Download - 2014 Manuscript

INSURANCE LAW UPDATE 2013 – 2014SELECT STATE AND FEDERAL CASE LAW

C. Douglas Maynard, Jr. ©2014Maynard & Harris Attorneys At Law, PLLC

This not legal advice. It is an overview of recent North Carolina insurance related case law. The information is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No attorney / client relationship is created. No recipients of content from this site should act on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts, issues and circumstances from an attorney licensed in North Carolina.

I. NORTH CAROLINA SUPREME COURT

N.C. Farm Bureau Mut. Ins. Co. v. Cully’s Motorcross Park..................1

II. NORTH CAROLINA COURT OF APPEALS

A. NC COURT OF APPEALS – PUBLISHED OPINIONS

Davis v. Urquiza..........................................................................................4

Grich v. Mantelco, LLC .............................................................................6

Hinson v. City of Greensboro.....................................................................7

Holmes v. N.C. Farm Bureau Mut. Ins. Co...............................................9

Integon Nat'l Ins. v. Helping Hands Specialized Transport...................11

Integon Nat’l Ins. Co. v. Villafranco........................................................13

James v. Integon Nat'l Ins. Co.................................................................15

Kahihu v. Brunson ...................................................................................18

Lawyers Mut. Liab. Ins. Co. v. Mako.......................................................21

Lunsford v. Mills.......................................................................................23

Nationwide Mut. Ins. v. Integon Nat'l Ins...............................................26

N.C. Farm Bureau Mut. Ins. Co. v. Paschal...........................................29

B. NC COURT OF APPEALS – UNPUBLISHED OPINIONS

Cinoman v. Univ. of North Carolina........................................................32

Etheridge v. Levitsky.................................................................................34

-i-

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-

INSURANCE LAW UPDATE 2013 – 2014SELECT STATE AND FEDERAL CASE LAW

C. Douglas Maynard, Jr. ©2014Maynard & Harris Attorneys At Law, PLLC

Winston-Salem, NC

V. NORTH CAROLINA SUPREME COURT

N.C. Farm Bureau Mut. Ins. Co. v. Cully’s Motorcross Park, 366 N.C. 505, 742 S.E.2d 781 (June 13, 2013).

Judge Edmunds. Justices Beasley and Hudson concur in part and dissent in part.

Malicious Prosecution by Insurer. In 2012, the Court of Appeals affirmed the trial court’s finding of malicious prosecution by Farm Bureau against its insured, the Volpes, as owners/operators of Cully’s Motorcross Park.

In September 2008, a fire erupted on defendant Cully’s property. Defendant filed a claim, and after conducting a thorough investigation, Farm Bureau and its investigators suspected arson. When Farm Bureau requested that the Volpes each submit to an examination under oath, as allowed for in the policy, Mrs. Volpe complied but Mr. Volpe refused to submit to an examination under oath.1 The facts also indicate that the Farm Bureau investigator met with Sergeant Lucas from the Wilson Police Department on a few occasions to discuss the possible arson. In November 2008, the Volpes sold the property via quit-claim deed to another party and, while they did disclose the fire damage to the buyer, it appears they failed to disclose that it was encumbered by a deed of trust.

Farm Bureau ultimately denied the claim in February 2009, citing among other factors Mr. Volpe’s failure to provide a sworn statement the Volpe’s failure to disclose the deed of trust, and Farm Bureau’s suspicion that the fire had been intentionally set by one of the Volpes. The next day, Farm Bureau filed a declaratory judgment action against Cully’s and the Volpes, seeking a declaration that it had no obligation to provide coverage under the insurance policy.

In March 2009, defendants filed a combined answer and counterclaim, denying Farm Bureau’s right to decline coverage, and asserting counterclaims that Farm Bureau had: (1) breached the insurance contract; (2) violated the Unfair Claims Settlement Practices provision of the NC Insurance Law; (3) committed unfair and deceptive acts; and (4) acted in bad faith.

About three weeks later, in April 2009, Farm Bureau’s investigator contacted and met

1 Mr. Volpe never provided a sworn statement and subsequently died in 2010 after this litigation was commenced. After his death, Mr. Volpe was removed as a party to the suit.

INSURANCE LAW UPDATE 2013-2014: SELECT STATE AND FEDERAL CASE LAW PAGE 1

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


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


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


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


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


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


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


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


(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


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


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).


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).


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


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


"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


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)


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


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;


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


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)


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


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.


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:


[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


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" 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.


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


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


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


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


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


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


provides primary coverage, and the policy with the excess clause provides secondary coverage which will only be triggered if the limits of the policy containing the pro rata clause are first exhausted. Furthermore, where a pro rata clause in one insurance policy competes with a pro rata clause in another policy, each insurer has primary but concurrent liability for a proportionate amount of the loss. Accordingly, an actual controversy exists in an action to determine the liability of an insurer under its policy where the policy contains a pro rata clause and the other applicable policy contains either an excess clause or a pro rata clause.

(some internal quotations and citations omitted.) Upon examination of the "other insurance" clause in the UNC-LITF, the court concluded that the trial court erred in determining that no actual controversy existed as to UNC-LITF's duty to indemnify until the underlying med mal action was finally resolved. If the UNC-LITF policy provided that coverage is excess or triggered only after exhaustion of the MMIC policy limits, then no actual controversy would exist. However, the Court determined that the UNC-LITF policy's "other insurance" clause was a pro rata clause, not an excess clause, because the it provided that UNC-LITF "shares liability with other collectible policies according to their respective policy limits."

Therefore, the Court found that "[r]egardless of the terms of the MMIC policy, the UNC-LITF policy provides primary coverage because the UNC-LITF policy contains a pro rata "other insurance" clause." Because the UNC-LITF policy provides primary coverage, the Court held that an "actual controversy" exists as to the UNC-LITF's duty to indemnify, and the trial court erred in granting the stay. The Court reversed the trial court's decision.

Etheridge v. Levitsky, 754 S.E.2d 259, 2014 N.C. App. LEXIS 74 (January 21, 2014)

Judge Ervin. Judges McGee and Steelman concur.

Appeal of an Arbitration Award. The Court upheld the trial court's order confirming an arbitration award and denying plaintiff's motion for a new trial. Plaintiff was a passenger on a motorcycle driven by Defendant Levitsky that was involved in an accident. At the time, plaintiff had UIM coverage under a policy issued by Defendant USAA, which included an arbitration provision. Plaintiff filed a complaint alleging that she had suffered permanent injury resulting from Levitsky's negligence. Progressive, Levitsky's liability insurer, then tendered policy limits of $50,000 to plaintiff. In return, plaintiff released Progressive from any duty to further defend Levitsky and entered into a covenant not to seek personal recovery against Levitsky.

Defendant USAA filed an answer in which it denied that plaintiff had been injured as a result of Levitsky's negligence and asserted that plaintiff's claim was barred by contributory negligence and assumption of the risk. The trial court entered an order compelling arbitration and the parties entered into an Arbitration Agreement and Stipulations, which were summarized by the Court:


On 27 March 2012, the parties entered into an Arbitration Agreement and Stipulations, filed on 9 April 2012, which provided that the arbitration panel would determine, "[f]rom the evidence presented, what amount of damages, if any, is recoverable by Plaintiff in excess of the sum ($50,000.00) paid by the primary carrier?" In addition, the parties stipulated, for purposes of the arbitration proceeding, that "Plaintiff alleges that Defendant Levitsky was negligent in the operation of his motor vehicle and that his negligence was a proximate cause of some injury to Plaintiff" and that "Defendant [Levitsky] alleges that he was not negligent, or in the alternative, as a gratuitous passenger, plaintiff assumed the risk of her injury (contributory negligence)."

Following an arbitration hearing, the three-arbitrator panel signed an award providing that plaintiff "has failed to prove by a preponderance of the evidence that the wreck and any injuries suffered by the plaintiff were caused by the negligence of [Levitsky]." After several motions and responses, the trial court entered an order confirming the arbitration award and ordering that the award be filed with the clerk of court.

Despite some clerical deficiencies in plaintiff's appeal, the Court permitted plaintiff's appeal challenging the trial court's order. Plaintiff argued that the trial court erred in failing to grant her motion to vacate the arbitration award because the arbitration panel exceeded its authority by basing its award on an issue not submitted for its decision. The Court noted that more specifically, "Plaintiff contends that the issue of Defendant Levitsky's negligence was not placed in dispute by the arbitration agreement and that the only issue properly before the arbitration panel was the amount of damages to which Plaintiff was entitled." The Court was unpersuaded, explaining:

According to well-established North Carolina law, judicial review of an arbitration award is severely limited in order to encourage the use of arbitration and in turn avoid expensive and lengthy litigation, so that an arbitration award is presumed valid, and the party seeking to vacate it must shoulder the burden of proving the grounds for attacking its validity. For that reason, the general rule is that errors of law or fact, or an erroneous decision of matters submitted to [arbitration], are insufficient to invalidate an award fairly and honestly made. As a result, if the dispute resolved by the arbitrator is within the scope of the arbitration agreement, then the trial court must confirm the arbitration award unless one of the statutory grounds for vacating or modifying the award enumerated in N.C. Gen. Stat. §§ 1-569.23 and 569.24 exists.

According to N.C. Gen. Stat. § 1-569.23(a)(4), upon motion to the court by a party to an arbitration proceeding, the court shall vacate an award made in the arbitration proceeding if an arbitrator exceeded the arbitrator's powers. Before the award can be vacated on the grounds that the arbitrator exceeded his authority, the record must objectively disclose that the


arbitrator did exceed his authority in some respect.

An arbitrator's ability to act is both created and limited by the authority conferred on him by the parties' arbitration agreement. For that reason, the only claims which an arbitrator is entitled to decide are those submitted for his or her decision. . . .

(internal quotations and citations omitted.) An arbitration panel exceeds authority when it arbitrates additional claims and matters not properly before it.

Therefore, the "ultimate issue" is whether the arbitration agreement itself allowed the arbitrators to consider the issue of whether plaintiff had been injured as a result of Levitsky's negligence. Looking to the relevant language of the arbitration agreement, the court noted that the language of the agreement clearly established that the negligence of Levitsky and the extent to which plaintiff was contributorily negligent were matters of dispute between the parties. Additionally, the "if any" language in the agreement indicated to the arbitration panel that it was "under no obligation to make any damage award in favor of plaintiff. Finally, the Court found that plaintiff was on notice that USAA had not conceded liability because the arbitration agreement was amended by USAA to add language setting out USAA's contention with Levitsky's negligence and plaintiff's contributory negligence.

Thus, the court concluded that the arbitration panel was expressly authorized by the arbitration agreement to determine whether plaintiff was entitled to an award of damages at all, and not simply, as plaintiff argues, how much plaintiff is entitled to. The Court affirmed.

Haugh v. Nationwide Mutual Fire Ins., 2014 N.C. App. LEXIS 534 (May 20, 2014)

Judge Dillon. Judges Stroud and Hunter, Jr. concur.

SC "Other Insurance" Provision. Plaintiff appealed the trial court's judgment dismissing her claims against Defendants for UIM coverage under her two policies, for injuries she sustained in a motorcycle accident in North Carolina. The accident was caused by the negligence of another driver, and his auto policy tendered its limits of $50,000 to plaintiff.

Plaintiff, a South Carolina resident, was insured under two insurance policies issued by Nationwide and delivered to her in South Carolina. Plaintiff has lived in South Carolina for nearly 30 years and has worked in Charlotte, North Carolina, for even longer. Plaintiff's Nationwide Auto Policy, written and issued in South Carolina, provided UIM coverage of $300,000. Plaintiff's Nationwide Motorcycle Policy, had no UIM coverage because plaintiff signed the selection/rejection form which officially declined UM/UIM coverage.


Plaintiff filed this action claiming she was entitled to coverage under both the Auto Policy and the Motorcycle Policy; Nationwide counterclaimed seeking a declaration that there was no UIM coverage available to plaintiff under either policy. Following a bench trial, the trial court dismissed plaintiff's claims and entered judgment in favor of defendants, which plaintiff appeals.

The Auto Policy contained the following UIM coverage language in its "Other Insurance" provision:

If a vehicle owned by you or a relative is involved in an accident where you or a relative sustains bodily injury or property damage, this policy shall:

(a) be primary if the involved vehicle is your auto described on this policy; or (b) be excess if the involved vehicle is not your auto described on this policy. The amount of coverage applicable under this policy shall be the lesser of the coverage limits under this policy or the coverage limits on the vehicle involved in the accident.

The Court agreed with the trial court's order, and noted:

If the "Other Insurance" provision is determinative as to the amount of UIM coverage available under the Auto Policy for Plaintiff's injuries sustained in the Motorcycle Accident, then the amount of coverage available would be $0.00. Specifically, since her motorcycle is not an "auto described" on the Auto Policy, the amount of UIM coverage available is subject to the language contained in subsection (b). The language in subsection (b) provides that the amount of UIM coverage available under the Auto Policy for injuries arising from the Motorcycle Accident can be no more than "the coverage limits" applicable under the Motorcycle Policy. Since Plaintiff had elected UIM coverage limits of $0.00 under her Motorcycle Policy, the amount of UIM coverage under the Auto Policy in this case is, likewise, $0.00.

The Court also agreed with the trial court that the substantive law of South Carolina governed the interpretation of the Auto Policy, since plaintiff did not fall under the exception to general rule expanded by the NC Supreme Court that North Carolina substantive law applies to insurance contracts even where the contract was entered into in another state so long as "a close connection exists between North Carolina and the interests insured by an insurance policy." See N.C. Gen. Stat. § 58-3-1. Even though the plaintiff asserted, and the trial court found, that "Plaintiff had more than casual, substantial and close contacts with the State of North Carolina," the Court struck this from the trial court's finding of fact and found instead that plaintiff's connections were not sufficient to trigger the application of N.C. Gen. Stat. § 58-3-1. The Court

The Court also held that the Auto Policy's "Other Insurance" provision was valid under


South Carolina law. The Court affirmed the judgment in part, and modified it in part.

Lloyd v. Coffey, 754 S.E.2d 259, 2014 N.C. App. LEXIS 110 (January 21, 2014)

Judge Bryant. Judges Calabria and Geer concur.

Underinsured Motorist Coverage. The Court upheld the trial court's granting of summary judgment in Defendant Markel Insurance Co.'s favor because "plaintiffs fail to follow the statutory requirements of providing advance, written notice of a claim and settlement offer in accordance with N.C. Gen. Stat. § 20-279.21(b)(4).

Plaintiffs were a driver and passenger of a bus that was rear-ended by Defendant Coffey. Plaintiffs and Coffey's primary liability carrier, Discovery Insurance Co., each agreed to settlements and covenants not to enforce judgment. Over three months later, plaintiffs' counsel sent a notice to Markel Insurance, Coffey's underinsured motor vehicle policy, that "the bodily injury damages incurred in [the collision] exceeded defendant's liability insurer's limits of liability coverage." Markel then filed a motion for summary judgment alleging that plaintiffs had failed to provide Markel with thirty days advance, written notice of the settlement agreements with Discovery as required by N.C. Gen. Stat. § 20-279.1(b)(4), which states in pertinent part:

[n]o insurer shall exercise any right of subrogation or any right to approve settlement with the original owner, operator, or maintainer of the underinsured highway vehicle under a policy providing coverage against an underinsured motorist where the insurer has been provided with written notice before a settlement between its insured and the underinsured motorist and the insurer fails to advance a payment to the insured in an amount equal to the tentative settlement within 30 days following receipt of that notice. Further, the insurer shall have the right, in its election, to pursue its claim by assignment or subrogation in the name of the claimant, and the insurer shall not be denominated as a party in its own name except upon its own election.

The Court noted:

Our Court has held that "a plaintiff is . . . required to notify the UIM insurance carrier when a claim is filed against the primary tort-feasor, and also when a settlement offer has been made." Gurganious v. Integon Gen. Ins. Corp., 108 N.C. App. 163, 166, 423 S.E.2d 317, 318 (1992) (emphasis added).

The Court found, however, that while plaintiffs' counsel did provide written notice of a claim to Markel, "the letters do not convey notice of a proposed settlement offer" and failed to meet the notice requirement of N.C. Gen. Stat. § 20-279.21(b)(4). The Court affirmed.


Mintz v. Kelley, 750 S.E.2d 917, 2013 N.C. App. LEXIS 918 (September 3, 2013)

Judge McCullough. Judges Robert C. Hunter and Geer concur.

UM/UIM Coverage. Plaintiff appeals from trial court's order granting summary judgment in favor of Defendant Nationwide. The Court dismissed the appeal as interlocutory where the trial court granted summary judgment without disposing of the wrongful death claim against the individually named defendant. Although Defendant Kelley's insurer (State Farm) was properly dismissed from the action pursuant to its agreement to tender the policy's liability limits to plaintiff, the trial court's order allowed the litigation to proceed against the individually named defendant. Therefore, the individually named plaintiff, Defendant Kelley, remained a party in the case.

The plaintiff's decedent, who is also plaintiff's son, was killed in an auto accident. The plaintiff, as administrator of the decedent's estate, filed a complaint against Defendant Kelley individually for wrongful death and against Defendant Nationwide for a declaratory judgment that Nationwide owes $1 million, the maximum combined uninsured/underinsured motorist coverage allowed by the statute, under the policy held by decedent's parents.

At the time of the collision, the Nationwide insurance policy provided liability coverage for bodily injury and combined UM/UIM coverage for bodily injury with limits of $50,000 per person and $100,000 per occurrence. Plaintiff's complaint, however, alleged that neither he nor Mrs. Mintz were notified of the opportunity to purchase increased combined UM/UIM coverage in accordance with N.C. Gen. Stat. § 20-279.21. Therefore, plaintiff claimed the estate was entitled to $1 million, the maximum coverage allowed under the statute and pursuant to Williams v. Nationwide, 175 N.C. App. 601, 621 S.E.2d 644 (2005).

During summary judgment hearing, plaintiff argued to the trial court judge that summary judgment in Nationwide's favor was inappropriate because Nationwide admitted in its answer that it never offered plaintiff or Ms. Mintz the opportunity to purchase increased UM/UIM coverage. Nationwide then attempted to clarify its response and moved to amend it pleadings. Nationwide did file an amended answer, and the trial court thereafter entered summary judgment in Defendant Nationwide's favor. Plaintiff appealed this order.

On appeal, plaintiff argued that the trial court erred in granting Nationwide's motion for summary judgment. The Court, however, did not reach the merits of the appeal because the individually named defendant remained a party in the case. As such, the Court held that the appeal was interlocutory and dismissed the appeal.

Robinson v. Discovery Insurance Company, 753 S.E.2d 397, 2013 N.C. App. LEXIS


1103 (November 5, 2013)

Judge Ervin. Judges McGee and Steelman concur.

UM/UIM Selection Rejection Form. Defendant Discovery appeals from a judgment providing that the applicable limit of underinsured motorist ("UIM") coverage under plaintiff's Discovery policy is $1 million per person. The trial court's judgment was based on the jury's verdict that plaintiff "did not sign an uninsured/underinsured motorist selection/rejection form" and that Discovery had "totally failed" to provide plaintiff the opportunity to select or reject UIM coverage of up to $1 million.

On appeal, Discovery argued that the trial court judge erred in denying its summary judgment motion and that defendant was entitled to judgment as a matter of law given that, it argued, the evidence did not show that defendant totally failed to inform plaintiff of her right to select or reject up to $1 million in UIM coverage.

Plaintiff's decedent was involved in an auto accident on August 28, 2008, and her resulting injuries proved fatal. Plaintiff, the administrator of her estate, filed a declaratory judgment action for determination of the limits of the UIM coverage in the applicable Discovery policy. For sake of simplicity, the deceased and the administrator of the estate are both referred to as "plaintiff." The insurance carriers for the tortfeasors each tendered their policy limits, which totaled $350,000, to plaintiff. Plaintiff then sought recovery from her own insurance policy on the basis of the UIM provision of the policy which she had procured from Discovery. Discovery denied plaintiff's claim on the grounds that the UIM coverage available to her was subject to a limit of $50,000.

Plaintiff first obtained an auto policy from Discovery through Dixon Insurance Agency in 2003. The auto policy was in full force and effect at the time of the collision. However, the parties presented "sharply conflicting evidence concerning the extent to which defendant afforded plaintiff an opportunity to select or reject $1,000,000 in UIM coverage at the time that the policy in question was either initially purchased or renewed." The Dixon agent produced a selection/rejection form to which plaintiff's signature had purportedly been affixed and which had been witnessed by the agent indicating that plaintiff had the opportunity to purchase up to $1,000,000 in UIM coverage, but she had selected UIM coverage in the amount of $50,000 per person and $100,000 per accident. Additionally, defendant claimed plaintiff signed a series of documents developed by the Dixon Agency and executed on each occasion where plaintiff renewed her auto liability policy which provided that the insured "understood and acknowledged that a representative of Dixon Insurance had explained to me the policies for which I am applying" and that "although there are higher liability limits available," "I choose what is indicated above."

At trial, plaintiff presented a qualified handwriting expert who testified that the signature on the selection/rejection form purported to be that of the plaintiff was not genuine. The handwriting expert also testified that, while plaintiff's genuine signature did appear on the renewal forms dated January 8, 2008, and July 24, 2008, the plaintiff's purported


signatures on several other renewal forms were not genuine. Instead, the handwriting expert testified that those signatures were that of the same person who signed the selection/rejection form.

Plaintiff's agent and an agency staffperson, however, testified that plaintiff was the one who signed the selection/rejection form. They also testified that it was their general business practice for an agency representative to describe the coverage plaintiff was purchasing and the different coverage options that were available to her, including her UIM coverage and the option to purchase additional UIM coverage, at the time that she initially procured her policy from defendant and each time the policy renewed. Neither the agent nor his staff member could, however, recall having had such a conversation with plaintiff at the time she initially purchased her policy or at any renewal.

At the conclusion of plaintiff's evidence and at the close of all of the evidence, defendant unsuccessfully moved for a directed verdict in its favor. The jury returned a verdict finding that plaintiff had not signed a UM/UIM selection/rejection form and that defendant had "totally failed" to provide plaintiff the opportunity to select or reject UIM coverage up to $1 million. The trial judge then declared that the applicable UIM limit of the Discovery policy is $1 million.

The Court initially noted:

Although the General Assembly has subsequently amended the relevant statutory provisions, the version of N.C. Gen. Stat. § 20-279.21 applicable to this case provided that policies of automobile liability insurance issued in North Carolina must include UIM coverage "in an amount not to be less than [a baseline set by N.C. Gen. Stat. § 20-279.5] nor greater than one million dollars ($1,000,000) as selected by the policy owner;" that an insured should reject UIM coverage or "select different coverage limits" by completing a "selection/rejection" form promulgated by the North Carolina Rate Bureau; and that, if the insured neither rejected UIM coverage or selected a different amount of coverage, the amount of UIM coverage "shall be equal to the highest limit of bodily injury and property damage liability coverage for any one vehicle in the policy." N.C. Gen. Stat. § 20-279.21(b) (4) (2007). As this Court held in Williams v. Nationwide Mut. Ins. Co., 174 N.C. App. 601, 605-06, 621 S.E.2d 644, 647 (2005), disc. review improvidently granted, 360 N.C. 586, 634 S.E.2d 887 (2006), a failure on the part of an insurer to offer the insured an opportunity to reject UIM coverage and to select a different amount of coverage as required by N.C. Gen. Stat. § 20-279.21(b)(4), an action which we described as a "total failure," resulted in a violation of the statutory requirements that the amount of UIM coverage be "selected by the policy owner" and entitled the insured to "the highest available limit of UIM coverage of $1,000,000." As a result, the ultimate issue at trial was the extent to which Defendant had "totally failed" to inform Plaintiff that she was entitled to purchase up to $1,000,000 in UIM coverage at the time


that she initially purchased or renewed the policy which she had procured from Defendant.

The parties agreed at trial, and well-established case law supports, that the burden of establishing an insured's rejection of coverage falls on the insurer. As a result, the parties agreed to jury instructions expressly stating that defendant had the burden of persuading the jury that it had not "totally failed" to provide plaintiff with the opportunity to select or reject UIM coverage of up to $1,000,000. On appeal, defendant argued that the trial court erred in denying its motion for a directed verdict. The Court, however, disagreed, because the evidence presented at trial was not "manifestly credible" as required by the directed verdict standard. The Court noted:

As should be obvious, Plaintiff did not admit the truth of the facts which Defendant sought to establish at trial. On the contrary, Plaintiff clearly denied the authenticity of the documentary evidence upon which Defendant relied and elicited evidence tending to show that the signatures purporting to be those of Plaintiff on many of these documents, including the selection/rejection form, were not genuine. For that reason, Defendant was obligated to prove that Plaintiff had been afforded the opportunity to purchase up to $1,000,000 in UIM coverage in order to prevail at trial.

As Defendant admits in its brief, there is clearly a factual issue as to the authenticity of Plaintiff's signature on the selection/rejection form and four of the renewal forms. Although Defendant attempts to avoid the difficulties created by this conflict in the evidence by claiming that the undisputed evidence shows that Plaintiff signed the two renewal forms executed in 2008, neither of those forms expressly indicates that Plaintiff was advised of her right to purchase up to $1,000,000 in UIM coverage. Instead, the validity of Defendant's assertion that Plaintiff had been advised of her right to do so hinges upon the testimony of [the agent and the agency staffperson] to the effect that the general practice at Dixon Insurance was to go over the amounts of coverage available to each insured on each occasion when the insured's policy was purchased or renewed and that, as part of that process, Plaintiff would have been advised of her right to purchase $1,000,000 in UIM coverage. Simply put, such "general practice" evidence, while certainly relevant and sufficient to support a finding in Defendant's favor, does not constitute "manifestly credible" evidence that Plaintiff, in particular, was afforded the opportunity to purchase up to $1,000,000 in UIM coverage.

The Court also found that the handwriting expert's testimony regarding the authenticity of the signatures on the selection/rejection form and the renewal forms provided "ample basis for a jury to question" the assertions made by the agent and the agency staffperson as to the authenticity of the signatures on the policy forms as well as the standard business practices used at the Dixon Insurance Agency.


Discovery next unsuccessfully argued that this case is analogous to other Court of Appeals decisions which conclude that, so long as the insurer "had done something in furtherance of its obligation to inform the insured of his or her right to select or reject a higher amount of UIM coverage, no 'total failure' as that expression is used in Williams occurred." The Court, however, distinguished those decisions from this case because nothing in the cases cited by defendants provided "any basis for questioning whether the insurer actually mailed a selection/rejection form to the insured." Rather, the Court noted:

Defendant's reliance on Burgdoff is equally unavailing in light of our recognition in that decision that "[w]hether or not [the plaintiff was] provided the opportunity to reject or select different UIM coverage limits is a factual determination that is generally best resolved by a jury." [Nationwide Mut. Ins. Co. v. Burgdoff, 206 N.C. App. 740, 744-45, 698 S.E.2d 500, 503 (2010)]. As a result, given that there was, in this case, a legitimate basis for questioning Defendant's contention that it had not "totally failed" to afford Plaintiff an opportunity to purchase UIM coverage in an amount of up to $1,000,000, none of the prior decisions of this Court upon which Defendant relies provide any basis for a decision to overturn the trial court's judgment.

The Court also rejected Discovery's argument based on the provision in the two renewal forms that plaintiff actually signed, that a "total failure" did not occur. The relevant provision of the renewal policy stated that plaintiff "understood and acknowledged that a representative of Dixon Insurance Agency, Inc. had explained to me the policies for which I am applying" and understood that although "there are higher liability limits available," "I choose what is indicated above." The Court found this argument unpersuasive in light of the record being "devoid of documentary evidence tending to show that plaintiff was ever actually informed that she had the right to purchase up to $1,000,000 in UIM coverage[.]" (emphasis added.)

Finally, the Court held:

There is no more firmly established principle of North Carolina law than the rule that credibility determinations must be resolved by the trier of fact rather than by the trial court in the course of ruling on a directed verdict motion." State v. Legins, 184 N.C. App. 156, 159, 645 S.E.2d 835, 837, aff'd, 362 N.C. 83, 653 S.E.2d 144 (2007). As a result, given that the evidence adduced at trial reveals the existence of a legitimate factual issue concerning the extent to which Defendant "totally failed" to advise Plaintiff of her right to purchase up to $1,000,000 in UIM coverage, the trial court correctly denied Defendant's motion for a directed verdict at the close of all of the evidence.

The Court affirmed the trial court's judgment.


Wood v. Nunnery, 2014 N.C. App. LEXIS 219 (February 18, 2014)

Judge McGee. Judges Bryant and Stroud concur.

Liability, UIM & WC - Satisfaction of Judgment. (This appeal coincides with the Wood v. Nunnery, 730 S.E.2d 222 (2012) ("Wood I") appeal covered in depth in last year's "Insurance Law Update 2012 - 2013".) The issues raised on this appeal are essential the same as the ones discussed in the previous appeal, Wood I.

The Court in this appeal effectively summarized the procedural history relevant to this appeal:

In Wood I, and relevant to the current appeal, this Court stated:

The trial court held that the $30,000.00 from State Farm, $202,627.58 from Firemen's, and the net benefit of $98,000.00 in workers' compensation benefits ($148,000.00 less the reduced lien of $50,000.00) constituted a recovery to . . . [P]laintiff of at least $330,627.58. The trial court went on to hold that "the collective payments paid into the Office of the Clerk of Court of Forsyth County constitute full payment and satisfaction of the final Judgment entered herein."

Id. at , 730 S.E.2d at 224. This Court went on to say:

We initially note that the trial court conflated the concepts of the amounts owed by [D]efendant as the tortfeasor in this matter and the amount owed by Firemen's as an underinsured motorist carrier (UIM). Plaintiff instituted this action against [D]efendant, seeking monetary damages for personal injuries proximately caused by the negligence of [D]efendant. The jury found that [P]laintiff's injuries were proximately caused by the negligence of [D]efendant and awarded damages to [P]laintiff of $300,000.00. The trial court entered judgment against only [D]efendant. This judgment was based upon [D]efendant's negligence and was a tort recovery.The liability of Firemen's is based in contract, not in tort.

Id. at , 730 S.E.2d at 224. This Court held that Defendant was not "entitled to a credit against the judgment for payments made by Firemen's as a UIM carrier." Id. at , 730 S.E.2d at 225. We further held: "The only payment to which [D]efendant is entitled to a credit [*5] against the judgment is the $30,000.00 paid by State Farm, [D]efendant's liability insurance carrier." Id. at , 730 S.E.2d at 226.


However, in remanding to the trial court, this Court instructed:

The trial court erred in declaring that the judgment against [D]efendant had been paid and satisfied in full. The portion of the trial court's order so declaring is vacated, and this matter is remanded to the trial court for further proceedings consistent with this opinion. At such a hearing, the trial court may consider whether [D]efendant is entitled to additional credits against the judgment, other than the $30,000.00 paid by State Farm.

Id. at , 730 S.E.2d at 226.

Upon remand, the trial court, by order entered 11 February 2013, ruled that Defendant was only entitled to a credit for the $30,000.00 paid by State Farm, his liability carrier, and that Defendant was not entitled to any credit for monies paid by either Firemen's or by the workers' compensation carrier. Defendant appeals the 11 February 2013 order.

On this appeal, Defendant Nunnery's arguments regarding the money paid by Firemen's were essentially the same as they were in Wood I, as noticed by the Court:

In Defendant's first argument, he contends the trial court erred in "refusing to reduce the judgment against [him] to account for the UIM payment [made by Firemen's] and net workers' compensation benefits that were received by [Plaintiff] as compensation for his injuries." We disagree.

In the prior appeal in this case, this Court held: "We hold that [D]efendant is not entitled to a credit for payments made by Firemen's into the Office of the Clerk of Superior Court for Forsyth County." Wood I, N.C. App. at , 730 S.E.2d at 225. We have no authority to revisit that holding. Weston v. Carolina Medicorp, Inc., 113 N.C. App. 415, 417, 438 S.E.2d 751, 753 (1994) (citations omitted) ("According to the doctrine of the law of the case, once an appellate court has ruled on a question, that decision becomes the law of the case and governs the question both in subsequent proceedings in a trial court and on subsequent appeal.").

Next, the Court addressed Nunnery's contention that he is entitled to a credit for the workers' comp payments made to Plaintiff. However, it was evident that the Wood I Court considered the workers' comp payments because its opinion discussed them. Accordingly, the Court found that, like Firemen's liability, the liability of the workers' comp carrier is based in contract and not in tort. Further, Plaintiff instituted this action in tort against Defendant Nunnery, not against the workers' comp carrier.

The Court held:


Though the workers' compensation payment is not specifically mentioned in this analysis, we find no distinguishing difference between the relative positions of Firemen's and the workers' compensation carrier in this matter. Within this context, we hold that our holding in Wood I: "The only payment to which [D]efendant is entitled to a credit against the judgment is the $30,000.00 paid by State Farm, [D]efendant's liability insurance carrier[,]" id., applied to all potential credits that had been argued on appeal, including the workers' compensation payment. The trial court, having found that Defendant was not entitled to any additional credits not addressed in Wood I, did not err in denying Defendant credit for payments made to Plaintiff by Firemen's or by the workers' compensation carrier.

Defendant's policy arguments are not for us to decide, as we are bound by this Court's holding in Wood I. The same applies to Defendant's collateral source argument.

The Court affirmed Wood I and the trial court's 2013 order.

Update: Defendant Nunnery has petitioned the N.C. Supreme Court for review and Plaintiff Wood filed a conditional petition for discretionary review. Counsel for plaintiff was informed on June 12, 2014, that both petitions were granted.

VII. UNITED STATES COURT OF APPEALS (4TH CIRCUIT)

Kamp v. Empire Fire & Marine Insurance Co., 2014 U.S. App. LEXIS 8588 (May 7, 2014) (unpublished)

Judges Wilkinson, Motz, and Diaz.

Motorcycle Renter's UM Policy. Plaintiff rented a motorcycle from a Harley Davidson vendor in Charlotte. The rental agreement provided for automatic insurance coverage for the minimum limits required by North Carolina law. Plaintiff also purchased a separate supplemental insurance policy which provided coverage beyond minimum limits. Both policies were issued by Empire.

The same day, Plaintiff was involved in an auto accident while driving the rented motorcycle in South Carolina and was seriously injured. Plaintiff sued the tortfeasor, who was uninsured, in South Carolina state court and obtained a $2,500,000 default judgment. He then filed an uninsured motorist claim with Empire, seeking coverage under both the minimum coverage and supplemental policies. Empire paid plaintiff $30,000, the minimum limit, but denied any additional coverage under the supplemental policy, claiming the supplemental policy excluded UM coverage.

The supplemental policy purchased by plaintiff included three categories of coverage: Supplemental Rental Liability Insurance ("SLI"); Personal Accident Coverage; and


Personal Property Coverage. Plaintiff contended that the SLI policy included up to $1,000,000 in additional UM coverage, as set for on the Declarations page contained in the master document for the supplemental policy plaintiff was provided

The supplemental policy is a nationwide document which is tailored to conform to state law with various state-specific endorsements. The master document for the policy provides that "the most [Empire] will pay for 'ultimate net loss' is the difference between the limits of liability provided by the 'underlying insurance' and the [SLI] limit shown in the Declarations" and a separate provision in the master document expressly excludes coverage for "liability arising out of or benefits payable under any uninsured or underinsured motorists law, in any state." Finally, the North Carolina endorsement which modifies the supplemental policy, did not include any relevant modifications and did not mention UM coverage.

When Empire denied coverage, plaintiff sued in South Carolina state court, and the case was removed to South Carolina federal court based on diversity jurisdiction. The federal district court granted Empire's motion for summary judgment, and plaintiff appealed.

On appeal, the 4th Circuit looked to North Carolina substantive law for interpretation of the policies. The Court initially noted that in North Carolina, "ambiguous exclusionary provisions will be construed against the insurer." Although it noted that there are six endorsements to the supplemental policy which purport to modify or add to the master document by providing the same UM coverage that plaintiff argued it already includes, the Court concluded that "the supplemental policy unambiguously excludes UM coverage as applied to Kamp." Additionally, the court noted: "Moreover, because North Carolina's MVSFRA does not apply to policies, like this one, that provide only excess liability coverage, no reformation of the supplemental policy is required."

The 4th Circuit affirmed the district court's judgment.

VIII. UNITED STATES DISTRICT COURT

A. EASTERN DISTRICT OF NORTH CAROLINA

Burch v. Lititz Mutual Insurance Co., 2013 U.S. Dist. LEXIS 164497 (Nov. 19, 2013)

Judge Flanagan.

Homeowners Policy Application: Material Misrepresentation. Plaintiffs filed this action against defendant insurance company alleging breach of contract, bad faith, and unfair claim settlement practices. Before the court is defendant's motion for summary judgment.

Breach of Contract Claim. On July 23,2010, soon after purchasing a home in Robeson county, Mrs. Burch visited her insurance agent and signed an application for a homeowners policy to insure their home. The two-page application had various blocks


requesting certain information. The block labeled "Marital Status" was completed with "S"; the block labeled "Market Value" was completed with $475,000; the block labeled "Purchase Date/Price" provides "7/23/10 $475,000"; the block labeled "Replacement Cost" was completed with $526,000; and the row for "Loss History" which includes the question, "Any losses, whether or not paid by insurance, during the last 3 years, at this or at any other location?" is marked "No". Several blocks were left blank, but Ms. Burch signed the signature line at the bottom of the application, attesting that she read the application and declared the information to be true and correct.

After the agent submitted the application to Lititz, it issued a policy to Ms. Burch providing that property losses would be settled "at actual cash value at the time of loss but not more than the amount required to repair or replace" and buildings would be covered "at replacement cost without deduction for depreciation," subject to a number of conditions. The policy initially provided replacement cost coverage of $526,000, but Lititz increased the coverage to $645,000 based on a third party's appraisal (hired by Lititz).

A fire destroyed the home on August 14, 2011, consuming plaintiffs' personal property and forcing them to make alternative living arrangements. Plaintiffs made a claim under their policy, and defendant provided assistance for a temporary residence (which totaled $243,970.25) for plaintiffs while Lititz investigated the claim. Defendant notified plaintiffs that it had denied their claim on February 15, 2012. Plaintiffs then filed this action, and have demanded unspecified compensatory and contractual damages related to the breach of contract.

Plaintiffs assert that defendant breached its policy obligations in denying their claim, while defendant asserts the affirmative defense of material misrepresentation. The Court noted: "Under North Carolina law, an insurance company may prevail on an affirmative defense of material misrepresentation if the insured made statements that were: 1) false; 2) knowingly and willfully made, and 3) material." Mrs. Burch admitted that she: (1) falsely answered "S" or "Single" to the marital status question; (2) falsely put the market her perceived market value of the property in the "Purchase Price" box; (3) and answered "No" to the Loss History question even though she had filed a claim under her renter's policy only a year before filling out the application in question.

Plaintiffs argued that these errors were not made "knowingly and willfully" because the agent prepared the documents in advance, and Mrs. Burch just signed it. The Court noted:

North Carolina law is settled that a plaintiff who signs an insurance application represents that she has read the application and affirmed its truth. Goodwin v. Investors Life Ins. Co., 332 N.C. 326, 331, 419 S.E.2d 766 (1992). . . . Even if defendant or the insurance agent committed some form of mistake, negligence or fraud, the North Carolina Supreme Court found that the plaintiffs might not necessarily prevail:

The rule that the insured is not responsible for false answers in the


application where they have been inserted by the agent through mistake, negligence, or fraud is not absolute, and applies only if the insured is justifiably ignorant of the untrue answers, has no actual or implied knowledge thereof, and has been guilty of no bad faith or fraud. [Goodwin, 332 N.C. at 330, 419 S.E.2d at 766.]

Because Ms. Burch claimed she interpreted the claims history question to seek information on previous homeowners policy claims, rather than on a renter's policy claim, the Court determined:

This error may represent a "mistake" that would excuse the misrepresentation. . . . Assessing the credibility of this misunderstanding would thus properly fall to a jury.

Plaintiffs have not alleged a similar mistaken understanding regarding the purchase price information, or [Mrs.] Burch's marital status. Nor have they offered any evidence to suggest that the agent who completed the application somehow acted with deception or in bad faith. In the absence of such proof, the court must consider plaintiff's signature to represent a "knowing and willful" misrepresentation of these facts. [internal quotations and citations omitted.]

As for the materiality of the misrepresentations, the Court found that defendant did not provide enough evidence to establish their materiality. Rather, defendant only focused on the materiality of the purchase price. Defendant's underwriter testified that it "will not issue policies where the replacement cost exceeds the purchase price by more than 30% absent extenuating circumstances such as a below market price sale between family members," but then admitted that defendant "will look at the situation" to determine if the disparity between purchase price and replacement cost would lead defendant to deny coverage. Defendant's underwriter also admitted it had no "hard and fast rules" for determining whether application blocks are material, and that it evaluates each claim on a "case-by-case basis." The Court noted:

A "material" misrepresentation is one in which "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." Goodwin, 332 N.C. at 331. The test is subjective, considering whether the false answer would affect the insurance company "in deciding for itself, and in its own interest." Id. Courts consider whether there is a "strong logical relationship between the question asked, assessing the risk, and the ultimate determination of an actuarially sound premium." Goodwin, 332 N.C. at 332; see Johnson v. Household Life Ins. Co., No. 5:11-CV-301-BR, 2012 U.S. Dist. LEXIS 154189, at *19 (E.D.N.C. October 26, 2012).

The Court explained that the Fourth Circuit "has recognized the principle that summary


judgment is seldom appropriate in cases wherein particular states of mind are decisive elements of a claim or defense." Therefore, the Court found that a genuine issue of material fact existed on the question of materiality, since defendant did not make clear exactly how the purchase price materially affected defendant's decision to extend coverage and only said that "the bulk of application responses are evaluated on a case-by-case basis." For this reason, the Court denied defendant's motion to dismiss as to the breach of contract claim.

As for the issue of consequential damages, plaintiffs indicated they intended to present evidence that the claim denial caused damage to their creditworthiness and forced Mrs. Burch to accept early separation from the Air Force. The Court found that damages such as these were contemplated at the time of contract but were not included in any provisions of the policy. Therefore, defendant's mere knowledge that Mrs. Burch was an active duty service member did not mean there were presumed special circumstances or conditions that existed. Accordingly, the Court granted defendant's motion for summary judgment on plaintiffs' claim for consequential damages.

Bad Faith. The Court found that plaintiffs could not satisfy the first element of a bad faith claim ("refusal to pay after recognition of a valid claim"), since the claim remains under dispute. The Court noted: "Furthermore, there is no evidence that this dispute rests on anything more than an honest disagreement." The Court dismissed plaintiffs' bad faith claim.

Unfair Claim Settlement Practices. Because defendants denied plaintiffs' claim based on an "honest disagreement", the Court dismissed plaintiffs' Unfair Claim Settlement Practices Claim.

City Grill Hospitality Group, Inc. v. Nationwide Mutual Insurance Co., 2014 U.S. Dist. LEXIS 51215 (April 14, 2014)

Judge Fox.

Commercial Fire Policy. This case arises from Nationwide's denial of a plaintiff's fire claim. The Court here rules on Nationwide's motion for summary judgment. City Grill owns a Miami Subs restaurant in Fayetteville, NC, which was partially destroyed by fire. After conducting its own fire investigation, Nationwide denied coverage on the policy for two reasons: (1) it determined the fire was intentionally set; (2) one of City Grill's individual owners allegedly made material misrepresentations during the investigation. City Grill then filed suit, alleging breach of contract, breach of the covenant of good faith and fair dealing, and breach of North Carolina's unfair and deceptive trade practices act.

Spoliation. City Grill filed a motion for summary judgment solely on its allegation of spoliation of the evidence Nationwide alleges proving that the fire was intentionally set. The Court, however, found that "this case is simply not a case of spoliation" and denied City Grill's motion, noting:


Here, there is sworn, uncontradicted testimony in the record that [Nationwide's fire investigators] left the PCBs in City Grill's possession when they completed their investigation. This fact precludes any finding of spoliation in this case. First, it cannot be said that Nationwide failed to preserve evidence when it left the relevant evidence in the custody and control of the opposing party. . . . City Grill was indisputably on notice that any evidence related to the fire needed to be preserved, as City Grill itself initiated this lawsuit. As Nationwide notes, it cannot be held responsible for City Grill's own failure to preserve the evidence.

Breach of Covenant of Good Faith and Fair Dealing. Although plaintiff plead the breach of covenant of good faith and fair dealing as a claim separate and in addition to its claim for breach of contract, the Court dismissed the stand-alone breach of the covenant claim since the factual allegations support both claims. The Court reasoned:

The court finds that most of the parties' arguments on this claim are largely irrelevant because the breach of contract claim in this case will proceed to trial. Because the covenant is an "implied term" of the contract between the parties, see Bicycle Transit, 314 N.C. at 228, 333 S.E.2d at 305, City Grill may present evidence regarding the alleged breach of the covenant and argue to the jury that Nationwide breached the contract by breaching the implied covenant. Of course, City Grill will not be entitled to a double recovery in these circumstances because the same factual allegations make out the breach of the covenant and breach of contract claims. Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1, 19-20, 472 S.E.2d 358, 368-69 (1996). Nor can the covenant be used in a way that negates the express terms of the contract. Mendenhall v. Hanesbrands, Inc., 856 F. Supp. 2d 717, 726 (M.D.N.C. 2012). Within these parameters, however, City Grill can pursue its allegation that the covenant has been breached.

Unfair and Deceptive Practices Act Claim. Plaintiff argued that Nationwide's denial of coverage constituted an unfair and deceptive settlement practice. The allegation in plaintiff's complaint reads:

[Nationwide's] investigation and judgment of [City Grill's] insurance claim, its intentionally erroneous interpretation of the policy, and its refusal to comply with applicable statutes and regulations, and its refusal to provide additional benefits due under the terms of the policy constitute unlawful, unfair, and deceptive trade practices under [N.C. Gen. Stat. § 75-1.1 et seq.]

Unpersuaded, the Court dismissed plaintiff's unfair and deceptive settlement practices claim, finding "[t]here is simply nothing unfair or deceptive about Nationwide's investigation in this case."


Bad Faith Refusal to Settle. Though briefed by both parties, the Court found there was no bad faith refusal to settle claim, because it was not a separate claim for relief listed in the complaint. Still, the Court found no evidence of bad faith in the record.

Except for plaintiff's breach of contract claim, the Court allowed the defendant's motion for summary judgment in its entirety.


Download - 2014 Manuscript

Top Related