VIRGIE M. SANDERS, Plaintiff, v. AMERICAN SPIRIT INSURANCE COMPANY,
Defendant
Insurance--automobile--underinsured motorist coverage--summary judgment improper--need
form promulgated by Rate Bureau and approval by Commissioner of Insurance
The trial court erred in granting defendant's motion for summary judgment because the
pertinent automobile insurance policy issued by defendant provides underinsured motorist coverage
under N.C.G.S. § 20-279.21(b)(4) to plaintiff for injuries sustained while a passenger in an
automobile driven by defendant's named insured since rejection of underinsured motorist coverage
is not accomplished unless it is in writing and on a form promulgated by the Rate Bureau and
approved by the Commissioner of Insurance. Appeal by plaintiff from judgment entered 22 June 1998 by
Judge Knox V. Jenkins, Jr., in Johnston County Superior Court.
Heard in the Court of Appeals 19 May 1999.
Dean A. Shangler for plaintiff-appellant.
Yates, McLamb & Weyher, L.L.P., by R. Scott Brown and Michael
J. Byrne for defendant-appellee.
JOHN, Judge.
Plaintiff appeals the trial court's grant of defendant's
summary judgment motion proffered pursuant to N.C.G.S. § 1A-1, Rule
56(c)(1990) (defendant's motion). The sole issue for our
determination is whether an automobile insurance policy issued by
defendant (the policy) provides underinsured motorist (UIM)
coverage to plaintiff for injuries sustained while a passenger in
an automobile driven by defendant's named insured Joan Johnson
(Johnson). We conclude the policy provides such coverage and that
the trial court erred in granting defendant's motion.
The following pertinent facts and procedural history are
undisputed: On 6 December 1995, plaintiff, a passenger in an
automobile driven by Johnson, was injured when Johnson's vehicle
collided with an automobile operated by John Davenport (Davenport)
on U.S. 70 in Wake County, North Carolina. Plaintiff, as an
occupant of Johnson's vehicle, was insured under the policy issuedby defendant to Johnson and her husband (Mr. Johnson).
In October 1997 and subsequent to settlement with Davenport's
insurer, Travelers Insurance Company (Travelers), plaintiff
initiated the instant action against defendant seeking UIM coverage
for damages caused by Davenport's alleged negligence in excess of
the amount tendered in settlement by Travelers. Defendant filed
answer 18 December 1997, generally denying plaintiff's allegations
and affirmatively defending upon grounds that Mr. Johnson had
rejected UIM coverage under the policy.
On 2 March 1998, the parties agreed that UIM coverage under
the policy was a condition precedent to plaintiff's recovery at
trial and stipulated to severance of the issues so as to permit the
trial court to determine preliminarily as a matter of law whether
Mr. Johnson had effectively rejected UIM coverage under the policy.
The parties thereupon filed cross-motions for summary judgment. On
22 June 1998, the court granted defendant's motion and plaintiff
thereafter timely appealed.
In support of its motion, defendant proffered upon Mr.
Johnson's rejection of Uninsured/Underinsured Motorists Coverage
and his selection of Uninsured Motorists Coverage under
defendant's policy form F.39500A (defendant's form). Defendant's
form provided:
Uninsured Motorists Coverage (UM) and Combined
Uninsured/Underinsured Motorists Coverage
(UM/UIM) and coverage options are available to
me. I understand that:
1. the UM and UM/UIM limits shown for
vehicles on this policy may not be added
together to determine the total amount of
coverage provided.
2. UM and UM/UIM bodily injury limits up to
$1,000,000 per person and $1,000,000 per
accident are available.
3. UM property damage limits up to the
highest policy property damage liability
limits are available. Coverage for property
damage is applicable only to damages caused by
uninsured motor vehicles.
4. my selection or rejection of coverage
will apply to any renewal, reinstatement,
substitute, amended, altered, modified,
transfer or replacement policy with this
company, or affiliated company, unless a named
insured makes a written request to the company
to exercise a different option.
5. my selection or rejection of coverage
below is valid and binding on all insureds and
vehicles under the policy, unless a named
insured makes a written request to the company
to exercise a different option.
___ I choose to reject Uninsured/Underinsured
Motorists Coverage and select Uninsured
Motorists Coverage at limits of:
Bodily Injury ___; Property Damage ___
___ I choose Combined Uninsured/Underinsured
Motorists Coverage at limits of:
Bodily Injury ___; Property Damage ___
___ I choose to reject both Uninsured and
Uninsured/Underinsured Motorists Coverages.
Named
Insured ____________________
Summary judgment is properly granted “if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled to a
judgment as a matter of law.” G.S. § 1A-1, Rule 56(c).
Plaintiff submits defendant was not entitled to summary
judgment as a matter of law in that Mr. Johnson did not reject UIM
coverage. Plaintiff argues defendant's form differed from that
promulgated by the North Carolina Rate Bureau (the Rate Bureau
form) and cites this Court's decision in Hendrickson v. Lee, 119
N.C. App. 444, 453, 459 S.E.2d 275, 280 (1995). Plaintiff'sargument has merit.
In determining whether insurance coverage is provided by a
particular automobile liability insurance policy, careful attention
must be given to the type of coverage, the relevant statutory
provisions, and the terms of the policy. Vasseur v. St. Paul
Mutual Ins. Company, 123 N.C. App. 418, 420, 473 S.E.2d 15, 16,
disc. review denied, 345 N.C. 183, 479 S.E.2d 209 (1996) (citations
omitted). The instant case concerns UIM coverage and as such, the
governing statute is the version of N.C.G.S. § 20-279.21(b)(4)
(Supp. 1991), a section within the Financial Responsibility Act
(the Act), in effect at the time the policy was issued. See id. at
420, 473 S.E.2d at 16. (G.S. § 20-279.21(b)(4) was thereafter,
amended but the amendments in any event are irrelevant to the issue
sub judice).
The Act is remedial in nature and must be liberally construed,
id. at 421, 473 S.E.2d at 17 (citation omitted), in order to
protect “innocent victims who may be injured by financially
irresponsible motorists,” Proctor v. N.C. Farm Bureau Mutual Ins.
Co., 324 N.C. 221, 224, 376 S.E.2d 761, 763 (1989) (citation
omitted). The purpose of the Act is “best served when the statute
is interpreted to provide the innocent victim with the fullest
possible protection,” id. at 225, 376 S.E.2d at 764 (emphasis
added), from the negligent acts of an underinsured motorist.
Finally, in State Farm Mut. Auto. Ins. Co. v. Fortin, 350 N.C.264, 513 S.E.2d 782 (1999), our Supreme Court reemphasized that
[t]he language of [G.S. § 20-279.21(b)(4)] is
mandatory. An insurer is obligated to obtain
the insured's selection or rejection of UM or
UM/UIM coverage in writing and on a form
promulgated by the Rate Bureau and approved by
the Commissioner.
Id. at 269, 513 S.E.2d at 784-85 (emphasis added).
Notwithstanding, defendant cites a circular letter mailed by
the Rate Bureau to member companies as support for the position
that “substantial compliance” with G.S. § 20-279.21(b)(4) might
effect rejection of UIM coverage. The letter provided that
the language [of the form] may not be changed
or substantively amended, without prior
approval . . . .
Defendant maintains that the “fact that the Rate Bureau stated
that the language of its forms may not be 'changed or substantively
amended'” means the Rate Bureau “was using the word 'changed' in
the sense [of] 'substantively amended.'” However, this Court has
previously explained that the disjunctive term “or” creates two
separate clauses and, when used, it is “incorrect to read the
second part of [a] . . . definition as qualifying the first part.”
Wrenn v. Byrd, 120 N.C. App. 761, 766, 464 S.E.2d 89, 92, disc.
review denied, 342 N.C. 666, 467 S.E.2d 738 (1995) (citation
omitted).
Finally, defendant concludes by pointing to Smith v.Nationwide Mut. Ins. Co., 72 N.C. App. 400, 324 S.E.2d 868, rev'd
on other grounds, 315 N.C. 262, 337 S.E.2d 569 (1985). Smith
construed N.C.G.S. § 20-310(f)(1978) which provided that an insurer
“shall” provide notice containing specific information prescribed
by the statute to cancel or refuse to renew automobile liability
insurance policies. In Smith, this Court stated:
all of the provisions of [G.S. § 20-310(f)]
must be complied with before an insurer may
refuse to renew an insurance policy pursuant
to [G.S. § 20-310(e)(4).] Compliance means
substantial compliance with [G.S. § 20-310] in
order for an insurer to effectively cancel [or
fail to renew] an automobile liability policy
for nonpayment of premium.
Id. at 404, 324 S.E.2d at 871.
Analogizing to the case sub judice, defendant insists our
approval of “substantial compliance” with G.S. § 20-310(f) as
adequate for an insurer to cancel or fail to renew an automobile
liability policy for nonpayment of premium mandates ratification
herein of “substantial compliance” with G.S. § 20-279.21(b)(4). We
do not agree.
We first note that the opinion in Smith was issued at least
ten years prior to the decisions in Hendrickson, Martin and State
Farm cited above. Moreover, in Pearson v. Nationwide Mutual Ins.
Co., 325 N.C. 246, 255, 382 S.E.2d 745, 749 (1989), also subsequent
to Smith, our Supreme Court held that certain subsections of G.S.§ 20-310(f) require strict compliance to comport with the purpose
of the Financial Responsibility Act. The Court stated in Pearson:
We conclude, both as to stating the date and
giving the statutorily required period of
time, that the insurer must strictly comply
with the statute. . . .
For the protection of both the motoring
public and the insured, automobile insurance
cancellation dates must be expressly and
carefully specified with certainty. They
should not be left to the possible vagaries of
date calculations nor to the uncertainties
which result when less than the statutorily
prescribed period of time has been given.
Id. at 252-53, 382 S.E.2d at 748; see also Hales v. N.C. Insurance
Guaranty Assn., 337 N.C. 329, 339, 445 S.E.2d 590, 597 (1994)
(plaintiff insured's policy not canceled absent “forecast of
evidence tending to show that the Commissioner of Insurance had
previously approved the form of the notice[, and] the notice did
not state the date on which any cancellation or refusal to renew
would become effective, a date which 'must be expressly and
carefully specified with certainty' in order to comply with the
requirements of [the statute]”) (citations omitted). It is well
established that this Court is required to follow decisions of our
Supreme Court until that Court orders otherwise. See Dunn v. Pate,
334 N.C. 115, 118, 431 S.E.2d 178, 180 (1993) (citation omitted).
In sum, we conclude our Supreme Court's expressed preference
for “certainty,” Pearson, 325 N.C. at 253, 382 S.E.2d at 748, so as“to provide . . . innocent victim[s injured by financially
irresponsible motorists] with the fullest possible protection,”
Proctor, 324 N.C. at 225, 376 S.E.2d at 764, is best met by
“avoiding confusion and ambiguity through the use of a single
standard and approved form,” Hendrickson, 119 N.C. App. at 456,
459 S.E.2d at 282. We therefore reiterate that the language of
G.S. § 20-279.21(b)(4) is “mandatory,” State Farm, 350 N.C. at 269,
513 S.E.2d at 784-85, and that “rejection of UIM coverage 'shall'
be in writing and on 'a form promulgated by the Rate Bureau and
approved by the Commissioner of Insurance,'” Hendrickson, 119 N.C.
App. at 454, 459 S.E.2d at 281 (emphasis added) (quoting G.S. § 20-
279.21(b)(4)). Defendant's form herein failed to meet this test,
Mr. Johnson's purported rejection of UIM coverage thus was
ineffective, and the trial court's grant of summary judgment in
favor of defendant must be reversed.
Reversed.
Judges TIMMONS-GOODSON and HUNTER concur.
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