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WAITS v. UNITED FIRE & CAS. CO.12/24/1997
refusing to sever the claim against the UIM insurer from the claim against the underinsured motorist. Id.
Waits argues the reasoning of Handley is not applicable here, however, because the evidence would be admitted against an insurance company, not against the tortfeasor. Because the defendant is an insurance company, Waits contends, it cannot complain about the admission of insurance evidence. Waits' argument overlooks the fact that the same rules of evidence apply in all lawsuits regardless of the defendant's identity. We held in Handley that evidence of the tortfeasor's policy limits will likely improperly influence the jury to return a larger damage award for the injured party than it otherwise would. Id. This same likelihood exists when the determination of the injured party's damages is made in the context of a contract action for UIM benefits rather than a tort suit against the underinsured motorist. The prejudice is not lessened or rendered fair by the mere fact that the recipient of the prejudice is an insurance company. [572 NW2d Page 571]
Even if we assume evidence of Allied's payment had some relevancy to disputed factual issues in this case, we think any relevancy was substantially outweighed by not only the danger, but the likelihood, of unfair prejudice. See Casady, 491 N.W.2d at 786 (balancing actual need for evidence against the degree to which the jury will tend to base its decision on an improper basis). This evidence served no purpose other than to inform the jury that it must return a verdict in excess of $90,297.86 in order for Waits to recover under her UIM coverage. An insurer should be able to avoid such prejudice by stipulating to any matters to which the tortfeasor's liability limits and/or settlement payment would be relevant. That is what United Fire did here.
E. Conclusion. We hold the trial court's admission of evidence of Allied's payment was an abuse of discretion. Additionally, it was reversible error to instruct the jury concerning the amount paid by Allied. Therefore, we reverse and remand for a new trial. Because the other issues raised on appeal are likely to occur again on remand, we will address them now.
III. Effect of Release.
A. Background facts. We begin our discussion of this issue with a review of the pertinent terms of the release signed by Waits to effectuate her settlement with the tortfeasor, Fay. In the release, Waits agreed to "forever release, acquit and discharge Theresa M. Fay and Tommy G. Fay and Allied Mutual Insurance Company . . . from any and all claims, causes of action or demands arising out of an automobile accident occurring on or about February 15, 1992." (Tommy Fay owned the automobile operated by Theresa Fay.) The release further provided that it included "all claims, causes of action or demands whether known or unknown and regardless of the theory of recovery."
In its answer, United Fire alleged that Waits had released the tortfeasor from any liability beyond payment of the agreed-upon settlement. It claimed this settlement "constitutes a complete satisfaction of any potential claims which [Waits] might otherwise have had for the injury alleged in petition." United Fire also alleged that as a consequence of the settlement, Waits could not meet the policy requirement that she be "legally entitled to recover" damages from the underinsured motorist that were not fully compensated by the underinsured motorist's liability insurer. Prior to trial, Waits filed a motion to strike, asking the court to dismiss this defense. See Iowa R. Civ. P. 104(c) (stating the " ufficiency of any defense may be raised by motion to strike it"). The trial court granted Waits' motion.
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