Insurance--uninsured motorist--arbitration and settlement by
carrier--binding on tortfeasors--admissible in action against
tortfeasors
In an action brought by an automobile accident victim and
her uninsured motorist carrier after defendant tortfeasors'
liability carrier denied coverage, the victim demanded
arbitration with her uninsured motorist carrier, and her carrier
paid the victim the $19,000 awarded to her by the arbitration
panel, the trial court erred by refusing to give plaintiffs'
requested instruction that if the jury found that the victim was
injured by defendants' negligence and that the arbitration
settlement was entered in good faith and was fair and reasonable,
the amount of damages would be $19,000. The uninsured motorist
carrier could bind a tortfeasor for the amount the carrier paid
the injured plaintiff pursuant to arbitration. Furthermore, it
is implicit that plaintiffs on remand may present evidence
concerning the arbitration proceeding since the jury may evaluate
the reasonableness and good faith of the arbitration settlement.
Pinto Coates Kyre & Brown, PLLC, by Paul D. Coates and John I.
Malone, Jr., for plaintiff-appellant North Carolina Farm
Bureau Mutual Insurance Company.
Teague, Rotenstreich & Stanaland, L.L.P., by Kenneth B.
Rotenstreich and Paul A. Daniels, for defendant-appellees.
EAGLES, Chief Judge.
This case presents questions of whether an uninsured motorist
coverage carrier may bind a tort-feasor for the amount the
uninsured carrier paid the victim pursuant to an arbitration
proceeding.
Plaintiff, Nancy Burger, was involved in an automobileaccident with a car owned by defendant Alice Ann Skeens. Defe
ndants
claimed that they did not know who was driving the car at the time
of the accident. Based on this assertion, the defendants' insurance
carrier Allstate denied coverage. Plaintiff Burger had an
automobile insurance policy with plaintiff Farm Bureau which
included uninsured motorist coverage.
Allstate's denial of coverage allowed the defendants'
automobile to be considered an “uninsured motor vehicle” under the
Farm Bureau policy. After the denial of coverage, Burger demanded
arbitration of her claim under the Farm Bureau policy. After the
demand but prior to the hearing, plaintiffs filed a complaint
against the defendants to protect the plaintiffs' rights under the
statute of limitations.
On 13 October 1998, Farm Bureau and Burger arbitrated her
uninsured motorist claim before an arbitration panel. The panel
awarded Burger $19,000 for her personal injuries caused by the
accident. The trial court later confirmed the award. The plaintiffs
gave the defendants timely notice of the arbitration hearing.
Defendants' counsel attended but did not participate in the
arbitration proceeding.
At trial of this matter, the parties agreed to bifurcate the
proceedings. In the first phase, the jury concluded that, contrary
to his assertion, defendant Richard Skeens was operating the
vehicle in question at the time of the collision. A second portion
of the trial was held on 9 August 1999 to determine proximate cause
and damages. On the morning of trial, the court made two rulings
concerning the admissibility of the arbitration. The courtdetermined that the plaintiffs could present evidence that Farm
Bureau had paid Burger the $19,000 arbitration award. However, the
trial court also ruled that Farm Bureau could not introduce any
evidence as to the arbitration itself and the methods by which the
arbitrators arrived at their award.
At the close of plaintiffs' case, the defendants declined to
put on evidence and the trial court denied plaintiffs' motion for
a directed verdict. The trial court also denied the plaintiffs'
request to submit issues from Nationwide Mutual Insurance Co. v.
Chantos, 293 N.C. 431, 238 S.E.2d 597 (1977), regarding the amount
of damages that plaintiffs were entitled to recover. Specifically,
plaintiffs asked the trial court to instruct the jury in the
following manner.
Issues in this case would be was Nancy
Elizabeth Burger injured and damaged by the
negligence of the defendants Alice Ann Skeens
and Richard Skeens? Was the plaintiff North
Carolina Farm Bureau's settlement with Nancy
Burger made in good faith? . . . Was the
plaintiff North Carolina Farm Bureau's
settlement with Nancy Burger fair and
reasonable? . . . What amount is the plaintiff
North Carolina Farm Bureau entitled to
recover? And I believe that if the jury would
come back with the Issues 1 and 2 being yes,
and answer the third issue yes, the case would
be ended and the trial judge would enter a
judgment in the amount of $19,000 in favor of
the plaintiff, North Carolina Farm Bureau.
Only if they answer the third issue no, should
the trial judge instruct the jury that they
should proceed to answer the fourth issue.
The court denied the plaintiffs' request and instructed the jury,
“[y]ou're not required to accept the amount of damages suggested by
the parties or their attorneys or the amount paid by Farm Bureau to
Nancy Burger.” After deliberation, the jury awarded Burger $7,000.The trial court then denied plaintiffs' motions for directed
verdict and new trial. Plaintiffs appeal.
The central issues of this appeal are (1) whether the trial
court should have allowed the jury to decide whether the defendants
were bound by results of the arbitration proceeding and (2) whether
evidence of the arbitration proceeding was admissible. We hold that
under Chantos, the answer to both questions must be yes.
Like the present case, Chantos arose out of an automobile
accident. Id. at 433, 238 S.E.2d at 600. The plaintiff insurance
company provided coverage to an automobile owned by a third party.
Id. The third party allowed the defendant to drive the vehicle. Id.
While operating the automobile, defendant negligently caused a
collision with the victim. Id. The victim suffered serious personal
injuries and substantial property damage. Id. Plaintiff settled the
claim and then brought an action against the defendant for
indemnity. Id. The Supreme Court agreed that the insurance company
had a right to indemnity and held that the defendant could be bound
by the amount of settlement. Id. at 442, 238 S.E.2d at 605.
In reaching this holding, the Supreme Court noted that the
Financial Responsibility Act requires mandatory compliance with its
terms. Id. at 440, 238 S.E.2d at 604. The Act's provisions are
written into every policy and the Act's terms will prevail over a
conflicting contractual term. Id. at 441, 238 S.E.2d at 604. The
purpose is to protect innocent victims injured by financially
irresponsible motorists. Id. at 440, 238 S.E.2d at 604. Thevictims' rights are purely statutory in nature as opposed to a
voluntary contract. Id. Therefore, while the Chantos defendant was
not an “insured” under the contract, the Supreme Court held that
the Financial Responsibility Act made him an “insured” for the
public's protection. Id. at 441, 238 S.E.2d at 604. The insurance
company's liability did not arise out of its own conduct but rather
out of the Financial Responsibility Act and the defendant's
negligence. Id.
The Supreme Court then went on to analogize this situation to
the public policy that imposes “liability upon an employer for the
tortious conduct of his employee.” Id. at 441, 238 S.E.2d at 604.
The Supreme Court then stated:
It has long been established that where
liability has been imposed upon an employer
because of the negligence of his employee and
he incurs such liability solely under the
doctrine of respondeat superior, the employer,
having discharged the liability, may recover
full indemnity from the employee. This rule of
indemnity has also been applied to joint tort-
feasors. The general rule of common law is
that there is no right of indemnity between
joint tort-feasors. This rule is modified by
the doctrine that a party secondarily liable
is entitled to indemnity from the party
primarily liable even when both parties are
denominated joint tort-feasors. For example,
when the active negligence of one tort-feasor
and the passive negligence of another combine
to proximately cause injury to a third party,
the passively negligent tort-feasor who is
compelled to pay damages to the injured party
is entitled to indemnity from the actively
negligent tort-feasor.
Id. at 441-42, 238 S.E.2d at 604 (citations omitted). The Supreme
Court reasoned that it was unfair for the Chantos defendant togratuitously reap the benefits of the insurance policy. According
to the Court, the General Assembly did not intend to enact a
statutory scheme that allowed a wrongdoer to benefit from an
insurance policy without being liable to indemnify the insurer who
became liable solely by virtue of the Financial Responsibility Act.
Id. at 442, 238 S.E.2d at 605. Therefore, the insurance company in
Chantos had a right to complete indemnification.
On remand, the Chantos Court ordered that the trial court had
to submit the following issues to the jury: “(1) Was [the victim]
injured and damaged by the negligence of the defendant?; (2) Was
plaintiff's settlement with [the victim] made in good faith?; (3)
Was plaintiff's settlement with [the victim] fair and reasonable?;
(4) What amount is plaintiff entitled to recover?” Id. at 446, 238
S.E.2d at 607. The Court noted that if the jury answered the first
three questions “yes” then the trial court should enter judgment in
the amount of the settlement. Id. at 447, 238 S.E.2d at 607.
We now hold that the relief sought by Farm Bureau here is the
same relief sought by the plaintiff in Chantos. Once Allstate
denied coverage, the defendants became uninsured motorists. The
Financial Responsibility Act requires insurers to provide uninsured
motorist coverage. G.S. § 20-279.21(b)(3) (1999). Therefore,
plaintiff Burger obtained her right to recover as a matter of law.
Like the defendant in Chantos, the Financial Responsibility Act
makes the defendants here “insureds” under the policy for the
public's protection. Accordingly, Farm Bureau may seek recovery
from the defendants and defendants may be bound by the results ofthe arbitration proceeding.
Like Chantos, on remand the trial court should utilize the
following issues
1. Was the Plaintiff Nancy Elizabeth Burger, injured or
damaged by the negligence of the Defendants Richard Skeens and
Alice Ann Skeens?
2. Was the Plaintiffs' arbitration settlement entered in good
faith?
3. Was the amount of plaintiffs' arbitration settlement fair
and reasonable?
4. What amount are the plaintiffs entitled to recover?
If the jury answers the first three questions “yes,” then the case
is over and the trial court should enter judgment for $19,000 for
Farm Bureau.
We note that much of the parties' focus on this appeal has
been on the arbitration proceeding. It is accurate to state that
the arbitration proceeding itself was solely a product of Burger's
contract with Farm Bureau and not required by the Financial
Responsibility Act. However, in both Chantos and the present case,
the insurance company's liability arose out of the Financial
Responsibility Act. Unlike the present case, the Chantos insurance
company settled with the victim of the tort-feasor's misfeasance
instead of sending the case to arbitration. The Chantos plaintiff
simply used a different method of resolving its own liability than
Farm Bureau did here. If anything, the fact that there was an
arbitration proceeding here adds more credence to the settlementbetween the insurance company and the victim. However, there is no
difference between the ultimate effect of an arbitration settlement
and a settlement reached through means other than arbitration for
purposes of this case.
The holding urged by the defendants would have led to untoward
results. If we refused to bind the defendants, the uninsured
motorist insurance carrier would be left to pay off the entire
claim when it became liable solely by virtue of the Financial
Responsibility Act. It would in effect have no fair method of
recovery. Further, the defendants' position would encourage the
tort-feasor and his potential carrier to deny coverage and force
the uninsured carrier to go to arbitration. This would give the
tort-feasor's carrier and the tort-feasor an opportunity to go
through a free discovery process while allowing the uninsured
carrier to suffer all the costs. We do not believe that the General
Assembly intended such a result.
Since we have held that the jury may evaluate the
reasonableness and good faith of the arbitration settlement, it is
implicit that the plaintiffs may present evidence concerning the
arbitration proceeding itself. On remand, the trial court should
allow them to do so.
Based on the foregoing, we conclude that the trial court erred
in refusing to give the plaintiffs' requested instructions.
Accordingly we reverse and remand for a new trial. Since we have
ordered a new trial, we decline to address the remaining
assignments of error.
Reversed and remanded for a new trial. Judges HUDSON and SMITH concur.
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