Appeal by plaintiff from order dated 12 June 2000 by Judge C.
Preston Cornelius in Guilford County Superior Court. Heard in the
Court of Appeals 4 December 2001.
Thomas L. Nesbit, P.C., by Thomas L. Nesbit; and Womble
Carlyle Sandridge & Rice PLLC, by Burley B. Mitchell, Jr., for
plaintiff-appellant.
Teague, Rotenstreich & Stanaland, LLP, by Kenneth B.
Rotenstreich and Paul A. Daniels, for unnamed defendant-
appellee Nationwide Mutual Insurance Company.
No brief filed for defendant-appellee Byrd.
GREENE, Judge.
Suzanne English McCrary (Plaintiff) by and through her general
guardian, Charles W. McCrary, Jr., appeals an order dated 12 June
2000 in favor of Nationwide Mutual Insurance Company (Nationwide)
denying Plaintiff's motion to compel arbitration.
On 23 October 1997, Plaintiff filed a complaint (the
Complaint) together with attached interrogatories against Teresa
Byrd (Byrd), Ham's Restaurants, Inc. (Ham's), and Nationwide.
(See footnote 1)
Plaintiff also served N.C. Farm Bureau Insurance Company (Farm
Bureau), Byrd's liability insurer.
(See footnote 2)
In the Complaint, Plaintiff
alleged negligence on the part of Ham's and Byrd for an incident
occurring in the early morning hours of 19 October 1991. As a
result of the incident, Plaintiff sustained serious physical
injuries.
Nationwide provided uninsured/underinsured motorist coverage
to Plaintiff. In order to provide coverage to Plaintiff,
Nationwide's policy required that it be notified promptly of how,
when, and where an accident occurred. Any person seeking coverage
had the responsibility to: cooperate with Nationwide in the
investigation, settlement, or defense of any claim or suit;
authorize Nationwide to obtain medical reports and other pertinent
records; and submit, as often as reasonably required, to
examinations under oath. Nationwide would not provide uninsured or
underinsured motorist coverage for bodily injury sustained by any
person if that person or legal representative “settle[d] the bodily
injury . . . claim without [Nationwide's] written consent.”
Nationwide also provided that if it and an insured did not agree as
to whether that person was entitled to coverage or as to the amount
of damages, the insured had the right to demand arbitration. If an
insured, however, declined to arbitrate, Nationwide's “liability
[would] be determined only in a legal action.” Prior to Byrd's deposition, Nationwide wrote a letter to Byrd
dated 12 March 1998 which stated that pursuant to Byrd's request,
“and after an asset check was performed, Nationwide has agreed to
waive any and all subrogation rights they may have in the matter
above captioned.”
(See footnote 3)
Nationwide later filed notices of deposition
for five non-party witnesses. Plaintiff's attorney attended all
five depositions and examined the witnesses.
In addition to the above noticed depositions, Nationwide
noticed the depositions of Plaintiff and her parents on 13 April
1998. Subsequently, Nationwide filed a notice on 9 June 1998 to
take the deposition of Dr. Andrew P. Mason (Dr. Mason). All four
depositions were scheduled to take place at the office of
Plaintiff's attorney. Plaintiff objected to Dr. Mason's deposition
subpoena arguing the subpoena was not properly issued, it was not
properly served on Dr. Mason, it was “overbroad,” and there was no
court order in place permitting the deposition of Dr. Mason. In
response, Nationwide filed a motion for sanctions against Plaintiff
for failure to comply with discovery requests and also filed a
motion to compel the deposition testimony of Dr. Mason.
Between 30 April 1998 and 24 June 1998, Plaintiff entered into
settlement negotiations with Byrd and Ham's, unbeknownst to
Nationwide. On 24 June 1998, Plaintiff informed Nationwide of its
tentative settlement with Byrd and Ham's by which Plaintiff would
receive $100,000.00 from Farm Bureau, the amount equal to Byrd's
limit of liability. As part of the settlement, Ham's also agreedto pay $35,000.00 to Farm Bureau and $5,000.00 to Plaintiff. By
letter dated 24 June 1998, Plaintiff demanded the dispute between
Plaintiff and Nationwide be resolved by arbitration and requested
that no further discovery be permitted.
In an affidavit dated 22 July 1998, Nationwide's attorney
stated Plaintiff had engaged in substantial discovery, including:
Plaintiff serving numerous interrogatories on Ham's, Byrd, and
Nationwide; the depositions of non-party witnesses were noticed by
the agreement of Plaintiff and Nationwide; Plaintiff noticed the
deposition of Byrd; and Plaintiff deposed non-party witnesses, all
of whom would be able to attend any arbitration meeting. As of 23
June 1998, Nationwide had accrued at least $8,396.19 in legal fees
and expenses.
On 22 July 1998, the trial court heard arguments on
Nationwide's motion to compel discovery and its motion to prohibit
arbitration, and also heard arguments on Plaintiff's motion for a
protective order and her demand for arbitration. The trial court
found, in pertinent part, that Plaintiff “wilfully failed to
present [herself or her parents] or Andrew Mason for the
depositions at the time and place properly noticed . . . without
just cause and . . . without a filed objection or motion for
protective order.” On 28 July 1998, the trial court filed an order
requiring Plaintiff, her parents, and Dr. Mason to present
themselves for their depositions on or before 31 July 1998. The
motions with respect to arbitration were reserved to be heard by
the trial court at a later date. After an appeal to this Court, the depositions of Plaintiff
and her parents were taken on 29 February 2000. Subsequently, on
14 April 2000, the depositions of administrators and nursing staff
at the University of North Carolina Hospitals were taken. During
the depositions of hospital administrators, it was learned that
certain records concerning the chain of custody for Plaintiff's
blood sample had been destroyed in 1996.
On 14 April 2000, Plaintiff's case against Nationwide was set
to be tried during the week of 5 June 2000. On 28 April 2000, a
Nationwide claims adjuster filed an affidavit stating Nationwide
had incurred approximately $30,970.19 for the handling of
Plaintiff's tort action against Byrd and Ham's, and it had expended
approximately $29,859.14 in Nationwide's claims against Plaintiff
for breach of contract, bad faith, and a declaratory judgment
action. Subsequently, Plaintiff brought her motion to compel
arbitration before the trial court on 2 June 2000. In an order
dated 12 June 2000, the trial court found facts consistent with the
above stated facts, including:
29. During the period of October 22, 1997,
and the date of the hearing of the motion to
compel arbitration, [Nationwide] has expended
more than $60,000.00 in the defense of this
claim and the prosecution of a companion case.
The trial court then concluded: the payment of $100,000.00 by Farm
Bureau was not an exhaustion of limits; Nationwide's underinsured
motorist coverage provision was not triggered; Plaintiff breached
her contract of insurance with Nationwide by not submitting to her
deposition when noticed, not giving Nationwide an opportunity toapprove the settlement between Plaintiff and Byrd and Ham's, and
releasing Ham's “from a viable dram shop claim . . . [because it]
extinguished any claims that [Nationwide] would have had for
contribution against Ham's”; Nationwide has been prejudiced by the
actions of Plaintiff, including expending $60,000.00 in litigation
costs, a declaratory judgment, as well as on a prior appeal; and
Nationwide was “prejudiced by the delay of . . . Plaintiff in
proceeding forward with certain depositions, as evidence that could
have been gained at an earlier time was lost, due to the
destruction of records.”
______________________________
The issues are whether: (I) Plaintiff breached the terms of
the policy with Nationwide by failing to: (A) exhaust the limits
of Byrd's liability insurance; (B) give Nationwide an opportunity
to approve the settlement between Plaintiff and Ham's and Byrd; (C)
submit to her depositions when noticed; and (D) preserve
Nationwide's claims for contribution against Ham's; and (II)
Plaintiff waived her contractual right of arbitration by: (A)
Nationwide expending $60,000.00 in litigation costs; and (B) her
delay in appearing for noticed depositions.
“Initially, we note that an order denying arbitration,
although interlocutory, is immediately appealable because it
involves a substantial right which might be lost if appeal is
delayed.”
Prime South Homes, Inc. v. Byrd, 102 N.C. App. 255, 258,
401 S.E.2d 822, 825 (1991).
I
Contractual Entitlement to Arbitration
Nationwide argues in its brief to this Court that Plaintiff's
failure to abide by her contract with Nationwide precluded
Plaintiff's right to arbitrate. We need not decide whether an
alleged failure by Plaintiff to abide by the contract precludes
arbitration as we determine Plaintiff has abided by the terms of
the contract.
A
Exhaustion
Plaintiff argues the trial court erred in concluding Plaintiff
failed to exhaust the limits of Byrd's liability insurance. We
agree.
Underinsured motorist coverage is available to an insured
after the “payment of judgment or settlement, all liability bonds
or insurance policies providing coverage for bodily injury caused
by the ownership, maintenance, or use of the underinsured highway
vehicle have been exhausted.” N.C.G.S. § 20-279.21(b)(4) (1999).
Exhaustion occurs “when either (a) the limits of liability per
claim have been paid upon the claim, or (b) by reason of multiple
claims, the aggregate per occurrence limit of liability has been
paid.”
Id. “'Exhaust' is a broad term meaning to use up, consume
or deplete.”
Brown v. Lumbermens Mut. Cas. Co., 90 N.C. App. 464,
475, 369 S.E.2d 367, 373,
disc. review denied, 323 N.C. 363, 373
S.E.2d 541 (1988),
aff'd, 326 N.C. 387, 390 S.E.2d 150 (1990).
In this case, Farm Bureau insured Byrd for $100,000.00 per
person. In Byrd's settlement with Plaintiff, Farm Bureau was topay $100,000.00 to Plaintiff. At the time Farm Bureau paid the
$100,000.00 to Plaintiff, it paid its limits of liability per
person; Byrd's limits of liability under the Farm Bureau policy
were thus “use[d] up, consume[d] or deplete[d].” Plaintiff has
therefore exhausted Byrd's liability limits with Farm Bureau,
regardless of whether Farm Bureau received additional payment from
Ham's, as the $100,000.00 payment to Plaintiff represented Farm
Bureau's limits of liability.
(See footnote 4)
As Farm Bureau's limits of
liability had been exhausted, the provisions of Plaintiff's
underinsured motorist contract with Nationwide applied.
Accordingly, the trial court erred in concluding Farm Bureau's
limits of liability had not been exhausted and, thus, the
underinsured motorist coverage provisions had not been triggered.
B
Notice of Settlement
Plaintiff argues the trial court erred in concluding Plaintiff
breached her contract with Nationwide by not giving Nationwide an
opportunity to approve the settlement Plaintiff had with Byrd and
Ham's. We agree.
The primary purpose of a consent-to-settlement clause is to
“protect the insurer's right of subrogation.”
Silvers v. Horace
Mann Ins. Co., 324 N.C. 289, 298, 378 S.E.2d 21, 27 (1989). If aninsurer has waived its right to subrogation, an insured's failure
to obtain the insurer's consent before entering into a settlement
agreement does not, as a matter of law, bar the insured's recovery
against the insurer for underinsured motorist coverage.
Id.
Consent-to-settlement clauses, however, also serve the secondary
purpose of protecting the underinsured motorist carrier “against
collusion between the tort[-]feasor and the insured and
noncooperation on the part of the tort[-]feasor after his or her
release by the insured.”
Id. at 299, 378 S.E.2d at 27.
In this case, in a letter dated 12 March 1998, Nationwide
agreed to waive any and all subrogation rights it had in
Plaintiff's action against Byrd and Ham's. Since Nationwide waived
its right of subrogation, the consent-to-settlement clause no
longer served the primary purpose of protecting Nationwide's right
to subrogation. As to the secondary purpose, there is no evidence
of collusion in the record to this Court. Indeed, collusion was
not raised before the trial court nor addressed by the trial court.
Accordingly, the trial court erred in concluding Plaintiff's
failure to obtain Nationwide's consent before entering into the
settlement with Byrd and Ham's barred her recovery against
Nationwide.
See id. at 298, 378 S.E.2d at 27.
C
Depositions
Plaintiff argues her failure to voluntarily submit to
depositions after she had filed a motion to compel arbitration was
not a breach of her contract with Nationwide. We agree. Discovery during arbitration, as opposed to litigation, is
designed to be minimal, informal, and less extensive.
Palmer v.
Duke Power Co., 129 N.C. App. 488, 491, 499 S.E.2d 801, 803 (1998).
Thus, contrary to a civil case, where a broad right of discovery
exists, discovery during arbitration is generally at the discretion
of the arbitrator.
Id. at 492, 499 S.E.2d at 804. Moreover,
participation in discovery not available at arbitration may
constitute a waiver of a party's right to arbitrate.
Prime South,
102 N.C. App. at 260-61, 401 S.E.2d at 826.
In this case, Plaintiff's deposition, although scheduled prior
to Plaintiff filing her motion to compel arbitration, was scheduled
to take place at a date beyond the time Plaintiff had filed her
motion to compel arbitration. Although Plaintiff refused to attend
the scheduled deposition until after a court order and her appeal
to this Court, Plaintiff nevertheless submitted to the noticed
deposition. Based on case law, Plaintiff had a well-founded belief
that her participation in a deposition after she had already
requested arbitration may have resulted in her waiving her right to
arbitration. Moreover, the provision in Nationwide's contract
required that an insured submit to examinations under oath as
cooperation to the defense, settlement, or investigation of a
claim. At the time Nationwide sought to depose Plaintiff, there
was no indication Nationwide wished to settle with Plaintiff,
rather, Nationwide appeared to be assuming an adversarial role.
Likewise, there is no provision in Nationwide's contract with
Plaintiff that if Plaintiff failed to submit to a deposition shewould waive either coverage or her right to arbitrate.
Accordingly, the trial court erred in holding Plaintiff breached
her contract with Nationwide and thus was not entitled to
arbitration.
D
Nationwide's Right to Contribution
Plaintiff argues the trial court erred in concluding
Plaintiff's release of Ham's “from a viable dram shop claim . . .
extinguished any claims that [Nationwide] would have had for
contribution against Ham's.” We agree.
“The right of contribution exists only in favor of a tort-
feasor who has paid more than his pro rata share of the common
liability.” N.C.G.S. § 1B-1(b) (1999);
Johnson v. Hudson, 122 N.C.
App. 188, 190, 468 S.E.2d 64, 66 (1996). An underinsured motorist
carrier is not a tort-feasor and thus has no right of contribution.
Johnson, 122 N.C. App. at 190, 468 S.E.2d at 66.
In this case, Nationwide, an underinsured motorist insurance
carrier, is not a tort-feasor and thus has no right of contribution
against Ham's. Accordingly, the trial court erred in concluding
Plaintiff's release of Ham's extinguished any claims Nationwide
would have had for contribution against Ham's.
II
Waiver of Arbitration
Nationwide next argues that even if Plaintiff were entitled to
arbitration, she nonetheless waived her right to arbitrate. We
disagree. A party “impliedly waive[s] its contractual right to
arbitration if by its delay or by actions it takes which are
inconsistent with arbitration, another party to the contract is
prejudiced by the order compelling arbitration.”
Cyclone Roofing
Co., Inc. v. Lafave Co., Inc., 312 N.C. 224, 229, 321 S.E.2d 872,
876 (1984) (footnote omitted). A party is prejudiced if, for
example,
it is forced to bear the expenses of a lengthy
trial . . . ; evidence helpful to a party is
lost because of delay in the seeking of
arbitration . . . ; a party's opponent takes
advantage of judicial discovery procedures not
available in arbitration . . . ; or, by reason
of delay, a party has taken steps in
litigation to its detriment or expended
significant amounts of money thereupon.
Id. at 229-30, 321 S.E.2d at 876-77 (citations omitted). A party,
however, does not waive her contractual right to arbitration or
prejudice the other party by the mere filing of pleadings.
Prime
South, 102 N.C. App. at 259, 401 S.E.2d at 825.
A
Litigation Costs
Plaintiff contends the trial court incorrectly held Nationwide
was prejudiced by its expenditure of $60,000.00 due to Plaintiff's
delay in seeking arbitration, as “there are no findings Nationwide
could have avoided these expenses through an earlier request for
arbitration, or that such expenses were incurred after the right to
demand arbitration accrued.” We agree.
In this case, prior to Plaintiff's demand for arbitration,
Nationwide had expended only $8,396.19 in legal fees and expenses. The amount of money expended by Nationwide prior to Plaintiff
demanding arbitration occurred primarily from Nationwide noticing
depositions and examining witnesses, as well as examining the scene
of the accident. Although the trial court found Nationwide had
expended more than $60,000.00 in the defense of Plaintiff's case
during the period between 22 October 1997 and the date of the
hearing before the trial court, there was no finding whether any of
those fees resulted from Plaintiff's delay in demanding
arbitration. Indeed, almost half of the $60,000.00 constituted
Nationwide's pursuit of claims against Plaintiff in a separate
action. Accordingly, as Nationwide had expended only $8,396.19 in
legal fees prior to Plaintiff's demand for arbitration, the trial
court erred in concluding Nationwide was prejudiced by having
expended $60,000.00 in litigation costs.
B
Delay in Depositions
Plaintiff contends the trial court erred in finding evidence
was lost as a result of Plaintiff's alleged delay in seeking
arbitration. We agree.
In this case, the trial court concluded Nationwide was
“prejudiced by the delay of . . . Plaintiff in proceeding forward
with certain depositions, as evidence that could have been gained
at an earlier time was lost, due to the destruction of records.”
As the trial court found the records were destroyed in 1996 and all
the depositions Plaintiff objected to were scheduled to take place
in 1998, there is no indication that Plaintiff's delay inproceeding with the depositions as scheduled in 1998 could have
caused records to be destroyed in 1996. We note that the trial
court did not find or conclude that Plaintiff's delay in seeking
arbitration caused evidence to be destroyed, only that Plaintiff's
delay in proceeding with the depositions caused evidence to be
destroyed. In addition, as previously stated in part I(C) of this
opinion, Plaintiff did not waive arbitration by failing to submit
to depositions. Accordingly, the trial court erred in concluding
Plaintiff's delay in proceeding with the depositions caused certain
evidence to be lost.
We note both parties presented arguments in their brief to
this Court concerning Plaintiff's waiver of arbitration by
participating in discovery not available at arbitration. While
making extensive findings regarding Plaintiff's participation in
discovery, the trial court neither found nor concluded Plaintiff
waived her contractual right of arbitration by participating in
discovery not available at arbitration. Because Nationwide has
failed to cross-appeal or cross-assign error to this omission by
the trial court, we do not address the issue of whether Plaintiff
waived her right to arbitrate by participating in discovery.
Reversed and remanded.
Judges McCULLOUGH and CAMPBELL concur.
Footnote: 1