Luze v. Zurich American Insurance Company
Filing
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ORDER denying 12 Motion for Partial Summary Judgment; granting 17 Motion for Summary Judgment. Signed by U.S. District Judge Karen E. Schreier on 11/4/16. (DJP)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
JEANETTE LUZE, individually and as
personal representative of the Estate of
Charles Edward Luze;
Plaintiff,
vs.
CIV. 16-4017-KES
ORDER DENYING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
AND GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT
ZURICH AMERICAN INSURANCE
COMPANY,
Defendant.
Plaintiff, Jeanette Luze, brought this action naming Zurich American
Insurance Company as the defendant. Jeanette Luze moves for partial
summary judgment (Docket 12), and Zurich filed a cross motion for summary
judgment. Docket 17.
FACTS
The undisputed facts are:
Farner-Bocken is headquartered in Carroll, Iowa, and Charles Luze was
a resident of South Dakota at the time of this incident. Docket 14 ¶ 2. FarnerBocken employed Charles Luze as a driver. Id. ¶ 1. On September 14, 2014,
Charles Luze died in a motor vehicle accident while driving a company vehicle
that was owned by Farner-Bocken and insured by Zurich. Id. ¶¶ 1-2. The
liability limit in place on the vehicle at the time of the crash was $1 million. Id.
¶ 3. Zurich has not produced any evidence showing that either Farner-Bocken
or Charles Luze
rejected underinsured motorist (UIM) coverage in writing.
Id. ¶ 4. The term “auto” in the policy included trailers and semi-trailers. Id. ¶ 6.
The Business Auto Coverage form defines category 1 autos as “any autos,” id. ¶
7, and it defines category 3 autos as “owned private passenger autos.”
Docket 15-1 at 8. The policy endorsement defines uninsured motor vehicles as
an underinsured motor vehicle, and an underinsured motor vehicle is defined
as “a land motor vehicle or trailer for which the sum of all liability bonds or
policies at the time of the accident do not provide at least the amount an
insured is legally entitled to recover as damages resulting from bodily injury.”
Docket 14 ¶¶ 9-10.
I.
SUMMARY JUDGMENT
“One of the principal purposes of the summary judgment rule is to
isolate and dispose of factually unsupported claims or defenses[.]” Celotex Corp.
v. Catrett, 477 U.S. 317, 323-24 (1986). Summary judgment is proper “if the
movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Celotex
Corp., 477 U.S. at 323 (“[A] party seeking summary judgment always bears the
initial responsibility of . . . demonstrat[ing] the absence of a genuine issue of
material fact.” (internal quotations omitted)). The moving party must inform the
court of the basis for its motion and also identify the portion of the record that
shows there is no genuine issue in dispute. Hartnagel v. Norman, 953 F.2d
394, 395 (8th Cir. 1992) (citation omitted).
Once the moving party meets its initial burden, the nonmoving party
must establish “that a fact . . . is genuinely disputed” either by “citing to
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particular parts of materials in the record,” or by “showing that the materials
cited do not establish the absence . . . of a genuine dispute.” Fed. R. Civ. P.
56(c). “The nonmoving party may not ‘rest on mere allegations or denials, but
must demonstrate on the record the existence of specific facts which create a
genuine issue for trial.’ ” Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th
Cir. 2005) (quoting Krenik v. Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir.
1995)). For purposes of summary judgment, the facts and inferences drawn
from those facts are “viewed in the light most favorable to the party opposing
the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655
(1962)).1
II.
IOWA UNDERINSURED MOTORIST INSURANCE
This case deals with a question of law as to whether Charles Luze was
covered by his employer’s underinsured motorist insurance policy. The
interpretation of an insurance policy is a matter of law to be determined by the
court. A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 618
(Iowa 1991). In an action based on diversity of citizenship, a federal district
court must apply the substantive law of the state in which it sits, including its
conflict-of-law rules. Drinkall v. Used Car Rentals, Inc., 32 F.3d 329, 331 (8th
Cir. 1994). So this court will apply South Dakota’s conflict-of-law rules to
determine which state’s insurance laws govern.
According to local civil procedure rules, a movant’s “statement of material
facts will be deemed to be admitted unless controverted by the opposing party’s
response to the moving party’s statement of material facts.” D.S.D. Civ. L.R.
56.1(d).
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“South Dakota applies the provisions of the Restatement (Second) of
Conflicts of Laws in order to resolve questions about which state’s laws govern
in particular factual situations.” Stockmen’s Livestock Exch. v. Thompson, 520
N.W.2d 255, 257 (S.D. 1994). The Restatement (Second) Conflict of Laws
generally recognizes that “[t]he law of the state chosen by the parties to govern
their contractual rights and duties will be applied.” Restatement (Second) of
Conflict of Laws § 187. “A contract must be construed in accordance with the
law of the place where made unless it is shown that it was the intention of the
parties to be bound by the law of some other place.” Briggs v. United Servs. Life
Ins. Co., 117 N.W.2d 804, 806 (S.D. 1962). “The test of the place of a contract
is the place where the last act is done by either of the parties which is
necessary to complete the contract and give it validity.” Id. at 807.
Here, the parties have not pointed to a governing choice-of-law provision
in the insurance policy, and the court did not find a choice of law provision
upon review of the policy. But the UIM endorsement that was added to the
policy is titled the “Iowa Uninsured and Underinsured Motorists Coverage.”
Docket 20-3. The language in the endorsement indicates the parties’ intention
to be bound by the law of Iowa, and no other provisions within the policy
indicate otherwise. Also, Zurich prepared the policy and sent it to FarnerBocken at its headquarters in Carroll, Iowa. Docket 20-1. It appears the policy
was then executed in Iowa, so the final act necessary to make the policy valid
occurred in Iowa. Based on the intention of the parties as expressed in the UIM
endorsement and the location where the policy was executed, Iowa law applies.
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A. Whether Charles Luze was a covered insured under the policy
issued by Zurich at the time of his death?
The first issue for the court to address is whether Charles Luze was a
covered insured under the insurance policy at the time of his death. Because
the named insured on this policy was a corporation, the court looks to Section
(B)(2) of the policy for the definition of an “insured.” Docket 16-6. This section
states that an “insured” under the uninsured and underinsured policy includes
anyone “ ‘occupying’ a ‘covered auto.’ ” Id. at 2. “Covered autos” as described
on the Schedule of Coverages and Covered Autos page of the policy lists only
category 3 autos. Docket 15-1 at 21. Category 3 autos are defined as “private
passenger autos only.” Id. at 8. Because Charles Luze was occupying a
commercial transport vehicle at the time of his death, Charles Luze was not in
a covered auto and therefore was not an insured under the UIM policy.
B. Whether Iowa law allows carriers to limit UIM coverage to certain
vehicles?
The second issue for the court to decide is whether Iowa law allows
carriers to limit UIM coverage to certain types of vehicles. The Iowa Supreme
Court previously upheld policies that limit UIM coverage to certain classes of
vehicles. For example, in Andreson v. Employers Mutual Casualty Co., 461
N.W.2d 181, 182-83 (Iowa 1990), an employee, while within the scope of his
employment, was injured while driving his own vehicle to a job site. On the
declarations page of the policy and next to the UIM coverage space, the
policyholder could designate which classes of motor vehicles received this type
of coverage. Id. at 183. The employer designated only category 2 vehicles as
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covered autos. Id. Category 2 autos were defined as autos owned by the policy
holder, which could include a borrowed auto. Id. Because the Iowa Supreme
Court determined that the auto in question was borrowed by the employer, it
was a covered auto under the policy. Id. at 183. In its decision, the Iowa
Supreme Court held that certain classes of autos could legally be excluded
from UIM coverage. Id.
Jeanette Luze argues that Iowa law does not permit carriers to limit UIM
coverage to certain types of vehicles, and instead, the coverage follows the
person. As support for this position, she relies on Prudential Life Ins. v.
Martinson, 589 N.W.2d 64 (Iowa 1999). Docket 21 at 5. In Martinson, an
employee was involved in an auto accident while driving a truck that was
owned by his employer, and the employee sought to collect UIM coverage under
his family’s auto insurance. Id. The insurance carrier denied the employee UIM
coverage stating that an exclusion for non-owned autos applied because the
employee did not own the truck he was driving. Id. The Iowa Supreme Court
concluded that “not-owned-but-insured” clauses are invalid because the driver
does not have control over the coverage of the vehicle that he is driving, so the
coverage follows the person as opposed to the vehicle. Id. at 66. But the Court
was careful to distinguish this situation from those situations where a policy
includes an “owned-but-not-insured” exclusion. Id. The Court held that “[w]hen
an ‘owned-but-not-insured’ clause comes into play, the insured has control of
the vehicle and the coverage on it. If a person decides to buy a small amount of
underinsured motorist coverage for it . . . the insured must live with that
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choice.” Id. (quoting Veach v. Farmers Ins. Co., 460 N.W.2d 845, 847 (Iowa
1990)). There, the Iowa Supreme Court held that “not-owned-but-insured”
clauses are invalid but upheld “owned-but-not-insured” clauses. Id. at 65.
Here, there is no dispute that the vehicle was owned by the insured.
Thus, under Martinson, the owned-but-not-insured clause is valid because
Charles Luze was driving a commercial vehicle that was owned by FarnerBocken at the time of his accident and Farner-Bocken did not purchase
insurance for its commercial vehicles, so Charles Luze was not insured under
the policy. This court finds that the exclusion in the UIM policy that limits
coverage to certain classes of vehicles is permissible under Iowa law.
C. Is this a valid exclusion to avoid duplicate coverage?
The final issue for the court to decide is whether Zurich can limit UIM
coverage to avoid duplication of workers’ compensation benefits. Iowa Code
§ 516.2(1)(a) states that UIM coverage “may include terms, exclusions,
limitations, conditions, and offsets which are designed to avoid duplication of
insurance or other benefits.” Iowa Code § 516A.2(1)(a). “ ‘[I]nsurance or other
benefits’ in the second sentence of § 516A.2 encompasses workmen’s
compensation.” McClure v. Emp. Mut. Cas. Co., 238 N.W.2d 321, 329 (Iowa
1976) (McCLure I). But while offsets are permitted under § 516A.2(1), they are
not mandatory, and the insurance company is only entitled to an offset of
workers’ compensation benefits to avoid duplication to the extent that its
reduction-of-benefits provision authorizes an offset. Greenfield v. Cincinnati Ins.
Co., 737 N.W.2d 112, 117 (Iowa 2007). If an insurance contract does not
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contain a reduction-of-benefits provision that is authorized by statute, a
reduction of benefits may be denied. Id. So Iowa law allows Zurich to exclude
UIM coverage to avoid duplication of workers’ compensation benefits as long as
the controlling policy authorizes the exclusion.
Jeanette Luze argues that Zurich’s UIM limitation is not permitted under
Iowa law because it is for the purpose of avoiding duplicative workers’
compensation benefits, and workers’ compensation is not encompassed in the
definition of “insurance or other benefits” under Iowa Code § 516A.2(1)(a).
Docket 13; Docket 21. As support for her argument, Jeanette Luze relies on the
decisions in McClure v. Northland Ins. Co., 424 N.W.2d 448, 450 (Iowa 1988)
(McClure II) and Condon v. Employers Mutual Casualty Co. and McClure II.
Jeanette Luze’s reliance on McClure II and Condon is misguided.
In McClure II, the injured driver attempted to collect under his two UIM
insurance policies, but both policies contained provisions that allowed the
insurers to reduce the coverage limits by amounts received from workers’
compensation. Id. at 449. Because the workers’ compensation benefits
exceeded the limits of both policies, the injured driver did not recover under his
UIM policies. Id. The Iowa Supreme Court held that instead “the amount
received by a victim in the form of workers’ compensation benefits should be
deducted from the total amount of damages sustained by the victim.” Id. at
450. In other words, workers’ compensation is treated the same as recovery
from the tortfeasor. Id. In Condon, the Iowa Supreme Court simply upheld its
previous ruling that benefits paid to the widow of a decedent were not
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duplicative of insurance benefits paid to the administrator of an estate because
a widow and an administrator are two separate entities. 529 N.W.2d at 631.
Thus, the insurance company could not use insurance benefits that were paid
to the widow to offset the policy limits paid to the administrator of the deceased
spouse’s estate. Id.
The decisions in McClure II and Condon do not prevent Zurich from
limiting Charles Luze’s UIM coverage. In those cases, there was not a question
of whether the insured was covered by UIM insurance; instead, the issue was
how the insurance provider could calculate the payments and whether the
carrier could use workers’ compensation benefits to offset the policy limits.
Here, the issue is whether a private company could consider workers’
compensation benefits when deciding the types of vehicles for which it would
purchase UIM coverage. Farner-Bocken made the conscious decision not to
obtain UIM insurance for its commercial vehicles because it anticipated that
workers injured in its commercial vehicles would recover workers’
compensation benefits for any injuries in those vehicles, and that type of
consideration is permitted under Iowa law.
An insurance provider can exclude UIM coverage to avoid duplicative
workers’ compensation benefits, but the controlling policy must authorize such
an offset. Greenfield, 737 N.W.2d at 117. In Greenfield, the Iowa Supreme
Court considered the relationship between UIM coverage and workers’
compensation. Id. The court specifically found that the “Iowa legislature
intended to allow insurance companies to offset workers’ compensation
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benefits against uninsured and underinsured motorist claims,” and that the
carrier could avoid duplication of benefits to the extent that the policy language
provides. Id. Here, section II(B)(3) of the insurance policy specifically excludes
“[a]ny obligation for which the ‘insured’ or the ‘insured’s’ insurer may be held
liable under any workers’ compensation, disability benefits or unemployment
compensation law or any similar law.” Docket 15-1 at 10. This court agrees
with Zurich’s stance that UIM coverage can be limited to avoid duplication of
benefits—including duplication of workers’ compensation benefits because the
policy specifically excludes liability to avoid duplication of workers’
compensation.
CONCLUSION
The court finds (1) that Charles Luze was not covered by the UIM policy
at the time of his accident because he was in a commercial vehicle, (2) Iowa law
permits carriers to limit UIM coverage to certain types of vehicles, and (3) Iowa
law allows carriers to avoid duplication of workers’ compensation benefits.
Thus, it is ORDERED that plaintiff’s motion for partial summary
judgment (Docket 12) is denied.
IT IS FURTHER ORDERED that defendant’s motion for summary
judgment (Docket 17) is granted.
Dated November 4, 2016.
BY THE COURT:
/s/Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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