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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.
TERRY BOWLES, Employee, Plaintiff, v. BCJ TRUCKING SERVICES,
INC., Employer, N.C. SELECTIVE FUND, RELIANCE NATIONAL INSURANCE
COMPANY (DENNIS INSURANCE GROUP, Servicing Agent), and N.C.
INSURANCE GUARANTY ASSOCIATION, N.C. SELF INSURANCE GUARANTY
ASSOCIATION, Carriers, Defendants, and NORTH CAROLINA DEPARTMENT
OF INSURANCE, Intervenor
Filed: 2 August 2005
1. Appeal and Error--preservation of issues--failure to argue
Defendant Insurance Guaranty Association's (IGA) assignments of error asserting the
Industrial Commission erred in a workers' compensation case by its finding of fact number seven
and its order assessing costs to IGA were not argued and are deemed abandoned pursuant to N.C.
R. App. P. 28(b)(6).
2. Insurance; Workers' Compensation--assumption reinsurance agreement--novation--
insolvent insurer--liability of IGA
Plaintiff's workers' compensation claim was a covered claim under N.C.G.S. § 58-48-
20 for which the Insurance Guaranty Association was responsible where plaintiff was injured in
the course of his employment with BCJ Trucking Services (BCJ) and was awarded temporary
total disability benefits; BCJ's workers' compensation insurer, Selective, experienced financial
difficulties and entered into an assumption
reinsurance agreement with Reliance under which
Selective transferred and Reliance assumed 100 percent of Selective's workers' compensation
liability claims and obligations; Reliance became insolvent and was ordered into liquidation by a
Pennsylvania court; and the Insurance Guaranty Association thereafter assumed payment of
plaintiff's benefits. The assumption reinsurance agreement constituted a novation which did not
create a new contract for insurance coverage but substituted a new party, Reliance, for Selective
as if Reliance had issued the original contract of insurance to BCJ, Reliance is thus a direct
insurer, and the Insurance Guaranty Association is liable for all claims on policies of direct
insurance companies which have been found insolvent. N.C.G.S. § 58-48-35(a)(2).
Appeal by defendant N.C. Insurance Guaranty Association from
opinion and award entered 16 April 2004 and order entered 21 April
2004 by Commissioner Dianne C. Sellers for the North Carolina
Industrial Commission. Heard in the Court of Appeals 9 May 2005.
Janet H. Downing, PA, by Janet H. Downing, for plaintiff-
Charlot F. Wood, for defendant-appellee BCJ Trucking Services,
Johnston, Allison & Hord, P.A., by Patrick E. Kelly, for
defendant-appellee N.C. Selective Fund.
Nelson Mullins Riley & Scarborough, LLP, by Christopher J.
Blake and Joseph W. Eason, for defendant-appellant N.C.
Insurance Guaranty Association.
Stuart Law Firm, PLLC, by Catherine R. Stuart and Charles C.
Kyles, for defendant-appellee N.C. Self Insurance Guaranty
Attorney General Roy Cooper, by Assistant Attorney General E.
Clementine Peterson, for intervenor-appellee.
N.C. Insurance Guaranty Association (IGA) appeals from the
opinion and award entered by the full North Carolina Industrial
Commission (Commission) awarding Terry Bowles (plaintiff)
benefits for an injury he sustained at work. We affirm.
Plaintiff was injured on 3 March 1998 in the course of his
employment with BCJ Trucking Services (BCJ). On 11 April 2001,
plaintiff was awarded ongoing temporary total disability benefits
beginning 6 December 1999 from BCJ's workers' compensation
insurance company, North Carolina Selective (Selective).
Selective was comprised of various employers who pool their
workers' compensation liabilities to create a licensed self-insured
Selective began experiencing financial trouble in early 1997.
On 29 April 1997, the North Carolina Department of Insurance
(NCDOI) informed Selective of its financial concerns and by
letter dated 21 January 1998 informed Selective of its need to
obtain additional capital or a commitment from a commercial
insurance company to reinsure them. Shortly thereafter, NCDOIinformed Selective it would be in the best interest of the public
and Selective's members to transfer its obligations and liabilities
to a commercial insurer.
Selective entered into a NCDOI approved assumption reinsurance
agreement with Reliance National Insurance Company (Reliance)
effective 31 December 1998. Selective transferred and Reliance
assumed 100 percent of Selective's workers' compensation liability
claims and obligations. Reliance began and continued to pay
plaintiff's benefits per the assumption agreement.
Reliance was an active member of IGA, which is a statutorily
created reinsurance association which covers claims of insolvent
insurance companies pursuant to N.C. Gen. Stat. § 58-48-1 et seq.
On 3 October 2001, Reliance became insolvent and was ordered into
liquidation by the Pennsylvania Commonwealth Court. After Reliance
was liquidated, IGA assumed payments of plaintiff's benefits.
IGA commenced this action by filing a Form 33 request with the
Commission to determine its responsibility for paying plaintiff's
claim. The Commission issued an opinion and award holding IGA
responsible for paying plaintiff's workers' compensation claim.
The Commission held: (1) the claim arose when Selective was the
insurance carrier for BCJ; and (2) Reliance had assumed the
insurance contract through novation and IGA was liable for the
claim due to Reliance's insolvency. IGA appeals.
IGA argues the Commission erred by: (1) finding plaintiff's
claim met the definition of a covered claim under N.C. Gen. Stat.§ 58-48-20; and (2) finding plaintiff's claim was within IGA's
obligations by N.C. Gen. Stat. § 58-48 et seq.
III. Abandoned Assignments of Error
 IGA's assignments of error asserting the Commission erred
in its finding of fact number seven and its order assessing costs
to IGA were not argued and are deemed abandoned. Brown v. Kroger
Co., 169 N.C. App. 312, 316, 610 S.E.2d 447, 450 (2005) (Pursuant
to N.C.R. App. P. 28(b)(6) (2004), the omitted assignments of error
are deemed abandoned).
IV. Standard of Review
Opinions and awards of the Commission are reviewed to
determine whether competent evidence exists to support the
Commission's findings of fact, and whether the findings of fact
support the Commission's conclusions of law. Bondurant v. Estes
Express Lines, Inc., 167 N.C. App. 259, 263, 606 S.E.2d 345, 348
(2004) (citing Deese v. Champion Int'l Corp., 352 N.C. 109, 114,
530 S.E.2d 549, 552 (2000)). As IGA failed to take exception to
the Commission's findings of fact, they are binding on appeal.
Creel v. Town of Dover, 126 N.C. App. 547, 552, 486 S.E.2d 478,
480-81 (1997) (citing Mabe v. Granite Corp., 15 N.C. App. 253, 255,
189 S.E.2d 804, 806 (1972)). Our review is limited to a de novo
review of the Commission's conclusions of law. Allen v. Roberts
Elec. Contr'rs, 143 N.C. App. 55, 63, 546 S.E.2d 133, 139 (2001)
(quoting Lewis v. Sonoco Prods. Co., 137 N.C. App. 61, 68, 526
S.E.2d 671, 675 (2000)).
V. Covered Claim
 IGA argues the Commission erred in finding plaintiff's
claim met the definition of a covered claim as defined by N.C.
Gen. Stat. § 58-48-20.
N.C. Gen. Stat. § 58-48-20(4) (2003) defines a covered claim
an unpaid claim, including one of unearned
premiums, which is in excess of fifty dollars
($50.00) and arises out of and is within the
coverage and not in excess of the applicable
limits of an insurance policy to which this
Article applies as issued by an insurer, if
such insurer becomes an insolvent insurer . .
An insolvent insurer is:
(i) an insurer licensed and authorized to
transact insurance in this State either at the
time the policy was issued or when the insured
event occurred and (ii) against whom an order
of liquidation with a finding of insolvency
has been entered after the effective date of
this Article by a court of competent
jurisdiction in the insurer's state of
domicile or of this State under the provisions
of Article 30 of this Chapter, and which order
of liquidation has not been stayed or been the
subject of a writ of supersedeas or other
N.C. Gen. Stat. § 58-48-20(5) (2003).
The Commission concluded IGA's liability for plaintiff's claim
arose when Reliance assumed Selective's obligations and rested its
conclusion on applying the law of novation.
It is well established that
[t]he essential requisites of a novation are
a previous valid obligation, the agreement of
all the parties to the new contract, the
extinguishment of the old contract, and the
validity of the new contract . . . .
Ordinarily . . . in order to constitute anovation the transaction must have been so
intended by the parties.
Anthony Marano Co. v. Jones, 165 N.C. App. 266, 269, 598 S.E.2d
393, 395 (2004) (quoting Tomberlin v. Long, 250 N.C. 640, 644, 109
S.E.2d 365, 368 (1959) (citations omitted)).
Novation may be defined as a substitution of a
new contract or obligation for an old one
which is thereby extinguished . . . [n]ovation
implies the extinguishment of one obligation
by the substitution of another. Where the
question of whether a second contract dealing
with the same subject matter rescinds or
abrogates a prior contract between the parties
depends solely upon the legal effect of the
latter instrument, the question is one of law
for the courts . . . .
Tomberlin, 250 N.C. at 644, 109 S.E.2d at 367-68 (quotations
Here, the Commission found as fact:
[t]he Assumption Reinsurance Agreement
approved by the Commissioner of Insurance that
became effective on December 31, 1998 resulted
in a novation of the original contract for
insurance entered into by the Selective Fund
and BCJ Trucking Services, Inc. Reliance
National Indemnity Company substituted for the
Selective Fund as a party to the original
contract for insurance between the Selective
Fund and BCJ Trucking Services, Inc. No new
contract of insurance was formed as a result
of this novation. No separate negotiations
between Reliance National Indemnity Company
and BCJ Trucking Services, Inc. took place
resulting in a new and separate contract for
insurance between the parties.
The Commission concluded as a matter of law the novation resulted
only in a change of the parties to the original contract, while the
terms and obligations of the original insurance contract remained
unchanged. As noted above, IGA failed to make exceptions to the
Commission's findings of fact and they are binding on appeal.
Creel, 126 N.C. App. at 552, 486 S.E.2d at 480-81 (citation
omitted). The Commission found as fact the assumption reinsurance
agreement was a novation. It held the novation extinguished the
contract between Selective and BCJ and that Reliance expressly
assumed 100 percent of Selective's obligations. Tomberlin, 250
N.C. at 644, 109 S.E.2d at 367-68. The agreement did not create a
new contract for insurance coverage but solely substituted a new
party, Reliance for Selective, to the contract. Through novation,
Reliance is deemed to have replaced Selective as if Reliance had
issued the original contract of insurance to BCJ. Id. The
novation replaced the parties to the contract, did not change the
obligations under the contract for insurance itself, and the
agreement did not operate retroactively to cover known or unknown
Plaintiff's claim for injury occurred after the original
contract for insurance was entered into by BCJ and Selective, now
BCJ and Reliance. Reliance, through novation, became BCJ's
insurance company beginning 1 November 1994 to the time of
plaintiff's claim. Plaintiff's claim is a covered claim within
the coverage of the insurance policy issued by Reliance, a direct
insurer as defined by N.C. Gen. Stat. § 58-48-20. After Reliance
became insolvent and was ordered into liquidation by the
Pennsylvania Commonwealth Court, IGA became liable for all covered
claims issued by an insolvent direct insurer. N.C. Gen. Stat.§ 58-48-20; N.C. Gen. Stat. § 58-48-35(a)(1) (2003). The Commission
correctly concluded plaintiff's claim met the definition of a
covered claim under N.C. Gen. Stat. § 58-48-20 and holding IGA to
be liable for plaintiff's claim. This assignment of error is
VI. Statutory Obligation of IGA
 IGA argues the Commission erred in finding plaintiff's
claim rests within the statutory obligations of IGA under the North
Carolina Insurance Guaranty Association Act. N.C. Gen. Stat. § 58-
48 et seq.
Under N.C. Gen. Stat. § 58-48-20(4), a 'Covered claim' means
an unpaid claim, . . . arises out of and is within the coverage .
. . [of] an insurance policy to which this Article applies as
issued by an insurer, if such insurer becomes an insolvent insurer
. . . . Under N.C. Gen. Stat. § 58-48-20(5), an 'Insolvent
insurer' means (i) an insurer licensed and authorized to transact
insurance in this State either at the time the policy was issued or
when the insured event occurred and (ii) against whom an order of
liquidation with a finding of insolvency has been entered . . . .
Under N.C. Gen. Stat. § 58-48-35(a)(2), IGA stepped into the
shoes of the insurance company found to be insolvent and is deemed
the insurer having all rights, duties, and obligations of the
insolvent insurer as if the insurer had not become insolvent.
Under N.C. Gen. Stat. § 58-48-35, IGA is liable for all claims
on policies of direct insurance companies which have been foundinsolvent. Reliance is a direct insurance company who is deemed to
have issued an insurance policy to BCJ and is an active member of
IGA. Plaintiff's claim is a covered claim in that it arose out
of Reliance's coverage of BCJ. The Pennsylvania Commonwealth Court
found Reliance insolvent and ordered it liquidated. After Reliance
was found to be insolvent, IGA stepped into the shoes of Reliance
and must pay its claims. The Commission properly concluded
plaintiff's claim is within the statutory obligations of IGA. This
assignment of error is overruled.
The original insurance policy between BCJ and Selective became
a direct insurance obligation when Reliance expressly assumed
Selective's book of business. Through novation, Reliance is deemed
to have issued the insurance policy. Reliance is a direct
insurer placing it within the obligations of IGA by N.C. Gen.
Stat. § 58-48-35. Reliance became insolvent triggering the
application of N.C. Gen. Stat. § 58-48-1 et seq
. to IGA.
Plaintiff's claim is a covered claim issued by an insolvent
insurer and became IGA's obligation. The Commission properly
concluded plaintiff's claim is within the statutory obligations of
IGA. The Commission's opinion and award is affirmed.
Chief Judge MARTIN and Judge Levinson concur.
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