Insurance_condominium_loss of rents_sufficiency of documentation
The trial court did not err in a declaratory judgment action by granting summary judgment
in favor of plaintiff on the issue of whether defendants have presented sufficient documentation
under the terms of their insurance policy with plaintiff to entitle defendants to recover for the loss
of rents resulting from their condominium being damaged and unfit to live in, because the policy
was not ambiguous and its loss of rents provision requires defendants to submit a written rental
contract with a third-party tenant who actually occupies or personally intends to occupy
defendant's condominium.
CAMPBELL, Judge.
John and Sylvia Hogan (“defendants” or “the Hogans”) appeal
from an award of summary judgment for Certain Underwriters at
Lloyd's London (“Lloyd's”) on the question of whether defendants
have presented sufficient documentation under the terms of their
insurance policy with Lloyd's to entitle defendants to recover for
the loss of rents resulting from their condominium being damaged
and unfit to live in. Having found no error of law, we affirm the
ruling of the trial court.
Defendants are the owners of Condominium Unit 803 at ShellIsland Resort Hotel in Wrightsville Beach, North Carolina
.
Defendants purchased Lloyd's insurance policy number 20982 (“the
policy”) to insure their condominium. Coverage B of the policy
provides up to $4,000.00 of loss of use coverage, which includes
coverage for loss of rents. It is undisputed that the Hogans'
policy was in effect from 30 December 1995 to 30 December 1996,
during which time their claim arose.
On 6 September 1996, Hurricane Fran struck the coast of North
Carolina, inflicting extensive damage on Shell Island Resort Hotel.
As a result of this damage, defendants' condominium was condemned
for repairs from 6 September 1996 to 7 August 1997. Consequently,
the Hogans filed a claim under the policy seeking recovery for loss
of rents during the time their condominium was being repaired.
In support of their loss of rents claim, defendants submitted
a copy of the property management agreement between defendants and
MHI Recovery Management, Inc. (“MHI”), setting forth the manner in
which defendants' condominium was rented prior to being damaged.
Similar to the manner in which hotel rooms are rented, MHI
maintained a reservations desk at Shell Island Resort which took
advance and walk-in reservations, and at the time the guests
arrived they were assigned (i.e., “rented”) a condominium unit.
MHI rented the condominium units at Shell Island Resort on a
rotating basis, whereby the units with the lowest year-to-date
gross rental revenue would be rented first. This rental scheme was
designed to ensure that all units were rented on an equal basis.
In support of their claim, defendants also submitted a
statement from MHI detailing the manner in which the condominiumsat Shell Island Resort were rented, a lost business report from
Shell Island Resort detailing the reservations that were canceled
as a result of the damage to the condominium units and the actual
monetary losses associated with the cancellations, and a rental
history of defendants' condominium showing the yearly rental
revenues received by defendants from 1994-1996.
On 28 January 1997, Lloyd's denied defendants' loss of rents
claim on the ground that defendants had failed to provide a written
rental contract with a bona fide third-party tenant who intended
personally to occupy defendants' condominium for a specific term.
Following further demands by defendants for payment, Lloyd's
filed the instant declaratory judgment action seeking a declaration
that defendants have not provided sufficient documentation under
the loss of rents provision to warrant recovery on their claim.
Defendants answered and filed a counterclaim against plaintiff for
breach of contract, contending that the property management
agreement with MHI was sufficient documentation to support
defendants' loss of rents claim. Defendants' counterclaim further
contended that plaintiff was vicariously liable for the actions of
the insurance broker who procured defendants' policy. In addition,
defendants filed a third-party complaint against the insurance
broker, alleging breach of contract, breach of fiduciary duty,
negligent misrepresentation, and unfair and deceptive trade
practices.
Defendants filed a motion for summary judgment on Lloyd's
declaratory judgment action. Lloyd's responded by filing a summary
judgment motion of its own. Following a hearing on the motions,the trial court granted summary judgment in favor of Lloyd's. The
trial court's summary judgment order was specifically limited to
the issue of whether defendants had presented the documents
required for recovery under the policy's loss of rents provision.
The trial court's order did not in any way affect defendants'
counterclaims or third-party complaint.
(See footnote 1)
The trial court's order
was properly certified for immediate appellate review pursuant to
Rule 54(b) of the North Carolina Rules of Civil Procedure, thereby
making our review of this interlocutory order appropriate.
By their sole assignment of error, the Hogans contend that in
awarding summary judgment for Lloyd's, the trial court erroneously
construed the provisions of the policy. The Hogans argue that the
policy's loss of rents provision is ambiguous as to whether an
actual rental contract with a third-party tenant who intends to
personally occupy the condominium is a requirement for coverage
under the provision. The Hogans contend that this ambiguity should
be resolved in favor of coverage and that the provision should be
interpreted in a manner that allows defendants' property management
agreement with MHI to suffice as proof of loss of rents under the
provision. We disagree.
“A party seeking a declaratory judgment may properly be
granted summary judgment '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 amatter of law.'” Nationwide Mut. Fire Ins. Co. v. Grady, 130 N.
C.
App. 292, 294, 502 S.E.2d 648, 650 (1998) (quoting N.C. R. Civ. P.
56(c). “The party moving for summary judgment bears the burden of
establishing the lack of any triable issue, and may meet this
burden by (1) proving that an essential element of the opposing
party's claim is nonexistent; (2) showing through discovery that
the opposing party cannot produce evidence to support an essential
element; or (3) showing that the opposing party cannot surmount an
affirmative defense.” N.C. Farm Bureau Mut. Ins. Co. v. Mizell,
138 N.C. App. 530, 532, 530 S.E.2d 93, 94-95, disc. review denied,
352 N.C. 590, 544 S.E.2d 783 (2000). The construction and
application of insurance policy provisions to undisputed facts is
a question of law, properly committed to the province of the trial
judge for a summary judgment determination. Nationwide, 130 N.C.
App. at 294, 502 S.E.2d at 650; Walsh v. National Indemnity Co., 80
N.C. App. 643, 647, 343 S.E.2d 430, 432 (1986). Therefore, in the
instant case, if the policy's loss of rents provision requires
defendants to submit a written rental contract with a third-party
tenant who personally intends to occupy defendants' condominium,
summary judgment in favor of Lloyd's was proper.
We begin by noting several well-settled principles governing
the construction of insurance policies. “[A]n insurance policy is
a contract and its provisions govern the rights and duties of the
parties thereto,” Fidelity Bankers Life Ins. Co. v. Dortch, 318
N.C. 378, 380, 348 S.E.2d 794, 796 (1986), and “[a]s with all
contracts, the goal of construction is to arrive at the intent ofthe parties when the policy was issued.” Woods v. Insurance Co.,
295 N.C. 500, 505, 246 S.E.2d 773, 777 (1978). “The parties'
intent may be derived from the language employed in the policy.”
Rouse v. Williams Realty Bldg. Co., 143 N.C. App. 67, 69, 544
S.E.2d 609, 612 (2001). In determining the meaning of the language
used in an insurance policy, the following general rules of
construction apply:
Where a policy defines a term, that definition
is to be used. If no definition is given,
non-technical words are to be given their
meaning in ordinary speech, unless the context
clearly indicates another meaning was
intended. The various terms of the policy are
to be harmoniously construed, and if possible,
every word and every provision is to be given
effect. If, however, the meaning of words or
the effect of provisions is uncertain or
capable of several reasonable interpretations,
the doubts will be resolved against the
insurance company and in favor of the
policyholder. Whereas, if the meaning of the
policy is clear and only one reasonable
interpretation exists, the courts must enforce
the contract as written; they may not, under
the guise of construing an ambiguous term,
rewrite the contract or impose liabilities on
the parties not bargained for and found
therein.
Woods, 295 N.C. at 505-06, 246 S.E.2d at 777; see also Gaston
County Dyeing Machine Co. v. Northfield Ins. Co., 351 N.C. 293,
299-300, 524 S.E.2d 558, 563 (2000). We apply these principles to
the insurance policy in the instant case.
The Lloyd's policy issued to defendants contains the following
relevant coverage provision:
COVERAGE B--LOSS OF USE
. . . .
2. LOSS OF RENTS. If a loss caused by a
PERIL INSURED AGAINST makes that part of the
insured premises rented to others (under a
“rental contract”) NOT FIT TO LIVE IN, we
cover your actual loss of rents, less any
expenses that do NOT continue while that part
of the insured premises is not fit to live in.
Loss payment will be limited to the lesser of:
A. the SHORTEST TIME required to repair
or replace the part of the premises rented or
held for rental;
B. NET RENTAL PROCEEDS that would be
payable to you had the premises been occupied
in accordance with “rental contract.”
The “rental contract” for the insured
premises must be:
A. WRITTEN;
B. made with a BONA FIDE THIRD PARTY
TENANT (Tenant must intend to personally
occupy insured premises);
C. for a SPECIFIC TERM (Specific term
does not include any renewal term contained in
any “rental contract” unless tenant has given
actual written notice of intent to exercise
its rights under the renewal term prior to
occurrence of loss.).
We DO NOT cover any loss or expense due
to cancellation of a “rental contract”.
. . . .
Defendants contend that the language used in the loss of rents
provision is ambiguous and should be construed in their favor.
While they concede that the provision purports to require that the
condominium actually be rented under a written rental contract with
a third-party tenant who intends to personally occupy it for a
specific term, defendants argue that the language in the loss
payment clause clearly contemplates that defendants are entitled to
payment when the property is “held for rental,” even in the absence
of an actual written rental contract. Defining “held for rental”
to mean maintaining possession of something which is available for
use in return for payment, defendants contend that the propertymanagement agreement with MHI indicates the condominium was
available for use in return for payment, and is therefore
sufficient documentation of loss of rents under the provision.
Lloyd's contends that the loss of rents provision is not
ambiguous because the coverage section clearly requires that the
condominium be rented to others under a “rental contract,” which is
expressly defined as a written contract with a third-party tenant
who intends to occupy the condominium for a specific term.
According to Lloyd's, absent a “rental contract” as defined in the
provision, defendants are not entitled to coverage, and any alleged
ambiguity created by the provision limiting the amount of loss
payment is irrelevant because defendants have not met the coverage
requirements.
Having considered the arguments of both sides, the trial court
concluded that any ambiguity in the phrase “held for rental” did
not affect the meaning of “rental contract,” which was clearly
defined and set forth four times in the provision. Finding that
the documents defendants had presented Lloyd's did not constitute
a contract with a third-party tenant who intended to personally
occupy the condominium, the trial court granted summary judgment
for Lloyds. We agree with the trial court's decision, but differ
slightly with the trial court's reasoning in reaching our decision.
The coverage clause of the loss of rents provision at issue
clearly and unambiguously rests coverage on whether the condominium
is “rented to others (under a 'rental contract'),” and expressly
defines “rental contract” as a written contract with a tenant who
personally intends to occupy the condominium. The allegedambiguity arises by operation of the loss payment clause which
limits payment to “the SHORTEST TIME required to repair or replace
the part of the condominium rented or 'held for rental.'” However,
following well-settled principles of construction of insurance
policies, and in light of the express definition of “rental
contract,” the phrase “held for rental” in the loss payment clause
is to be interpreted in context and construed in a manner that
gives proper meaning and effect to the provision as a whole. The
phrase “held for rental” cannot be given a meaning that conflicts
with the express definition of “rental contract.” Therefore, we
conclude that the provision requires the condominium be rented, or
“held for rental,” pursuant to a written rental contract with a
tenant who actually occupies or intends to personally occupy the
condominium. The phrase “held for rental” merely indicates that
the condominium need not actually be occupied by a tenant at the
time it is rendered unfit to live in, but that coverage will be
provided if the damage to the condominium prevents future tenants
under a “rental contract” from occupying the condominium. Any
other interpretation of the phrase “held for rental” would
contradict the express definition of “rental contract” contained in
the policy. We refuse to interpret the policy in that manner.
In sum, we conclude that the loss of rents provision is not
ambiguous and the trial court did not err in awarding summary
judgment for Lloyd's. The trial court is affirmed.
Affirmed.
Judges GREENE and THOMAS concur.
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