Nationwide Agri-business Insurance Company Vs. Jim Goodwin, Doug Stalley, Personal Representative Of The Estate Of Klever Briones, On Behalf Of Himself And The Estate, And Corina De Palacios

IN THE SUPREME COURT OF IOWA
No. 07–1634

Filed May 21, 2010

NATIONWIDE AGRI-BUSINESS INSURANCE COMPANY,

Appellant,

vs.

JIM GOODWIN, DOUG STALLEY, Personal Representative of the
ESTATE OF KLEVER BRIONES, On Behalf of Himself and the Estate,
and CORINA DE PALACIOS,

Appellees.

Appeal from the Iowa District Court for Woodbury County,

Jeffrey A. Neary, Judge.

Insurer appeals adverse summary judgment ruling holding insurer

had coverage under its automobile liability policy for claim made against

insured who had loaned rental vehicle to another at time of accident.

REVERSED AND REMANDED.

John B. Grier of The Grier Law Firm, Marshalltown, for appellant.

Jeffrey A. Sar of Baron, Sar, Goodwin, Gill & Lohr, Sioux City, for

appellee Jim Goodwin.

James J. Biscoglia of LaMarca & Landry, P.C., Des Moines, for

appellees Doug Stalley, Estate of Klever Briones, and Corina De Palacios.
 2

TERNUS, Chief Justice.

In this declaratory judgment action, the district court ruled the

appellant, Nationwide Agri-Business Insurance Company, had coverage

under an automobile liability insurance policy for claims made against

its insured, Jim Goodwin, arising out of an accident that occurred when

Goodwin loaned a vehicle he had rented to his uncle, Jack Jolin.

Nationwide claims on appeal there is no coverage because Goodwin was

not “using” the vehicle at the time of the accident so as to fall within the

definition of “insured,” and in any event, coverage was excluded by a

provision excluding liability of an insured using a vehicle without a

reasonable belief he is entitled to do so. Nationwide also asserts there is

no genuine issue of material fact with respect to Goodwin’s reasonable

expectations claim, and it is entitled to judgment as a matter of law on

that claim. We hold the exclusionary provision precludes coverage for

the damage claims made against Goodwin, and as a matter of law,

Goodwin’s reasonable expectations claim has no merit. Therefore, we

reverse the district court’s summary judgment in favor of Goodwin and

remand this case for entry of summary judgment in favor of Nationwide.

I. Background Facts and Proceedings.

Jim Goodwin rented an automobile from Alamo Rent-A-Car. On

the second page of the rental contract signed by Goodwin, the following

provision appeared: “NO ADDITIONAL DRIVERS ARE AUTHORIZED TO

DRIVE THE VEHICE WITH THE EXCEPTION OF THE DRIVERS LISTED

BELOW.” No additional persons were listed. The “rental agreement

jacket” contained additional terms and defined “authorized drivers” and

“prohibited uses.” In relevant part, it stated:

Authorized Drivers: I am the authorized driver if I
have a valid driver’s license, am named on the front of the
rental agreement and meet all of your rental requirements.
 3
An additional authorized driver is authorized only if they pay
an additional driver charge and that person has a valid
driver’s license and is named on the front. ALL OTHER
DRIVERS ARE UNAUTHORIZED. I am responsible for any
losses or damages which occur while the vehicle is in the
possession of any driver.
Prohibited Uses and Violations: The following uses of
the Vehicle are strictly prohibited by you. The vehicle may
not be used:
....
(G) if the driver is anyone other than a[n] authorized
driver . . . .

Goodwin signed the rental agreement, stating he agreed to the terms in

the agreement as well as the terms on the rental agreement jacket.

During the rental period, Goodwin allowed Jolin to operate the

rental car for Jolin’s personal use. Goodwin admitted in response to

requests for admissions that “Jack Jolin’s use of the rental vehicle was in

violation of the terms and provisions of the rental agreement.” He also

admitted that “[a]t the time [he] lent the vehicle to Jack Jolin, [he] did not

believe he was authorized by the rental agreement to lend the vehicle to

Jack Jolin.” Tragically, while Jolin was operating the rental car with

Goodwin’s permission, Jolin struck two pedestrians, killing one, Klever

Briones, and seriously injuring Briones’ wife, Corina De Palacios.

Goodwin was not a passenger in the rental car at the time of the

accident.

As a result of the accident, the injured party and the personal

representative of the estate of the deceased party brought a claim for

damages against Goodwin, the rental car company, Jolin, and Goodwin’s

personal automobile insurance carrier, Nationwide. Nationwide, in turn,

filed a petition against these parties requesting a declaratory judgment

that it had no duty to defend or indemnify Goodwin. 1 Nationwide

1Nationwide also contended its policy provided no coverage to Jolin. That issue
is not part of this appeal.
 4

claimed the policy definition of “insured,” which included the named

insured when using any auto, did not encompass Goodwin because

Goodwin was not using the rental car when he loaned it to Jolin.2

Nationwide also cited an exclusion for any insured “[u]sing a vehicle

without a reasonable belief that the ‘insured’ is entitled to do so.” In his

answer, Goodwin relied on the doctrine of reasonable expectations,

claiming he “reasonably expected there to be coverage for any car rented

by him.”

Nationwide and Goodwin filed motions for summary judgment,

each claiming there was no genuine dispute as to any material facts, and

judgment should be rendered as a matter of law. The district court

granted Goodwin’s motion for summary judgment and denied

Nationwide’s motion. The court ruled Goodwin was using the rental

vehicle when he loaned it to Jolin and so qualified as an insured under

the policy. The court also decided the exclusion did not apply because

“Alamo’s provision in its agreement with Goodwin is only a means to

protect Alamo in the case of an accident, and the provision was not

intended to limit the scope of Goodwin’s own insurance coverage.”

Therefore, the court concluded, “Goodwin had a reasonable belief he was

entitled to use the car in this manner as a matter of law.” Having found

coverage under the policy, the court did not address Goodwin’s

reasonable expectations argument.

Nationwide filed this appeal, arguing the district court erred in

concluding there was coverage under its policy. Goodwin argues there is

coverage under the terms of the policy, and in any event, he is entitled to

2The policy also provided coverage for an insured’s “ownership” and
“maintenance” of any auto. Goodwin acknowledges he did not own the rental vehicle
and was not engaged in maintenance of the vehicle at the time of the accident.
 5

coverage under the doctrine of reasonable expectations. We conclude

that, assuming Goodwin’s loaning of the vehicle to his uncle constituted

use within the meaning of the policy definition of “insured,” the policy

exclusion applies because, as a matter of law, Goodwin could not have

had a reasonable belief he was entitled to use the vehicle in this manner.

We also hold Nationwide is entitled to summary judgment on Goodwin’s

claim based on the doctrine of reasonable expectations. For these

reasons, we reverse the district court’s judgment and remand for entry of

a declaratory judgment that Nationwide has no duty to defend or

indemnify Goodwin in the suit brought against him by De Palacios and

the Briones Estate.

II. Scope of Review.

A ruling on a motion for summary judgment is reviewed for the

correction of errors of law. Thomas v. Progressive Cas. Ins. Co., 749

N.W.2d 678, 681 (Iowa 2008). “To obtain a grant of summary judgment

on some issue in an action, the moving party must affirmatively establish

the existence of undisputed facts entitling that party to a particular

result under controlling law.” Interstate Power Co. v. Ins. Co. of N. Am.,

603 N.W.2d 751, 756 (Iowa 1999).

The moving party is entitled to a judgment as a matter of law
“if the pleadings, depositions, answers to interrogatories and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact.” An
issue of fact is “material” only when the dispute involves
facts which might affect the outcome of the suit, given the
applicable governing law. The requirement of a “genuine”
issue of fact means the evidence is such that a reasonable
jury could return a verdict for the non-moving party.

Wallace v. Des Moines Indep. Cmty. Sch. Dist. Bd. of Dirs., 754 N.W.2d

854, 857 (Iowa 2008) (quoting Iowa R. Civ. P. 1.981(3)) (citations

omitted). If the only conflict concerns the legal consequences flowing
 6

from undisputed facts, entry of summary judgment is appropriate.

Garofalo v. Lambda Chi Alpha Fraternity, 616 N.W.2d 647, 650 (Iowa

2000).

III. Governing Legal Principles.

The crux of the disagreement in this case centers on the

appropriate construction and interpretation of the Nationwide policy.

The construction of an insurance policy is the process of
determining the policy’s legal effect; interpretation is the
process of determining the meaning of the words used in the
policy. “When the parties offer no extrinsic evidence on the
meaning of policy language, the interpretation and
construction of an insurance policy are questions of law for
the court.”

Thomas, 749 N.W.2d at 681 (quoting Lee v. Grinnell Mut. Reins. Co., 646

N.W.2d 403, 406 (Iowa 2002)) (citation omitted). “In the construction of

insurance policies, the cardinal principle is that the intent of the parties

must control; and except in cases of ambiguity this is determined by

what the policy itself says.” A.Y. McDonald Indus., Inc. v. Ins. Co. of N.

Am., 475 N.W.2d 607, 618 (Iowa 1991). “The test for ambiguity is an
objective one: ‘Is the language fairly susceptible to two interpretations?’ ”

Iowa Fuel & Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859,

863 (Iowa 1991). “Only when the policy language is susceptible to two

reasonable interpretations do we find an ambiguity.” Kibbee v. State

Farm Fire & Cas. Co., 525 N.W.2d 866, 868 (Iowa 1994).

This court has held that “[a]n insurer assumes a duty to define any

limitations or exclusionary clauses in clear and explicit terms.” Hornick

v. Owners Ins. Co., 511 N.W.2d 370, 374 (Iowa 1993). “Thus, when an

exclusionary provision is fairly susceptible to two reasonable

constructions, the construction most favorable to the insured will be

adopted.” Thomas, 749 N.W.2d at 682. “Nonetheless, if there is no
 7

ambiguity, the court ‘will not “write a new contract of insurance” ’ for the

parties.” Id. (quoting Stovers v. State Farm Mut. Ins. Co., 189 N.W.2d

588, 591 (Iowa 1971)) (citation omitted). “If exclusionary language is not

defined in the policy, we give the words their ordinary meaning.” Farm &

City Ins. Co. v. Gilmore, 539 N.W.2d 154, 157 (Iowa 1995). “An exclusion

that is clear and unambiguous must be given effect.” Id.

IV. Policy Coverage.

Nationwide agreed to “pay damages for ‘bodily injury’ or ‘property

damage’ for which any ‘insured’ becomes legally responsible because of

an auto accident.” An “insured” is defined as “[y]ou or any ‘family

member’ for the . . . use . . . of any auto.” “You” refers to “[t]he ‘named

insured’ shown in the Declarations.” Goodwin is a “ ‘named insured’

shown in the Declarations.” Thus, Goodwin is an “insured” if he was

using the auto at the time of the accident. Goodwin argues that he was

using the rental car at the time of the accident because he “gave Jolin

authorization and permission for [the] specific trip” that Jolin was on

when Jolin hit the pedestrians. He asserts “[t]he word ‘use’ in [the] policy

includes [his] act of permitting Jolin to drive the rented auto.” We

assume, without deciding the issue, that Goodwin is correct: He was

using the vehicle within the meaning of the insuring clause when he

allowed Jolin to drive it.

Nationwide contends that, even if Goodwin was using the vehicle at

the time of the accident so as to qualify as an insured, coverage is

precluded by the following exclusion that appears in the insurance

contract between Nationwide and Goodwin: “We do not provide Liability

Coverage for any ‘insured’ . . . [u]sing a vehicle without a reasonable

belief that the ‘insured’ is entitled to do so.” Nationwide asserts Goodwin

did not have a reasonable belief that he was entitled to allow Jolin to
 8

drive the rental car. We agree the determinative issue is whether

Goodwin had a reasonable belief he was entitled to use the vehicle in this

manner, i.e., loan it to Jolin.

Nationwide relies on the terms of the rental car agreement to

support its contention that Goodwin could not have reasonably believed

he was entitled to loan the rental car to his uncle. The rental agreement

contained the following pertinent language:

Prohibited Uses and Violations: The following uses of
the Vehicle are strictly prohibited by you. The vehicle may
not be used:
....
(G) if the driver is anyone other than a[n] authorized
driver . . . .

(Emphasis added.) As noted previously, it is undisputed that Jolin was

not an authorized driver, that “Jolin’s use of the rental vehicle was in

violation of the terms and provisions of the rental agreement,” and that

“[a]t the time Jim Goodwin lent the vehicle to Jack Jolin, Goodwin did

not believe he was authorized by the rental agreement to lend the vehicle

to Jack Jolin.” Goodwin claims his noncompliance with the terms of the

rental agreement should have no impact on his insurance coverage with
Nationwide, as the rental agreement only governed the rights and

responsibilities of Goodwin and Alamo as to each other.

Although we have not previously applied the exclusion in question

to a situation involving a rental car, we considered a nearly identical

exclusion in Gilmore, 539 N.W.2d at 157–58, a case involving a second

permittee. In that case, the insurer relied on a provision “stating

coverage is not provided for any person ‘[u]sing a vehicle without a

reasonable belief that that person is entitled to do so.’ ” 539 N.W.2d at

157. Like the policy here, the policy at issue in Gilmore did not define
 9

the terms “entitled” or “reasonable belief.” Id. Therefore, we looked to

the ordinary meaning of these terms and, concluding there was more

than one reasonable interpretation, adopted the interpretation most

favorable to the insured. Id. (concluding exclusion was ambiguous

because “entitled” could refer to “legal right or authority” or to “ ‘consent’

or ‘permission’ ”). Relying on the ordinary meaning of these terms, we

held “coverage is excluded when a person is using a vehicle without a

reasonable belief that he or she had permission of the owner or apparent

owner to do so.” Id. (emphasis added).

As our decision in Gilmore makes clear, whether an insured had a

reasonable belief he was entitled to use a borrowed or rented vehicle in a

particular way depends upon the scope of the permission given by the

owner of the vehicle. See Van Zwol v. Branon, 440 N.W.2d 589, 593

(Iowa 1989) (rejecting “initial permission” rule, which holds “ ‘that when

permission to use a vehicle is initially given, subsequent use short of

actual conversion or theft, remains permissive within the meaning of the

omnibus clause, even if such use . . . was outside any limitation placed

upon the initial grant of permission’ ” (quoting Milbank Mut. Ins. Co. v.

U.S. Fid. & Guar. Co., 332 N.W.2d 160, 162 (Minn. 1983))); cf. Grinnell

Mut. Reins. Co. v. State Farm Mut. Auto. Ins. Co., 558 N.W.2d 176, 180–83

(Iowa 1997) (considering permissive use under omnibus clause of

uninsured motorist coverage); Schneberger v. Glenn, 176 N.W.2d 782,

785 (Iowa 1970) (“Where the owner of a vehicle involved in an accident

has specifically and expressly forbidden his first permittee to delegate

authority for its use to anyone, then no implied authority to third parties

or second permittees can be found.”). Here, the owner of the vehicle was

Alamo, and therefore, we must examine the scope of Alamo’s consent to

Goodwin’s use of the rental car to determine whether Goodwin could
 10

have reasonably believed his use here was authorized. For this reason,

we reject Goodwin’s argument that the rental agreement is irrelevant to

the determination of coverage under the Nationwide policy.

Goodwin also claims the exclusion is ambiguous. He argues that

“if Nationwide intended to take away coverage for cars rented by their

insureds when those insureds let others use them contrary to a rental

agreement, it could have said so in clear and explicit terms.” Because

Nationwide failed to clearly and explicitly exclude coverage for such

situations, Goodwin asserts, “the matter must be resolved against

Nationwide Insurance as a matter of law.” Similarly, he cites to

Nationwide’s failure to define “reasonable belief” or “entitled,” asserting

nothing could be “more ambiguous [than] to not define the terms of an

exclusion.”

These arguments misperceive the legal principles governing the

interpretation of ambiguous policy provisions. The fact that an exclusion

could be more specifically tailored to a particular set of facts does not

mean the insurer cannot rely on a generally worded exclusion that

encompasses various factual scenarios. In addition, the rule that

ambiguities must be resolved against the insurer is not applied in a

vacuum. A court interpreting and applying an ambiguous exclusion

must give the terms of the exclusion their common meaning and adopt

that interpretation of the exclusion most favorable to the insured. Here,

the only alternative interpretation suggested by Goodwin is that

“[p]erhaps the exclusion was only intended to apply to actual operators.”

But Goodwin has failed to identify what language in the exclusionary

provision can reasonably be interpreted to support such a limited

application of the exclusion. In fact, the exclusion applies to an

“insured” using the vehicle, and the term “insured” is defined in the
 11

policy to include the named insured––Goodwin. In summary, Goodwin

has failed to identify a reasonable interpretation of the exclusionary

language that is more favorable to an insured than the meaning we gave

to this provision in Gilmore. Therefore, Goodwin’s claim for coverage

must be judged against this meaning: “coverage is excluded when a

person is using a vehicle without a reasonable belief that he or she had

permission of the owner or apparent owner to do so.” 3 Gilmore, 539

N.W.2d at 157.

Turning to the facts of the present case, we think the conclusion is

inescapable that Goodwin could not have reasonably believed that he

was entitled to use the vehicle in the manner he did, i.e., loaning the

vehicle to an unauthorized driver. Goodwin did not own the vehicle Jolin

was driving at the time of the accident, and so Goodwin did not

necessarily have the full array of rights that accompany ownership.

Goodwin’s rights to the vehicle were obtained from Alamo. Therefore, we

look to the rental agreement to determine the scope of Goodwin’s right to

use the vehicle, as the rental agreement defined the parameters of the

permissive use granted to Goodwin by Alamo. As this agreement made

clear, Goodwin did not have Alamo’s permission to loan the vehicle to an

unauthorized driver. In other words, Goodwin was not entitled to loan

the rental car to Jolin because he did not have “permission of the owner

. . . to do so.” Id.

3The Briones Estate and De Palacios argue coverage would be lost under this

interpretation of the policy should a lessee use a valet parking service at a hotel or
restaurant. Although we do not decide whether the posited situation would be covered,
we note the brief surrender of the vehicle to another for purposes of valet parking is
qualitatively different from loaning the vehicle to another person for that person’s use.
Hence, whether an insured might reasonably believe he was entitled to allow another
person to park his rental car for him poses a different question than the issue
presented here.
 12

We also conclude that to the extent Goodwin believed he could let

unauthorized persons drive the rental car under circumstances such as

those presented here, such a belief was not reasonable. As Goodwin

readily admitted, Jolin’s operation of the rental vehicle violated the

restrictions placed on Goodwin’s use of the vehicle by its owner. More

importantly, Goodwin admitted he did not believe he was authorized by

the rental company to loan the vehicle to Jolin. Based on these

undisputed facts, we do not think a reasonable jury could find that

Goodwin had a reasonable belief he was entitled to loan the vehicle to

Jolin. Therefore, as a matter of law, the exclusion applies, and coverage

is precluded.

V. Reasonable Expectations.

Goodwin contends that, even if coverage does not exist under the

terms of the policy, he is entitled to coverage under the doctrine of

reasonable expectations. This doctrine applies “if the exclusion (1) is

bizarre or oppressive, (2) eviscerates terms explicitly agreed to, or (3)

eliminates the dominant purpose of the transaction.” Farm Bureau Mut.

Ins. Co. v. Sandbulte, 302 N.W.2d 104, 112 (Iowa 1981). “However, as a

prerequisite to the applicability of this doctrine, the insured must prove

‘circumstances attributable to the insurer that fostered coverage

expectations’ or show that ‘the policy is such that an ordinary layperson

would misunderstand its coverage.’ ” LeMars Mut. Ins. Co. v. Joffer, 574

N.W.2d 303, 311 (Iowa 1998) (quoting Benavides v. J.C. Penney Life Ins.

Co., 539 N.W.2d 352, 357 (Iowa 1995)); accord Monroe County v. Int’l Ins.

Co., 609 N.W.2d 522, 526 (Iowa 2000) (noting reasonable expectations

doctrine “is a narrow doctrine that is primarily employed when the

insurance coverage provided eviscerates terms explicitly agreed to or is
 13

manifestly inconsistent with the purpose of the transaction for which the

insurance was purchased”).

In the summary judgment proceedings, Goodwin filed his own

affidavit that set forth his expectations of coverage. He did not, however,

reveal any statements or other circumstances attributable to Nationwide,

other than the policy provisions discussed above, that fostered his

coverage expectations. See Am. Family Mut. Ins. Co. v. Corrigan, 697

N.W.2d 108, 118 (Iowa 2005) (rejecting reasonable expectations

argument in part because there was no evidence of any conduct by the

insurer that generated an expectation of coverage by the insured).

Focusing, then, on the policy itself, we think an ordinary layperson

would not misunderstand the coverage provided, and limited, by these

policy provisions. See Farm Bureau Life Ins. Co. v. Chubb Custom Ins.

Co., 780 N.W.2d 735, 743 (Iowa 2010) (rejecting reasonable expectations

argument, concluding “the clarity of the exclusions in question”

supported the conclusion “a reasonable person could not have

understood coverage would exist”).

Goodwin does not identify in his affidavit any way in which he

misunderstood the policy exclusion. He merely quotes the insuring

clause from the policy and then states that he “expect[ed] that this

language means just what it says.” But insurance policy provisions are

not interpreted in isolation. See Thomas, 749 N.W.2d at 682; Grinnell

Mut. Reins. Co. v. Employers Mut. Cas. Co., 494 N.W.2d 690, 692 (Iowa

1993), called into doubt on other grounds by Corrigan, 697 N.W.2d at 113

n.1. The insuring clause must be read in conjunction with the policy

exclusions. Cf. Harlan v. Valley Ins. Co., 875 P.2d 471, 472–73 (Or. Ct.

App. 1994) (holding in determining whether driver was insured under

terms of policy, exclusion of person using vehicle without a reasonable
 14

belief person was entitled to do so must be considered). If the policy is

not considered as a whole, exclusions would never be enforceable

because by definition exclusions limit the coverage that would otherwise

be provided by the insuring clause. Goodwin’s abstract understanding

that any use of the rental vehicle by him would be covered by the policy

does not give rise to reasonable expectations of coverage. See Essex Ins.

Co. v. Fieldhouse, Inc., 506 N.W.2d 772, 777 (Iowa 1993) (holding

insured’s “general assertion that it expected a liability policy to cover

such negligent acts [as insured was alleged to have committed]” would

not support application of reasonable expectations doctrine). Therefore,

as a matter of law, Goodwin is not entitled to coverage under this theory.

See Shelter Gen. Ins. Co. v. Lincoln, 590 N.W.2d 726, 729 (Iowa 1999)

(holding when insured has failed to show circumstances attributable to

the insurer that fostered coverage expectations or that an ordinary

layperson would misunderstand the exclusion, summary judgment

against the insured is appropriate).

VI. Summary and Disposition.

There is no dispute that Goodwin’s loaning of the rental vehicle to

his uncle was prohibited by the owner of the vehicle. There is also no

disagreement that Goodwin knew this use of the rental vehicle was

unauthorized. We conclude there is no genuine issue that Goodwin did

not have a reasonable belief he was entitled to use the rental vehicle by

loaning it to an unauthorized driver. Therefore, as a matter of law, there

is no coverage under the Nationwide policy due to the exclusion of

coverage when the insured is “[u]sing a vehicle without a reasonable

belief that the ‘insured’ is entitled to do so.”

In addition, Goodwin has failed to place in the record any facts

that would support coverage under the doctrine of reasonable
 15

expectations. He has identified no conduct attributable to Nationwide

that fostered coverage expectations under the circumstances presented

here, nor has he convincingly explained how an ordinary layperson

reading the pertinent policy provisions would misunderstand the

coverage provided. Therefore, as a matter of law, he cannot rely on the

doctrine of reasonable expectations.

The district court erred in granting Goodwin’s motion for summary

judgment and in denying Nationwide’s motion for summary judgment.

We reverse the district court’s judgment in favor of Goodwin and remand

this case for entry of a declaratory judgment that Nationwide has no duty

to defend or indemnify Goodwin for the claims arising out of Jolin’s use

of the vehicle Goodwin rented from Alamo.

REVERSED AND REMANDED.