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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY f/k/a ALEXANDER
HAMILTON LIFE INSURANCE COMPANY OF AMERICA f/k/a JEFFERSON-PILOT
PENSION LIFE INSURANCE COMPANY, Plaintiff, v. MARSH USA INC.
f/k/a J&H MARSH & McLENNAN, INC., Successor to Johnson & Higgins
Carolinas, Inc., and HARTFORD FIRE INSURANCE COMPANY, Defendants
Filed: 15 July 2003
1. Appeal and Error_preservation of issues_failure to object
An issue was not preserved for appellate review where there was no objection..
2. Contribution_agency_lack of direct negligence_claims extinguished
A determination of agency was properly submitted to the jury to establish a contribution
claim by an insurance broker (Marsh) against the company issuing a fidelity bond (Hartford).
3. Contribution_prima facie showing_agency
There was a prima facie showing of a contribution claim between an insurance broker
(Marsh) and the company issuing a fidelity bond (Hartford). Marsh's receipt of commissions
from Hartford and issuance of title binders and other documents on Hartford's behalf create an
apparent authority for Marsh to act as Hartford's agent and are sufficient to withstand Hartford's
motion for summary judgment or directed verdict on the issue of agency.
4. Contribution; Appeal and Error_amount of contribution mandated_verdict outside
applicable law_no formal objection
The trial court erred in a contribution case by entering judgment upon a jury's
determination of the amount of contribution when that amount was mandated by the Uniform
Contribution Among Tort-Feasors Act (UCATA). A failure to formally object to the instruction
was not fatal because the verdict was not allowed under applicable law.
5. Insurance_duty of insurer to monitor insured_instruction on general negligence
An assignment of error to the trial court's failure to instruct a jury on the duty of an
insurer to monitor the business of the insured was not addressed where the trial court submitted
the issue of the insurer's negligence without an instruction on any specific duty and the jury
found the insurer liable as the principal of a broker.
6. Evidence_questions about irrelevant evidence_not prejudicial
The allowance of questions of questionable relevancy did not rise to the level of
prejudicial error in an action to determine the liability of an insurer through the actions of a
7. Insurance_fidelity bond_extension of coverage by company expansion_notice and
The trial court did not err by granting summary judgment for an insurer on contract and
declaratory judgment claims arising from the fidelity bonds issued to cover insurance agents at acompany which expanded the number of agents.
Appeals by defendants from orders and judgments entered 19
January 2000 by Judge Catherine C. Eagles, 17 October 2001 by Judge
James M. Webb, and 21 December 2001 and 3 July 2002 by Judge L.
Todd Burke in Guilford County Superior Court. Heard in the Court
of Appeals 5 June 2003.
Kennedy Covington Lobdell & Hickman, LLP, by Raymond E. Owens,
Jr., Russell F. Sizemore and Susan Ballantine Molony, for
defendant Marsh USA.
Faison & Gillespie, by O. William Faison, Michael R. Ortiz and
John-Paul Schick, for defendant Hartford Fire Insurance
Hartford Fire Insurance Company (Hartford) provided
Jefferson Pilot Financial Insurance Company (JP) with fidelity
bond coverage. Hartford issued a Form 25 Financial Institution
Bond that covered wrongful acts of JP's insurance agents for three
years, between 27 March 1992 and 27 March 1995. In September 1994,
Martin Pallazza (Pallazza), Hartford's bond underwriter in charge
of the JP account, reviewed JP's 1993 Annual Report and discovered
JP had added over 3,000 new agents to its network and planned for
further additions. Pallazza questioned, in a notation on the
annual report, whether agent growth affected Hartford's coverage
to JP. Traska testified that Pallazza should have inquired to
clarify how the information affected Hartford's risk. Pallazza
testified that he spoke with Barbara Haney of Marsh USA, Inc.
(Marsh), the insurance broker for JP, on 27 September 1994. Noresolution was reached concerning the coverage for the additional
agents mentioned in JP's Annual Report. Pallazza resigned from
Hartford in 1994 and Patrick Cummings became the new underwriter
for the account. No additional inquiries were made to JP or Marsh
about the increase in agents.
In January 1995, Hartford contacted Marsh about renewing the
bond. Marsh, an independent agent of Hartford, issued binders for
Hartford and received a percentage of the collected premium and a
contingent commission. Hartford requested Marsh to obtain
pertinent information for the renewal from JP. Marsh informed
Hartford that most of the information requested was inaccessible at
the time due to internal restructuring. Hartford extended the
period of the bond's coverage. Hartford agreed to renew the bond
effective 27 March 1995 after Marsh allegedly represented to
Hartford that the number of JP insurance agents had not materially
changed. Contrary to this alleged representation, the number of JP
agents had substantially increased during the term of the original
On 6 October 1995, a subsidiary of JP purchased and merged
with Alexander Hamilton Life Insurance Company of America for $575
million. After this merger, the number of JP's insurance agents
increased by 6,000. Neither JP nor Marsh informed Hartford of the
merger prior to its consummation. On 16 April 1996, Marsh notified
Hartford of the merger and acknowledged that JP was unaware the
additional agents were not covered. Marsh began to provide
Hartford with the additional documentation previously requested.
On 6 June 1996, Marsh informed Hartford that it had recentlylearned that Roger McCall (McCall), an Alexander Hamilton
insurance agent, had embezzled a significant amount of funds. In
August 1996, JP made an initial claim under the bond for
approximately $1,000,000 but specifically outlined only $850,000 in
losses it allegedly incurred as a result of McCall's malfeasance.
Hartford denied the claim on the basis that fidelity coverage to
Alexander Hamilton's agents was never provided. JP filed suit
against Marsh and Hartford via an amended complaint on 26 August
1998 for (1) breach of contract, (2) declaratory judgment, (3)
negligence by Marsh and liability therefor of Marsh and Hartford
under a principal/agent theory, and (4) breach of contract by Marsh
and liability therefor under a principal/agent theory. Hartford
cross-claimed against Marsh for indemnity and contribution. Marsh
moved to amend its answer on 19 November 1999 to cross-claim
against Hartford for indemnity and contribution. On 6 December
1999, JP moved for summary judgment on its breach of contract and
declaratory judgment causes of action, and for judgment of
Hartford's derivative liability under JP's third and fourth causes
of action. Marsh moved for partial summary judgment on 7 December
1999. On 8 December 1999, Hartford moved for summary judgment on
all of JP's claims.
Judge Catherine C. Eagles heard the motions and issued an
order on 19 January 2000 that: (1) denied JP's motion for summary
judgment, (2) granted Hartford's motion for summary judgment as to
JP's first and second causes of action but denied the motion with
respect to JP's agency claims against Hartford in the third and
fourth causes of action, (3) denied Marsh's motion for partialsummary judgment and granted Marsh's motion for leave to amend its
answer. JP appealed the denial of its summary judgment motion, and
this Court dismissed JP's appeal as interlocutory. Alexander
Hamilton Life Ins. Co. of Am. v. J&H Marsh & McClennan, Inc., 142
N.C. App. 699, 543 S.E.2d 898 (2001).
On 10 September 2001, Hartford moved for summary judgment on
Marsh's cross-claims for indemnification and contribution and on
JP's alternative third claim relating to the negligence of Marsh.
Judge James Webb entered an order dated 17 October 2001 which
granted Hartford's motion for summary judgment regarding Marsh's
cross-claim for indemnification, denied Hartford's motion regarding
Marsh's cross-claim for contribution, and denied Hartford's motion
for summary judgment on JP's negligence claim.
On the eve of the trial, JP and Marsh settled. Neither JP nor
Marsh released Hartford. Marsh paid JP $1,450,000 in exchange for
JP's release of its claims against Marsh and assignment to Marsh of
all of JP's claims against Hartford. Marsh dismissed with
prejudice the negligence and breach of contract actions. On 27
November 2001, the trial court denied Hartford's motion to dismiss
Marsh's contribution claim. Hartford attempted to assert its
cross-claim for indemnity. The trial court in pre-trial motions
informed Hartford that it could not pursue an indemnity claim but
could allege it as a defense, and an issue put to the jury to that
effect. In the course of the trial, the trial court informed
Hartford that its claim for indemnity had been extinguished.
A jury decided (1) whether Marsh was the agent of Hartford,
(2) whether Hartford was negligent, (3) whether the settlementamount was reasonable, and (4) the amount, if any, Hartford should
pay Marsh. The jury's verdict form was returned as follows:
1. Was Marsh the agent of Hartford at the
time of the merger transaction between
Jefferson-Pilot and Alexander Hamilton?
2. Did Hartford contribute by its negligence
to the damage to Jefferson-Pilot/Alexander
3. Was the amount paid by Marsh to Jefferson-
Pilot for which it now seeks contribution from
Hartford a reasonable amount to settle all of
4. What amount of damages, if any, should
Hartford be required to pay for Marsh's
settlement with Jefferson-Pilot?
On 8 January 2002, final judgment was entered against Hartford
in the amount of $150,000. Hartford appealed. Marsh filed and was
denied a motion to alter or amend the judgment or in the
alternative, for a judgment notwithstanding the verdict or new
trial. On 7 February 2002, Marsh cross-appealed from the final
judgment. On 11 June 2002, Marsh's post-trial motion was heard and
denied by order filed 2 July 2002. Marsh appealed. All issues
from both appeals have been consolidated per stipulation of counsel
and order of this Court.
The issues are (1) whether Hartford should have been allowed
to prove its cross-claim of indemnity against Marsh, (2) whether
the issue of agency was properly submitted to the jury, (3) whether
Marsh failed to make a prima facie showing for contribution under
N.C. Gen. Stat. § 1B-1, (4) whether the trial court erred byentering judgment on the jury's verdict regarding the amount of
contribution after the jury found the settlement to be reasonable,
(5) whether the trial court erred in refusing to instruct the jury
on Hartford's negligence and erroneously finding Hartford was not
negligent by failing to issue insurance coverage for JP, (6)
whether the trial court erred in admitting evidence of Marsh's
negligence when Marsh had admitted its negligence, and (7) whether
the trial court erred by granting Hartford summary judgment on JP's
breach of contract and declaratory judgment causes of action. The
issue in appeal 02-1484 is whether the trial court abused its
discretion in denying Marsh's motion to alter or amend the judgment
or in the alternative for a judgment notwithstanding the verdict or
new trial if the judgment entered on the jury's verdict of
contribution due to Marsh was error as a matter of law.
III. Hartford's Indemnity Claim
 Hartford contends that the trial court erred by not
allowing it to proceed on its indemnity cross-claim. Hartford
requested to proceed on this claim during pre-trial motions. The
trial court denied the motion but allowed Hartford the option to
argue indemnity defensively and have an issue put to the jury to
that effect. Marsh argues this issue was not preserved for appeal
and asserts that Hartford made no objection to the trial court's
failure to submit the issue to the jury.
The record shows that the trial court dismissed Hartford's
claim of indemnity during pre-trial motions and reiterated its
ruling later in the case.
MR. OWENS: . . . As I understand Hartford's
positions, it contends presently that it has acrossclaim for indemnity against Marsh. I
believe that claim is extinguished as a matter
of law, Your Honor, simply because there is no
pending contract claim against Hartford for --
THE COURT: I think I ruled on that before the
MR. OWENS: Well, I remember discussing it. I
don't know whether it's been dismissed. . . .
THE COURT: I ruled at the beginning of the
trial that that claim was extinguished.
MR. OWENS: Okay.
MR. FAISON: Well --
THE COURT: That was my ruling at the
beginning. I've already ruled on that.
MR. FAISON: Well, I understand, Judge, but
you ruled at the beginning of the trial they
weren't going into -- they weren't going to
put on 2.8 million in damages and that they
weren't going to get into the subsequent
events, both of which they've done. And so,
if I may just get you to revisit it just a
moment. The indemnity claim is --
THE COURT: I already ruled on that matter.
MR. FAISON: Yes, sir.
THE COURT: All right, then.
This issue is more properly reviewed as a dismissal of the
claim to which Hartford did not object, make an offer of proof, or
request a jury instruction. Hartford did not make an objection of
record to the trial court's dismissal of the claim during the
pre-trial motions or during trial. We hold the error was not
properly preserved and is not reviewable by our Court. See State
v. Farmer, 138 N.C. App. 127, 132, 530 S.E.2d 584, 588, disc. rev.
denied, 352 N.C. 358, 544 S.E.2d 550 (2000) ([A] defendant waiveshis right to assign error to the omission of a jury instruction
where he does not object to such omission before the jury retires
to deliberate.). This assignment of error is overruled.
IV. Agency Issue
 Hartford assigns error to the trial court's submission of
the issue of Marsh's agency with Hartford to the jury. Hartford
contends that agency was not necessary to settle controversies
arising in Marsh's claim of contribution, and that Marsh, as a
negligent defendant, cannot maintain a contribution claim against
Hartford, on a principal/agent relationship theory.
The trial court submitted four issues and instructed the jury
that if they found Hartford to be negligent or Marsh to be the
agent of Hartford, they would then determine the amount Hartford
should contribute toward Marsh's settlement. Hartford contends
that whether Marsh was an agent of Hartford was irrelevant to
Marsh's claim of contribution because agency is not an element of
negligence and JP's claims of derivative liability against Hartford
were dismissed by Marsh.
We disagree. A determination of agency was properly submitted
to establish Marsh's contribution claim. The Uniform Contribution
Among Tort-feasors Act (UCATA) creates a contribution right where
two or more persons become jointly or severally liable in tort for
the same injury. N.C. Gen. Stat. § 1B-1(a) (2001). In Yates v.
New South Pizza, Ltd.,
330 N.C. 790, 793-94, 412 S.E.2d 666, 669
(1992), our Supreme Court held that the UCATA expanded the
definition of tort-feasor to include a vicariously liable master
in the master-servant context. Thus, the release
of a servant didnot release a vicariously liable master, unless the terms of the
release provided for release of the master. Wrenn v. Maria Parham
135 N.C. App. 672, 679, 522 S.E.2d 789, 793 (1999),
disc. rev. denied, cert. denied,
351 N.C. 372, 543 S.E.2d 149-50
(2000) (emphasis in original). Hartford urges this Court to not
follow our Supreme Court's decision in Yates
and contends that the
decision was wrongly decided. We are bound by the rationale and
holding of Yates. Dunn v. Pate,
334 N.C. 115, 118, 431 S.E.2d 178,
(The Court of Appeals is bound by decisions of the
Hartford also argues that the facts of Yates
distinguishable from those at bar. The Yates
court allowed a
plaintiff to recover from the master/employer after plaintiff
settled with the servant/employee. The defendants in Yates
a master-servant relationship; whereas Hartford and Marsh share a
principal-agent relationship. The procedural context at bar is
where one defendant seeks contribution from another defendant,
whereas in Yates
, plaintiff asserted contribution against a co-
While the procedural context is different, we are bound by
definition of a tort-feasor under the UCATA. Hartford's
lack of direct negligence, as found by the jury, is immaterial.
The jury found that Marsh acted as an agent of Hartford. The terms
of the settlement between JP and Marsh did not extinguish or
release the claims of JP against Hartford. Those claims were
assigned to Marsh as a condition of and as consideration for the
settlement. Marsh dismissed the remaining claims of negligence andbreach of contract against Hartford through its relationship with
Marsh, but retained its claim to contribution and JP's claim of
breach of contract against Hartford.
Hartford contends that Marsh's dismissal of the claims against
Hartford premised on vicarious liability prohibits Marsh from
pursuing contribution. This assertion contradicts the UCATA which
expressly requires that tort cross-claims against the other tort-
feasor must be extinguished before contribution. A tort-feasor
who enters into a settlement with a claimant is not entitled to
recover contribution from another tort-feasor whose liability for
the injury or wrongful death has not been extinguished nor in
respect to any amount paid in a settlement which is in excess of
what was reasonable. N.C. Gen. Stat. § 1B-1 (d) (2001). By
dismissing all of the claims relevant to tort liability, Marsh
extinguished the claims required by the UCATA. Summary judgment
extinguished the remaining contract and declaratory judgment claims
before trial. This assignment of error is overruled.
V. Contribution Claim
 Hartford argues that Marsh failed to make a prima facie
showing of a contribution claim under the UCATA because Hartford
owed no duty to JP. Marsh contends that Hartford was independently
liable to JP for breach of its common law duty to monitor the
business of its insureds. No specific instruction was given to the
jury regarding the law on such duty, but Marsh's contention was
expressed. Marsh cross-appeals the trial court's failure to give
such instruction. The jury found Hartford vicariously liable as
principal for Marsh's negligence. Hartford contends that the record is devoid of any agreement
by Hartford to allow Marsh to act as its agent, and the trial court
erred by submitting the issue of agency to the jury. The actions
of an agent allow for an inference of agency. See Powell v. Lumber
Co., 168 N.C. 632, 636, 84 S.E. 1032, 1033 (1915). The record
indicates that Marsh received commissions from Hartford and issued
title binders and other documents on Hartford's behalf. These
actions create, at minimum, apparent authority for Marsh to act as
Hartford's agent and are sufficient evidence to withstand
Hartford's motion for summary judgment or directed verdict. This
assignment of error is overruled.
VI. Entry of Judgment on Contribution Amount
 After the jury returned a verdict finding Marsh to be an
agent of Hartford, and finding the settlement amount Marsh paid to
JP to be reasonable, the jury awarded Marsh $150,000 in
contribution from Hartford. Marsh contends that an award of
contribution under the UCATA is statutory and that a joint
tortfeasor must contribute its pro rata share of the liability,
regardless of the relative degrees of fault. A pro rata share of
the settlement amount of $1,450,000 would be $725,000. The trial
court entered judgment upon a jury verdict award of $150,000.
Marsh argues that the erroneous amount resulted from the trial
court's inconsistent and incorrect re-instructions on the issues.
The jury was initially instructed that if they found the
settlement amount Marsh paid to JP to be reasonable, Hartford's
amount of contribution should be $725,000. Both parties agreed
during oral arguments that this was an accurate statement of thelaw. The jury entered the amount Hartford should contribute to
Marsh after it was re-instructed by the trial court.
The UCATA provides that where two or more persons become
jointly and severally liable for the same injury, the injured party
may recover his or her entire damages against any one of the joint
tortfeasors, but any of the joint tortfeasors who pays more than
his or her pro rata share of the damages has a right to
contribution from the others for any amount paid in excess of the
pro rata share. N.C. Gen. Stat. § 1B-1(b) (2001). The pro rata
share is computed by dividing the total damage award by the number
of jointly and severally liable tortfeasors, without considering a
tortfeasor's relative degree of fault. See N.C. Gen. Stat. § 1B-2
(2001); David A. Logan and Wayne A. Logan, North Carolina Torts, §
8.20 (1996); Charles E. Daye and Mark W. Morris, North Carolina
Law of Torts, § 22.62 (1999). The judgment of the court in
determining the liability of the several defendants to the claimant
for the same injury or wrongful death shall be binding as among
such defendants in determining their right to contribution. N.C.
Gen. Stat. § 1B-3(f) (2001).
The jury was re-instructed that after answering whether or not
the JP-Marsh settlement was reasonable, they were to find whether
or not Marsh was entitled to contribution from Hartford and the
proper amount to be contributed. Marsh's trial counsel did not
formally object to this re-instruction of the jury but invited the
trial court to re-instruct again. The re-instructions gave the
jury the latitude to determine the amount of the contribution award
instead of mandating a pro rata share if the settlement amount wasfound reasonable.
The trial court erred in giving the incorrect re-instruction
to the jury as a matter of law. Questions of law are reviewable de
novo. In re Greens of Pine Glen, 356 N.C. 642, 647, 576 S.E.2d
316, 319 (2003). We do not find Marsh's failure to more formally
object to be fatal where the verdict returned after re-instruction
is not allowed under applicable law. The trial court erred in
entering judgment upon a verdict where the amount of contribution
was mandated by the UCATA and not within the jury's discretion.
This assignment of error is allowed.
VII. Failure to Instruct on Negligence
 Marsh assigns error to the trial court's failure to
instruct on the duty of an insurer to monitor the business of its
insured. The trial court submitted the issue of Hartford's
negligence to the jury, but did not instruct on any specific duty
of an insurer. The jury found that Marsh was an agent of Hartford
and Hartford was liable for JP's injury as a principal. We found
no error in the trial and the jury's verdict in this respect. We
do not address this assignment of error.
VIII. Admission of Evidence of Marsh's Negligence
 Marsh argues that the trial court erred in allowing
Hartford's trial counsel to question JP's representative about the
failings of Marsh after Marsh had already admitted its negligence.
While the relevancy of this evidence to the issues at trial may be
questionable, it does not rise to the level of prejudicial error.
Marsh has failed to show that but for this error, the jury's
verdict would have changed. This assignment of error is overruled.
IX. Denial of JP's Motion for Summary Judgment
 Marsh, as assignee of JP's claims, contends that the trial
court erred in granting summary judgment for Hartford on JP's
contract and declaratory judgment claims. We disagree.
Express language in the bond requires that if the insured
merges with another entity, the insured
shall not have such coverage as is afforded
under this bond for loss which (a) has
occurred in or will occur in offices or
premises, or (b) has been caused or will be
caused by an employee or employees of such
institution, or (c) has arisen or will arise
out of the assets or liabilities acquired by
the Insured as a result of such consolidation
. . . or acquisition of assets or liabilities
unless the Insured shall
(I) give the Underwriter written notice of
the proposed consolidation, merger or purchase
or acquisition of assets or liabilities prior
to the proposed effective date of such action
(ii) obtain the written consent of the
Underwriter to extend the coverage provided by
this bond to such additional offices or
premises, Employees and other exposures, or
(iii) upon obtaining such consent, pay to
the Underwriter an additional premium.
Marsh contends that the merger clause only applies to certain
insuring agreements and does not apply to riders for general agents
and soliciting agents. All specific riders amend and attach to the
original fidelity bond and become incorporated into the original
bond. The original bond required notice to be provided of the
merger and consent to be given by Hartford in order to extend
insurance coverage to the agents of the acquired entity. Neither
requirement occurred before the merger was completed. This
assignment of error is overruled.
We are mindful of the anomalous result of these appeals. This
result is mandated by the application of the plain language of the
UCATA and the precedent set forth in Yates.
We are concerned with
a party being forced to make contribution to a settlement agreement
where that party did not have a voice in the settlement amount.
Hartford has no direct liability to JP or, through its
assignment, to Marsh. The jury found Hartford's liability to be
solely derivative of Marsh's negligence. The amount of Hartford's
contribution is set by precedent and statute. Summary judgment in
favor of Hartford on the bond is affirmed. We find no error in the
trial. The damage award is vacated and remanded to the trial court
with instructions to enter judgment for Marsh in the amount of
$725,000 as is statutorily required by N.C. Gen. Stat. § 1B-1(b).
As we found error in the trial court's entry of judgment,
Marsh's consolidated appeal from the denial of its motion to alter
or amend the judgment or in the alternative, for a judgment
notwithstanding the verdict, or a new trial is dismissed as moot.
Both parties are to equally share the costs of the appeals and are
solely responsible for any other costs or fees.
No error in trial; Judgment vacated and remanded with
Judges McGEE and CALABRIA concur.
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