2. Haugh v. Nationwide Mut. Fire Ins. Co..................................................36
Lloyd v. Coffee...........................................................................................37
Mintz v. Kelley...........................................................................................38
Robinson v. Discovery Ins. Co..................................................................40
Wood v. Nunnery.......................................................................................44
III. UNITED STATES COURT OF APPEALS (4TH
CIRCUIT)
Kamp v. Empire fire & Marine Ins. Co....................................................46
IV. UNITED STATES DISTRICT COURT
A. EASTERN DISTRICT OF NORTH CAROLINA
Burch v. Lititz Mutual Ins. Co..................................................................47
City Grill Hospitality Group, Inc. v. Nationwide Mut. Ins. Co...............50
-ii-
4. with the Wilson Police Department sergeant who had investigated the arson. Farm
Bureau’s investigator informed and provided documentation to the Sergeant Lucas that
Farm Bureau had denied the Volpes’ claim and that the Volpes had sold the property
without first paying off the debt encumbering it. Based on the information provided by
the Farm Bureau investigator, the WPD sergeant opened a separate fraud investigation
against Mr. Volpe. Mr. Volpe was later arrested and charged with obtaining property
under false pretenses, but the district attorney dismissed the charge against him.
Ultimately the trial court found that Farm Bureau was liable to Volpe for malicious
prosecution. The trial court also found that Farm Bureau withheld information from the
WPD until after defendants filed their counterclaim for the purpose of achieving leverage
in this action, and that Farm Bureau initiated criminal proceedings against Mr. Volpe.
The trial court awarded the Volpes attorney’s fees, damages for malicious prosecution,
and damages for the “unfair and deceptive trade practice of malicious prosecution.” Id. at
12. The court of appeals affirmed, finding that almost all the information used by the
WPD sergeant in making his decision to prosecute Mr. Volpe had been supplied by Farm
Bureau’s investigator. Farm Bureau appealed.
The NC Supreme Court observed:
[a]ll of Volpe’s surviving claims are based upon a contention that Farm
Bureau maliciously instigated a criminal prosecution against her and that
the malicious prosecution was an unfair and deceptive practice, which the
trial court found was instituted for the purpose of gaining leverage in the
current action.
Id. at 13. Thus, if the Farm Bureau investigator’s report to the WPD was proper, then
Farm Bureau neither instituted a malicious prosecution not committed an unfair or
deceptive trade practice.
Although no party challenged the trial court’s findings of fact, the court here stated that
because it involved a mixed question of law and fact, the trial court’s conclusion that
Farm Bureau’s actions constituted initiation of a criminal action as a matter of law that
the court reviews de novo. The court noted:
To prove that Farm Bureau is guilty of malicious prosecution, Volpe must
establish that: "(1) [Farm Bureau] initiated the earlier proceeding; (2)
malice on the part of [Farm Bureau] in doing so; (3) lack of probable
cause for the initiation of the earlier proceeding; and (4) termination of the
earlier proceeding in favor of [Volpe]." Best v. Duke Univ., 337 N.C. 742,
749, 448 S.E.2d 506, 510 (1994) (citing Jones v. Gwynne, 312 N.C. 393,
397, 323 S.E.2d 9, 11 (1984)). The dispositive issue in this case is whether
the trial court erred when it found as a matter of law that Farm Bureau,
through its [investigator], initiated the prosecution of Volpe.
Id. at 14-15. The court challenged the Court of Appeals’ interpretation of the element of
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5. initiation of malicious prosecution, stating that it did not adequately account for “the roles
played by police and prosecutorial discretion.” Id. at 16. Rather, a more comprehensive
analysis for malicious prosecution deserves an examination of the requirements of
malicious prosecution set out by the Restatement (Second) of Torts § 653 Comment (g)
(1977):
Influencing a public prosecutor. A private person who gives to a public
official information of another's supposed criminal misconduct, of which
the official is ignorant, obviously causes the institution of such subsequent
proceedings as the official may begin on his own initiative, but giving the
information or even making an accusation of criminal misconduct does not
constitute a procurement of the proceedings initiated by the officer if it is
left entirely to his discretion to initiate the proceedings or not. When a
private person gives to a prosecuting officer information that he believes
to be true, and the officer in the exercise of his uncontrolled discretion
initiates criminal proceedings based upon that information, the informer is
not liable under the rule stated in this Section even though the information
proves to be false and his belief was one that a reasonable man would not
entertain. The exercise of the officer's discretion makes the initiation of
the prosecution his own and protects from liability the person whose
information or accusation has led the officer to initiate the proceedings.
Cully’s, 2013 N.C. LEXIS 491 at 17. Discarding the “but-for” test used by the trial court
and the Court of Appeals, the N.C. Supreme Court implemented a new analysis according
to Comment G to be used in future cases. Accordingly, the court rendered the Court of
Appeals’ but-for analysis, “which states that Sergeant Lucas would ‘never’ have pursued
a criminal prosecution” but-for the Farm Bureau investigator’s report, inappropriate. Id.
at 20.
The court concluded that because the Farm Bureau investigator only presented evidence
to Sergeant Lucas, but did not actually ask Sergeant Lucas to arrest or initiate prosecution
against Volpe, Sergeant Lucas independently exercised his own discretion to make the
prosecution. Thus, Farm Bureau did not institute a malicious prosecution and its actions
did not constitute an unfair and deceptive practice.
Judge Beasley’s Dissent.
Judge Beasley concurred with the majority that Comment (g) in the Restatement Second
of Torts § 653 (1977) is the proper standard to determine whether a party initiated the
earlier proceeding in a malicious prosecution claim. However, Judge Beasley would
remand the case to the trial court to make findings of fact and conclusions of law
applying the standard announced by the majority. Judge Beasley noted:
North Carolina law requires a plaintiff to prove four elements to prevail on
a malicious prosecution claim: "(1) defendant initiated the earlier
proceeding; (2) malice on the part of defendant in doing so; (3) lack of
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 3
6. probable cause for the initiation of the earlier proceeding; and (4)
termination of the earlier proceeding in favor of the plaintiff." Best v.
Duke Univ., 337 N.C. 742, 749, 448 S.E.2d 506, 510 (1994) (citation
omitted).
. . . .
Whether plaintiff initiated the earlier proceeding is a conclusion of law,
but this conclusion of law, like any other conclusion of law, is dependent
upon factual support. See, e.g., Scarborough v. Dillard's, Inc., 363 N.C.
715, 722, 693 S.E.2d 640, 644 (2009), cert. denied, U.S. , 131 S. Ct.
2456 (2011). When a party has failed to challenge the findings of fact, the
findings are binding on the appellate court. Id. (citations omitted). The
trial court's conclusions of law are reviewed de novo. Id. (citations
omitted).
Here, plaintiff did not challenge the trial court's findings of fact as
findings of fact; rather, plaintiff challenged what the trial court labeled
"findings of fact," but argued such "findings" were actually conclusions of
law. In essence, plaintiff challenged the trial court's conclusions of law
and allowed the court's findings of fact to go unchallenged. Thus, the trial
court's correctly labeled findings of fact are binding on this Court, though
conclusions of law are reviewed de novo.
Cully’s, 2013 N.C. LEXIS 491 at 22-25. Judge Beasley explained that although the on
remand the trial court might find that Sergeant Lucas exercised “uncontrolled discretion”
in charging Volpe based on the evidence presented, “we are not a fact-finding court. We
lack material findings of fact necessary to answer the legal question in this case, and this
Court should not engage in the fact-finding process.” Id. at 25, 26.
VI. NORTH CAROLINA COURT OF APPEALS
A. N.C. COURT OF APPEALS – PUBLISHED OPINIONS
Davis v. Urquiza, 2014 N.C. App. LEXIS 356 (April 15, 2014)
Judge Steelman. Judges McGee and Ervin concur.
Service of Process on Uninsured Motorist Carrier. Plaintiff Davis was a passenger in a
vehicle struck by another vehicle operated by defendant, an uninsured motorist. Plaintiff
and her parents filed this action against defendant seeking monetary damages for personal
injuries resulting from the collision. Plaintiffs contended that Farm Bureau provided UM
coverage for the collision in accordance with N.C. Gen. Stat. § 20-279.21(b)(3), and also
contend that National Grange provided applicable UM coverage.
Defendant was served with a copy of the summons and complaint. Plaintiff's counsel
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7. mailed a copy of the summons and complaint to the Farm Bureau claims adjuster via
certified mail at his office in Wilkesboro on June 5, 2012, and which were received two
days later. Farm Bureau filed an answer as an unnamed party, specifically asserting the
defenses of: insufficiency of process, insufficiency of service of process, and statute of
limitations. Farm Bureau produced an affidavit stating that the adjuster served "was not
now, nor has he ever been an officer, director or managing agent" of Farm Bureau, nor
"has he ever been a designated process agent for that company..." On January 2, 2013,
Plaintiffs mailed a copy of the summons and complaint to Wayne Goodwin, the
Commissioner of Insurance, by certified mail, in order to serve Farm Bureau in
accordance with N.C. Gen Stat. § 58-16-30.
Farm Bureau filed a motion to dismiss on January 7, 2013, and the trial court granted
Farm Bureau's motion on March 11, 2013, dismissing plaintiff's complaint against Farm
Bureau as an unnamed defendant, with prejudice.
Plaintiffs appealed, contending that the trial court erred in dismissing the complaint
against Farm Bureau for insufficient process and/or insufficient service of process. The
Court cited Rule 4 of the N.C. Rules of Civil Procedure and N.C. Gen. Stat. § 58-16-30
(which provides that an insurance company can be served by serving the N.C.
Commissioner of Insurance. The Court explained:
We have previously held that statutes concerning service of process must
be strictly complied with, and that even actual notice, if it does not comply
with statutory requirements, does not give the court jurisdiction over a
party. Fulton v. Mickle, 134 N.C. App. 620, 623-24, 518 S.E.2d 518, 520-
21 (1999). In Fulton, we held that service upon a party was defective for
two reasons: first, because it was delivered by regular mail instead of
certified mail; second, because the recipient was not one of those listed in
Rule 4(j)(6) as authorized to receive service. We hold that this latter basis,
the lack of an authorized recipient, is controlling in the instant case.
. . . .
The affidavit of H. Julian Philpott, Jr., states that Wagoner was neither an
officer nor director, nor a designated agent for service of process, for Farm
Bureau. This affidavit rebutted the presumption that service upon
Wagoner was effective. Plaintiff failed to present evidence to demonstrate
effective service within the limitations period. We therefore hold that
plaintiffs' purported service of process upon [the adjuster] was
defective.
The Court further noted:
Where a plaintiff seeks to bind an uninsured motorist carrier to the result
in a case, the carrier must be served by the traditional means of service,
within the limitations period. In the instant case, plaintiffs' service upon a
claims adjuster was insufficient. As we held in Thomas, plaintiffs' alias
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8. and pluries summonses issued after defendant was served have no legal
effect. Id. at 755, 525 S.E.2d at 843. Plaintiffs' service upon the
Commissioner of Insurance outside of the limitations period mandated
dismissal.
The trial court did not err in granting Farm Bureau's motion to dismiss for
insufficiency of process or insufficiency of service of process.
Grich v. Mantelco, LLC, 746 S.E.2d 316 (August 6, 2013)
Judge Elmore. Chief Judge Martin and Judge Hunter Jr. concur.
Release of Liability. Plaintiff Grich appeals trial court's granting of defendants' motion to
dismiss Plaintiff's complaint and petition for declaratory judgment against Mantelco and
Universal Insurance, which alleged that Universal breached an enforceable contract for
release of liability and engaged in unfair or deceptive trade practices.
The facts of the underlying dispute are as follows. Mantelco's employee, hired to install a
satellite dish at plaintiff's home, broke a water line in plaintiff's home causing significant
damage to the home and forcing plaintiff and his tenant to move out while the repairs
were completed. Plaintiff submitted claims to Universal, Mantelco's liability insurer, for
property damage, loss of rent, and for additional costs associated with being unable to
reside at the residence. Plaintiff and Universal's adjuster disagreed as to the building
damage repair estimates. Universal did, however, make three payments totaling $7,000 to
plaintiff for "advance payment for relocation out-of-pocket expenses" and loss of rent.
When the parties continue to disagree over the building damage repair estimate, however,
plaintiff retained counsel.
Plaintiff through his attorney sent a demand letter to Universal, offering to settle the
matter for $38,020.00. Universal responded that it agreed to settle the issue for that
amount, provided plaintiff release it and Mantelco from any future claims. The Release
stated in relevant part:
That the Undersigned, being of lawful age, for the sole consideration of
THIRTY EIGHT-THOUSAND TWENTY DOLLARS AND 00/100
Dollars ($38,020.00) to the undersigned in hand paid, receipt whereof is
hereby acknowledged, do/does hereby . . . release, acquit and forever
discharge MANTELCO, LLC AND UNIVERSAL INSURANCE
COMPANY . . . of and from any and all claims of action, demands, rights,
damages, costs, loss of service, expenses and compensation whatsoever,
which the undersigned now has/have or which may hereafter accrue . . . .
The undersigned further declare(s) and represent(s) that no promise,
inducement or agreement not herein expressed has been made to the
undersigned, and that this Release contains the entire agreement between
the parties hereto, and that the terms of this Release are contractual and
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9. not a mere recital.
Grich at 3-4, emphasis added. Before receiving his settlement check, plaintiff executed
the Release and returned it to Universal. Universal then issued a check to plaintiff for
$31,020.00, the total amount less the $7,000.00 already paid to plaintiff, stating this
payment constituted full satisfaction pursuant to the Release. Plaintiff then brought suit
for breach of contract and for unfair and deceptive trade practices, alleging that he was
entitled to $38,020.00 in addition to the $7,000.00 he had already received. Defendants
filed a motion to dismiss, which the trial court granted it.
Noticing that releases are contractual in nature and therefore contract interpretation
principles are applied when construing a release, the Court noted: "To state a claim for
breach of contract, the complaint must allege that a valid contract existed between the
parties, that defendant breached the terms thereof, the facts constituting the breach, and
that damages resulted from such breach." Id. at 6.
Plaintiff's argument on appeal, however, hinged on an alleged unilateral mistake that he
was unaware of defendants' intention to offset the total pending claims by the money he
had already received. But, a party's unilateral mistake unaccompanied by fraud,
imposition, undue influence or like circumstances of oppression is insufficient to avoid a
contract. Here, the parties do not dispute the validity of the contract and the langugage of
the contract presented no evidence of misrepresentation or bad faith by the defendants.
Accordingly, the Court found the plain language of the Release controlling, and noted:
Plaintiff released defendants from all liability for the "sole consideration"
of $38,020.00 "in hand paid, receipt whereof is hereby acknowledged." It
is plaintiff's mistake that he signed a contract which clearly states "in hand
paid" prior to receiving the funds. By signing the Release and
acknowledging receipt of payment, plaintiff executed the agreement and
thereby released defendants for all claims plaintiff "has/have or which
may hereafter accrue[.]"
Id. at 7, emphasis in original. Further, the court declined to address plaintiff's unfair and
deceptive trade practices claim as there was no evidence in the record to support it. The
Court affirmed the trial court's ruling.
Hinson v. City of Greensboro, 753 S.E.2d 882 (February 4, 2014)
Judge McCullough. Judges McGee and Dillon concur.
Sovereign Immunity and Purchase of Liability Insurance. Defendants appealed the trial
court's denial of their motion to dismiss plaintiff's complaint, asserting sovereign
immunity as a defense. Plaintiff filed this action seeking compensation and alleging that
defendants had subjected him to discrimination on the basis of race, conspired to
discriminate on the basis of race, and conspired to injure plaintiff in his reputation and
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10. profession. The actual details of the discrimination are detailed in the Court's opinion, but
are not relevant here.
Initially noting that it ordinarily cannot review trial court's denial of a motion to dismiss,
but the Court of Appeals has held that "appeals from interlocutory orders raising issues of
governmental or sovereign immunity affect a substantial right sufficient to warrant
immediate appellate review." Therefore, the Court held that "defendants are not entitled
to immediate appellate review of the trial court's denial of their motions to dismiss on the
basis of any non-immunity related arguments" and dismissed "those portions of their
appeal that rely on non-immunity related issues."
While defendants argued that all of plaintiff's state law claims all fall the doctrine of
governmental immunity, a city may waive the immunity through the purchase of liability
insurance. Immunity is waived, however, "only to the extent that the city is indemnified
by the insurance contract from liability for the acts alleged." A city or municipality may
also waive its immunity by "participating in a local government risk pool" according to
N.C. Gen. Stat. § 160A-485(a). But, the plaintiff in his complaint must allege a waiver in
order to overcome a defense of sovereign immunity, or else the action fails.
In this case, plaintiff argued that the City of Greensboro waived its governmental
immunity by the purchase of liability insurance. It was uncontested that the City of
Greensboro: (1) is self-insured up to $100,000; (2) participated in a Local Government
Excess Liability Fund which pays claims between $100,000 and $3,000,000 (with an
obligation to repay the Fund); and (3) purchased a $5 million excess liability insurance
policy through Genesis Insurance. Previous caselaw determined that the City of
Greensboro's participation in the Fund was not a waiver of sovereign immunity. At issue
here is whether the City's $5 million excess policy constituted a waiver.
The City presented evidence that the $5 million excess liability policy contained a $3
million self-insured retention provision that must be paid by the insured. Thus, the Court
reasoned, "the City of Greensboro is responsible for paying $3,000,000.00 before there is
any potential coverage under the Genesis Insurance policy." The Court found that the
language of the excess policy was substantially similar to those in other cases where the
Court of Appeals held that a local governmental entity had not waived its immunity
through the purchase of excess liability insurance. Specifically, the Court was persuaded
by the conclusion in Pettiford v. City of Greensboro, 556 F. Supp. 2d 512 (M.D.N.C.
2008):
This excess liability insurance does not apply unless and until the City has
a legal obligation to pay the $ 3 million self-insured amount. Because the
City is immune from negligence claims up to $ 3 million, it will never
have a legal obligation to pay this self-insured amount and, thus, has not
waived its immunity through the purchase of this excess liability insurance
policy.
The Court held that based on the terms of the excess liability policy, the City of
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11. Greensboro had not waived its immunity as to plaintiff's state claims of race
discrimination, conspiracy to discriminate on the basis of race, and conspiracy to injure
the plaintiff in his reputation or profession. Finally, the Court noted that suit against the
police chief and deputy police chief in their official capacities "is a suit against the State
and therefore, sovereign immunity applies."
The Court reversed the trial court's denial of defendants' motion to dismiss.
Holmes v. N.C. Farm Bureau Mutual Insurance, 756 S.E.2d 848 (April 15, 2014)
Judge Stroud. Judges Calabria and Davis concur.
Commercial Policy Vacancy Exclusion. This case comes to the Court of Appeals on
appeal by plaintiff from the trial court's granting of summary judgment in defendant
insurance company's favor.
Plaintiff owned an office building with five separate units: A, B, C, D, and G. The
Plaintiff purchased an office-lessor's insurance policy from defendant to cover the
property. The policy contained an exclusion of coverage for any building that has been
vacant for more than 60 days, including loss by theft. Only Unit A, which constituted
approximately 16% of the total square footage, was rented. At issue here is the
classification of Unit C, as Units B, D, and G were considered vacant by both parties.
While Unit C was not leased in the sixty days before the theft, two attorneys used a small
room in Unit C to store and review old files as a "customary operation" of their law
practice. The rest of the space in Unit C was not used. The total space used by the
attorneys to store their files constituted approximately 2% of the total square footage of
the building.
The relevant policy provision at issue states:
9. Vacancy
a. Description of Terms (1) As used in this Vacancy Condition, the
term building and the term vacant have the meanings set forth in (1)(a)
and (1)(b) below:
(a) When this policy is issued to a tenant, and with respect to that
tenant's interest in Covered Property, building means the unit or suite
rented or leased to the tenant. Such building is vacant when it does not
contain enough business personal property to conduct customary
operations.
(b) When this policy is issued to the owner of a building, building
means the entire building. Such building is vacant when 70% or more of
its total square footage:
(i) Is not rented; or
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12. (ii) Is not used to conduct customary operations.
. . . .
b. Vacancy Provisions
If the building where loss or damage occurs has been vacant for more
than 60 consecutive days before that loss or damage occurs:
(1) We will not pay for any loss or damage caused by any of the
following even if they are Covered Causes of Loss:
. . . .
(e) Theft;
Plaintiff argued that the building was not vacant because the use of Unit C and Unit A
demonstrated that over 30% of the office building was either rented or used for
customary operations. Defendant, however, argued that under the definition in (a)(1)(b),
which applies to plaintiff as an owner, if either 30% or less of the entire covered building
is rented, or if 30% or less of the building is used to conduct customary operations, then
the building is considered vacant. The Court noted that under defendant's interpretation,
"a building could be 30% rented and have another 30% used for customary operations,
but the building would still be considered vacant." Plaintiff argued that this provision
means that if more than 30% of the building is either rented or used to conduct customary
business operations, then it is not vacant. As to this issue, the Court concluded that it
"need not resolve this issue here because even under plaintiff's interpretation of the
contract, [the office building] was vacant for more than sixty days before the theft."
The only question left for the Court to decide was "whether Unit C was used for
"customary operations" and how much of Unit C was so used." Plaintiff argued that the
entirety of Unit C should be counted as being "used for customary operations" because
"one room within that unit was being used and those using it had permission to occupy
the entire unit" (even though they only occupied one room). But, the Court found that
interpretation to be contrary to the plain language of the property, which defines
"vacancy" in relation to the total square footage of the building. The Court noted:
[T]he relevant question under the contract is what percentage of the total
square footage was actually so used, not what amount could have been
used.
Here, only 144 square feet of Unit C were used to conduct customary
operations of [the attorneys'] law practice. Combined with the area of Unit
A, which was 1344 square feet, the total square footage either rented or
used to conduct customary operations was 1488 square feet. Using either
measure of the total square footage--8288 square feet or 8177 square feet--
this area does not exceed 30%. We conclude that the uncontested facts
show that [the office building] was "vacant" for purposes of the insurance
contract for more than 60 days prior to the theft.
As a result, the plaintiff was not entitled to compensation for his loss and defendant did
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13. not breach the insurance contract by refusing to pay for plaintiff's theft claim. The Court
affirmed the trial court's decision.
Integon National Insurance v. Helping Hands Specialized Transport, 2014 N.C.
App. LEXIS 408 (May 6, 2014)
Judge Martin. Judges McGee and Calabria concur.
Plaintiff Integon filed this Declaratory Judgment action seeking declaration of its
obligations to provide coverage under a business auto liability policy issued to Defendant
Helping Hands. Integon denied coverage for a claim arising from the death of Ms. Smith,
a patient who was not ambulatory and who died soon after being dropped by a Helping
Hands employee while being moved from a Helping Hands transport vehicle into her
home. Ms. Taylor, the executrix of the deceased's estate filed a separate action seeking
damages for negligence on the part of Helping Hands, which the estate asserts
proximately resulted in the injuries and death of Ms. Smith.
In this case, the trial court found that at the time of the incident, Helping Hands had a
business auto policy with Integon for which it insured against liability for damages
"caused by an accident and resulting from the ownership, maintenance or use of a
covered" vehicle. The Court noted the procedural history of the case:
The trial court denied Integon's motion for summary judgment and granted
Ms. Taylor's motion for summary judgment, holding that Integon's policy
provides coverage in the full amount of the policy limits to Helping Hands
for its liability, if any, with respect to the incident, and that Integon is
obligated to provide a defense to Helping Hands for the claim. Integon
appeals.
After initially noting that summary judgment is appropriate for the determination of
Integon's coverage obligations, the Court explained:
While Integon's policy insured Helping Hands against liability for
damages "caused by an accident and resulting from the ownership,
maintenance or use of a covered" vehicle, N.C.G.S. § 20-279.21 requires
that an automobile liability insurance policy provide coverage for damages
"arising out of the ownership, maintenance or use of" the covered
vehicle. N.C. Gen. Stat. § 20-279.21(b)(2) (2013). Our case law has
established that this statute is written into every automobile liability
policy. Nationwide Mut. Ins. Co. v. Chantos, 293 N.C. 431, 441, 238
S.E.2d 597, 604 (1977), appeal after remand, 298 N.C. 246, 258 S.E.2d
334 (1979).
The Court then examined the meaning of "arising out of the ownership maintenance or
use of" as interpreted in four established North Carolina cases: (1) Fidelity & Cas. Co. of
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 11
14. New York v. North Carolina Farm Bureau Mut. Ins. Co., 16 N.C. App. 194, 192 S.E.2d
113 (1972); (2) State Capital Ins. Co. v. Nationwide Ins. Co., 318 N.C. 534, 350 S.E.2d
66 (1986); (3) Nationwide Mut. Ins. Co. v. Davis, 118 N.C. App. 494, 455 S.E.2d 892
(1195); and (4) Integon Nat'l Ins. Co. v. Ward, 184 N.C. App. 532, 646 S.E.2d 395
(2007). These cases all interpret the general rule as highlighted in State Capital:
In short, the test for determining whether an automobile liability policy
provides coverage for an accident is not whether the automobile was a
proximate cause of the accident. Instead, the test is whether there is a
causal connection between the use of the automobile and the accident.
The court held that there was a sufficient "causal connection":
In the present case, the insured vehicle was intended for use, on the date of
the occurrence of Ms. Smith's injury, to transport her from the hospital to
her residence for palliative care. Because she was unable to ambulate,
application of the logic contained in Davis and Ward leads to the inference
that the use of the insured van included moving Ms. Smith into her
residence as a part of the transport service. Since we are unable to draw
any meaningful distinction between the Davis and Ward facts and the facts
of the instant case, and even though we might believe that the extension of
coverage in those cases goes beyond the common-sense application of the
principles of a causal connection, we are bound to follow them and hold
that there is a sufficient "causal connection" between the van's use
and Ms. Smith's injury requiring Integon's policy to provide
coverage. Our decision is not to be construed as an indication that we
express any opinion as to the liability of any party to the underlying civil
action.
Finally, the Court did not reach Integon's remaining argument that "after the trial court
found that the insurance policy covered Ms. Smith's injury, the trial court should have
reformed the policy to require payment of only the statutorily mandated minimum
coverage amount." The Court noted:
Integon's complaint did not seek reformation of the insurance contract,
only a declaration that its policy provided no coverage to Helping Hands
for Ms. Smith's injuries. Nothing in the record before us shows
affirmatively that plaintiff argued reformation of the policy before the trial
court. Therefore, we will not review this argument because it was not
properly preserved for appeal.
Also, to the extent that plaintiff asserts the reformation argument is part of
the declaratory judgment action, that argument fails. . . . [O]ur courts have
held that a declaratory judgment action is inappropriate when used as "a
vehicle for the nullification of [written] instruments." Farthing v.
Farthing, 235 N.C. 634, 635, 70 S.E.2d 664, 665 (1952).
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 12
15. While none of the previously cited cases directly address plaintiff's
argument, they do provide a framework for when a declaratory judgment
action is appropriate. Plaintiff seems to assert that the trial court should
have reformed the terms of the automobile liability policy because the
language of the policy was intended to apply to a narrower scope of
causation than N.C.G.S. § 20-279.21, and therefore, plaintiff should have
to pay only the statutorily mandated minimum coverage and not the
minimum coverage stated in the policy. Plaintiff's argument asserts that
this Court should change the terms of the policy based on the interaction
between the language of the parties' agreement and the requirements of
statutory law. The Declaratory Judgment Act, however, applies to the
interpretation of written instruments. Therefore, we find that this type of
determination is beyond the scope of the Declaratory Judgment Act.
The Court of Appeals affirmed the trial court's order requiring that Integon's policy
provide coverage in the underlying action of Ms. Smith's estate against Helping Hands.
Integon National Insurance v. Villafranco, 745 S.E.2d 922 (August 6, 2013)
Judge Steelman. Judges Calabria and McCullough concur.
Personal Auto Family Member Exclusion. Integon appealed a trial court order that it
provide liability coverage for personal injury claims arising from the named insured’s 14
year old son’s use of the insured vehicle. Integon first argued that the 14 year old was not
an insured under the terms of the policy. The policy defined an “insured” as “you or any
family member” and further defined “family member” as “a person related to you by
blood, marriage, or adoption who is a resident of your household[.]” Id. at 925. Because
the named insured’s 14 year old son was a resident of the named insured’s household, the
trial court held that he was an insured under the terms of the policy. Integon asserted,
however, that the following exclusion applied:
We do not provide Liability Coverage for any insured:…
8. Using a vehicle without a reasonable belief that that [sic]
insured is entitled to do so.
This Exclusion A.8. does not apply to a family member using your
covered auto which is owned by you.
Id. at 925. The exception to A.8., above, was added to the policy in 2005. The court
noted: “Prior to the addition of the exception, our Supreme Court held that a family
member who does not have reasonable belief that he is entitled to use the insured vehicle
is excluded from automobile liability coverage.” Id., see e.g. Newell v. Nationwide Mut.
Ins. Co., 334 N.C. 391, 401-02, 432 S.E.2d 284, 288-89 (1993).
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 13
16. While Integon argued that the exception to A.8. should not apply here and cited several
cases in support, the court found that none of the cases cited involved a driver whose
status as a family member made them an “insured” under the policy. Additionally, the
holdings cited by Integon were based on the minimum requirements for liability coverage
according to the North Carolina Financial Responsibility Act, which states:
(b) Such owner's policy of liability insurance:
. . . .
(2) Shall insure the person named therein and any other person, as insured,
using any such motor vehicle or motor vehicles with the express or
implied permission of such named insured, or any other persons in lawful
possession, against loss from the liability imposed by law for damages
arising out of the ownership, maintenance or use of such motor vehicle. . .
[N.C. Gen. Stat. § 20-279.21(b)(2)(2011).]
According to the statute, however, an insurance policy can exceed the minimum liability
coverage requirements:
Any policy which grants the coverage required for a motor vehicle
liability policy may also grant any lawful coverage in excess of or in
addition to the coverage specified for a motor vehicle liability policy and
such excess or additional coverage shall not be subject to the provisions of
this Article. With respect to a policy which grants such excess or
additional coverage the term 'motor vehicle liability policy' shall apply
only to that part of the coverage which is required by this section. [N.C.
Gen. Stat. § 20-279.21(g)(2011).]
Because the policy included the "family member exception" to the reasonable belief
exclusion, Integon explicitly extended coverage to family members who use the vehicle
even when they have no reasonable belief that they were entitled to use the vehicle
covered under the policy. Noting that the language of the policy itself controls, the Court
of Appeals held that the plain language of the policy, specifically the exception to the
reasonable belief exclusion, indicated that the named insured’s 14 year old son was in
fact an insured under the terms of the policy.
The Court also addressed Integon’s argument that even if the policy provides coverage,
any coverage beyond the statutory minimum is void because of a material
misrepresentation made by the named insured, citing the following policy language:
We do not provide coverage for any insured
. . . .
1. who has made a fraudulent statement or engaged in
fraudulent conduct in connection with any accident or loss for which
coverage is sought under this policy; or
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17. 2. if a named insured made a material misrepresentation in the
application for this policy of insurance.
A misrepresentation on an insurance application is material if “the knowledge or
ignorance of it would naturally influence the judgment of the insurer in making the
contract, or in estimating the degree and character of the risk, or in fixing the rate of
premium.” Id. Integon contended that the named insured failed to disclose that a family
friend unrelated to and not residing in the Villafranco household had been the primary
driver of the vehicle for about six months prior to the accident. Had it known this fact,
Integon contends, it would have charged a higher premium for the insurance policy,
making this a material misrepresentation. However, the Court found this argument to be
lacking from the trial court record, and noting: "Because there is no factual basis for
[Integon's] assertion in the record, there can be no material misrepresentation."
The Court held that the trial court properly found the appropriate amount of liability
coverage, and affirmed the trial court's decision.
James v. Integon National Insurance Company, 744 S.E.2d 491 (July 2, 2013)
Judge Calabria. Judges Ervin and Dillon concur.
Defendant insurance company appealed after the trial court granted summary judgment to
plaintiff. The case arose following an accident plaintiff had while driving his fiancé's
vehicle. Plaintiff's fiancé was insured through Integon, and plaintiff was not listed as a
driver on the policy even though he lived in the insured's household. After receiving the
minimum liability coverage for his medical expenses, which were serious and exceeded
$50,000, Integon denied the UIM claim submitted by plaintiff. Plaintiff filed a complaint
seeking, inter alia, a declaratory judgment as to whether the UIM coverage under the
Integon policy was available to plaintiff. Integon filed an answer claiming that plaintiff's
recovery was barred because plaintiff's fiancé had made a material misrepresentation in
her application for the insurance policy.
Plaintiff moved for summary judgment and, after hearing, the trial court granted
plaintiff's motion for summary judgment, finding that no genuine issue of material fact
existed that "the plaintiff is an insured for the purpose of UIM coverage under the policy;
and that defendant failed to come forward with admissible evidence establishing scienter
by [plaintiff's fiancé] necessary to establish the affirmative defense of fraud."
On appeal, defendant argued that the trial court applied the wrong standard of proof: it
applied the standard for fraud instead of defendant's asserted affirmative defense of
material misrepresentation. Defendant also contended that the trial court's determination
was erroneous because "evidence of scienter is not required to establish a material
misrepresentation."
The trial court initially explained that to prove fraud, a party must show not only that a
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 15
18. "false representation relating to some material past or existing fact" was made, but the
party must also establish proof of the element of scienter. The court then noted:
The term 'scienter' embraces both knowledge and an intent to deceive,
manipulate or defraud. Therefore, while both fraud and material
misrepresentation involve a false representation by the insured, it is
unnecessary to prove that the insured had an intent to deceive in
order to prove material misrepresentation. Thus, defendant is correct
that fraud and material misrepresentation represent different affirmative
defenses. (emphasis added, internal citations omitted.)
Plaintiff contended that, however, according to Odum v. Nationwide Mut. Ins. Co., 101
N.C. App. 627, 401 S.E.2d 87 (1991), "fraud is the correct affirmative defense to
coverage in excess of the minimum required by N.C. Gen. Stat. § 20-279 et. seq., the
Financial Responsibility Act of 1953." Therefore, plaintiff argued that "the trial court
properly treated defendant's affirmative defense as a defense of fraud." The Court in
Odum held that fraud "is not a defense to the insurer's liability once injury has occurred"
and:
Fraud could not be a total affirmative defense under the FRA because
pursuant to N.C. Gen. Stat. § 20-279.21(f)(1)(2011), insurance required by
the FRA shall become absolute whenever injury or damage covered by
said motor vehicle liability policy occurs, and no statement made by the
insured ... and no violation of said policy shall defeat or void said policy.
(internal quotations omitted.)
This Court noted, however, that the Odum Court's holding only applied to the minimum
insurance coverage amounts required by the FRA. Since the coverage amounts at issue in
Odum exceeded the statutory minimum, the Odum Court held that the insurer was not
precluded by statute or public policy from asserting the defense of fraud as to any
coverage in excess of the statutory minimum. Rather, the court noted:
Our Courts have consistently interpreted § 20-279.21(b)(4) to write UIM
coverage into policies only if the policyholder has liability insurance in
excess of the minimum statutory requirement. Therefore, any UIM
coverage constitutes coverage in excess of the statutory minimum.
(internal quotations and citations omitted.)2
2
However, see Sutton v. Aetna: “Insofar as UIM coverage is concerned, the question is whether it can
ever be "excess or additional coverage" within the meaning of N.C.G.S. § 20-279.21(g). We conclude that
it cannot. HN9An owner's policy of liability insurance must, subject to rejection by the insured, provide
UIM coverage "only with policies that are written at limits that exceed" minimum statutory limits and that
afford uninsured motorist coverage. N.C.G.S. § 20-279.21(b)(4) (1983 & Cum. Supp. 1988). UIM
coverage must be in an amount equal to the policy limits for bodily injury liability as specified in the
policy. Id. Because of these statutory prerequisites for UIM coverage, there can never be excess or
additional UIM coverage within the meaning of N.C.G.S. § 20-279.21(g). UIM coverage is designed, as
we have already noted, to cover the situation where the tortfeasor has some but not enough liability
insurance to compensate the injured party for his full damages. Since a tortfeasor who has at least some
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 16
19. In this case, plaintiff only sought UIM coverage in the amount of $50,000 per person and
$100,000 per occurrence. While fraud is an acceptable defense to liability coverage in
excess of the statutory minimum, neither Odum nor Hartford Underwriters Ins. Co. v.
Becks "expressly limited an insurer's available affirmative defenses to fraud." The Court
held:
Since, pursuant to N.C. Gen. Stat. § 20-279.21(g), automobile liability
coverage in excess of the statutorily required minimum is not subject to
the FRA, we hold that the defense of material misrepresentation is also an
acceptable affirmative defense to such coverage. See N.C. Gen. Stat. §
58-3-10 (2011)[.]
. . . .
Consequently, we find that the trial court erred by treating defendant's
affirmative defense as a defense of fraud rather than a defense of material
misrepresentation. The trial court applied an incorrect standard of proof by
requiring defendant to prove the element of scienter, which is not an
element required to prove material misrepresentation.
The Court next determined whether the trial court erred in granting summary judgment.
After initially noting the summary judgment standard, the Court then looked to the facts
of the case. It was determined that at all times relevant to the policy, plaintiff was an
adult driver living with the named insured, plaintiff's fiancé. Furthermore, the named
insured added her mother as an additional driver on the policy, which, to the court,
suggested that plaintiff's fiancé "understood policy provisions regarding the necessity of
adding to the policy all adults who either lived with her or operated her vehicles."
Therefore, the court found that because plaintiff's fiancé "apparently understood the
policy guidelines but did not add plaintiff to the policy, defendant provided some
evidence that [plaintiff's fiancé] the named insured made a material misrepresentation on
her insurance application." Defendant also presented evidence that "knowledge of
plaintiff's status as a driver would naturally influence the judgment of the insurer in
fixing the rate of the premium" and thus such representation was material. The Court
held: "Because we find that there is a genuine issue of material fact, the trial court erred
by granting summary judgment in favor of plaintiff."
The Court reversed the trial court's grant of summary judgment in favor of plaintiff and
remanded the case to trial for determination of whether plaintiff's fiancé made a material
misrepresentation on her application.
liability insurance must always have at least the minimum amount, UIM coverage is available only in
amounts which exceed this minimum. Since the UIM coverage in any given policy must always equal the
policy's basic liability coverage and that coverage must always exceed the minimum mandatory amount,
there can never be any excess or additional UIM coverage as contemplated by N.C.G.S. § 20-279.21(g).”
Sutton v. Aetna Casualty & Surety Co., 325 N.C. 259, 268, 382 S.E.2d 759, 765 (1989)
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 17
20. Kahihu v. Brunson, 2014 N.C. App. LEXIS 554 (June 3, 2014)
Judge McCullough. Judges Robert C. Hunter and Geer Concur.
Service of Summons on Unnamed Uninsured Motorist Carrier. The Court of Appeals
affirms the trial court's order granting a directed verdict in unnamed defendant Integon's
favor. The case arose from an auto collision between plaintiff and the alleged tortfeasor,
Defendant Brunson, that occurred in Durham county. Defendant Brunson was uninsured.
The case hinges on the procedural history as detailed below.
Plaintiff filed an action against Brunson On September 23, 2011, in Durham County
District Court. When Brunson failed to respond, the trial court entered an Entry of
Default against Brunson on November 8, 2011. On February 10, 2012, Plaintiff filed an
amended complaint and a Motion to Set Aside Entry of Default as to Brunson, in which
plaintiff argued that he, through no fault of his own, failed to correctly serve all
responsible parties pursuant to Rule 4 and wished to amend his complaint. On February
10, 2012, the trial court entered an Order Setting Aside Entry of Default as to defendant
Brunson, then, upon plaintiff's Motion for Entry of Default on March 23, 2012, filed
another Entry of Default against Brunson.
Plaintiff's counsel filed another Affidavit of Service by Certified Mail on March 23,
2012. In it, plaintiff's counsel stated that on February 16, 2012, after learning that the case
would proceed as an uninsured motorist claim, plaintiff's counsel mailed a file-stamped
Civil Summons and Complaint to plaintiff's UM carrier, GMAC Insurance (also known
as Integon), via certified mail addressed to GMAC's registered agent and signed for by a
person who is presumed to be of suitable age and who is an agent for GMAC.
Integon filed an Answer on March 28, 2012. Defendant Integon then moved to dismiss
plaintiff's action for lack of jurisdiction over the person, insufficiency of process, and
insufficiency of service of process. Integon also moved to dismiss for lack of jurisdiction
over Brunson, insufficiency of process over Brunson, and insufficiency of service of
process over Brunson.
Plaintiff filed a motion for default judgment against Brunson and Integon on May 7,
2012, arguing that the final day for Brunson to timely file and answer to plaintiff's
February 10, 2012 amended complaint was March 16, 2012 and the last day for Integon
to file a timely answer was March 22, 2012. Plaintiff's motion for default judgment was
granted and default was entered against Brunson and Integon. Defendants then filed a
Motion to Set Aside Default Judgment on June 13, 2012, in which defendants argued that
default judgment could not have been entered against Integon because it filed an Answer.
The trial court granted Integon's motion to set aside default judgment pursuant to Rule
60(b).
Plaintiff then filed a motion for summary judgment against Brunson, and the trial court
entered an order granting plaintiff partial summary judgment against Brunson as to
plaintiff's property damages. The case proceeded to trial, and Integon moved for a
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 18
21. directed verdict at the close of plaintiff's evidence. The Court noted:
On 12 March 2013, the trial court entered an order, finding that no
summons was ever served on defendant Integon. Furthermore, the trial
court found that defendant Integon preserved its challenge to jurisdiction
in its answer and did not stipulate in the pre-trial order that the trial court
had jurisdiction in this action. Thus, defendant Integon's motion for
directed verdict was allowed for failure to serve a civil summons and
complaint as required by Rule 4 of the North Carolina Rules of Civil
Procedure and N.C. Gen. Stat. § 20-279.21(b)(3)(a).
On appeal, plaintiff argues that the trial court erred in granting Integon's motion for
directed verdict based on the finding that Integon was never served with a summons, and
by finding that Integon needed to be served with a copy of the complaint and summons in
order to be made a party to the action.
Plaintiff insisted that his March 26, 2012 Amended Affidavit of Service by Certified Mail
created a presumption of service which Integon failed to rebut. The Court summarized
the applicable law regarding valid service:
We note that section 20-279.21(b)(3) of the North Carolina General
Statutes unequivocally requires that the [uninsured motorist] carrier be
served with a copy of the summons and complaint in order to be bound by
a judgment against the uninsured motorist. Subsection (b)(3) further
directs that upon service of process, the [uninsured motorist] carrier shall
become a party to the suit and shall have the time allowed by statute to file
responsible pleadings.
The filing of an affidavit of service that complies with the requirements set
out in section 1-75.10 of the North Carolina General Statutes creates a
rebuttable presumption of valid service. See Goins v. Puleo, 350 N.C. 277,
280-81, 512 S.E.2d 748, 750-51 (1999). N.C. Gen. Stat. § 1-75.10
provides:
(a) Where the defendant appears in the action and challenges the service
of the summons upon him, proof of the service of process shall be as
follows:
. . . .
(4) Service by Registered or Certified Mail. -- In the case of service by
registered or certified mail, by affidavit of the serving party averring:
a. That a copy of the summons and complaint was deposited in the
post office for mailing by registered or certified mail, return receipt
requested;
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 19
22. b. That it was in fact received as evidenced by the attached registry
receipt or other evidence satisfactory to the court of delivery to the
addressee; and
c. That the genuine receipt or other evidence of delivery is
attached.
N.C. Gen. Stat. § 1-75.10(a)(4) (2013). [(some internal quotations
and citations omitted).]
The Court agreed that plaintiff complied with the requirements set out in N.C. Gen. Stat.
§ 1-75.10, thereby creating a rebuttable presumption of valid service. However, the Court
also agreed with Integon's argument that it successfully rebutted the presumption of valid
service with the affidavit of an employee of Corporation Service Company ("CSC"). The
CSC employee's affidavit stated that CSC documents and maintains "all documents
served upon it on behalf of the companies for which it is registered agent[,]" that he had
reviewed all of the documents plaintiff had served on it as Integon's registered agent, and
that CSC received a copy of plaintiff's Amended Complaint. While the CSC employee's
affidavit made no mention of the summons whatsoever, it did state that "prior to March
27, 2012, CSC did not notify or communicate in any manner the existence of the [case at
bar] to [GMAC/Integon]." The Court held:
Based on the foregoing, we hold that Gachaiya's affidavit rebutted the
presumption of service by showing that defendant Integon never received
a copy of the summons on 17 February 2012 and the trial court could
properly find that defendant Integon was not served with a copy of the
summons as required by N.C. Gen. Stat. § 20-279.21(b)(3). Accordingly,
the trial court was without jurisdiction over defendant Integon and did not
err in granting defendant Integon's motion for directed verdict.
The Court next addressed plaintiff's contention that Integon could be made a party to the
action even if it was not served a copy of the complaint and summons. Relying upon N.C.
Gen. Stat. § 20-279.21(b)(3)(a) and Grimsley v. Nelson, 342 N.C. 542, 467 S.E.2d 92
(1996), the Court determined the statute "establishes that the insurer is a separate party to
the action between the insured plaintiff and an uninsured motorist." The Court rejected
plaintiff's contention, explaining:
It is well established that "[N.C. Gen. Stat.] § 20-279.21(b)(3)(a)
unambiguously provides that an uninsured motorist carrier may defend in
the name of the uninsured motorist or in its own name, evincing a
legislative recognition that the uninsured motorist and the insurer
providing uninsured motorist coverage are separate parties with
independent interests." Reese v. Barbee, 129 N.C. App. 823, 826, 501
S.E.2d 698, 700 (1998) (citation omitted).3
Therefore, "in order for the
3
The Reece case cited as authority has no precedential value so it seems improperly cited for support in
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 20
23. insurer to be bound by a judgment against the uninsured motorist, service
of process must be obtained upon the insurer." Id. Based on the foregoing
reasons, we must reject plaintiff's arguments.
The Court affirmed the trial court's order.
Lawyers Mutual Liability Insurance Co. v. Mako, 756 S.E.2d 809 (April 1, 2014)
Judge Bryant. Judges McGee and Stroud concur.
Professional Liability Policy Exclusion. Defendant lawyers and law firm appeal trial
court's granting of summary judgment in plaintiff insurance company's favor. The
underlying case arose when Burkeman, a potential client, contacted defendants seeking
assistance in collecting $350,000 allegedly owed him by his former employer
("Burkeman's former employer") as part of a workers' compensation settlement. In June
2011, defendants agreed to represent Burkeman in collecting his settlement money for a
contingent fee of 20% of any amount obtained.
Defendants had a policy of holding funds for ten days prior to distribution. However, this
policy was not enforced. On July 11, 2011, defendants received an initial check for
$175,000.00 from the former employer in partial payment of the amount purportedly
owed to Burkeman. The same day, defendants authorized distribution and attempted to
wire $140,000 to a bank account in Japan per Burkeman's instructions after deducting
their $35,000 contingent fee. But, "due to an error in account information, the wire was
unsuccessful and defendants could not collect their contingent fee." Three days later on
July 14, 2011, defendants received a second check from Burkeman's former employer for
$175,000.00 in partial payment of the amount purportedly owed to Burkeman.
Defendants deposited the check the next day, and again disregarded their own policy of
holding funds for ten days, immediately wiring $140,000 to the Japanese bank account.
Defendants collected a $35,000 contingent fee and deposited it into their trust account.
Also on July 15, 2011, defendants' bank notified them that the first of the two checks was
returned unpaid, then notified them that the second check was also being returned unpaid
on July 18, 2011. Both checks were deemed fraudulent. Defendants suffered a total loss
of $175,000 from their client trust account as a result.
Defendants filed a claim with Lawyers Mutual to recover the $175,000 in funds lost as a
result of fraud. Lawyers Mutual then filed a declaratory judgment action, then eventually
filed a motion for summary judgment. The trial court granted the motion, determining:
It is undisputed that the funds at issue in this action were lost at a time
the decision. “Chief Justice Mitchell and Associate Justices Parker and Wainwright voted to affirm and
Associate Justices Frye, Lake and Orr voted to reverse the decision of the Court of Appeals. Accordingly,
the decision of the Court of Appeals is left undisturbed and stands without precedential value.” 350 N.C.
60, 510 S.E.2d 374 (1999)
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24. when the deposit had not yet 'cleared' Defendants' trust account at the
depositary bank. The court concludes that the phrase 'irrevocably credited'
in the insurance policy precludes coverage of Defendants' claim of loss.
On appeal, defendants contend that the trial court erred in granting summary judgment to
Lawyers Mutual because under the relevant portion of the policy, Provision I, Section (r),
the term "irrevocably credited" is ambiguous because a cashier's check differs from a
traditional check. As Defendants understood it, the term "irrevocably credited" should
include losses involving forged cashier's checks because they assumed: "a cashier's check
is, like cash, irrevocably credited upon deposit." The policy provides in pertinent part:
I. Exclusions . . . [T]his policy does not afford to any Insured any
coverage or benefits whatsoever, including, but not limited to, any right to
any defense, with respect to:
. . .
(r) any claim, or any theory of liability asserted in a suit, based in
whole or in any part upon disbursement by any Insured, or any employee
or agent of any Insured, of funds, checks or other similar instruments
deposited to a trust, escrow or other similar account unless such deposit is
irrevocably credited to such account[.]
The Court began its analysis by looking to statute for the definition of a check, finding
that a "check" means "(i) a draft, other than a documentary draft, payable on demand and
drawn on a bank or (ii) a cashier's check or teller's check." N.C. Gen. Stat. § 25-3-104(f)
(2013). Under the statute, negotiable instruments, or simply "instruments" or "items",
may include a personal check, cashier's check, traveler's check, or CD. The Court then
recited N.C. Gen. Stat. § 25-4-213(a):
An item is finally paid by a payor bank when the bank has first done any
of the following:
(1) Paid the item in cash;
(2) Settled for the item without having a right to revoke the settlement
under statute, clearing-house rule, or agreement; or
(3) Made a provisional settlement for the item and failed to revoke the
settlement in the time and manner permitted by statute, clearing-house
rule, or agreement.
The Court also looked to N.C. Gen. Stat. § 25-4-301(a), noting: "A payor bank may
revoke a provisional settlement prior to making final payment and before its midnight
deadline by returning the item."
Finding defendants' arguments without merit, the court held that a cashier's check is
treated the same as a traditional check since, pursuant to N.C. Gen. Stat. § 25-3-104(f): "a
traditional check cannot be deemed fully credited until its provisional settlement period
has elapsed without action by the bank to reject the check; the same is true for a cashier's
check." Therefore, the "irrevocably credited" provision in the Lawyers Mutual policy
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 22
25. refers to the statutory provisions which governs the acceptance or rejection of a check
during its provisional settlement period. Therefore, the provision enumerated above
would only cover defendants if they had "deposited a check and waited until the
provisional settlement period had finally elapsed to ensure that the check had been
accepted and fully credited by the payor bank, regardless of whether it was a traditional
check or cashier's check." The Court affirmed the trial court's decision.
Lunsford v. Mills, 747 S.E.2d 390 (August 20, 2013)
Judge Dillon. Judges Bryant and Stephens concur.
Underinsured Motorist Coverage. Unnamed Defendant Farm Bureau appeals from trial
court's order granting summary judgment in plaintiff's favor. The dispute arises from
underinsured motorist ("UIM") coverage in connection with two accidents involving
plaintiff that occurred on September 18, 2009. The first accident occurred when
Defendant Mills, who was acting within the scope of his employment with Defendant
Crowder at the time, lost control of his tractor trailer and flipped. Plaintiff, a volunteer
firefighter, responded to the scene of the first accident to attend to Mills's injuries when
the second accident occurred. Plaintiff was carrying Mills across the roadway to safety
when Defendant Buchanan, who was not paying attention to the traffic in front of him,
swerved to avoid stopped traffic and instead struck the plaintiff.
Mills and his employer, Crowder, were insured under a US Fire policy providing a
liability coverage limit of $1 million. Buchanan was insured under an Allstate policy
providing a liability coverage limit of $50,000. Plaintiff had two insurance policies with
Farm Bureau at the time of the accidents: (1) a business auto policy with UIM coverage
limits of $300,000; and (2) a personal auto policy with UIM coverage limits of $100,000.
On February 14, 2011, Plaintiff filed a complaint against Mills, Crowder, and Buchanan,
asserting negligence and alleging that defendants were jointly and severally liable for his
injuries. Farm Bureau, which had not been named as a party in the action, filed an answer
asserting that it was entitled to an offset with respect to plaintiff's UIM policies for any
damages recovered by plaintiff through insurance policies held by the named defendants.
Allstate, Buchanan's insurer, tendered its limit of $50,000 to Plaintiff on May 24, 2011.
Plaintiff notified Farm Bureau of Allstate's tender the following day and demanded that
Farm Bureau tender payment for plaintiff's UIM claim. Farm Bureau responded that it
would not advance the Allstate liability limits and that it was "currently reviewing the
situation with counsel based on the apparent existence of other potential recoverable
liability insurance policies and will respond to [plaintiff's] demand at a later date." Over
six months later, Farm Bureau had still not provided UIM coverage to plaintiff when
plaintiff settled his claims against Mills and Crowder for $850,000, paid under the US
Fire policy. Following court approval and order, plaintiff's original action along with all
claims and crossclaims were dismissed with prejudice.
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 23
26. Farm Bureau, however, tendered its UIM limits or any money whatsoever under
plaintiff's UIM policies. Instead, it moved for summary judgment, seeking a declaration
"that Plaintiff was not entitled to UIM coverage because the aggregate amount of
plaintiff's settlements - $900,000 - exceeded the aggregate amount of the UIM coverage -
$400,000 - provided under plaintiff's Farm Bureau policies." Plaintiff filed a cross motion
for summary judgment, contending that he was entitled to stack the policy limits under
the Farm Bureau policies and was therefore entitled to a judgment against Farm Bureau
in the amount of $350,000 - the aggregate UIM coverage of $400,000 minus the $50,000
he received from Allstate, Buchanan's insurer. The trial court agreed with plaintiff and
entered judgment in favor of plaintiff and against Farm Bureau for $350,000, plus costs
and interest.
The Court initially noted that this appeal raises the question of when UIM coverage is
triggered in instances in which the insured is injured in a motor vehicle accident caused
by multiple tortfeasors. The real issue is whether Farm Bureau was obligated to provide
UIM coverage to plaintiff once Allstate tendered its limits or whether Farm Bureau was
entitled to withhold coverage until plaintiff "had recovered (or attempted to recover)
under the liability policies insuring [Mills]." Farm Bureau argued that it was entitled to
wait until the exhaustion of "all applicable policies", meaning all policies held by named
defendants before providing UIM coverage to plaintiff. Farm Bureau also argued that
plaintiff was not entitled to UIM coverage because the total amount of the settlement
against the named defendants exceeded the total Farm Bureau policy limits. Therefore,
permitting plaintiff to recover an additional $350,000 would result in a windfall. Plaintiff,
however, insisted that the Farm Bureau coverage was triggered when Buchanan's insurer
tendered its limits.
The Court looked to the version of the Financial Responsibility Act, specifically N.C.
Gen. Stat. § 20-2079.21(b), that was in effect at the time of the accidents for guidance.
The Court noted:
The governing statute concerning UIM coverage is the version of N.C.
Gen. Stat. § 20-279.21(b)(4) in effect at the time the policy was issued.
N.C. Gen. Stat. § 20-279.21(b)(4) is a provision of the Financial
Responsibility Act (the Act), which is remedial in nature and must be
liberally construed in order to protect innocent victims who may be
injured by financially irresponsible motorists. The applicable version of
N.C. Gen. Stat. § 20-279.21(b)(4) provides, in pertinent part, as follows:
Underinsured motorist coverage is deemed to apply when, by reason of
payment of judgment or settlement, all liability bonds or insurance
policies providing coverage for bodily injury caused by the ownership,
maintenance, or use of the underinsured highway vehicle have been
exhausted.
N.C. Gen. Stat. § 20-279.21(b)(4) (2011) (emphasis added). This
provision also defines an "underinsured highway vehicle" as follows:
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27. [A]n "underinsured highway vehicle["] means a highway vehicle with
respect to the ownership, maintenance, or use of which, the sum of the
limits of liability under all bodily injury liability bonds and insurance
policies applicable at the time of the accident is less than the applicable
limits of underinsured motorist coverage for the vehicle involved in the
accident and insured under the owner's policy.
Id. As discussed below, we interpret the plain language of this provision to
mean that UIM coverage is triggered the moment that an insured has
recovered under all policies applicable to "a" -- meaning one --
"underinsured highway vehicle" involved in a motor vehicle accident
resulting in injury to the insured. [(some internal quotations and
citations omitted.)]
While "neither party offered any North Carolina case law addressing the rights and
obligations of a UIM insurer in a situation involving liability policies covering multiple
vehicles that are potentially liable to the injured[,]" the Court looked to another case
involving multiple tortfeasors arising from the operation of a single vehicle, Farm
Bureau Ins. Co. v. Blong, 159 N.C. App. 365, 583 S.E.2d 307 (2003). Judge Dillon and
the Court here agreed with the rationale in Blong, and stated:
We see no reason why the rights and obligations of a UIM insurer should
differ in the present case simply because the additional tortfeasor was a
motorist covered under an automobile liability policy. In other words, we
see no reason why insureds should be kept hanging in limbo as they are
forced to sue any and all possible persons before they could recover UIM
benefits just because other potential tortfeasors also happen to be covered
under automobile policies. Here, Plaintiff's UIM coverage was triggered
the moment that all policies applicable to Mr. Buchanan's vehicle had
been exhausted; Farm Bureau was not at liberty to withhold coverage until
Plaintiff reached settlement agreements with Mr. Mills and Mr. Crowder,
as Blong clearly obligates the UIM carrier to first provide coverage,
and later seek an offset through reimbursement or exercise of
subrogation rights. We believe that this result comports with the Act's
purpose which is best served when the statute is interpreted to provide the
innocent victim with the fullest possible protection from the negligent
acts of an underinsured motorist. Moreover, Farm Bureau's contention
that the trial court's order resulted in a windfall to Plaintiff is unavailing.
Had Farm Bureau tendered its policy limits in accordance with this Court's
mandate in Blong, it would have had the opportunity for reimbursement
and there would have been no windfall. To hold otherwise would not only
punish the insured, but also reward UIM insurers for withholding coverage
when due.
The Court then addressed Farm Bureau's contention that "an insurer has no statutory duty
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 25
28. to pay interest or costs in excess of its policy limits" and that any obligation to pay costs
is governed by the policy, according to Sproles v. Greene, 329 N.C. 603, 407 S.E.2d 497
(1991). Unpersuaded, the Court distinguished Greene from the case at bar:
Greene, however, holds that the UIM carrier is not required to pay pre and
post-judgment interest on behalf of the insured where the judgment has
been entered against the insured, id. at 605, 407 S.E.2d at 498, and thus
has no bearing on the case at hand, in which the judgment was entered
against Farm Bureau itself, not against its insured (Plaintiff).
Accordingly, the Court of Appeals affirmed the trial court's decision.
Update: Review granted by review but has not issued a decision, Lunsford v. Mills, 749
S.E.2d 843(N.C. 2013), but no decision has been rendered to date.
Nationwide Mutual Ins. v. Integon National Ins., 753 S.E.2d 388 (January 21, 2014)
Judge Robert N. Hunter, Jr. Judges Robert C. Hunter and Calabria concur.
Underinsured motorist coverage. This case involves a pro rata distribution of the credit
paid by the underinsured motorist's insurance carrier to all three UIM policy providers.
The Court of Appeals held here that the trial court erred in not applying such pro rata
distribution because the respective excess clauses were (1) mutually repugnant, and (2)
because the claimant was a Class I insured under all three UIM policies. The Court
found:
Under North Carolina Farm Bureau v. Bost, 126 N.C. App. 42, 483
S.E.2d 452 (1997), the trial court was required to allocate credits and
liabilities amongst the three UIM policyholders on a pro rata basis if both
of these conditions are met.
Nationwide filed a declaratory judgment action to determine an insurance coverage
question for allocating the proceeds of three separate UIM policies to pay a wrongful
death claim. The underlying facts are undisputed. Clark was fatally injured when
involved in a collision while riding his motorcycle. The tortfeasor, Ikerd, had an auto
liability policy with a $50,000 per person limit. Clark was insured for UIM coverage
under three policies: (1) the Integon policy covering the motorcycle Clark was driving
and for which Clark was the named insured, which had a $100,000 per person limit; the
State National policy issued to Clark in the amount of $50,000 per person; and (3) a
policy issued by Plaintiff Nationwide issued to Clark's parents as named insured in the
amount of $50,000 per person. Clark was a resident of his parents' household at the time
of the collision.
On appeal, Nationwide argued that the holding in Bost required a pro rata distribution of
the $50,000 credit supplied by Ikerd's insurer because: (1) the three policies' "other
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 26
29. insurance" sections are mutual repugnant, and (2) claimant Clark was a Class I insured
under the three policies. Defendants Integon and State National, however, argued that the
policy language controlled.
The Court held:
For purposes of clarity, we hold that courts resolving UIM credit/liability
apportionment disputes amongst multiple providers must make the
following inquiry in deciding these cases. First the language used in the
excess clause must be identical between the excess clauses of the
respective UIM policies, or "mutually repugnant." See Sitzman v. Gov't
Employees Ins. Co., 182 N.C. App. 259, 262-64, 641 S.E.2d 838, 840-42
(2007) (noting that identical language is mutually repugnant, requiring that
neither is given effect, and applying the rule to non-identical excess
clauses). If the language is not identical, the inquiry ends, as the excess
policies are not mutually repugnant, and the trial court may apply the
facial policy language to determine distribution. Id.
If this first prong is satisfied and the policies are repugnant, the second
inquiry is to determine whether the respective UIM carriers are in the
same class; if so, the trial court must apportion liabilities and credits on a
pro rata basis. Bost, 126 N.C. App. at 52, 483 S.E.2d at 458-59.
Only after considering the "class" of the claimant do we reach the third
step of the inquiry. If separate classes exist, a primary/excess distinction
may be drawn despite identical language. [Iodice v. Jones, 133 N.C. App.
76, 79 & n.3, 514 S.E.2d 291, 294 & n.3 (1999).] Such identical clauses
may allow a finding of non-repugnancy after applying the policies'
definitions, specifically relating to ownership identified in the policy. Id.
Because this issue was settled in Bost4
and we are bound to follow this
holding, we must disagree with Defendants' contention that identical
excess clauses as applied to claimants all situated within the same class
may be read together "harmoniously." See In re Civil Penalty, 324 N.C.
373, 384, 379 S.E.2d 30, 37 (1989).
The Court then examined the respective excess clauses to determine if they were
4
For case involving persons who were Class I insureds under multiple policies see N.C. Farm Bureau
Mut. Ins., Co.,v. Bost, 126 N.C.App. 42, 483 S.E.2d 452, disc. rev. denied, 347, N.C. 138, 492 S.E.2d 25
(1997), and Harleysville Mut Ins. Co., v. Nationwide Mut. Ins., Co. , unpublished, 2004 N.C. App. LEXIS
1305 (2004), rev. improvidently allowed, 359 N.C. 421, 611 S.E.2d 832 (2005). For case where the
injured person was a Class II insured under the policy covering the vehicle in which the injured person
was riding see Iodice v. Jones, 133 N.C. App. 76, 514 S.E.2d 291 (1999), and Benton v. Hanford, 195
N.C. App. 88, 671 S.E.2d (2009). This treatment of Class I insureds originates in Bost. However, in Bost
the court failed to insert the name of the named insured into the “you” of the other insurance clause and
indicated they were the same, when they are not.
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30. identical, noting that "[i]dentical 'excess clauses' are typically deemed mutually
repugnant and neither excess clause is given effect." Rather, when mutually repugnant
clauses exist, "the multiple UIM carriers share both credits and liabilities pro rata, as
sharing the liability in proportion to the coverage but not the credit in a like manner is
irrational." When clauses are not identical in form or effect, however, they are not
mutually repugnant.
But, "identical policy language is not axiomatically mutually repugnant if the excess
clauses at issue do not have the same meaning as applied to the facts of the case." Instead,
where identically worded policy provisions exist but the actual application of the policies
negate mutual repugnancy, the Court of Appeals has held that "the 'excess' UIM policy
was not entitled to a set-off credit." The Court noted:
This Court [has] held the policies were not mutually repugnant because
the term "you" in the different policies refers to different individuals; and
the "other insurance" provisions in the policies are not identical, meaning
the policies could thus be read together harmoniously. This Court also
noted the claimants fit within separate classes, but held that even had the
claimants been within the same class under both UIM policies, the
language of the respective excess clauses was not mutually repugnant. . . .
This Court contrasted Hlasnick with Smith v. Nationwide Mutual Ins. Co.,
328 N.C. 139, 400 S.E.2d 44 (1991), where "there were two policies. The
insureds were in the same class under both policies, the term 'you' in each
policy referred to the same individual, and the policies contained identical
'other insurance' provisions." [Hlasnick v. Federated Mut. Ins. Co., 136
N.C. App. 320,330, 524 S.E.2d 386,392 (2000).]
Here, the language contained in the "excess clause" is identical in all three
policies. Id. at 330, 524 S.E.2d at 392-93[.] Thus, the first part of the
inquiry is satisfied, however our work is not finished. . . . [I]dentically-
worded policies may be read together "harmoniously," but that reading is
predicated on whether the claimant falls within different "classes" between
the respective policies. Thus, whether we may reach the third portion of
our inquiry (whether the identical excess clauses may be read
harmoniously) depends on the classes of the UIM providers, as announced
in Bost[.][(some internal quotations and citations omitted).]
Under Bost, the Court announced a distinction with how liabilities and credits are
apportioned to the class of the "persons injured":
Generally, the first class of "persons insured" are the "named insured and,
while resident of the same household, the spouse of any named insured
and relatives of either, while in a motor vehicle or otherwise." All persons
in the first class are treated the same for insurance purposes. When
"excess" clauses in several policies are identical, the clauses are deemed
mutually repugnant and neither excess clause will be given effect, leaving
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31. the insured's claim to be pro rated between the separate policies according
to their respective limits. Bost,126 N.C. App. at 52, 483 S.E.2d at 458-59
(internal citations omitted).
The class distinction drawn in Bost remains the law today, despite attempts to overrule it.
In this case, Clark was a Class I insured under all three UIM policies, and all three
policies contained identical language. Therefore, the Court held that because (1) all three
policies were mutually repugnant and (2) the claimant was a Class I insured under all
three policies, pro rata distribution of the $50,000 credit provided by Ikerd is required
under Bost. Accordingly, the Court reversed the trial court's granting of summary
judgment for Defendants and remanded for entry of summary judgment in Plaintiff
Nationwide's favor.
N.C. Farm Bureau Mutual Insurance Co. v. Paschal, 752 S.E. 775 (January 7, 2014)
Judge McGee. Judges Bryant and Stroud concur.
Underinsured motorist coverage. Farm Bureau filed this action seeking a declaration of
their coverage obligations to Harley, a 16 year old injured while riding as a passenger in
her cousin's truck. Harley's cousin's auto insurance carrier tendered the $30,000 limits of
its coverage, and Harley sought an underinsured motorist claim against an auto policy of
Thurman, Harley's grandfather, which was issued by Farm Bureau.
In its complaint, Farm Bureau asked the trial court to rule that Harley was not covered by
Thurman's policy. Granting summary judgment in favor of Farm Bureau, the trial court
found that Harley was "not a resident of Thurman's household on [the date of the
collision], and was therefore not entitled to coverage under the policy." Defendants
appealed.
As it turns out, Harley's home life is somewhat complicated. At the time of accident,
Thurman owned multiple houses and several hundred acres of farmland, including: (1)
the Branson house, where Harley, her father (Reggie) and siblings lived when her father
was not in legal trouble; the Brush Creek house where Thurman would sleep sometimes;
and the Browns Crossroads house where Thurman's girlfriend and children lived. The
Court noted:
Harley and her brothers also lived with Thurman at times. Reggie had
ongoing trouble with the law, and spent time in jail or prison on occasion.
When Harley could not stay with Reggie due to Reggie's legal problems,
she stayed with Thurman, at both the Browns Crossroads house and at the
Brush Creek house. Around 2005, Harley spent a year living with
Thurman because of Reggie's legal troubles. Thurman was appointed as
Harley's guardian for that period of time. Harley's mother was not very
involved in Harley's life, and did not appear to provide Harley with
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32. material assistance or much guidance.
Thurman testified he supported Harley through "every bit" of her life,
providing food, clothes, housing, utilities, phone, and other expenses.
Reggie drove a truck that belonged to Thurman and if something was
needed for the Branson house, such as a washing machine, Thurman
bought it. Thurman testified that when Harley was not living with him, he
saw her two or three times a week. Harley testified she saw Thurman
almost every day. Thurman had keys to all his houses, and felt free to
enter them at any time. If Harley needed to go to the doctor or dentist,
Thurman took her. When questioned at his deposition, Thurman agreed
that Reggie, Harley, and her brothers were all a part of his household.
On appeal, the main issue is whether the trial court erred in granting summary judgment
in favor of Farm Bureau by ruling that Harley was not a resident in Thurman's household.
The dispositive issue is whether the policy issued by Farm Bureau covered Harley as a
"family member" as that term is defined in the policy. "Part C1", the "Uninsured
Motorists Coverage" portion of the policy, states in relevant part:
We will pay compensatory damages which an insured is legally entitled
to recover from the owner or operator of an uninsured motor vehicle
because of:
1. Bodily injury sustained by an insured and caused by an accident;
and
2. Property damage caused by an accident.
The owner's or operator's liability for these damages must arise out of
the ownership, maintenance or use of the uninsured motor vehicle.
. . . .
"Insured" as used in this Part means:
1. You [the named insured] or any family member. [(Emphasis in
original)].
The policy includes the following definition of "family member":
"Family member" means a person related to [the named insured] by
blood, marriage or adoption who is a resident of [the named insured's]
household. This includes a ward or foster child. [(Emphasis in original)].
While it is undisputed that Harley is related to Thurman by blood and that she lived at the
Branson house at the time of the accident, the policy does not define the words "resident"
or household". The Court noted:
The determination of whether Harley was also a resident of Thurman's
household, however, is more complicated. The word "resident" is
"flexible, elastic, slippery and somewhat ambiguous," meaning anything
from "a place of abode for more than a temporary period of time" to "a
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33. permanent and established home." Great American Ins. Co. v. Allstate Ins.
Co., 78 N.C. App. 653, 656, 338 S.E.2d 145, 147 (1986) (citations and
quotation marks omitted).
Citing Fonvielle v. Insurance Co., 36 N.C. App. 495, 497-98, 244 S.E.2d 736, 738
(1978), the Court observed that when a term is not defined, it is to be construed in favor
of coverage, and:
When an insurance company, in drafting its policy of insurance, uses a
'slippery' word to mark out and designate those who are insured by the
policy, it is not the function of the court to sprinkle sand upon the ice by
strict construction of the term. All who may, by any reasonable
construction of the word, be included within the coverage afforded by the
policy should be given its protection. If, in the application of this principle
of construction, the limits of coverage slide across the slippery area and
the company falls into a coverage somewhat more extensive than it
contemplated, the fault lies in its own selection of the words by which it
chose to be bound.
The determinations of whether a particular person is a resident of the household of a
named insured are "individualized and fact-specific", especially when a minor is
involved. The Court explained: "A minor may be a resident of more than one household
for the purposes of insurance coverage." Courts also consider intent of the person in
question to be material.
In analyzing the facts of this case, the Court found that:
In the present case, evidence before the trial court, considered in the light
most favorable to Defendants, tends to show that Thurman was the most
constant caregiver in Harley's life. Thurman owned the Branson house
where Harley was living at the time of the accident. Thurman did not
charge any rent for Reggie, Harley, or her brothers to live there. Thurman
had a key to the Branson house, and freely entered it whenever he desired.
Thurman paid the utility bills for the Branson house, and bought
appliances for the house as needed. The Branson house and the Brush
Creek house were connected to each other by contiguous land owned by
Thurman. Thurman considered these two houses to be part of his farm,
which he considered to be a family farm. To this extent, Harley and
Thurman could both be considered residents of Thurman's "family farm."
Thurman spent much of his time at the Brush Creek house, and had most
of his mail, including important documents, delivered to that address.
Though Thurman apparently did not spend many nights at the Branson
house, he did see Harley most every day of the week, and he was a regular
participant in Harley's life. Thurman was often the one who took Harley to
the dentist or doctor. Thurman paid for the vast majority of Harley's
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34. expenses, including necessaries such as food and clothing, as well as
lifestyle items, such as Harley's prom dress. In addition, when Harley did
not have a parent with whom to live because her father was either in
prison or otherwise prohibited from living with Harley, and her mother
either could not or would not provide housing and support, Harley lived
with Thurman. On these occasions, Thurman handled every responsibility,
including helping Harley with her schoolwork and taking her to school.
For a period of time when Reggie was incarcerated, Thurman was
appointed legal guardian of Harley. A few years before the accident,
Harley lived with Thurman for a year due to Reggie's legal troubles.
Finally, in the present case, unlike in Great American, both Harley and
Thurman considered Harley to be a part of Thurman's household.
In consideration of all of the above relevant facts, the Court held "that Harley was a
resident of Thurman's household as defined under the policy at the time of the accident."
The Court reversed the trial court's order granting summary judgment to Farm Bureau
and remanded for entry of an order declaring that "at the time of the accident, Harley was
a 'family member,' and thus an 'insured,' pursuant to the UIM policy issued by Plaintiff to
Thurman.
Subsequent History: Discretionary review allowed, N.C. Farm Bureau Mut. Ins. Co., 755
S.E.2d 54 (March 6, 2014).
B. N.C. COURT OF APPEALS – UNPUBLISHED OPINIONS
Cinoman v. Univ. of North Carolina, 2014 N.C. App. LEXIS 251 (March 4, 2014)
Chief Judge Martin. Judges Ervin and McCullough concur.
Duty to Defend. The Court reversed the trial court's order granting UNC defendants'
motion to stay this declaratory action pending a final resolution of the underlying
malpractice action. At the time of the alleged malpractice, Dr. Cinoman served as a
temporary attending physician for full-time rotations in the UNC Hospitals at Chapel
Hill, as part of an agreement to UNC with a staffing shortage. Dr. Cinamon was
subsequently named as a defendant in a medical malpractice action for damages that were
allegedly incurred as a result of negligent medical treatment at UNC Hospitals (the
"underlying med mal action").
At all relevant times, Dr. Cinoman was insured under a medical malpractice insurance
policy issued by Medical Mutual Insurance Company ("MMIC"), and MMIC has
accepted coverage for the claims against Dr. Cinamon in the underlying med mal action.
However, the UNC Liability Insurance Trust Fund ("UNC-LITF"), which provides
coverage for claims against employees and agents of UNC defendants, maintained that
Dr. Cinamon was not entitled to coverage for the alleged incident because Dr. Cinamon
INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 32
35. was "not a full-time employee" of UNC defendants at the time of the alleged negligence."
Without coverage by UNC-LITF, the damages in the underlying med mal action
allegedly exceed Dr. Cinoman's medical malpractice insurance coverage.
Accordingly, Plaintiffs filed this declaratory judgment action to determine whether Dr.
Cinoman is entitled to coverage under the UNC-LITF in addition to his coverage through
the MMIC policy. After various motions and an appeal (see Cinoman v. Univ. of N.C.,
718 S.E.2d 424 (2011) (unpublished)), the trial court eventually granted UNC defendants'
motion to stay this action pending final resolution of the underlying med mal action,
finding that:
[W]hile an actual controversy exists as to the UNC-LITF's duty to defend,
no such controversy exists as to the UNC-LITF's duty to indemnify until
the underlying malpractice action is finally resolved. Plaintiffs appeal
from the order pursuant to N.C.G.S. §§ 1-277 and 7A-27.
The Court initially concluded that plaintiffs' appeal is properly before it, and that its
review of an order granting a stay is "abuse of discretion." Next, the court discussed
when an actual controversy exists with regard to insurers seeking declaratory judgments.
"An actual controversy between the parties is a jurisdictional requirement for a
declaratory judgment." Where an insurer seeks a determination that primary coverage is
not provided under its policy but is instead provided under the policy of another insurer,
an actual controversy exists. However, the Court explained that no such controversy
exists in a declaratory judgment action "seeking to establish coverage provided under an
excess insurance policy where the underlying liability action has not yet been resolved."
"When more than one insurance policy affords coverage for a loss, the 'other insurance'
clauses in the competing policies must be examined to determine which policy provides
primary coverage and which policy provides excess coverage." The Court then explained
the difference between an excess clause and a pro rata "other insurance" clause in order to
determine if an "actual controversy" exists:
An excess clause is a type of "other insurance" clause which generally
provides that if other valid and collectible insurance covers the occurrence
in question, the "excess" policy will provide coverage only for liability
above the maximum coverage of the primary policy or policies. An excess
clause is distinguishable from a pro rata "other insurance" clause. See Fid.
& Cas. Co. of N.Y. v. N.C. Farm Bureau Mut. Ins. Co. (Fidelity), 16 N.C.
App. 194, 203-04, 192 S.E.2d 113, 120-21, cert. denied, 282 N.C. 425,
192 S.E.2d 840 (1972) ("The terms 'prorate' and 'excess' do not have, and
were not meant by the insurers to have identical meanings.").
. . . .
As a general rule, where a pro rata clause in one policy competes with an
excess clause in another policy, the policy with the pro rata clause
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