Contract: Team Two, Inc. v. City of Des Moines, Iowa, No. 3-194 (Iowa Crt. App. 2013)

Issues: Whether the Court erred in not requiring the jury to show whether it based its verdict on a breach of a specific contract term or a breach of an implied covenant. Whether the Court erred in allowing the jury to award future damages to Plaintiff.

Facts: Plaintiff/Appellee, Team Two, Inc. contracted with Defendant/Appellant City of Des Moines, Iowa to provide various ambulance and emergency response services in the city. Team Two was paid certain rates by the City under the contract for services rendered and the City would remit payment on a monthly basis. Team Two also used the City’s database to access necessary information for insurance and billing purposes in order to bill individual patients. If Team Two was unsuccessful in collecting on patient debts, the uncollected debt was turned over to the City’s collection agency. The City’s collection agency utilized, among other methods, the Iowa Income Offset Program to collect unpaid debts and would remit to Team Two a percentage of collected funds.

After the contract between Team Two and the City expired, the parties were unable to reach a new agreement and the City entered into a service contract with another ambulance vendor. After the contract expired, the City denied Team Two access to the patient and billing information necessary for Team Two to track payments it was owed under the old contract. Team Two sued the City for breach of contract and breach of implied covenant of good faith and fair dealing based on the City’s practice of writing off certain debts owed jointly to the City and Team Two, removing them from collection activity.

A jury found that the City had breached its contract with Team Two and was entitled to past and future damages. The City appealed on the basis that there was insufficient evidence to support a finding of breach of an implied covenant and that the Court erred in allowing a general verdict form. It also contends the jury should not have been permitted to award future damages because the case involved only a partial breach.

Holding: The Court of Appeals of Iowa held that the evidence was sufficient to establish a finding that the City breached its implied covenant of good faith and fair dealing and thus the court did not err in allowing a general verdict form. The Court of Appeals further found that the trial court erred in allowing the jury to award future damages since the case involved a partial breach and contained.

For a complete copy of the Court’s opinion, click here

Underinsured Motorist: Esad Osmic v. Nationwide Agribusiness Insurance Company and Westfield National Insurance Company, No. 3-261 / 12-1295 (Iowa Ct. App. 2013)

Issue: Whether a third-party beneficiary asserting a claim against another insured’s UIM coverage with a contractual two-year limitation period is barred from asserting that claim after two years have passed, where the third-party was not advised of the limitation.

Facts: Plaintiff was injured in a motor vehicle accident while riding as a passenger in his brother’s SUV. Two years and thirty-one days later, Plaintiff sued seeking recovery under the underinsured motorist (UIM) provisions of his brother’s auto policy. Prior to filing suit, Plaintiff had engaged in correspondence with the insurer regarding a UIM claim, had requested the UIM policy declarations, had submitted much medical documentation, and had specifically asked whether the insurer required any additional information to process the claim.

The insurer filed a motion for summary judgment asserting the petition was barred by the UIM policy provision’s two-year deadline. The district court denied the motion and the insurer filed an interlocutory appeal.

Holding: The contractual two-year limitation period contained in the UIM policy was valid and enforceable as to the named insured; however, it was unenforceable as to the Plaintiff under the facts of the case. Specifically, the Iowa Court of Appeals held that it is reasonable to impose a duty on an insurer faced with a claim made by a passenger of its insured to inform such claimant of conditions precedent in the insurance contract, especially where the nonparty claimant has asked whether the insurer required any additional information in order to process the claim.

For a complete copy of the Court’s opinion, click here

Contract: Farm Bureau Life Ins. Co. v. Holmes Murphy & Associates, Inc., 2013 WL 2127573 (Iowa 2013)

Issue: Does an underwriting exclusion within an insurance company professional liability policy preclude coverage for indemnity claims arising from a life insurance company’s failure to disclose findings of an applicant’s HIV positive status to that applicant?

Facts: A husband and wife applied for life insurance policies from Farm Bureau Life Insurance Company (“Farm Bureau”) and were denied due to “blood profile result,” which they later found was due to unknown HIV positive status. The couple sued Farm Bureau in federal court in Wyoming for negligent failure to disclose this information and the case was ultimately went on appeal to the 10th Circuit, which found Farm Bureau had a duty to disclose this information because a special relationship between the parties arose as a result of Farm Bureau’s policy eligibility investigation. The case was then settled.

Farm Bureau made a claim against its insurer, Federal Insurance Company, (“Federal”), under an Insurance Company Professional Liability Policy (“ICPL”) to cover this settlement. This claim was denied for failure to provide notice of the claim under the policy’s requirement and because claims “based upon, arising from, or in consequence of the underwriting of insurance,” were expressly excluded under the policy. Farm Bureau then sued Federal, and Federal was dismissed from the lawsuit on summary judgment based on Farm Bureau’s lack of timely notice. Farm Bureau also sued its insurance broker, Holmes Murphy & Associates, (“Holmes Murphy”), for breach of contract and negligence in failing to provide timely notice to Federal despite Farm Bureau’s timely notification to Holmes Murphy. Before the court made a determination on the claim for failure to provide timely notice, it was asked to rule on whether Farm Bureau’s claim against Federal would have been covered under the ICPL. The district court found coverage of Farm Bureau’s claim would have been precluded under the underwriting exclusion, rendering irrelevant any question on the issue of timely notice.

Holding: On appeal, the Supreme Court of Iowa affirmed that the underwriting exclusion precluded coverage because the HIV positive couple’s claims arose from Farm Bureau’s underwriting activity. “Underwriting” was not specifically defined in the ICPL policy, but the court found the dictionary definition of underwriting, that it is “the process of examining, accepting or rejecting insurance risks, and classifying those selected in order to charge the proper premium for each,” was consistent with the language of the ICPL exclusion and the definition applied by courts in other definitions. Insurers typically ask questions regarding an applicant’s medical background as part of the underwriting process of determining which persons or risks to insure. Records may be gathered and information obtained from attending physicians. The 10th Circuit had already found Farm Bureau’s duty to disclose the HIV positive testing was based upon a special relationship with the couple that arose as a result of its policy eligibility investigation. On these bases, the court found the HIV positive couple’s claims arose from Farm Bureau’s underwriting activity and the underwriting exclusion in the ICPL policy precluded Federal’s coverage for damages claimed even if Federal had received timely notice under its policy requirement.

For a complete copy of the Court’s opinion, click here