1. Collateral Estoppel and Res Judicata--claim preclusion--rights and interests do not
rise to level of similarity necessary
Plaintiff insured is not barred by claim preclusion from bringing suit against defendants
for coverage provided under a flood insurance policy merely based on the fact that plaintiff's
previous suit in federal court was voluntarily dismissed, because the rights and interests of the
parties in this case do not rise to the level of similarity necessary when plaintiff's claim in the
federal action was dependent on the lower floor being classified as other than a basement,
whereas in the present action plaintiff concedes that the lower floor should have been classified
as a “basement,” but that the flood insurance agent misrepresented that it was not a “basement.”
2. Evidence--insurance policy coverage--not barred from introducing--stipulations
only establish existence of policy
Plaintiff is not barred from introducing evidence that the National Flood Insurance
Program (NFIP) policy did not provide coverage for the contents located on the lower floor of the
pertinent building even though plaintiff stipulated to the validity of the NFIP policy in the pretrial
order, because the stipulations only establish the existence of the policy at the time of the loss.
3. Insurance--negligent misrepresentation--requested instruction--expert testimony not
required for definition of “basement”
The trial court did not err in an action arising out of an insurance agent's alleged
negligent misrepresentation by denying defendants' request for an instruction that the
determination of whether the lower floor is a “basement” required the flood insurance agent to
exercise specialized knowledge of the National Flood Insurance Program's complex definition
and thus required expert testimony to establish the standard of care, because the issue is one that
the jury would be able to decide based on common knowledge and experience.
4. Damages--method of calculation--“perpetual inventory”--evidence not so speculative
The trial court did not err in an action to recover proceeds from a flood insurance policy
by concluding that the evidence of damages presented by plaintiff's method for counting the
damaged inventory was sufficient to support the jury's verdict, because the evidence was not so
speculative as to be inadmissible when there was evidence of plaintiff's damages based on
“perpetual inventory” and also evidence that the loss calculation should have been based on an
actual count.
5. Negligence--contributory--issue properly submitted to jury
The trial court did not err in an action to recover proceeds from a flood insurance policy
by concluding that the evidence does not establish plaintiff's contributory negligence as a matter
of law and that the issue was properly submitted to the jury.
6. Trials--improper mention of insurance--objection sustained--curative instruction--jury presumed to act proper
ly
The trial court did not abuse its discretion by failing to order a new trial after plaintiff's
counsel told the jury that defendant was one of the largest insurance brokers in the world with
offices in Chicago and that it would pay any judgment in favor of plaintiff, because: (1) the trial
court sustained defendants' objection and instructed the jury to disregard the argument; and (2)
the jury is presumed to have acted properly and disregarded the statements.
7. Unfair Trade Practices--insurance--motion to dismiss properly granted
The trial court did not err by dismissing plaintiff's claim of unfair and deceptive trade
practices under N.C.G.S. §§ 75-1.1 and 58-63-15(1) based on defendants' actions which
purported to expand plaintiff's existing insurance policy to cover inventory that was uninsurable
under the policy, because: (1) defendants stood to gain very little from their misleading conduct
which was limited to this plaintiff; (2) defendants' actions cannot be characterized as immoral,
unethical, oppressive, unscrupulous, or substantially injurious to consumers; (3) the effect of
defendants' actions in the marketplace would be negligible; and (4) no unfair advantage was to
be gained from defendants' actions since the flood insurance sought by plaintiffs was not
available among competing insurers.
Moore & Brown, by B. Ervin Brown, II and James S. Gibbs, Jr.,
for plaintiffs.
Everett, Gaskins, Hancock & Stevens LLP, by Hugh Stevens, Paul
C. Ridgeway, and K. Matthew Vaughn, for defendants.
WALKER, Judge.
In 1984, plaintiffs purchased a building at 823 Reynolda Road
in Winston-Salem. This building contains three floors and sits on
a sloped grade such that the front entrance opens into the second
floor. The first, or lowest, floor is accessible from the rear
through a garage door and rear entrance door. Plaintiffs used this
lower floor as an inventory storage area. In June of 1996, the
building's lower floor was flooded during a storm, and much of
plaintiffs' inventory of textbooks was destroyed. Plaintiffs thencontacted defendant Susan Cothren (Cothren), an employee of
defendant Aon Risk Services (Aon), who wrote flood insurance
policies and inquired about expanding their current National Flood
Insurance Program (NFIP) policy to cover the contents of the lower
floor.
The Standard Flood Insurance Policy (SFIP), issued by the
Federal Emergency Management Agency (FEMA), allows coverage to be
expanded to “contents” but excludes contents stored in a
“basement.” A “basement” is defined by the NFIP as “any area of
the building having its floor subgrade on all sides.” Based on a
description of the building given to Cothren by plaintiffs, Cothren
initially informed plaintiffs on 17 July 1996 that she believed the
lower floor was not a “basement.” On 18 July 1996, Cothren visited
the building, and after speaking with a representative of the NFIP,
she confirmed to plaintiffs that the lower floor was not a
“basement” and that their insurance could be expanded to cover the
contents of that floor. Cothren based this advice on the fact that
the lower floor had a garage door which opened out onto the
driveway, thereby making it a “walkout.” Cothren believed that a
“walkout” was classified separately from a “basement” and thus
eligible for contents coverage. In her testimony, Cothren admitted
that the SFIP does not contain such an exception for a “walkout.”
In August 1996, plaintiffs' application for expanded coverage was
accepted by the NFIP and plaintiffs began paying an additional
premium.
In May 1998, plaintiffs' building again flooded destroying the
inventory located on the lower floor. Plaintiffs valued this lossof inventory at $307,958.00 and reported the loss to the NFIP who
sent a claims adjuster, Eddie Adams, to examine the damage. Mr.
Adams consulted an engineer, John Gardner, who examined the
building and determined that the lower floor was a “basement”
because it “is below the elevation of the grade on all sides.”
Based on this determination, the NFIP denied plaintiffs' claim on
the basis that the lower floor was in fact a “basement” and that
there was no coverage for contents in basement areas. Plaintiffs
subsequently filed suit against Aon and Cothren alleging negligent
misrepresentation, unfair and deceptive trade practices, and
respondeat superior. At trial, the trial court granted defendants'
motion for a directed verdict as to plaintiffs' claim of unfair and
deceptive trade practices, and submitted issues on negligent
misrepresentation and contributory negligence. The jury answered
the issues in favor of the plaintiffs and returned a verdict in the
amount of $280,001.
[1]We first address defendants' assignments of error. After
plaintiffs filed the present lawsuit, they filed an action against
FEMA in federal court seeking payment for the loss under the
policy. FEMA filed a motion to dismiss on the basis that the proof
of claim was not timely filed and that plaintiffs' policy did not
cover contents stored in the lower floor because it was classified
as a “basement.” Plaintiffs then voluntarily dismissed the federal
action. Defendants claim this dismissal prevented plaintiffs from
obtaining a judicial determination on whether the policy provided
coverage and thus “constitutes a waiver and/or estoppel that bars
their claims against the defendants as a matter of law.” Inresponse, plaintiffs assert that when FEMA denied their claim,
plaintiffs dismissed that action only after their own experts
concluded that the lower floor was a “basement.”
In support of this action, plaintiffs contend the following
general rule applies:
It is not necessary for insured, in order to
recover from the broker or agent, to show that
he has sued the insurance company, it being
sufficient to show that the policy is
defective or invalid and that the company has
refused to pay either in whole or in part.
The refusal to cover the loss may be inferred
from the insurance company's failure to pay
claims or to respond to insured's demand for
payment.
44 C.J.S. Insurance § 216 (1993).
Plaintiffs are not barred from bringing suit against
defendants merely because their previous suit was voluntarily
dismissed. For plaintiffs' current claim to be barred, defendants
must show (1) a final judgment on the merits in an earlier suit,
(2) an identity of the cause of action in both the earlier and the
later suit, and (3) an identity of parties or their privies in the
two suits. Hogan v. Cone Mills Corp., 63 N.C. App. 439, 442, 305
S.E.2d 213, 215 (1983). Claim preclusion only arises in actions
between the same parties or those “so identified in interest as to
represent the same legal right. Privity is not established by the
mere presence of a similar interest in a claim, nor by the fact
that the previous adjudication may affect the subsequent party's
liability.” Kaminsky v. Sebile, 140 N.C. App. 71, 81, 535 S.E.2d
109, 115-116 (2000).
In the case at bar, defendants have different interests thanthose of FEMA. Plaintiffs' claim in the federal action
was
dependent on the lower floor being classified as other than a
“basement.” Whereas, in the present action, plaintiffs concede
that the lower floor should have been classified as a “basement”
but contend that Cothren misrepresented that it was not a
“basement.” Thus, the rights and interests of the parties in these
cases do not rise to the level of similarity necessary to invoke
claim preclusion.
[2]Defendants further argue that plaintiffs stipulated to the
validity of the NFIP policy in the pre-trial order, thus barring
them from introducing evidence that the policy did not provide
coverage for the contents located on the lower floor as required to
maintain this action. The stipulations in the pre-trial order
state, in pertinent part:
h. A NFIP policy, with coverage for contents
located on the lower level of the Hunter
Textbooks building, was in force during the
month of May, 1998.
i. The amount of insurance for contents
covered by the flood insurance policy was
$400,000.
Defendants assert that these stipulations conclusively establish
that the policy at issue was valid and therefore bars these claims.
However, we conclude these stipulations only establish the
existence of the policy at the time of the loss.
[3]Defendants' second assignment of error is that
insufficient evidence exists to support a finding that Cothren
negligently misrepresented to plaintiffs that the lower floor was
not a “basement” within the meaning of the NFIP policy. Our
Supreme Court has held “[t]he tort of negligent misrepresentationoccurs when a party justifiably relies to his detriment on
information prepared without reasonable care by one who owed the
relying party a duty of care.” Raritan River Steel Co. v. Cherry,
Bekaert & Holland, 322 N.C. 200, 206, 367 S.E.2d 609, 612 (1988),
reversed on other grounds, 329 N.C. 646, 407 S.E.2d 178 (1991); see
also Hudson-Cole Dev. Corp. v. Beemer, 132 N.C. App. 341, 511
S.E.2d 309 (1999). Defendants argue that plaintiffs failed to
prove either that the representations were false or misleading or
that Cothren failed to exercise reasonable care in forming these
representations.
Plaintiffs presented the testimony of three witnesses that the
lower floor was a “basement.” Ed Stout, a civil engineer and land
surveyor, testified that the lower floor is a basement because it
is “below the surface . . . [on] all four sides.” Similarly, John
Garner, a civil, structural engineer who investigates claims of
structural losses for the NFIP, testified that the lower level was
subgrade on all four sides, thus classifying it as a “basement.”
Finally, Eddie Adams, an independent adjuster, testified that he is
certified by FEMA to make a determination of whether an area should
be classified as a “basement.” Further, he testified that he had
handled more than 1,100 flood claims for FEMA and that thirty to
forty claims each year involve NFIP's definition of a “basement.”
Mr. Adams stated that he believed the lower floor was a basement
and that Cothren should have known it was a basement. This
evidence supports a classification of the lower floor as a
“basement” within the meaning of the NFIP policy. Nevertheless, defendants contend that plaintiffs failed
to
present sufficient evidence of negligent misrepresentation because
they did not offer evidence of the standard of care to which
Cothren should be held. Defendants argue that the determination of
whether the lower floor is a “basement” required Cothren to
exercise specialized knowledge of the NFIP's complex definition,
thus expert testimony was necessary to establish a standard of
care. The trial court denied defendants' request for such
instruction and instead instructed the jury to find that Cothren
failed to exercise “reasonable care” meaning “that degree of care,
knowledge, intelligence and judgment which a prudent person would
use under the same or similar circumstances.”
In the context of legal and medical malpractice, this Court
has stated that “[e]xpert testimony is not required, however, to
establish the standard of care, failure to comply with the standard
of care, or proximate cause, in situations where a jury, based on
its common knowledge and experience, is able to decide those
issues.” Little v. Matthewson, 114 N.C. App. 562, 567, 442 S.E.2d
567, 570-571 (1994). This Court went on to state that the “common
knowledge exception” is applicable in situations where the actions
at issue are “of such a nature that the common knowledge of
laypersons is sufficient to find the standard of care required, a
departure therefrom, or proximate causation.” Id. at 568, 442
S.E.2d at 571. In applying these principles to this case, we
conclude that the issue of whether Cothren negligently
misrepresented to plaintiffs that the lower floor qualified for
contents coverage is an issue which the jury, based on “commonknowledge and experience,” would be able to decide.
[4]Defendants' next assignment of error is that the evidence
of damages presented by plaintiffs was insufficient to support the
jury's verdict. In particular, defendants claim that the method
used for counting the damaged inventory was inaccurate. At trial,
plaintiffs presented the testimony of Doug Johnson, Hunter
Textbooks' accountant since 1991, who testified that he had
developed an inventory accounting method that involved keeping a
“perpetual inventory” whereby the quantity and cost of each book
was entered into a computer database as the costs were incurred.
Thus, plaintiffs could determine the approximate value of their
inventory at any given time. He further testified that the damages
amount claimed by the plaintiffs was derived by comparing the value
of the inventory after the flood to the value of the inventory
before the flood as determined by the “perpetual inventory” in the
computer database.
Defendants argue that this method is inaccurate and that
damages should have been based on an actual count of damaged books.
After the flood, plaintiffs hired Mid-South Disaster Response to
assist in the clean-up. Mid-South conducted an actual count of the
books as they were discarded under plaintiffs' supervision.
However, Doug Johnson testified that he did not completely rely on
these figures because “the staff did not feel like they were
counted very well.” Defendants assert that if the damages were
based on the actual count, they would be significantly lower than
those based on “inventory reconciliation.”
“To be entitled to compensatory damages plaintiff must show . . . the amount of loss with reasonable certainty
.” Phillips v.
Insurance Co., 43 N.C. App. 56, 58, 257 S.E.2d 671, 673 (1979).
“[W]here actual pecuniary damages are sought, there must be
evidence of their existence and extent, and some data from which
they may be computed.” Id. at 58-59, 257 S.E.2d at 673. Here,
there was evidence of plaintiffs' damages based on their “perpetual
inventory” and evidence that the loss calculation should have been
based on an actual count. Plaintiffs' evidence was not so
speculative as to be inadmissable. Thus, sufficient evidence
existed to support the jury's award of damages.
[5]In the record on appeal, the defendants assigned as error
the trial court's exclusion of certain exhibits which they claim
adversely impacted their defense of contributory negligence.
However, defendants now confine their argument to the contention
that the plaintiffs were contributorily negligent as a matter of
law. The issues of proximate cause and contributory negligence are
usually questions for the jury. Lamm v. Bissette Realty, 327 N.C.
412, 395 S.E.2d 112 (1990). Only if the evidence, considered in
the light most favorable to the plaintiff, affirmatively shows
contributory negligence “so clearly that no other conclusion can be
reasonably drawn therefrom” is the defendant entitled to judgment
as a matter of law. Wallsee v. Water Co., 265 N.C. 291, 297, 144
S.E.2d 21, 26 (1965). After review, we agree with the trial court
that the evidence does not establish contributory negligence as a
matter of law and the issue was properly submitted to the jury.
[6]Lastly, defendants argue the trial court abused itsdiscretion by failing to order a new trial after an improper
jury
argument by plaintiffs' counsel. Specifically, defendants assert
that plaintiffs' counsel told the jury that Aon was one of the
largest insurance brokers in the world with offices in Chicago and
that they would pay any judgment in favor of plaintiffs. Although
the trial court sustained defendants' objection and instructed the
jury to disregard the argument, defendants argue that since the
jury awarded damages, the improper argument can be presumed to have
prejudiced the deliberations.
In the case of Fidelity Bank v. Garner, 52 N.C. App. 60, 277
S.E.2d 811 (1981), plaintiff's counsel improperly referred to
matters outside the record in his closing remarks to the jury that
were potentially prejudicial. Defendant made a motion to strike
the statement, which was allowed, and the judge instructed the jury
that the argument was improper and therefore should be disregarded.
In denying plaintiff's motion for a mistrial, this Court stated
that while:
[P]laintiff's counsel should not have made
such a remark . . . the record indicates that
upon hearing the remark the court took the
necessary steps to correct the impropriety.
When a jury is instructed to disregard
improperly admitted testimony, the presumption
is that it will disregard the testimony.
Fidelity Bank at 65, 277 S.E.2d at 814.
In the case at bar, defendants immediately objected to the
statements about Aon by plaintiffs' counsel. Their objection was
sustained and curative instructions were given to the jury. Thus,
the presumption is that the jury acted properly and disregarded the
statements of plaintiffs' counsel. As a result, we find the trialcourt did not abuse its discretion in denying defendants' motion
for a new trial.
[7]The plaintiffs assign as error the trial court's dismissal
of their claim of unfair and deceptive trade practices on two
grounds. First, plaintiffs rely on this Court's holding in Forbes
v. Par Ten Group, Inc., 99 N.C. App. 587, 394 S.E.2d 643 (1990),
rev. denied, 328 N.C. 89, 402 S.E.2d 824 (1991), to establish that
defendants' conduct amounted to an unfair and deceptive trade
practice. In order to prove an unfair and deceptive trade
practice, plaintiffs must show that defendants engaged in “unfair
or deceptive acts or practices in or affecting commerce.” N.C.
Gen. Stat. § 75-1.1 (1999). Plaintiffs cite Forbes in support of
the proposition that defendants' misrepresentations are not exempt
from Chapter 75 merely because they were made “negligently and in
good faith, in ignorance of their falsity, and without intent to
mislead.” Forbes at 601, 394 S.E.2d at 651.
In Forbes, the plaintiffs were purchasers of lots and
memberships in a resort community. They brought suit against the
community's developers, sales agents, and brokerage firm for
fraudulently transferring the plaintiffs' property deposits into
the developer's private checking account in order to pay his
salary. In reversing the trial court's grant of summary judgment
in favor of the defendant, this Court stated:
[w]hether a trade practice is unfair or
deceptive usually depends upon the facts of
each case and the impact the practice has in
the marketplace. A practice is unfair when
it offends established public policy as wellas when the practice is immoral, unethical,
oppressive, unscrupulous, or substantially
injurious to consumers . . . [i]n essence, a
party is guilty of an unfair act or practice
when it engages in conduct which amounts to an
inequitable assertion of its power or
position.
Forbes at 600, 394 S.E.2d at 650.
We find the facts here distinguishable from Forbes.
Defendants' actions purported to expand plaintiffs' existing
insurance policy to cover inventory that was uninsurable under the
policy. Defendants stood to gain very little from their misleading
conduct which was limited to these plaintiffs. We cannot
characterize defendants' actions as “immoral, unethical,
oppressive, unscrupulous, or substantially injurious to consumers.”
Id. Furthermore, the effect of defendants' actions in the
marketplace would be negligible.
In addition, N.C. Gen. Stat. § 58-63-15(1)(1999) defines
unfair methods of competition and deceptive acts or practices in
the business of insurance. Since the flood insurance sought by
plaintiffs was not available among competing insurers, no unfair
advantage was to be gained from defendants' actions. Based on the
foregoing reasons, we find no error in the trial.
No error.
Judges LEWIS and HUNTER concur.
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