Court Opinion

ID: 4249892
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:21:50.635593+00
Date Added: 2024-06-11T14:44:17.396573
License: Public Domain

IN THE SUPREME COURT OF IOWA
                                No. 07–0101

                            Filed July 31, 2009

JAMES B. WILSON,

      Appellant,

vs.

FARM BUREAU MUTUAL INSURANCE COMPANY,

      Appellee.

      Appeal from the Iowa District Court for Muscatine County, David H.

Sivright, Jr., Judge.

      Appeal and cross-appeal of district court calculation of judgment and

interest. AFFIRMED AS MODIFIED; REMANDED WITH INSTRUCTIONS.

      Sara L. Riley of Tom Riley Law Firm, Cedar Rapids, for appellant.

      Brian C. Ivers, Patrick L. Woodward, and Heather L. Carlson of

McDonald, Woodward & Ivers, P.C., Davenport, for appellee.
                                             2

CADY, Justice.

       This is the second appeal in the second lawsuit to arise from a motor

vehicle accident in which an automobile struck and killed a pedestrian. In

the first lawsuit, the pedestrian’s estate sued the driver of the automobile

and a jury awarded damages. In this second lawsuit, the estate is seeking

underinsured motorist benefits from the decedent’s insurer. Our decision in

the   first   appeal    in   this   second   lawsuit   determined   the    decedent’s

underinsured motorist insurer could not relitigate the issue of damages in

this second lawsuit, and we remanded for proceedings consistent with our

opinion.      On remand, the district court entered a judgment reflecting an

offset for previous payments by the decedent’s insurer and awarded interest.

Both parties appealed. We affirm the judgment but remand for modification

of both the offset and the interest award.

       I. Background Facts and Proceedings.

       Lily Wilson was struck by a car while walking across a road to collect

mail from her mailbox. Tragically, she died later the same day from injuries

suffered in the accident.

       Wilson’s estate sued the driver of the motor vehicle, and a jury

awarded the estate $159,795.31 in the lawsuit against the driver. The award

included $7906.81 for interest on reasonable burial expenses, $6888.50 for

medical expenses, and $145,000 for loss of parental consortium. The jury

found Wilson to be twenty percent at fault for the accident.                 The jury

instructions, given by the trial court without objection, informed the jury

Wilson’s damages would not be reduced by her fault.                       Despite the

instructions, the district court reduced a portion of the jury’s award by

twenty percent and entered judgment for $127,836.24.

       The estate moved to amend the judgment based on the unchallenged

jury instruction.      Prior to a ruling, the tortfeasor’s insurer paid its policy
                                           3

limits of $100,000 in exchange for satisfaction of the judgment. The district

court, realizing its error and attempting to correct it, subsequently granted

the motion and amended the judgment to $156,836.25. 1

       Wilson’s estate then demanded payment of $56,836.25 along with

prejudgment      and   postjudgment       interest   from    Farm    Bureau     Mutual

Insurance Company, Wilson’s insurer, under the underinsured motorist

provision of the policy of insurance. Farm Bureau offered $22,000 in full

settlement, which the estate rejected.

       As a result, the estate sued Farm Bureau for breach of the insurance

contract. Cross-motions for summary judgment were directed to the issue of

whether Farm Bureau was precluded from relitigating the issue of damages.

Ultimately, we held in a previous appeal that Farm Bureau was bound by the

original judgment of $127,836.24, and we remanded. See Wilson v. Farm

Bureau Mut. Ins. Co., 714 N.W.2d 250, 263 (Iowa 2006).

       On remand, the estate requested the district court to enter judgment.

The district court entered a judgment against Farm Bureau for $27,836.24

“together with interest as allowed by law” and costs on July 3, 2006. After

Farm Bureau objected to the judgment, the district court amended the

judgment on December 19, 2006. The amended judgment is the basis of the

present appeal. The district court explained the judgment in a seven-page

ruling filed December 19, 2006, addressing two primary issues affecting

calculation of the judgment.

       First, the district court considered the effect of a pretrial $5000

payment for medical expenses by Farm Bureau to Wilson’s estate.                     The

payment represented the policy limits of the “medical payment coverage”

       1The   amended judgment reflected the district court’s belief that the interest on
reasonable burial expenses and medical expenses should be reduced by Wilson’s fault, but
the loss-of-consortium damages should not be reduced.
                                      4

provision of Wilson’s insurance contract with Farm Bureau.        The medical

payment coverage provision provided that any medical payment coverage

paid would be applied to reduce any payment later owed under the

underinsured motorist provision of the insurance contract.        The district

court held Farm Bureau’s argument that the judgment must be offset by the

$5000 medical coverage payment was a claim for subrogation. As a result,

the district court held Iowa Code section 668.5(3) (2001) required the

“subrogation” claim to be reduced by the twenty percent comparative fault

assigned to Wilson by the jury. Nonetheless, the district court held Farm

Bureau was entitled to a $5000 offset because the reduction of Wilson’s

$6888.50 in medical expenses by her twenty percent fault still exceeded

$5000. The district court further held Farm Bureau was responsible, as a

subrogee, to pay the estate a prorated share of the attorney fees and

expenses incurred in obtaining the jury verdict against the underinsured

motorist. The district court held Farm Bureau’s share of attorney fees was

$1666.67, with expenses of $121.47.

      Second, the district court calculated the interest owed by Farm

Bureau. The court held Farm Bureau was responsible for all interest the

estate could have recovered from the tortfeasor.      The court held interest

began to accrue on the date the underlying tort lawsuit was filed against the

tortfeasor according to Iowa Code section 668.13, and the “aggregated

award” (presumably the jury award plus interest from the date of the

underlying tort suit) in turn accumulated interest from the date of judgment

in the tort suit according to Iowa Code section 535.3(1). Finally, the district

court suspended the accrual of interest during the pendency of the first

appeal of this second lawsuit, resuming on the date of our ruling in the first

appeal.
                                        5

      Both parties appealed from the judgment.         The estate argues the

district court erroneously failed to reduce Farm Bureau’s offset for medical

payment coverage below $5000, erred in its method of deducting the offset,

and incorrectly suspended postjudgment interest. Farm Bureau argues the

offset for the payment of $5000 under the medical payments coverage

provision is a contractual offset, not subject to subrogation principles, and it

should not have been reduced by comparative fault or by a pro rata share of

attorney fees and expenses.       Farm Bureau also argues the district court

erred in its award of interest.

      II. Standard of Review.

      The parties agree these legal issues should be reviewed for errors of

law. Iowa R. App. P. 6.907 (2009). We have previously reviewed interest

issues for errors of law. Opperman v. Allied Mut. Ins. Co., 652 N.W.2d 139,

142 (Iowa 2002); Wilson v. IBP, Inc., 589 N.W.2d 729, 730 (Iowa 1999).

      III. Subrogation and Offsets.

      Farm Bureau acknowledges it is responsible for the amount of

damages not recovered by Wilson’s estate from the driver of the automobile

that struck and killed Wilson. The estate concedes Farm Bureau is entitled

to offset from that amount some portion of the $5000 previously paid by

Farm Bureau under the medical payment coverage provision of the

insurance contract.    The estate maintains, however, the $5000 offset is a

subrogation interest and should be reduced according to two different

principles applicable to subrogation interests.

      The estate first points to the axiom “that the rights of a subrogee are

the same as, but no greater than, those of the person for whom the subrogee

is substituted.” Employers Mut. Cas. Co. v. Chicago & N.W. Transp. Co., 521

N.W.2d 692, 696 (Iowa 1994). Relying on that principle, the estate argues

Farm Bureau’s rights as a subrogee can be no greater than Wilson’s rights,
                                       6

for whom it is substituted.      Consequently, as the argument goes, Farm

Bureau’s subrogation interest must be reduced by Wilson’s twenty percent

comparative fault.

      Second, the estate argues the offset should be reduced by a pro rata

share of attorney fees and expenses attributable to Farm Bureau. The estate

points to Iowa Code section 668.5(3), which is part of our comparative fault

statute and requires, in comparative fault cases, “contractual or statutory

subrogated persons shall be responsible for a pro rata share of the legal and

administrative expenses incurred in obtaining the judgment or verdict.” The

principle is also an equitable one applicable in all subrogation contexts.

Principal Cas. Ins. Co. v. Norwood, 463 N.W.2d 66, 68 (Iowa 1990)

(recognizing the insurer should pay pro rata attorney fees and expenses

because it “ ‘should not be entitled to enjoy the fruits of the assured’s

judgment against a tortfeasor without contributing in any way to the costs or

burdens of litigating that claim’ ” (quoting Hedgebeth v. Medford, 378 A.2d

226, 230 (N.J. 1977))).    Farm Bureau argues both of those principles are

inapplicable because Farm Bureau is not a subrogee; in other words, the

offset is not a subrogation interest but a contractual one.

      Our cases have previously discussed subrogation rights, including in

the insurance context. “Subrogation is a doctrine that originated in equity to

give relief to a person or entity that pays a legal obligation that should have,

in good conscience, been satisfied by another.” Allied Mut. Ins. Co. v. Heiken,

675 N.W.2d 820, 824 (Iowa 2004). “Subrogation refers to both a legal right

and a legal action.”      Id. at 824 n.1.   “The term comes from the Latin

‘subrogare,’ which means to substitute or put in place of another.” Id. The

subrogee’s rights are derivative of the rights held by the insured against the

tortfeasor. Id. at 824. In the insurance context, the doctrine permits “an

insurer who has paid a loss to an insured to become ‘subrogated in a
                                       7

corresponding amount to the insured’s right of action against any other

person responsible for the loss.’ ” Id. (quoting 6A John A. Appleman & Jean

Appleman, Insurance Law and Practice § 4051, at 103 (rev. ed. 1972)).

Subrogation rights often arise by contract, but even when the insurance

contract does not explicitly provide for them, “[t]he insurer’s right to

subrogation attaches by operation of law upon payment of the loss based on

principles of equity.” Id. at 824–25 n.2.

      Because the subrogated insurer is being substituted for the insured

for reasons of contract or equity, the subrogated insurer’s rights are “subject

to all defenses the tortfeasor could assert against the insured.” Id. at 825.

The estate relies on this principle to argue Farm Bureau’s right to set off the

previously paid medical expenses should be reduced by Wilson’s twenty

percent fault. Apparently, the argument is that the estate would have no

right to the entire $5000 in medical expenses against the tortfeasor because

Wilson was twenty percent at fault.

      The argument asserted by the estate ignores the basis for the offset in

this case.   This case does not arise from any of the typical subrogation

contexts. This is not a case in which the insurer pays its insured then seeks

to assert contractual or equitable subrogation rights against the responsible

tortfeasor. Nor is this a case in which the insurer pays its insured some

amount, then the insured sues the tortfeasor to collect more damages. In

this latter case, the insurer is subrogated to the portion of its insured’s claim

that it paid. Id. at 824. However, the subrogation interest—being derived

from the insured’s interest—is subject to any defenses available against the

insured. Id. at 824–25.

      In this case, Farm Bureau asserts a contractual offset. The pertinent

contract of insurance at issue provides: “Any payment [under the medical

payment coverage provision] shall be applied toward . . . the payment of a
                                                8

money judgment of bodily injury for any insured under . . . Part IV

[underinsured motorist coverage provision].”           While underinsured motorist

coverage is mandatory in Iowa, see Iowa Code § 516A.1, offsets and other

limitations are permissible for the purpose of avoiding duplication of

coverage.      See Iowa Code § 516A.2 (providing underinsured “forms of

coverage may include terms, exclusions, limitations, conditions, and offsets

which are designed to avoid duplication of insurance or other benefits”);

Leuchtenmacher v. Farm Bureau Mut. Ins. Co., 461 N.W.2d 291, 295 (Iowa

1990) (approving an identical offset). The offset sought by Farm Bureau is

not an attempt to claim its subrogation interest in money paid to the estate

by the tortfeasor. Instead, Farm Bureau is seeking to enforce a bargained-

for contract provision allowing it to avoid paying duplicative benefits by

reducing its underinsured-motorist-coverage payment by the amount already

paid pursuant to the medical-payment-coverage section of the policy.

Because the interest asserted is not a subrogation interest, the typical

equitable reductions are not applicable.

      The reductions of subrogation interests provided for in Iowa Code

section 668.5(3) are treated the same. The estate argues Iowa Code section

668.5(3) requires the offset to be reduced by Wilson’s fault and a pro rata

share of attorney fees and expenses attributable to Farm Bureau. Iowa Code

section 668.5(3) applies to subrogation rights. 2                Again, there is no

      2Iowa   Code section 668.5(3) provides:
              3. Contractual or statutory rights of persons not enumerated in
      section 668.2 for subrogation for losses recovered in proceedings pursuant to
      this chapter shall not exceed that portion of the judgment or verdict
      specifically related to such losses, as shown by the itemization of the
      judgment or verdict returned under section 668.3, subsection 8, and
      according to the findings made pursuant to section 668.14, subsection 3, and
      such contractual or statutory subrogated persons shall be responsible for a
      pro rata share of the legal and administrative expenses incurred in obtaining
      the judgment or verdict.
                                      9

subrogation right involved here, so section 668.5(3) should not be applied to

reduce the contractual offset.

      Additionally, Farm Bureau points to our past precedent holding

chapter 668 does not apply to underinsured motorist claims based on

contract. Indeed, we addressed the question of whether chapter 668 applies

to lawsuits if an injured party sues its insurer for underinsured motorist

claims. In Vasquez v. LeMars Mutual Insurance Co., 477 N.W.2d 404 (Iowa

1991), we confronted the issue of whether the interest provision of section

668.13 governs in such a lawsuit. In Vasquez, we based our holding on the

section 668.13(1) provision that the subsection applied only to “ ‘actions

brought pursuant to’ ” chapter 668.       477 N.W.2d at 408–10 (emphasis

omitted) (quoting Iowa Code § 668.13).      We recognized that chapter 668,

which governs comparative fault, applies only to claims “ ‘involving the fault

of more than one party to the claim.’ ”      Id. at 409 (quoting Iowa Code

§ 668.3(2)). We held the underinsured motorist claim was a contractual one,

and consequently did not involve “the fault of more than one party to the

claim.”   Id.   “Simply put, the underinsured motorist claim did not trigger

chapter 668 because the requirements of section 668.3(2) were not met.” Id.

at 410.   The underinsured motorist claim here was similarly not brought

pursuant to chapter 668.

      Still further, the equitable principle underlying the requirement of the

insurer to pay a pro rata portion of the attorney fees and expenses is

inapposite to the facts of this case. Farm Bureau is not seeking a free ride

on the coattails of the estate’s counsel.    With regard to Farm Bureau’s

demand to reduce the judgment by the $5000 it paid pursuant to the

medical payment coverage provision, Farm Bureau is not benefiting from the

estate’s efforts to recover money from the tortfeasor. Instead, Farm Bureau

is seeking to enforce the contract clause allowing the insurer to set off the
                                      10

$5000 of medical payment coverage Farm Bureau itself paid voluntarily from

a subsequent payment under the underinsured motorist coverage provision.

Thus, we refuse to read section 668.5(3) and our past cases dealing with

equitable subrogation to require an insurer to pay for the insured’s

attorneys’ efforts to recover the medical payments the very same insurer paid

voluntarily. See Crabtree ex rel. Kemp v. Estate of Crabtree, 837 N.E.2d 135,

142 (Ind. 2005) (refusing to hold “the legislature intended the Subrogation

Statute to compel an insurer to pay attorney’s fees to recover the amount of

its medical payments from itself”). Farm Bureau is entitled to a full $5000

offset of the amount it owes under the underinsured motorist coverage

provision.    That amount will be influenced by our review of the district

court’s award of interest, from which both parties have appealed, and to

which we now turn.

      IV. Interest.

      The district court judgment, as amended, provided for interest from

February 7, 2000, when the estate filed the underlying tort lawsuit.     The

court suspended interest on the judgment during the first appeal of this

second lawsuit until May 12, 2006, the day we filed our first opinion in this

second lawsuit.     Both parties appealed the district court’s calculation of

interest.    The estate argues the district court improperly credited certain

payments to principal rather than interest and also erred in suspending

interest during the first appeal of this second lawsuit. Farm Bureau does

not dispute the district court holding that interest began to run when the

underlying tort lawsuit was filed, but argues no interest should have

accumulated from March 19, 2002, when the tortfeasor’s insurer paid its

policy limits until December 19, 2006, when the district court amended its

July 3, 2006 judgment in this lawsuit.
                                            11

       In order to begin on firm ground, we begin where the district court, the

parties, and precedent of this court unanimously agree. As an underinsured

motorist carrier, Farm Bureau “bound itself under its insurance policy to pay

its insured what the insured would have recovered against a third party if

that party had been adequately insured.” Opperman, 652 N.W.2d at 142.

The district court began from this understanding, and Farm Bureau does

not contest it.

       The district court relied on Iowa Code section 668.13 to hold the estate

was entitled to recover from the tortfeasor the judgment in the underlying

tort lawsuit together with interest from the date of the commencement of the

action. The provision of prejudgment interest in section 668.13 “is based on

the realization that the loss caused by tortious conduct results in the loss of

use of compensatory damages, and to make the plaintiff whole, prejudgment

interest should be allowed.”         Id. at 142–43.      Neither party argues interest

started to run on the tort damages at any other time, so we will not review

that portion of the district court’s holding. 3 Thus, interest began to run on

February 7, 2000, the date the underlying tort lawsuit was commenced.

       3At  common law, Iowa courts applied the general rule that interest does not run until
money becomes due and payable, “and in the case of unliquidated claims this is the date
they become liquidated, ordinarily the date of the judgment.” Mrowka v. Crouse Cartage Co.,
296 N.W.2d 782, 783 (Iowa 1980). We recognized an exception to this rule “ ‘in cases in
which the entire damage for which recovery is demanded was complete at a definite time
before the action was begun.’ ” Id. (quoting Bridenstine v. Iowa City Elec. Ry., 181 Iowa
1124, 1136, 165 N.W. 435, 439 (1917), overruled in part on other grounds by Menke v.
Peterschmidt, 246 Iowa 722, 727, 69 N.W.2d 65, 69 (1955)). We have noted that actions for
wrongful death fall within that exception. Id. In addressing the apparent inconsistency
between the common-law rule and section 668.13, we recently held section 668.13 “does not
govern in those situations in which our case law has provided that interest may be allowed
from a date prior to the filing of a petition” such as “when it has been shown that the
damage was complete at a particular time.” Gosch v. Juelfs, 701 N.W.2d 90, 92 (Iowa 2005).
Although these rules seem to apply to this wrongful death action, the parties have not
preserved and briefed the issue. Additionally, it seems dubious to say the loss of
consortium damages at issue in this case were “fixed in amount and time of accrual” prior
to the judgment in the tort lawsuit. See id. (endorsing prefiling interest on “fixed” or
“certain” elements of damages but not future damages); Horak v. Argosy Gaming Co., 648
N.W.2d 137, 150 (Iowa 2002) (noting parental consortium damages may be enormous “and
will arguably extend into [children’s] adulthood.”). As such, we forego consideration of that
                                            12

       On the date of judgment in the tort lawsuit, the interest was

aggregated with the damages and began to draw interest as calculated by

Iowa Code section 535.3, in the same way as any civil money judgment. The

tortfeasor was insured for only $100,000 and provided proof of her inability

to pay the excess judgment.           Wilson, 714 N.W.2d at 254.             According to

Opperman, Farm Bureau was contractually bound to pay the estate what it

would have recovered from the tortfeasor if the tortfeasor had been fully

insured.     652 N.W.2d at 142.            Thus, Farm Bureau was contractually

responsible for the portion of the aggregated tort judgment (damages plus

prejudgment interest) and postjudgment interest that the tortfeasor and her

insurer did not pay.

       Farm Bureau did not pay the portion of the aggregated tort judgment

and postjudgment interest that the tortfeasor and her insurer had not paid.

It also did not pay any uncontested portion of the excess judgment, plus

interest. Instead, Farm Bureau offered a lower amount in exchange for full

satisfaction of its liability under the insurance contract.

       As a result, the estate sued Farm Bureau under the underinsured

motorist coverage provision of the insurance contract. In a prior appeal, we

held Farm Bureau was bound by the first judgment entry in the tort lawsuit.

The district court entered a judgment in favor of the estate in the contract

action, based on the first judgment in the tort action. Again, Farm Bureau

did not pay the judgment, or any portion thereof, but asked the district court

for a hearing to review the offset and interest issues. Eventually, the district

court amended the judgment on December 19, 2006, and both parties

appealed.

issue until a case where it has been passed on by the district court and fully briefed by the
parties.
                                       13

      During this entire time, the estate has been deprived of money to

which it was entitled under the underinsured motorist contract.          The

amount of money to which the estate was entitled under the contract is

equal to the amount the tortfeasor would have been obligated to pay. This

amount is the excess of the aggregated tort judgment, plus interest on the

tort judgment according to Iowa Code section 535.3. Farm Bureau has not

highlighted any principle that would stop the accrual of interest on the tort

judgment. Likewise, Farm Bureau has failed to explain why interest is not

payable as an element of damages under the underinsured motorist coverage

provision of the contract.

      Farm Bureau’s argument that Iowa Code section 668.13 governs the

award of interest in the tort lawsuit and section 535.3 governs the contract

lawsuit is not technically incorrect. Yet, the argument ignores our rule in

Opperman, that Farm Bureau has a contractual duty to pay the estate the

damages, including interest, the estate would have received had the

tortfeasor been financially solvent.

      While this case is factually distinct from Opperman in one way, we do

not believe the distinction makes a legal difference.      Here, the estate

proceeded against the tortfeasor and the decedent’s insurer in successive

lawsuits.   In Opperman, the plaintiffs were injured in an automobile

accident, sued the alleged tortfeasors, and later amended their petition to

add their underinsured motorist insurance carrier as a defendant in the

same action. Id. at 140. Farm Bureau seizes on this distinction to suggest

interest does not run on the contract lawsuit until a judgment is entered.

Again, Farm Bureau is technically correct. Iowa Code section 535.3 does not

start the accrual of interest on the contract judgment until the date of the

judgment. Id. at 143 n.1 (citing Schimmelpfennig v. Eagle Nat’l Assurance

Corp., 641 N.W.2d 814, 815 (Iowa 2002)). Yet, Farm Bureau fails to explain
                                      14

why the Opperman holding does not make the company responsible for the

interest accruing on the tort judgment as damages under the contract.

      In Opperman, we held the plaintiffs were entitled to interest from the

date of the original tort lawsuit until judgment was entered on the contract

claim against the underinsured motorist carrier. Id. at 143. When judgment

was entered on the contract action, we held the underlying damages award

and the prejudgment interest should be aggregated and then draw interest

under Iowa Code section 535.3, just like any civil judgment. Id. We noted

that the prejudgment interest is part of the plaintiff’s damages in the

contract action. Id. We also rejected an argument that the award of interest

should turn on whether the plaintiff sued the tortfeasor and the

underinsured motorist carrier in the same lawsuit or in successive lawsuits.

Id. at 142.

      While that procedural distinction does require a slightly different

calculation in this case, we do not believe it prevents the fundamental

holding of Opperman from applying to the facts here.          The purpose of

allowing interest on the aggregated tort judgment is “to encourage prompt

payment and to compensate the plaintiff for another’s use of his or her

money.” 44B Am. Jur. 2d Interest & Usury § 40, at 63–64 (2007). Thus,

Iowa Code section 535.3, like any other postjudgment interest statute, is

“designed to eliminate the financial incentive or disincentive to appeal and to

ensure that a judgment creditor whose satisfaction is delayed because of an

unsuccessful appeal receives the time value of the money judgment.” Id. at

64.

      This rationale for section 535.3 and our holding in Opperman combine

to support a conclusion that Farm Bureau owed the excess of the aggregated

tort judgment along with interest on that judgment until a judgment was

entered in this contract case. A contrary holding would amount to a windfall
                                          15

to Farm Bureau, would deprive the estate of the time value of the tort

judgment, and would provide an incentive for underinsured motorist

insurance carriers to delay payment of money owed by engaging in

protracted litigation.   On the date judgment was entered in this contract

action, the damages due under the insurance contract—i.e., the excess of

the aggregated tort judgment and postjudgment interest—were converted

into a judgment on the contract and interest began to accumulate on the

contract judgment according to section 535.3.

      The district court suspended accumulation of interest from the date of

the first appeal in this suit until our resolution on appeal. The district court

relied on Muchmore Equipment, Inc. v. Grover, 334 N.W.2d 605 (Iowa 1983).

There, we noted “[t]he assessment of interest on judgments may be affected

by an appeal.”    Muchmore Equip., Inc., 334 N.W.2d at 610.           Yet, we were

referring to the ability of an appeal of a judgment to affect the accumulation

of interest on the very same judgment.         In this case, the first appeal was

interlocutory and occurred before the judgment on the contract case was

first entered on July 3, 2006.     Accordingly, the interest suspended by the

district court was the postjudgment interest on the underlying tort

judgment.      Thus, Muchmore Equipment cannot apply to suspend the

accumulation of interest on the underlying tort judgment in this contract

case because the underlying tort judgment was not on appeal.                    More

importantly,   the   district   court’s   decision   to   stay   or   suspend    the

accumulation of postjudgment interest in this case directly contradicts the

purposes of postjudgment interest we highlighted earlier.

      While postjudgment interest on the tort judgment and contract

judgment are both calculated pursuant to Iowa Code section 535.3, the rate

is variable over time, so we must determine the appropriate date to use as

the date of judgment in the contract case. On remand from our decision in
                                       16

the first appeal in this contract lawsuit, the district court first entered

judgment on July 3, 2006. The parties then briefed and argued the issue,

and the district court amended the judgment on December 19, 2006.

Thereafter, both parties appealed the judgment.         For this reason, our

decision in Muchmore Equipment is pertinent to the calculation of

postjudgment interest due on the contract judgment.              In Muchmore

Equipment, we held,

        when a judgment is modified on appeal and the only action
        required in the trial court is compliance with the mandate of the
        appellate court, the interest runs from the date of the original
        judgment; however, when a judgment is reversed the interest is
        not generally computed and accrued during the pendency of the
        appeal.

Id. at 610.    Thus, the question is whether our decision here requires a

modification or a reversal of the contract judgment.

        The district court was correct in entering judgment for the estate, as

mandated by our previous appellate decision.           Indeed, Farm Bureau

concedes it owes some amount of the excess tort judgment under the

contract of insurance that is the subject of this lawsuit. Thus, Farm Bureau

is not actually arguing for vacation of the judgment.     Instead, the parties

only argue over the legal principles applied to calculate the amount of the

judgment.     Consequently, we are merely modifying a judgment correctly

entered.    As such, interest on the contract case should run from, and be

calculated according to, the date of the original judgment entry, July 3,

2006.

        Finally, the estate takes umbrage with the apparent way in which the

district court deducted payments made. While the district court’s order does

not clearly reflect how the district court applied the payments and offsets,

our Opperman decision dictates how they will be applied on remand:
                                       17
      As each payment . . . was received by the plaintiffs, the amount
      of principal on which interest was computed should be reduced
      by those amounts as of the time the payments were received. All
      payments credited to [the insurer] shall first be credited to the
      interest then due and the balance, if any, to principal.

Opperman, 652 N.W.2d at 143 (citing 47 C.J.S. Interest & Usury § 74, at 164

(explaining “United States rule” applies payments first to interest)).

      V. Conclusion.

      Farm Bureau is entitled to set off the entire $5000 medical payment

coverage benefits it paid from the amount owed under the underinsured

motorist coverage provision of the insurance policy, as provided in the

insurance contract. Prejudgment interest began to accumulate on the tort

damages when the estate filed the tort lawsuit on February 7, 2000. When

judgment was entered in the underlying tort lawsuit on February 6, 2002,

the accumulated prejudgment interest was aggregated with the tort

judgment and the aggregated judgment began to draw postjudgment interest

under Iowa Code section 535.3, just like any civil judgment. Postjudgment

interest accumulated on the tort judgment until those sums became the

measure of damages in this contract lawsuit on July 3, 2006. As of July 3,

2006, the aggregated tort judgment and accumulated postjudgment interest

were again aggregated and began to draw interest under Iowa Code section

535.3. We affirm the district court’s July 3, 2006 judgment and remand for

modification consistent with this opinion.

      AFFIRMED AS MODIFIED; REMANDED WITH INSTRUCTIONS.