James B. Wilson Vs. Farm Bureau Mutual Insurance Company ( 2009 )

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.
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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
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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.
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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.
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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,
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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
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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
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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.
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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
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$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.
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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
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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.
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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
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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
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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
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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:
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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.