim by American Family of inadequate notice. (Because we find this issue dispositive, we do not consider the effect of the policy's consent-to-sue provision.) It is generally recognized that a notice-of-suit clause in a UM policy of insurance is enforceable by the insurer and that the insurer is not bound by a judgment in a tort action against an uninsured motorist if the insurer did not receive adequate notice of the suit. See generally 2 Widiss § 28.12, at 545-58. Notice to the insurer is needed to give the insurer the opportunity to seek intervention in the tort action so that it can protect its potential interests and prevent any collusive judgments. It would also make it more likely for the parties to reach a resolution of all issues in a single proceeding. The parties in this case agree that notice was given, but dispute whether it was timely and adequate under the circumstances. The district court made no findings on the issue and the stipulated facts and other documents submitted to the district court did not address the circumstances bearing on the adequacy or inadequacy of the notice provided. Moreover, there was no evidence concerning the issue of prejudice to the insurer. When provisions of an insurance policy establish conditions precedent to coverage, an insured must show substantial compliance with [those] conditions. Simpson v. United States Fid. & Guar. Co., 562 N.W.2d 627, 631 (Iowa 1997). However, the failure to comply with the condition can be excused if it does not result in prejudice to the insurer. Id. at 631-32. The record in this case is insufficient to establish substantial compliance with the notice provision. Notice to an insurer of a pending lawsuit against an uninsured tortfeasor after entry of judgment on liability would ordinarily be inadequate to fully protect the interests of the insurer, and the minimal record in this case does not allow a contrary conclusion or a conclusion that the insurer was not prejudiced by the notice provided. Accordingly, American Family is entitled to a declaratory judgment that the default judgment entered against Adcock is not binding on American Family.