EATMAN LEASING, INC and RUSSELL O. LEITCH, SR. Plaintiffs-
Appellees v. EMPIRE FIRE & MARINE INSURANCE COMPANY, Defendant-
Appellant, and DOUGLAS W. SHIPLEY, Defendant-Appellee
1. Insurance--automobile--excess liability coverage
The trial court did not err in an action arising out of an automobile accident by granting
summary judgment in favor of defendant driver and finding that all four business auto insurance
policies afforded coverage to plaintiffs, because: (1) defendant insurer did not dispute that
plaintiffs are covered under the primary garage policy; (2) plaintiff driver's operation of the
vehicle was covered under the excess garage policy when plaintiff was using with plaintiff
company's permission a covered auto owned by the company; (3) plaintiff driver's operation of
the vehicle was covered under the primary rental policy when the car driven by plaintiff was an
owned auto covered under the policy, plaintiff company is the named insured under this policy,
plaintiff driver was operating a covered auto with the permission of plaintiff company, and there
is no exclusion preventing plaintiff driver from being covered; and (4) plaintiff driver's operation
of the vehicle was covered under the excess rental policy when it incorporates the key definitions
from the primary rental policy, and both plaintiffs are insureds under the primary rental policy.
2. Insurance--automobile--supplemental payments--prejudgment interest over policy
limits
The trial court did not err in an action arising out of an automobile accident by declaring
that all four business auto insurance policies provided supplemental payments for prejudgment
interest over the policy limits, because: (1) prejudgment interest issues are decided based upon
the court's interpretation of the specific insurance policy under review in each particular case; (2)
the four policies in this case have a provision for payment of either all costs or all interest
incurred in addition to liability limits, and therefore the “all costs” language of the policies
includes prejudgment interest; and (3) the policies provide that supplementary payments are in
addition to the policy limits.
Marshall, Williams, & Gorham, LLP., by W. Robert Cherry, Jr. for Plaintiff-Appellee Leit
ch.
McGuire, Woods, Battle & Boothe, LLP., by Kurt E. Lindquist,
II and Arden Lynn Achenberg for Defendant-Appellant.
Thompson, Smyth & Cioffi, LLP., by Theodore B. Smyth for
Defendant-Appellee Shipley.
BRYANT, Judge.
Empire Fire & Marine Insurance Company (Empire) issued four
business auto policies (two primary and two excess) to Eatman
Leasing which were in effect on 11 January 1997. On that date,
Plaintiff Russell O. Leitch, Sr. and Defendant Douglas W. Shipley,
were involved in an automobile accident. The vehicle driven by
Leitch was owned by Eatman Leasing. Eatman Leasing was in the
business of leasing, renting and selling automobiles. Leitch was
traveling to Wilmington in order to transport the vehicle to Eatman
Leasing's Wilmington operation.
Plaintiffs Eatman Leasing and Leitch filed a complaint for a
declaratory judgment against Defendants Empire and Shipley on 23
April 1999. Plaintiffs sought a declaration that Empire had a duty
to fully indemnify them under the four insurance policies. Both
defendants filed motions for summary judgment. The trial court
granted defendant Shipley's motion for summary judgment on 17
February 2000. Empire filed a notice of appeal on 10 March 2000.
There are two basic issues on appeal: whether the trial court
erred in granting summary judgment in favor of Shipley in I)
finding that the four insurance policies afforded coverage to
Eatman and Leitch and II) finding the policies provided forprejudgment interest over the policy limits. For the reasons which
follow, we find no error in the trial court's rulings.
&
nbsp;I.
The trial court held that: 1) all four policies were in effect
on the date of the accident; 2) the vehicle driven by Leitch and
owned by Eatman is a covered auto under policy numbers SG231000 and
SL231000; 3) Eatman is an insured under the policies because it is
the named insured; 4) Leitch is an insured because he operated the
vehicle with the permission of Eatman as set forth in the “Who is
an Insured” section of the primary policies; 5) the vehicle driven
by Leitch and owned by Eatman was a covered auto under Policy
Number SF231000, pursuant to the amendatory language of Endorsement
EM0808GR; 6) both Eatman and Leitch are insureds under Policy
Number SX231000 because that policy incorporates by reference the
“insureds” and “covered autos” definitions in the primary policy,
SF231000.
[1]Empire first argues that the trial court erred in granting
Shipley's summary judgment motion and finding that all four
insurance policies afforded coverage to Eatman Leasing and Leitch.
Empire argues that the trial court's decision was in direct
contravention of the express language of the policies. We disagree.
Summary judgment is proper “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 asa matter of law.” N.C.G.S. § 1A-1, Rule 56(c)(2000). Once the
moving party makes the required showing, the burden shifts to the
non-moving party to produce a forecast of evidence demonstrating
specific facts showing that he can at least establish a prima facie
case at trial. Gaunt v. Pittaway, 135 N.C. App. 442, 447, 520
S.E.2d 603, 607 (1999), cert. denied, 353 N.C. 371, 547 S.E.2d 810
(2001) citing Moore v. Coachmen Industries, Inc., 129 N.C. App.
389, 393-94, 499 S.E.2d 772, 775 (1998).
An insurance policy is a contract and like all other
contracts, “the goal of construction is to arrive at the intent of
the parties when the policy was issued.” Woods v. Nationwide Mutual
Ins. Co., 295 N.C. 500, 505, 246 S.E.2d 773, 777 (1978). The intent
of the parties may be derived from the language in the policy.
Kruger v. State Farm Mut. Auto. Ins. Co., 102 N.C. App. 788, 789,
403 S.E.2d 571, 572 (1991). When the policy language is
unambiguous, our courts have a “duty to construe and enforce
insurance policies as written, without rewriting the contract or
disregarding the express language used.” Fidelity Bankers Life Ins.
Co. v. Dortch, 318 N.C. 378, 380, 348 S.E.2d 794, 796
(1986)(citation omitted). “[W]here the language used in the policy
is ambiguous and reasonably susceptible to more than one
interpretation,” judicial construction is necessary. Allstate Ins.
Co. v. Runyon Chatterton, 135 N.C. App. 92, 94, 518 S.E.2d 814, 816
(1999), disc. review denied, 351 N.C. 350, 542 S.E.2d 205 (2000)
(citation omitted). If there is uncertainty or ambiguity in thelanguage of an insurance policy regarding whether certain
provisions impose liability, the language should be resolved in the
insured's favor. Williams v. Nationwide Mut. Ins. Co., 269 N.C.
235, 240, 152 S.E.2d 102, 107 (1967). Moreover, exclusions from
liability are not favored, and are to be strictly construed against
the insurer. Southeast Airmotive Corp. v. U.S. Fire Insur. Co., 78
N.C. App. 418, 420, 337 S.E.2d 167, 169 (1985).
When an insurance policy provides a definition of a term, that
definition should be used. However, when no definition is provided
in the policy, the nontechnical words have the same meaning as they
would in ordinary speech. Woods at 506, 246 S.E.2d at 777. In
determining the meaning of a term, the court may consider other
portions of the policy and all clauses of it are to be construed,
if possible, so as to bring them into harmony. “Each word is deemed
to have been put into the policy for a purpose and will be given
effect, if that can be done by any reasonable construction . . . .”
Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C.
348, 355, 172 S.E.2d 518, 522 (1970)(citation omitted).
In this case, the four policies issued were: SG231000,
entitled “Garage Auto Policy Form” [Primary Garage Policy] with
endorsements; SL231000, entitled “Automobile Liability Excess
Indemnity Policy Form” [Excess Garage Policy] with endorsements;
SF231000 entitled, “Rental Auto Policy Form” [Primary Rental
Policy] with endorsements; and SX231000, entitled “Excess Rental
Policy” [Excess Rental Policy] with endorsements. Empire does notdispute that Eatman Leasing and Leitch are covered under the
Primary Garage Policy, SG231000. However, Empire does challenge the
coverage of Eatman and Leitch under the: A) Excess Garage Policy,
SL231000; B) Primary Rental Policy, SF231000; and C) Excess Rental
Policy, SX231000.
“We” will indemnify “you” for “loss” which
occurs during the “policy period” in excess
(emphasis added) of the “primary insurance.”
CONDITIONS
Application of Primary Insurance
Unless a provision to the contrary appears in
“our” policy, all the conditions, definitions,
agreements, exclusions and limitations of the
“primary insurance”,including changes by
endorsement will apply to “our” policy.
The following “Who is an Insured” provision from the Primary Garage
Policy, SG231000 also applies to the excess policy: 1. WHO IS AN INSURED
a. The following are “insureds” for covered
“autos”:
(1) You for any covered “auto”.
(2) Anyone else while using with your
permission (emphasis added) a
covered “auto” you own, hire or
borrow except:
. . .
(c) Someone using a covered “auto”
while he or she is working in a
business of selling, servicing,
repairing, parking or storing “autos”
unless that business is your “garage
operations”. (emphasis added).
The excess policy defines “you” and “your” to mean or refer to the
Insured named in the “declarations”. However, EM0951, the Specific
Named Insured Endorsement amends the definition of “you” and “your”
by providing in part:
Definition 1. under DEFINITIONS is deleted
in its entirety and replaced with the
following:
1. . . . The words “you” or “your” mean or refer to:
a. the Insured named in the “declarations”
. . .
e. only such other individuals who are
specifically listed on this endorsement
(emphasis added)
Empire contends that the endorsement modifies the definition of
“insured” in both the primary and excess policies to include only
those non-employees who are named in the declarations. Empire takes
the position that the only way Leitch would be covered under the
Excess Garage Policy is if Leitch was an employee of Eatman Leasing
(as Eatman Leasing is the named insured) if Leitch, as anindependent contractor or non-employee of Eatman Leasing, is named
on the endorsement.
We disagree and find that the “Who is an Insured” language in
the primary insurance policy was not altered by the endorsement.
This is because the endorsement modified the definition of “you”
and “your” but it did not change the definition of “insureds.” Thus
the “Who is an Insured” language remains applicable to the excess
policy. Eatman is the named insured. Leitch was operating the
vehicle with Eatman's permission at the time of the collision.
Leitch's operation of the vehicle under these circumstances is
covered under the excess policy SL231000 because he was “using with
[Eatman's] permission a covered auto [Eatman] own[ed].”
1. You use;
. . .
II. A: COVERAGE -we will pay all sums an
“insured” legally must pay as damages
. . . caused by an “accident” and
resulting from the ownership, maintenance
or use of a covered “auto” (emphasis added).
1. Who is an Insured: you for any covered
auto; your employee, but only while acting
within the scope of his or her duties;
and anyone else using w/ your permission a
covered “auto” you own, except as set forth
in section II. A. 2 (emphasis added)
2. d. Who is not an Insured: someone using a
covered auto while he or she is working in
a business selling, moving, transporting,
servicing, repairing or parking autos
unless that business is yours. (emphasis added).
Thus, to obtain coverage the auto must be a “covered auto” as
defined in section I. A. and the person must be an “insured” as
defined in section II. A.
Under the initial policy, the “covered autos” provision in
section I, paragraph A, says “covered autos” are “specifically
described autos available for short-term rental to others”.
(emphasis added). However, paragraph A is rewritten in Endorsement
EM0808GR, which amends the policy definition of “covered autos”. It
states:
This endorsement modifies insurance
provided under the following:
Rental Auto Coverage Form
Section I - Covered Autos, Paragraph A,
WHICH AUTOS ARE COVERED is changed to
read as follows:
A. WHICH AUTOS ARE COVERED AUTOS
OWNED “AUTOS” - Those “autos” you own are
covered “autos.” This includes those “autos”
you acquire ownership of after the policy
begins.
. . .
The effect of the endorsement was to replace the Standard Code
Symbol System which used symbols “1-10” to code the “covered
autos”. After the endorsement, only three types of “covered autos”
were defined in the policy: OWNED AUTOS, HIRED AUTOS, and NON-OWNED
AUTOS. While the initial policy extended coverage for rental
vehicles, the endorsement extended the definition of covered autos
to include “those autos [Eatman] own[ed].” Thus, the endorsement
provisions are in conflict with the coverage provisions in the
initial policy. “When such a conflict is present, the provisions
most favorable to the insured, i.e. those in the endorsement, are
controlling.” Drye v. Nationwide Mutual Ins. Co., 126 N.C. App.
811, 815, 487 S.E.2d 148, 150 (1997) (citation omitted).
With respect to the Primary Rental Policy, the vehicle owned
by Eatman and driven by Leitch, was an OWNED AUTO, and thus a
covered auto, as that term was defined in Endorsement EM0808GR.
Eatman Leasing, Inc. is the named “insured” under this policy.
Leitch is an insured because he was operating a “covered auto” with
“permission” of Eatman Leasing, Inc., and thus meets the definition
of WHO IS AN INSURED under section II. A. 1. c. Finally, there is
no exclusion under section II. A. 2. which would prevent Leitch
from being covered. His use of the vehicle, driving from Rocky
Mount to Wilmington, was for the benefit of Eatman's business(emphasis added). &n
bsp;
. . .
Declarations page: “description of
automobile(s) - covered autos as defined
by the underlying primary insurer.”
This Excess Rental Policy directly and specifically references
Primary Rental Policy, SF231000. (See previous discussion of
SF231000 in section B of this opinion.) The Excess Rental Policy
insures the same “covered autos” as the Primary Rental Policy. The
term “insured” is defined in part in the Excess Rental Policy as
“any person or organization qualifying as an “insured” in the “Who
is an Insured” provision of the primary insurance.” Inasmuch as
both Eatman and Leitch are insureds under the Primary Rental Policy
and the Excess Rental Policy incorporates the key definitions fromthe Primary Rental Policy, we find that Eatman and Leitch are
covered under the Excess Rental Policy.
Accordingly, we conclude that the trial court did not err in
granting the summary judgment motion and finding that all four
policies afforded coverage to Eatman Leasing and Leitch.
&
nbsp; II.
[2]Empire's final argument is that the trial court erred in
declaring that the four policies provided supplemental payments for
prejudgment interest over the policy limits. Again, we disagree.
When a statute is applicable to the terms of an insurance
policy, “the provisions of that statute become terms of the policy
to the same extent as if they were written in it, and if the terms
of the policy conflict with the statute, the provisions of the
statute prevail.” Baxley v. Nationwide Mut. Ins. Co., 334 N.C. 1,
6, 430 S.E.2d 895, 898 (1993) (citation omitted). The prejudgment
interest statute, N.C.G.S. § 24-5, states in pertinent part:
(b) Other Action - In an action other
than contract, any portion of a
money judgment designated by the
fact finder as compensatory damages
bears interest from the date the
action is commenced until the
judgment is satisfied.
N.C.G.S. § 24-5(b)(2000).
However, our Supreme Court has previously held that N.C.G.S.
§ 24-5 is not a part of the Financial Responsibility Act so as
to be written into every liability policy. Sproles v. Greene,
329 N.C. 603, 613, 407 S.E.2d 497, 503 (1991). Thus, when thestatute is not applicable to the terms of an insurance policy,
“a liability insurer's obligation to pay interest in addition
to its policy limits is governed by the language of the
policy.” Nationwide Mut. Ins. Co. v. Mabe, 342 N.C. 482, 490,
467 S.E.2d 34, 39 (1996) quoting Baxley v. Nationwide Mut.
Ins. Co., 334 N.C. 1, 6, 430 S.E.2d 895, 898 (1993).
Our courts have addressed the issue of prejudgment interest in
several cases. In each case the court determined whether an
insurer was required to pay interest beyond the policy limits based
on the language in the policy. Based upon our review of those
cases, we find the decision in Lowe v. Tarble, 313 N.C. 460, 329
S.E.2d 648 (1985), to be directly applicable to the case sub
judice. In Lowe the insurer expressly agreed to pay, "all costs
taxed against the insured," in addition to its contractual limit of
liability. Id. at 463, 329 S.E.2d at 651. Our Supreme Court held
that "prejudgment interest provided for by N.C.G.S. 24-5 is a cost
within the meaning of the contract which, under the contract in the
present case, the insurer is obligated to pay." Id. at 464, 329
S.E.2d at 651.
Empire contends that Lowe should not control in the instant
case because other cases decided since Lowe (Sproles v. Greene, 329
N.C. 603, 407 S.E.2d 497 (1991); Baxley v. Nationwide Mut. Ins.
Co., 334 N.C. 1, 430 S.E.2d 895 (1993); and Nationwide Mut. Ins.
Co. v. Mabe, 342 N.C. 482, 467 S.E.2d 34 (1996)) have held that
prejudgment interest constitutes damages, not costs, and as such,it is to be paid by the insurer as a part of the judgment up to the
insurers' limits of liability. We disagree and distinguish the
cases cited by Empire and conclude that the holding in Lowe does
control in this case.
In Sproles v. Greene, 329 N.C. 603, 611-12, 407 S.E.2d 497,
503 (1991), the Court held that “under the language of the policy
. . . [the insurer] has agreed to pay, in excess of its liability
limits, only the costs of defense and not all costs taxed against
the insured, and [thus] Lowe is not controlling.” The Sproles court
distinguished its case from Lowe because the phrase "all defense
costs we incur" contained in the policy under review in Sproles
was not as broad as the phrase "all costs taxed against the
insured” contained in the policy under review by the Lowe court.
Id. at 611, 407 S.E.2d 497 at 502. Therefore, based on the specific
terms of the contract, prejudgment interest was applicable only to
all defense costs, albeit in excess of the liability limits.
In Baxley, the Court interpreted the following contractual
language to support its holding that the UIM carrier was obligated
to pay prejudgment interest up to its policy limits:
[UIM carrier promises to pay] damages
which a covered person is legally entitled
to recover from the owner or operator
of an uninsured motor vehicle because of:
1. Bodily injury sustained by a covered
person and caused by an accident; and
2. Property damage caused by an accident.
Baxley at 6-7, 430 S.E.2d at 899. (emphases added) The contract in Baxley did not define damages, thus
the Court
construed this ambiguity against the drafter, the UIM carrier, and
found the definition of damages to include the compensatory damage
amount awarded by the jury as well as prejudgment interest. We
distinguish Baxley because the Court therein analyzed liability
language in the primary policy, but did not completely analyze the
supplementary payment provisions of that policy which is at issue
in the case sub judice. However, the Baxley Court noted that the
“specific prejudgment interest provision [in the supplementary
payment provisions] is not rendered “superfluous” by a finding that
prejudgment interest is also an element of a plaintiff's damages.”
Id. at 10-11, 430 S.E.2d at 901. Further, the Baxley Court
distinguished Lowe v. Tarble by indicating that “Lowe dealt with a
supplementary payments provision in the liability section of a
policy in which the insurer agreed to pay “all costs” taxed against
the insured “in addition to the applicable limit” of the policy.”
Id. at 11, 430 S.E.2d at 901 (citation omitted). Such specific
provisions obligate the carrier to pay prejudgment interest “in
addition to its policy limits.” Id. at 10, 430 S.E.2d at 901.
Therefore, under our reading of Baxley, an award of prejudgment
interest would not be precluded where the specific language of the
contract provides for such interest in addition to the policy
limits.
In Mabe, the policy at issue addressed prejudgment interest,
post-judgment interest, costs taxed, and defense costs. Mabe at492, 467 S.E.2d at 40. The Mabe policy had a provision which
defined prejudgment interest as part of damages, leading the Court
to conclude “that the definition clause expressly including
prejudgment interest as an element of damages control[led] the
determination of whether prejudgment interest is payable beyond the
policy limits.” Id.
The cases discussed - Sproles, Baxley and Mabe - clearly
indicate that prejudgment interest issues will be decided by our
courts based upon the court's interpretation of the specific
insurance policy under review in each particular case. Mabe at 491,
467 S.E.2d at 39.
In the case sub judice the four policies issued to Eatman have
a provision for payment of either “all costs” or “all ... interest
incurred” in addition to liability limits. The policies contain no
specific language discussing prejudgment interest as damages. The
primary policies, SG231000 and SF231000, have identical prejudgment
interest language which provides:
4. COVERAGE EXTENSIONS
a. Supplementary Payments:
In addition to the Limit of Insurance,
we will pay for the “insured”:
. . .
(5) All costs taxed against
the “insured” in any “suit&#
148; we
defend; (emphasis added)
The excess policies, SL231000 and SX231000 provide:
If we exercise this right [to defend the case],
we will assume our proportionate share of
all court costs, legal fees, investigation
costs and interest incurred with our consent.
(emphasis added).
The “all costs” language in these policies is almost identical to
the policy language in Lowe. Therefore, following the ruling in
Lowe and applying it to the policies at issue here we conclude the
“all costs” language of the policies includes prejudgment interest.
Further, the policies clearly provide that supplementary payments
are in addition to the policy limits. Accordingly, we affirm the
trial court's ruling that the four policies provided supplemental
payments for prejudgment interest over the policy limits.
AFFIRMED.
Chief Judge EAGLES and Judge MCCULLOUGH concur.
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