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WAITS v. UNITED FIRE & CAS. CO.12/24/1997
s Release would preclude any subrogation action by Lori Waits' automobile liability insurance carrier for any sums paid to Ms. Waits under the terms of any policies of insurance." Additionally, the release contained no acknowledgment that the amount received fully compensated Waits for her injuries. Therefore, we reject United Fire's argument that there has been a complete [572 NW2d Page 573]
satisfaction of all potential claims arising from the collision.
D. Compliance with policy requirements. To understand United Fire's second argument with respect to the effect of the release, we turn to the contractual obligation assumed by United Fire under its policy. United Fire's policy requires it to "pay compensatory damages which an `insured' is legally entitled to recover from the owner or operator of an `underinsured motor vehicle' because of `bodily injury ' caused by an accident." The policy further provides that any amount otherwise payable under the UIM coverage "shall be reduced by all sums . . . aid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible." The parties agree this latter provision requires that any payment by the tortfeasor be deducted from the compensatory damages the insured is legally entitled to recover from the tortfeasor and hence, from United Fire.
United Fire argues Waits is not "legally entitled to recover" any damages other than the sum already paid by Allied because Waits fully released Fay from any further liability. It asserts Waits should have given Fay a covenant not to sue in order to comply with the policy requirement of "legally entitled to recover." Cf. Red Giant Oil Co. v. Lawlor, 528 N.W.2d 524, 532 (Iowa 1995) (relying, in part, on the technical distinction between a release and a covenant not to sue in concluding insured was "legally obligated to pay" the injured party despite settlement between insured and injured party). Under a covenant not to sue, argues United Fire, Fay would have remained legally liable for Waits' damages, although Waits would have been contractually bound not to pursue any recovery. See id. Whether the technical distinction between a release and a covenant not to sue is significant here turns on the meaning of the policy language, "legally entitled to recover."
Initially, we note this language is taken from Iowa's underinsured motorist statute. Iowa Code section 516A.1 (1995) provides that UIM coverage must provide "protection of persons insured under such policy who are legally entitled to recover damages from the owner or operator of an . . . underinsured motor vehicle." (Emphasis added.) Thus, we interpret UIM coverage in a manner consistent with the legislature's goal in enacting the underinsured motorist statute. See Mewes v. State Farm Auto. Ins. Co., 530 N.W.2d 718, 722 (Iowa 1995) ("We construe the insurance policy in light of the purposes and intent of section 516A.2."); Wetherbee v. Economy Fire & Cas. Co., 508 N.W.2d 657, 660 (Iowa 1993) ("In determining the meaning of this phrase [`legally entitled to recover'], we first look for guidance to the legislature's intent in including this element in Iowa's underinsured motorist statute."); Leuchtenmacher, 461 N.W.2d at 293 ("In ascertaining legislative intent, we consider the language used in the statute, the object sought to be accomplished, and the wrong to be remedied.").
The purpose of Iowa's UIM statute "is to provide compensation to an insured who is the victim of an underinsured motorist's negligence to the same extent as if the underinsured motorist were adequately insured." Wetherbee, 508 N.W.2d at 660; see also 8C John Alan Appleman & Jean Appleman, Insurance Law and Pra
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