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IN THE SUPREME COURT OF IOWA
No. 5 / 04-0864 Filed May 12, 2006 JAMES B. WILSON, as Administrator of the Estate of LILY M. WILSON, Deceased, Appellant, vs. FARM BUREAU MUTUAL INSURANCE COMPANY, Appellee.

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

Insured appeals from a district court ruling denying its motion for summary judgment on its contract claim for underinsurance motorist benefits and granting the insurer's motion for summary judgment on the insured's bad faith claim. AFFIRMED IN PART, REVERSED IN PART, AND CASE REMANDED.

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

Brian C. Ivers of McDonald, Woodward & Ivers, P.C., Davenport, for appellee.

2 LAVORATO, Chief Justice. In an underlying tort suit, an insured obtained a jury verdict against an underinsured motorist. Following the verdict, the district court reduced it by the percentage of fault the jury attributed to the insured and entered judgment for the reduced amount. Following entry of the judgment, the insured filed a motion to correct the judgment by increasing it to reflect the jury's determination regarding loss of consortium claims. The court granted the motion and entered an amended judgment. The insured sued its insurer on a contract claim to recover underinsured motorist benefits in the amount of the amended judgment entry less the underinsured motorist's liability limits pursuant to the insured's underinsured motorist (UIM) coverage. The insured also joined a claim for bad faith against the insurer for its failure to pay the insured's demand for the underinsured benefits. The court granted the insured's motion for summary judgment on its contract claim in part and denied it in part. In granting the motion, the court ruled that a consent-to-be-bound provision under the insured's UIM coverage was contrary to public policy and therefore unenforceable. In denying the motion, the court allowed the insurer to relitigate the issue of damages in the underlying tort suit. The district court granted the insurer's motion for summary judgment as to the insured's bad faith claim. The insured filed an application for interlocutory appeal, which we granted. We conclude the insurer is bound by the original judgment entry but not bound by the amended judgment entry. We also conclude that as a matter of law the insurer was not in bad faith in denying the insured's demand. Finally, we conclude the consent-to-be-bound provision is valid

3 and enforceable. We therefore affirm in part, reverse in part, and remand for further proceedings consistent with this opinion. I. Background Facts and Proceedings. On November 30, 1999, Lily M. Wilson walked across a road to retrieve her mail from a mailbox that was located across the road from her home. While walking back to her home, Wilson was struck by a vehicle driven by Margie Carter. Later that day, Wilson died of her injuries suffered in the incident. Wilson had automobile insurance with Farm Bureau Mutual Insurance Company, which included medical pay coverage of $5000 and UIM coverage of $100,000. Carter had automobile insurance through

Hartford Insurance Company with liability limits of $100,000 (each person) and $300,000 (each occurrence). Wilson's policy provided in part the following: REPORTING A CLAIM--INSURED'S DUTIES .... 4. Other Duties Under . . . Under-Insured Motor Vehicle . . . Coverage[] The person making claim also shall: .... d. under the . . . under-insured motor vehicle coverage[], send us at once a copy of all suit papers when the party liable for the accident is sued for these damages. .... Coverage I--Under-Insured Motor Vehicle .... We will pay damages for bodily injury an insured is legally entitled to recover from the owner or operator of an under-insured motor vehicle. The bodily injury must be

4 caused by an accident and arise out of the ownership, maintenance or use of an under-insured motor vehicle. .... THERE IS NO COVERAGE UNDER COVERAGES H OR I: 1. FOR ANY INSURED WHO, WITHOUT OUR WRITTEN CONSENT, SETTLES WITH ANY PERSON OR ORGANIZATION WHO MAY BE LIABLE FOR THE BODILY INJURY. .... Written Consent Requirement--Coverage H and I We are not bound by any judgment against any person or organization obtained without our written consent. [Hereinafter referred to as the consent-to-be-bound provision.] A. Suit I. In February 2000 Wilson's estate sued Carter for damages to the estate and for loss of consortium suffered by the decedent's surviving children. On July 18 the estate's attorney wrote Farm Bureau notifying it of the estate's intention to make a claim for UIM benefits for the estate under Wilson's policy. Enclosed with the letter was a copy of the amended and substituted petition filed on behalf of the estate against Carter and Carter's answer to the petition. The letter further notified Farm Bureau that the estate's attorney had learned through discovery that Carter's liability limits were $100,000/$300,000, which the attorney believed were insufficient to cover the estate's damages. On February 6, 2002, a jury returned a verdict in the estate's favor and against Carter as follows: $7906.81 for interest on reasonable burial expenses, $6888.50 for the reasonable value of medical expenses, and $145,000 for loss of consortium suffered by the decedent's surviving children for a total of $159,795.31. During the trial, the district court submitted an instruction, which neither party objected to, informing the jury that "[t]he fault of the person whose injury or death provides the basis for the consortium claim of Lily

5 Wilson's children does not bar or reduce the consortium recovery." The jury verdict form relating to the consortium claims stated in part: "State the amount of damages sustained by the children due to loss of parental services or parental consortium proximately caused by defendant's fault. Do not take into consideration any reduction of damages due to Lily Wilson's fault." Neither party objected to this verdict form. The jury found Wilson twenty percent at fault and Carter eighty percent at fault. After the jury returned its verdict, the district court

reduced the total jury award, including the loss of consortium award, by twenty percent. The court reduced the loss of consortium award by twenty percent because it believed that it had instructed the jury incorrectly that the decedent's fault does not reduce the consortium claims. See Iowa Code

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