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IOWA MUTUAL INS. CO. v. MCCARTHY11/26/1997
This appeal involves a dispute concerning liability insurance coverage for a wrongful death claim made by the appellant, Donna Rae Kelly, as administrator of the Estate of Leo Kelly and as next friend of Amy Kelly, against Philip J. McCarthy, an insured of the appellee, Iowa Mutual Insurance Company. Coverage turns on whether Leo Kelly was an employee of McCarthy at the time of Kelly's death, thereby triggering the employee exclusion contained in Iowa Mutual's policy.
The question of Kelly's employment status was submitted to the jury, which determined Kelly was not McCarthy's employee. The trial court entered a judgment notwithstanding the verdict in favor of Iowa Mutual, ruling Kelly was McCarthy's employee as a matter of law. Based on this ruling, the court rendered a declaratory judgment that Iowa Mutual's policy provided no coverage for the claims made by Kelly's estate against McCarthy.
The estate appealed. We reverse and remand.
I. Background Facts and Proceedings.
In 1993, Leo Kelly was fatally injured while making repairs to a harrow owned by Philip McCarthy. At the time of this accident, McCarthy was insured under a farm liability policy issued by Iowa Mutual. This policy excluded coverage for bodily injury sustained by "any employee . . . as a result of his or her employment by the `Insured.'"
Iowa Mutual commenced this declaratory judgment action against McCarthy and Kelly's estate to obtain a ruling that the employee exclusion precluded coverage for any claims made by the estate against McCarthy. The estate filed a cross-claim against McCarthy, asserting McCarthy was liable for damages [572 NW2d Page 539]
arising from Kelly's death. Iowa Mutual provided an attorney to defend McCarthy on the wrongful death claim. Upon Iowa Mutual's request, the court severed the cross-claim from the declaratory judgment action, with the coverage claim proceeding to trial first.
The parties agreed coverage was controlled by the employee exclusion. Accordingly, the sole issue submitted to the jury was whether Kelly was an employee of McCarthy at the time of the accident. The jury answered a special interrogatory finding Kelly was not McCarthy's employee when the accident occurred.
Iowa Mutual filed a motion for judgment notwithstanding the verdict, claiming the evidence established that Kelly was McCarthy's employee as a matter of law. The insurer also filed a motion for new trial, alleging error in the court's admission of evidence and instructions to the jury. The court set aside the jury's verdict and ruled as a matter of law that Kelly was an employee of McCarthy. Consistent with this ruling, the court held no coverage existed for the cross-claim asserted by the estate. The estate filed this appeal.
After the declaratory judgment had been entered, McCarthy settled the estate's wrongful death action over Iowa Mutual's objections. Pursuant to the settlement agreement, McCarthy confessed judgment for $507,500. This offer of judgment was accepted by the estate and the district court entered a judgment against McCarthy in the stipulated amount. McCarthy paid $7,500 to the estate and obtained a partial satisfaction of judgment. The estate agreed it would collect the balance of the judgment from Iowa Mutual, not McCarthy. In addition, McCarthy assigned his rights against Iowa Mutual to the estate.
II. Issues on Appeal.
This appeal presents several issues. Initially, Iowa Mutual claims the coverage issues raised in this appeal are now moot because McCarthy has forfeited any coverage by his unauthorized settlement with the estate. The insurer also contends that because McCarth
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