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Farm Bureau Life Insurance Company v. Holmes Murphy & Associates

May 17, 2013

FARM BUREAU LIFE INSURANCE COMPANY, APPELLANT,
v.
HOLMES MURPHY & ASSOCIATES, INC., APPELLEE.



Appeal from the Iowa District Court for Polk County, Arthur E. Gamble, Judge.

The opinion of the court was delivered by: Hecht, Justice.

Plaintiff--insurance company appeals district court's grant of summary judgment in a negligence action against an insurance broker. AFFIRMED.

A husband and wife applied for life insurance policies from Farm Bureau Life Insurance Company. The applicants later sued Farm Bureau alleging it negligently failed to notify them of their HIV-positive status. Farm Bureau settled the negligence claims, sued its insurers for indemnity, and sued its insurance broker for breach of contract and negligence in failing to provide timely notice to the insurers. We affirmed a summary judgment in favor of the insurers on the ground Farm Bureau had failed to give them timely notice of the applicants' liability claims. Farm Bureau Life Ins. Co. v. Chubb Custom Ins. Co., 780 N.W.2d 735 (Iowa 2010).

Thereafter the district court granted summary judgment for the broker after concluding that even if the insurers had been given timely notice of the applicants' tort claims against Farm Bureau, coverage for those claims would have been precluded under two separate exclusions. Farm Bureau has again appealed. As we conclude the underwriting exclusion precluded coverage for the applicants' claims, we affirm the district court's ruling.

I. Factual and Procedural Background.

The events giving rise to the present dispute commenced in Wyoming in October 1999 when John and Mary Smith*fn1 applied for life insurance through Farm Bureau. Farm Bureau denied the Smiths' applications for life insurance after a blood screening revealed they were both infected with the Human Immunodeficiency Virus (HIV). In November 1999 Farm Bureau sent the Smiths a letter informing them their applications were denied "due to the blood profile results" and requesting authorization to disclose the results to their physician(s). The Smiths did not respond or grant Farm Bureau the requested authorization, and they did not discover their HIV-positive status until July 2001.

The Smiths filed a complaint in June 2002 in Wyoming Federal District Court alleging Farm Bureau and other parties involved in the analysis of the blood samples were negligent in:

(1) failing to report the HIV-positive status to the State of Wyoming; (2) failing, in violation of Wyoming common law, to report the HIV-positive results to them; and (3) failing to inform them before their blood was drawn that Farm Bureau would not tell them if the blood tests were positive for HIV.

Id. at 737. The Smiths sought damages for loss of present and future income, bodily injury, past and future pain and suffering, mental anguish, loss of enjoyment of life, total disability, inability to care for themselves as their diseases progressed, and other general damages.*fn2

The federal district court concluded Farm Bureau owed no legal duty to inform the Smiths of their HIV-positive status and granted Farm Bureau's motion for summary judgment. The Smiths appealed to the United States Court of Appeals for the Tenth Circuit, which reversed the summary judgment order. The court held:

[I]f an insurance company, through independent investigation by it or a third party for purposes of determining policy eligibility, discovers that an applicant is infected with HIV, the company has a duty to disclose to the applicant information sufficient to cause a reasonable applicant to inquire further.

Pehle v. Farm Bureau Life Ins. Co., 397 F.3d 897, 900 (10th Cir. 2005).

The Smiths then filed an amended complaint in Wyoming district court seeking punitive damages and alleging Farm Bureau had breached the legal duty recognized by the Tenth Circuit. The damages the Smiths alleged in their amended complaint were similar to those alleged in the original complaint and included: "loss of past, present, and future income"; past and future "pain and suffering, mental anguish, loss of enjoyment of life, psychological damage, total disability, inability to care for themselves as the disease progresse[d], and other general damages." In June 2006 Farm Bureau and the Smiths reached a confidential settlement agreement and the suit was dismissed.

Farm Bureau subsequently sought indemnity, for the amounts paid in settling the Smiths' claims, under an Insurance Company Professional Liability (ICPL) policy issued by Federal Insurance Company (Federal) and in effect at the time the Smiths filed their ...


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