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DONALD NELSON and DINAH NELSON, Plaintiffs, v. HARTFORD
UNDERWRITERS INSURANCE COMPANY, SHARPE HOME CONCEPTS, INC. and
ARS MERGER INC., Defendants
Filed: 6 June 2006
1. Appeal and Error_-preservation of issues--assignments of error--sufficiency
The trial court did not err in a breach of insurance contract and violation of Unfair Claims
Settlement Practices statute case by concluding that plaintiffs' assignments of error do not violate
N.C. R. App. P. 10(c)(1), because: (1) the assignment of error with respect to the order granting
summary judgment is sufficient when the appellate rules do not require a party against whom
summary judgment has been entered to place exceptions and assignments of error in the record
on appeal since the notice of appeal adequately notifies the opposing party and the appellate court
of the limited issues to be reviewed; and (2) although the assignment of error regarding the trial
court's granting in part defendant's motion to dismiss plaintiffs' claim is deficient, its deficiency
does not prevent a review of the factual and legal conclusions made by the October 2004 order
since the assignment of error regarding the summary judgment order is valid and requires a
review of the factual and legal conclusions made in the motion to dismiss.
2. Appeal and Error_-preservation of issues--appellate rules violations_-no details in
The Court of Appeals invoked Rule 2 to address the merits of plaintiffs' appeal in a
breach of insurance contract and violation of Unfair Claims Settlement Practices statute case
despite an index filled with numerous violations of N.C. R. App. P. 9(a)(1)(a), because
defendant, who thoroughly responded to plaintiffs' arguments on appeal, was put on sufficient
notice of the issues on appeal.
3. Insurance--homeowners_-breach of insurance contract claim_-mold--date of defect
The trial court did not err by granting summary judgment in favor of defendant insurance
company on plaintiffs' claim for breach of a homeowners insurance contract based on a denial of
coverage for a mold claim, because: (1) even in situations where damage continues over time, if
the court can determine when the defect occurred from which all subsequent damages flow, the
court must use the date of the defect and trigger the coverage applicable on that date; (2) the
dates for the three causes of the mold occurred prior to the start of the coverage period of the
pertinent insurance policy; and (3) although the harm suffered by plaintiffs in the form of mold in
their home may have been discovered and continued during the policy period of defendant's
policy, the manifestation of the harm is not the trigger date.
4. Insurance_unfair claims settlement practices_-denial of insurance coverage for
mold in home--proximate cause of injury
The trial court did not err by concluding that defendant insurance company did not
commit unfair and deceptive claim settlement practices with regard to their homeowners
insurance claim even though plaintiffs contend defendant's actions prevented them from gaining
full knowledge of the extent of the mold in their home, slowed their remediation, and precluded
them from asserting a claim against their previous insurer, because: (1) defendant's denial of
coverage letter did not misrepresent its insurance policy; (2) the October 2001 letter provided a
reasonable explanation for defendant's denial of the claim on its mold and faulty workmanshipexceptions, and the omission of a third ground for denial does not make the explanation
unreasonable; (3) plaintiffs cannot show an unfair or deceptive trade practice concerning
adoption and implementation of reasonable standards without providing evidence; (4) having a
local engineering firm conduct an investigation and produce a report was neither unscrupulous
nor unethical, and did not deceive plaintiffs as to whether mold was present in the home; (5)
defendant's reinvestigation of plaintiffs' earlier mold claim was neither unfair nor deceptive, and
the reinvestigation was made within a reasonable time; (6) plaintiffs cannot show how any of
defendant's actions were the proximate cause of their injury from mold contamination; (7) even
if defendant's actions slowed the remediation, those actions slowed only the response to the
injury and did not cause the injury itself; and (8) plaintiffs' contention that defendant's actions
precluded them from bringing a claim against their previous insurer is not persuasive when
defendant bore no duty to instruct plaintiffs regarding whom to sue and when. N.C.G.S. § 58-63-
Appeal by plaintiffs from judgment entered 14 March 2005 by
Judge Giles R. Clark in Durham County Superior Court. Heard in the
Court of Appeals 10 April 2005.
Everett, Gaskins, Hancock & Stevens, LLP, by E.D.
Gaskins, Jr., Ashley Matlock, and Michael J. Tadych, for
Womble Carlyle Sandridge & Rice, PLLC, by Douglas W. Hanna,
MARTIN, Chief Judge.
Plaintiffs, Donald and Dinah Nelson, brought this action
against their homeowner's insurance carrier, Hartford Underwriters
Insurance Company (Hartford)
, alleging claims for breach of an
insurance contract and a violation of the Unfair Claims Settlement
statute. Hartford answered, denying the allegations of
the complaint, and moved to dismiss. The motion to dismiss was
granted in part and denied in part. Hartford subsequently moved
for summary judgment as to Hartford's remaining claims. Evidence before the trial court showed that plaintiffs
purchased a new home in September 1996. By October 1996,
plaintiffs noticed an unusual odor in the house, and by March 1997,
they could smell a musty odor in the master bedroom and bathroom
which they now know to be mold.
Plaintiffs and Hartford agree the mold in the house had three
causes. First, an oversized heating, ventilating, and air
conditioning (HVAC) system was installed in the home during its
construction, which failed to remove all of the humidity from the
air. Second, in June 1997, plaintiffs noticed the water supply
line to their Jacuzzi had a leak. The leak was caused by the
homebuilder's plumbing subcontractor, who, while in the process of
fixing a mistake in the hot- and cold-water lines, created a leak
allowing water to seep from the water connection and wetting the
floor and wall between the Jacuzzi and the master and guest
bedrooms. The plumbing contractor did not replace the water
damaged materials, and did not apply any chemical treatment to the
wet area. Third, in late 1998 or early 1999, plaintiffs found wet
carpet in their guest bedroom, which was located adjacent to the
master bathroom. The plumbing subcontractor found a nail
penetrating the shower boot in the master bathroom, allowing water
to leak out of the shower stall. The shower boot and a small area
of carpet pad were replaced, but the wet carpet, subflooring, and
wall between the rooms were not replaced.
Plaintiffs terminated their insurance policy with their
previous insurer in early 1999, and Hartford issued its firstinsurance policy to plaintiffs on 14 May 1999. The policy ran from
14 May 1999 to 14 May 2000, and for another 12-month period upon
each renewal. The policy covered losses that occurred during the
policy period and not otherwise excluded:
SECTIONS I AND II _ CONDITIONS
1. Policy Period. This policy applies only to loss in
Section I . . ., which occurs during the policy period.
The policy contained an exclusion for mold:
SECTION I _ PERILS INSURED AGAINST
. . . We do not, however, insure for loss:
. . .
2. Caused by:
. . .
e. Any of the following:
. . .
(3) Smog, rust or other corrosion, mold, wet
or dry rot[.]
The policy also contained an exclusion for faulty workmanship:
SECTION I _ EXCLUSIONS
. . .
2. We do not insure for loss to property described in
Coverages A and B caused by any of the following.
. . .
c. Faulty, inadequate or defective:
. . .
(2) Design, specifications, workmanship, repair,
construction, renovation, remodeling, grading,
Plaintiffs called Hartford and made a mold claim on either
13 June 2001 or 13 September 2001. Although the date of the claim
is disputed by the parties, with Hartford providing electronic
records in support of the later date, the date is not material. A
Hartford adjuster interviewed the plaintiffs on 18 September 2001,
and then Hartford had a local engineering firm, Marshall Miller &Associates (MMA), inspect the Nelsons' home. MMA spoke to Dinah
Nelson, and inspected the home for mold. Plaintiffs did not
mention to MMA the water leaks from the shower and Jacuzzi. MMA
produced a report, finding evidence of mold on the carpeting,
curtains, and floor materials in the vicinity of the HVAC vents.
The report concluded the mold conditions were associated with the
operation of the ventilation system and were not associated with
some other event. According to the report, the home had an
oversized HVAC system which might short-cycle, causing the house
to cool down very quickly and preventing it from extracting
sufficient moisture out of the air during the cooling system.
After receiving the MMA report, Hartford denied coverage of
the mold claim. In a letter dated 12 October 2001, defendant cited
the mold exception and the faulty workmanship exception as the
reasons for denial. The letter also expressly reserved Hartford's
right to assert other rights or defenses to the claim.
Plaintiffs had the HVAC unit replaced in March 2002, but the
mold around the HVAC vents did not immediately diminish. Also in
March 2002, plaintiffs made a second claim to Hartford regarding
the mold. In making this claim, Dinah Nelson called Hartford and
asked whether the water leaks, which she had not previously
mentioned to Hartford, could possibly change Hartford's denial of
their first claim.
On 16 May 2002, the insurance carrier for the home's general
contractor produced a report confirming the presence of mold in the
home. The report found several types of mold, and the insurancecarrier called plaintiffs and suggested they move out of the house.
In late May, plaintiffs moved out.
Hartford sent MMA to conduct a second inspection of
plaintiffs' home on 15 May 2002. This inspection was more
extensive than the fall 2001 inspection, and included removing
carpet and examining the subflooring to look for water damage. MMA
produced a report on 17 July 2002, finding mold in the house and
concluding that the shower leak and its subsequent repair was the
likely cause of the mold, which was then circulated in the house by
the HVAC system. Hartford received the report and began its review
to determine whether its insurance policy covered the mold claim.
On 5 August 2002, Hartford received a letter from the Nelsons'
legal counsel directing Hartford to have no further contact with
plaintiffs. Plaintiffs filed suit on 6 September 2002 against
several defendants, including the general contractor, several
subcontractors, and Hartford. Hartford moved to dismiss, which the
trial court granted, in part, on 11 October 2004, as to all claims
for breach of contract in which the event or occurrence that gave
rise to the claim predates the issuance of the Policy on May 14,
1999. The trial court also granted the motion, in part, as to all
claims for breach of contract excluded by the faulty workmanship
exclusion in the contract.
Hartford's motion for summary judgment as to plaintiffs'
remaining claims was granted. Plaintiffs settled their claims with
the other defendants, and now appeal the grant of summary judgment
I. Motion to dismiss the appeal
 Hartford has moved to dismiss the appeal, asserting that
plaintiffs' assignments of error violate North Carolina Rule of
Appellate Procedure 10(c)(1) because they fail to state plainly
. . . the legal basis upon which error is assigned. Plaintiffs'
assignments of error in the record are:
1. The Durham County Superior Court's Order Granting in
Part Defendant Hartford's Motion to Dismiss, dated
October 11, 2004, and filed on October 14, 2004.
2. The Durham County Superior Court's Order Granting
Defendant Hartford's Motion for Summary Judgment, dated
March 7, 2005, and filed March 14, 2005.
Defendant contends these assignments of error fail to raise factual
or legal issues for appeal, and therefore fail to give notice to
defendant and prejudice the case on appeal.
We note that a recent opinion of this Court may appear to
state a new rule regarding the sufficiency of an assignment of
error to an order of summary judgment. In Hubert Jet Air, LLC v.
Triad Aviation, Inc., 177 N.C. App. 445, ___ S.E.2d ___ (2006), the
panel dismissed a plaintiff's appeal from an order granting partial
summary judgment because it deemed the assignment of error to be
insufficient. The assignment of error stated: The trial court's
partial granting of the Defendants' Motion for Summary Judgment as
to Counts 3 through 8. According to the panel, such an assignment
of error does not comply with Rule 10 of the North Carolina Rules
of Appellate Procedure. A contrary rule, however, is well-established by the
precedents of this Court and our Supreme Court. More than twenty
years ago, this Court held in Vernon, Vernon, Wooten, Brown &
Andrews, P.A. v. Miller, 73 N.C. App. 295, 326 S.E.2d 316 (1985):
We observe first that defendant did not set out, in the
record on appeal, any exceptions or specific assignments
of error as required by Rule 10(a) of the Rules of
Appellate Procedure. We conclude, however, that none is
required where, as here, the sole question presented in
defendant's brief is whether the trial court erred in
granting summary judgment in favor of the plaintiff. The
appeal from the judgment is itself an exception thereto.
Id. at 297, 326 S.E.2d at 319 (citing West v. Slick, 60 N.C. App.
345, 299 S.E.2d 657 (1983)). Recently, this Court stated:
An appeal from an order granting summary judgment raises
only the issues of whether, on the face of the record,
there is any genuine issue of material fact, and whether
the prevailing party is entitled to a judgment as a
matter of law. Therefore, the notice of appeal suffices
as an assignment of error directed to the order of
Smith-Price v. Charter Behavioral Health Sys., 164 N.C. App. 349,
353, 595 S.E.2d 778, 782 (2004) (citing Ellis v. Williams, 319 N.C.
413, 415, 355 S.E.2d 479, 481 (1987) and Vernon, Vernon, Wooten,
Brown & Andrews, P.A. v. Miller, 73 N.C. App. 295, 297, 326 S.E.2d
316, 319 (1985)); see also Groves v. Cmty. Hous. Corp., 144 N.C.
App. 79, 83, 548 S.E.2d 535, 538 (2001) (The plaintiff does not
set forth any assignments of error in the record on appeal;
however, such assignments are not required where the question
presented is whether summary judgment was properly granted.);
Robinson, Bradshaw & Hinson, P.A. v. Smith, 129 N.C. App. 305, 319,
498 S.E.2d 841, 851_52 (1998) (However, the appellate rules do not
require a party against whom summary judgment has been entered toplace exceptions and assignments of error into the record on
appeal. On appeal, without exceptions and assignments of error,
the notice of appeal to a summary judgment is necessarily limited
to whether the trial court's conclusions were correct ones. Thus,
notice of appeal adequately notifies the opposing party and the
appellate court of the limited issues to be reviewed.) (citations
Our Supreme Court also has definitively addressed this issue.
In Ellis v. Williams, 319 N.C. 413, 355 S.E.2d 479 (1987), the
Supreme Court reversed the Court of Appeals when it dismissed an
appeal because the appellant had failed to list any exceptions or
assignments of error to a summary judgment order. The Supreme
The purpose of summary judgment is to eliminate
formal trial when the only questions involved are
questions of law. Thus, although the enumeration of
findings of fact and conclusions of law is technically
unnecessary and generally inadvisable in summary judgment
cases, summary judgment, by definition, is always based
on two underlying questions of law: (1) whether there is
a genuine issue of material fact and (2) whether the
moving party is entitled to judgment. On appeal, review
of summary judgment is necessarily limited to whether the
trial court's conclusions as to these questions of law
were correct ones. It would appear, then, that notice of
appeal adequately apprises the opposing party and the
appellate court of the limited issues to be reviewed.
Exceptions and assignments of error add nothing.
This result does not run afoul of the expressed
purpose of Rule 10(a). Exceptions and assignments of
error are required in most instances because they aid in
sifting through the trial court record and fixing the
potential scope of appellate review. We note that the
appellate court must carefully examine the entire record
in reviewing a grant of summary judgment. Because this
is so, no preliminary "sifting" of the type contemplated
by the rule need be performed. Also, as previously
observed, the potential scope of review is already fixed;it is limited to the two questions of law automatically
raised by summary judgment. Under these circumstances,
exceptions and assignments of error serve no useful
purpose. Were we to hold otherwise, plaintiffs would be
required to submit assignments of error which merely
restate the obvious; for example, The trial court erred
in concluding that no genuine issue of material fact
existed and that defendants were entitled to summary
judgment in their favor. At best, this is a superfluous
Id. at 415_416, 355 S.E.2d at 481 (citations omitted). The Supreme
Court reversed the Court of Appeals and remanded for the court to
review the case on its merits. Id. at 417, 355 S.E.2d at 482.
This Court is required to follow the decisions of our Supreme
Court, as well as our prior precedents. Although the Supreme
Court's recent decision in Viar v. N.C. DOT, 359 N.C. 400, 610
S.E.2d 360 (2005), reh'g denied, 359 N.C. 643, 617 S.E.2d 662
(2005), directed this Court not to create an appeal for the
appellant, and to ensure an appellee has notice of the basis upon
which an appellate court might rule, we think the reasoning of Viar
and Ellis are compatible. In any case, Viar does not address the
issue of assignments of error and summary judgment, and does not
overrule Ellis. Accordingly, we follow Ellis and the precedents of
this Court, and determine that plaintiffs' assignment of error with
respect to the order granting summary judgment is sufficient. We
therefore deny Hartford's motion to dismiss the assignment of
Plaintiffs' assignment of error regarding the trial court's
granting in part Hartford's motion to dismiss plaintiffs' claim,
however, is deficient. In Wetchin v. Ocean Side Corp., 167 N.C.
App. 756, 758_59, 606 S.E.2d 407, 409 (2005), the trial court hadgranted defendant's motion to dismiss and plaintiffs appealed.
Plaintiffs' assignment of error read: The ruling of the trial
court in its Order of Dismissal entered on May 13, 2003. This
Plaintiffs' assignment of error fails to state the legal
basis upon which error is assigned and is not confined to
a single issue of law. Rather, the assignment is a
broadside attack on the trial court's order, not
specifying which of the court's three rulings was
erroneous. . . . It is an improper assignment of error.
Id. at 759, 606 S.E.2d at 409.
Here, although plaintiffs' assignment of error concerning the
motion to dismiss is deficient, its deficiency nevertheless does
not prevent our review of the factual and legal conclusions made by
the October 2004 order. The May 2005 summary judgment order was
necessarily predicated, in part, on the factual and legal
conclusions reached by the October 2004 order. Therefore, the
summary judgment order is premised upon, and encompasses, the
preceding motion to dismiss. When reviewing the summary judgment
order to determine whether there were genuine issues of material
fact, and whether defendant was entitled to judgment as a matter of
law, we cannot refrain from reviewing the factual and legal
conclusions made in the motion to dismiss.
Because the assignment of error regarding the summary judgment
order is valid, it suffices to allow our review of the factual and
legal issues decided in the motion to dismiss.
[O]ne assignment of error and argument would have
sufficed because the three rulings involved essentially
the same question of law. . . . As Rules 10(c) and
28(b), N.C. Rules of Appellate Procedure, clearly
indicate one assignment of error is enough to raise onequestion of law even when it questions the correctness of
many rulings by the trial court . . . .
Pate v. Thomas, 89 N.C. App. 312, 314, 365 S.E.2d 704, 705 (1988).
Here, the motion to dismiss and summary judgment orders both
concern the scope of the insurance contract, and therefore involve
essentially the same question of law. Accordingly, the assignment
of error to the summary judgment order serves to raise the issues
of material fact and questions of law decided by the October 2004
order granting, in part, Hartford's motion to dismiss.
II. Appellate Rule 9(a)(1)(a)
 Our review in this case is made more difficult because the
index of the record is sparsely detailed and includes errors in
pagination. Rule 9(a)(1)(a) of the North Carolina Rules of
Appellate Procedure requires the record on appeal in civil actions
to contain an index of the contents of the record. The index here
stretches hundreds of pages without detailing the contents of the
record. For example, from pages 6 to 121, the record contains
plaintiffs' third amended complaint and accompanying exhibits, with
no index delineating page numbers for the various exhibits. From
pages 139 to 534, the record includes Hartford's exhibits to its
brief in support of summary judgment, a span of nearly 400 pages
without any detail in the index of where one exhibit ends and
another starts. Similarly, from pages 535 to 731 the record
includes plaintiffs' exhibits to their brief opposing summary
judgment, and from pages 732 to 825 the record includes Hartford's
exhibits to its reply brief, a combined stretch of nearly 300 pages
without any more specific delineation. An index without sufficientdetail ceases to be an index. When approximately 800 pages of the
record have essentially no detail in the index, the practical
effect is to have no index.
Other mistakes mar the record itself. Between pages 726 and
727 in the record, and again between pages 727 and 728, at least
two pages are missing from defendant's answers to plaintiffs'
interrogatories. Similarly, at pages 820 and 821, a page is
missing from the plaintiffs' answers to defendant's
interrogatories. Elsewhere, the record itself is mispaginated.
For example, pages 315_16, 317_18, 319_20, and 321_24 have reversed
the order of pages in transcripts of depositions, so that a reader
must read backwards through the pages.
We find these errors in violation of Appellate
Rule 9(a)(1)(a). Our Supreme Court has held [t]he North Carolina
Rules of Appellate Procedure are mandatory and 'failure to follow
these rules will subject an appeal to dismissal.' Viar, 359 N.C.
at 401, 610 S.E.2d at 360 (quoting Steingress v. Steingress, 350
N.C. 64, 65, 511 S.E.2d 298, 299 (1999)). Despite the faulty
index, however, we can determine the issues on appeal, and note
that Hartford, which thoroughly responded to plaintiffs' arguments
on appeal, was put on sufficient notice of the issues on appeal.
Youse v. Duke Energy Corp., 171 N.C. App. 187, 192, 614 S.E.2d 396,
400 (2005). The violation of Appellate Rule 9(a)(1)(a) is not
substantive nor egregious enough to warrant dismissal of
plaintiffs' appeal. Coley v. State, ___ N.C. App. ___, 620 S.E.2d
25, 27 (2005). We therefore invoke [Appellate] Rule 2 and addressthe merits of plaintiffs' appeal. Id. (considering Viar and
concluding [t]he decision by this Court not to dismiss the present
case for minor rules violations does not lead us to 'create an
appeal for an appellant' or to examine any issues not raised by the
appellant); see also Youse, 171 N.C. App. at 192, 614 S.E.2d at
400 (Since plaintiff's Rules violations are not 'so egregious as
to invoke dismissal,' . . . we elect to review the significant
issues of this appeal pursuant to N.C.R. App. P. 2.) (citation
III. Breach of contract
 We review de novo a trial court's grant of both a motion
to dismiss and of summary judgment. Leary v. N.C. Forest Prods.,
Inc., 157 N.C. App. 396, 400, 580 S.E.2d 1, 4 (2003), aff'd, 357
N.C. 567, 597 S.E.2d 673 (2003); Stafford v. County of Bladen, 163
N.C. App. 149, 151, 592 S.E.2d 711, 713 (2004), disc. review
denied, 358 N.C. 545, 599 S.E.2d 409 (2004).
For a breach of contract claim, a plaintiff must show a valid
contract existed, and a breach of its terms. Jackson v. Carolina
Hardwood Co., 120 N.C. App. 870, 871, 463 S.E.2d 571, 572 (1995).
Here, the parties do not dispute the validity of the contract, but
only whether the contract was breached.
When examining whether an insurance policy is breached, we
begin with the well-settled principle that an insurance policy is
a contract and its provisions govern the rights and duties of the
parties thereto. Fid. Bankers Life Ins. Co. v. Dortch, 318 N.C.
378, 380, 348 S.E.2d 794, 796 (1986) (citing Harrelson v. StateFarm Mut. Auto. Ins. Co., 272 N.C. 603, 609, 158 S.E.2d 812, 817
(1968)). The insured party has the burden of bringing itself
within the insuring language of the policy. Hobson Constr. Co.,
Inc. v. Great Am. Ins. Co., 71 N.C. App. 586, 590, 322 S.E.2d 632,
635 (1984) (citing Nationwide Mut. Fire Ins. Co. v. Allen, 68 N.C.
App. 184, 188, 314 S.E.2d 552, 554 (1984)), disc. review denied,
313 N.C. 329, 327 S.E.2d 890 (1985). To determine whether coverage
exists, we compare the complaint with the policy to see if the
allegations describe facts which appear to fall within the
insurance coverage. Prod. Sys., Inc. v. Amerisure Ins. Co., 167
N.C. App. 601, 605, 605 S.E.2d 663, 665 (2004), disc. review
denied, 359 N.C. 322, 611 S.E.2d 416 (2005). Once it has been
determined that the insuring language embraces the particular claim
or injury, the burden then shifts to the insurer to prove that a
policy exclusion excepts the particular injury from coverage.
Hobson, 71 N.C. App. at 590, 322 S.E.2d at 635.
Plaintiffs argue defendant breached its insurance contract
with them when defendant denied coverage for their mold claim.
Defendant responds by contending the events that caused plaintiffs'
loss occurred between 1996 and early 1999, before defendant issued
its insurance policy in May 1999, and therefore the policy does not
cover plaintiffs' loss.
In Gaston County Dyeing Machine Co. v. Northfield Insurance
Co., 351 N.C. 293, 303, 524 S.E.2d 558, 564 (2000), our Supreme
Court held, where the date of the injury-in-fact can be known with
certainty, the insurance policy or policies on the risk on thatdate are triggered. Instead of examining when the harm
manifested, we look to the cause of the property damage rather
than to the effect. Id. at 303, 524 S.E.2d at 565 (emphasis
added). The Supreme Court specifically overruled a previous Court
of Appeals decision which held that for insurance purposes,
property damage 'occurs' when it is manifested or discovered. Id.
Following Gaston County, this Court held that if we can
determine when the injury-in-fact occurred, the insurance policy
available at the time of the injury controls. Hutchinson v.
Nationwide Mut. Fire Ins. Co., 163 N.C. App. 601, 604, 594 S.E.2d
61, 63 (2004). Accordingly, even in situations where damage
continues over time, if the court can determine when the defect
occurred from which all subsequent damages flow, the court must use
the date of the defect and trigger the coverage applicable on that
date. Id. at 605, 594 S.E.2d at 64; accord Harleysville Mut. Ins.
Co. v. Berkley Ins. Co., 169 N.C. App. 556, 560, 610 S.E.2d 215,
Here, the injury suffered by plaintiffs was from mold
contamination. Plaintiffs testified, and Hartford agrees, the mold
had three causes: (1) an oversized HVAC system, installed when the
house was built in 1996; (2) a leak in the water supply line to
their Jacuzzi, discovered in June 1997; and (3) a leak in the
shower boot in the master bathroom, discovered in late 1998 or
early 1999. The coverage period of the insurance policy issued by
Hartford began in May 1999, and therefore each of these three
defects occurred prior to the start of the coverage period. Although the harm suffered by plaintiffs, in the form of mold in
their home, may have been discovered, and have continued, during
the policy period of defendant's policy, our Supreme Court in
Gaston County specifically disavowed using the manifestation of the
harm as the trigger date. Id. at 303, 524 S.E.2d at 565. Instead,
even though the mold damage continued over time, we can determine
when the defects occurred from which all subsequent damages flowed,
and we must use the dates of these defects and trigger the coverage
applicable on that date. Hutchinson, 163 N.C. App. at 605, 594
S.E.2d at 64. Thus, Hartford's policy was not in effect on the
trigger date of the injuries and therefore was not on the risk at
that point in time. Gaston County, 351 N.C. at 303, 524 S.E.2d at
Accordingly, since the harms suffered by the plaintiffs did
not fall within the policy period of defendant's policy, plaintiffs
have not brought themselves within the insuring language of the
policy. Hobson, 71 N.C. App. at 590, 322 S.E.2d at 635.
Defendant consequently does not bear the burden of proving that a
policy exclusion excepts the particular injury from coverage, id.,
and we need not determine whether the mold or faulty workmanship
exclusions also would bar plaintiffs' mold claim. Because the
injuries causing the mold in plaintiffs' home occurred prior to
commencement of the insurance policy, we hold defendant did not
breach its contract when it denied plaintiffs' mold claim.
Defendant was entitled to judgment as a matter of law, and we
affirm the trial court's grant of summary judgment.
IV. Unfair Claims Settlement Practices
 Trade practices in the insurance business are regulated by
Chapter 58, Article 63 of the North Carolina General Statutes.
N.C. Gen. Stat. § 58-63-1 (2005). Unfair and deceptive trade
practices are prohibited generally, N.C.G.S. § 58-63-10 (2005), and
unfair and deceptive claim settlement practices are prohibited
specifically, N.C.G.S. § 58-63-15(11) (2005).
Plaintiffs claim Hartford committed several unfair and
deceptive claim settlement practices, including: misrepresenting
pertinent facts or insurance policy provisions relating to
coverages at issue, N.C.G.S. § 58-63-15(11)(a); failing to adopt
and implement reasonable standards for the prompt investigation of
claims arising under insurance policies, N.C.G.S.
§ 58-63-15(11)(c); refusing to pay claims without conducting a
reasonable investigation based upon all available information,
N.C.G.S. § 58-63-15(11)(d); failing to affirm or deny coverage of
claims within a reasonable time after proof-of-loss statements have
been completed, N.C.G.S. § 58-63-15(11)(e); and, failing to
promptly provide a reasonable explanation of the basis in the
insurance policy in relation to the facts or applicable law for
denial of a claim or the offer of a compromise settlement, N.C.G.S.
§ 58-63-15(11)(n). Plaintiffs argue that Hartford's actions in
this case prevented them from gaining full knowledge of the extent
of the mold in their home and therefore slowed their remediation,
and also precluded them from asserting a claim against their
previous insurer. Although N.C.G.S. § 58-63-15(11) states no violation of this
subsection shall of itself create any cause of action in favor of
any person, a plaintiff's remedy for violation of the unfair claim
settlement practices statute is the filing of a claim pursuant to
N.C.G.S § 75-1.1, the unfair or deceptive practices statute. Gray
v. N.C. Ins. Underwriting Ass'n
, 352 N.C. 61, 71, 529 S.E.2d 676,
683 (2000) (holding conduct that violates subsection (f) of
N.C.G.S. § 58-63-15(11) constitutes a violation of N.C.G.S.
§ 75-1.1, as a matter of law); Country Club of Johnston County,
Inc. v. U.S. Fid. & Guar. Co.
, 150 N.C. App. 231, 246, 563 S.E.2d
269, 279 (2002) (It follows that the other prohibited acts listed
in N.C. Gen. Stat. § 58-63-15(11) are also acts which are unfair,
unscrupulous, and injurious to consumers, and that such acts
therefore fall within the 'broader standards' of N.C. Gen. Stat.
§ 75-1.1.). [T
remedy for a violation of section 58-63-15 is
the filing of a section 75-1.1 claim. Country Club of Johnston
, 150 N.C. App. at 244, 563 S.E.2d at 278 (emphasis in
original) (quoting Lee v. Mut. Cmty. Sav. Bank,
136 N.C. App. 808,
811 n.2, 525 S.E.2d 854, 857 n.2 (2000)). Plaintiffs pursuing an
unfair claim settlement practices violation under N.C.G.S. § 75-1.1
need only show a single violation affecting them, and do not need
to make an additional showing of a defendant's frequency of
violations indicating a general business practice. Gray
, 352 N.C.
at 71, 529 S.E.2d at 683.
Causes of action for unfair or deceptive practices are
distinct from breach of contract actions. Boyd v. Drum
, 129 N.C.App. 586, 593, 501 S.E.2d 91, 97 (1998), aff'd per curiam
, 350 N.C.
90, 511 S.E.2d 304 (1999). An action for unfair or deceptive
practices is a creation of statute, and therefore sui generis
the cause of action exists independently, regardless of whether a
contract was breached. Bernard v. Cent. Carolina Truck Sales,
, 68 N.C. App. 228, 230, 314 S.E.2d 582, 584 (1984), disc.
, 311 N.C. 751, 321 S.E.2d 126_27 (1984). Thus, even
if an insurance company rightly denies an insured's claim, and
therefore does not breach its contract, as here, the insurance
company nevertheless must employ good business practices which are
neither unfair nor deceptive.
To establish a violation of N.C.G.S. § 75-1.1, plaintiffs
must show: (1) an unfair or deceptive act or practice, (2) in or
affecting commerce, and (3) which proximately caused injury to
, 352 N.C. at 68, 529 S.E.2d at 681 (citing N.C.
Gen. Stat. § 75-1.1 and First Atl. Mgmt. Co. v. Dunlea Realty Co.
131 N.C. App. 242, 252, 507 S.E.2d 56, 63 (1998)).
element, that the act or practice be in or affecting commerce, is
not at issue in this case.
A practice is unfair if it is unethical or unscrupulous.
Dalton v. Camp
, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001); see
also Marshall v. Miller
, 302 N.C. 539, 548, 276 S.E.2d 397, 403
(1981) (A practice is unfair when it offends established public
policy as well as when the practice is immoral, unethical,
oppressive, unscrupulous, or substantially injurious to
consumers.). A practice is deceptive if it has a tendency todeceive, Dalton
, 353 N.C. at 656, 548 S.E.2d at 711, but proof of
actual deception is not required, Marshall
, 302 N.C. at 548, 276
S.E.2d at 403. The question of what constitutes an unfair or
deceptive trade practice is an issue of law. Eastover Ridge,
L.L.C. v. Metric Constructors, Inc.
, 139 N.C. App. 360, 363, 533
S.E.2d 827, 830 (2000), disc. review denied
, 353 N.C. 262, 546
S.E.2d 93 (2000). If the material facts are not disputed, the
court should determine whether the defendant's conduct constituted
an unfair or deceptive trade practice. Id.
Plaintiffs first argue, under N.C.G.S. § 58-63-15(11)(a), that
Hartford misrepresented pertinent facts or insurance policy
provisions relating to coverages at issue. Specifically,
plaintiffs contend Hartford denied coverage of the mold claim only
under Section I, Coverages A and B of the policy, and failed to
address liability under Section I, Coverages C and D. Plaintiffs
also contend Hartford did not state in its denial letter that it
based its denial on the fact that the events giving rise to the
mold contamination occurred before the effective date of the
policy. For these reasons, plaintiffs argue Hartford
misrepresented the insurance policy provisions relating to
Hartford's October 2001 letter denying coverage of plaintiffs'
mold claim focused on Coverages A and B of the policy. In
pertinent part, the letter stated:
Please refer to your Homeowner's policy under Section 1
_ Perils Insured Against, which states:
We insure against risk of direct loss to property
described in Coverages A and B only if that loss is
a physical loss to property. We do not, however,
insure for loss:
2. Caused by:
e. Any of the following:
(3) Smog, rust or other corrosion, mold, wet
or dry rot;
The policy goes on to state under Section 1 _ Exclusions:
2. We do not insure for loss to property described
in Coverages A and B caused by any of the
following. However, any ensuing loss to property
described in Coverages A and B not excluded or
excepted in this policy is covered.
c. Faulty, inadequate, or defective:
(2) Design, specifications, workmanship,
repair, construction, renovation, remodeling,
As a result, we will be therefore, be unable [sic
honor your claim. We expressly reserve our right to
assert all other rights or defenses that we may have to
this claim even though not enumerated above. We are
neither waiving nor relinquishing any of our rights under
the policy of insurance.
This denial of coverage letter did not misrepresent Hartford's
insurance policy. Coverage C under Section I of the insurance
policy concerns claims submitted for damage of personal property,
but it requires a peril that triggers such coverage, such as an
explosion, theft, volcanic eruption, aircraft crash, or windstorm.
Mold was not listed as a peril, and thus Coverage C was not
applicable. Coverage D concerns loss of use of the home. At the
time plaintiffs made the claim, and at the time Hartford denied the
claim, plaintiffs resided in the home and had not made a claim for
loss of use. Thus, Coverage D was not applicable. Finally,
Hartford made no misrepresentation of its policy when the denial
letter did not mention denial based upon events occurring beforethe effective date of the policy. Hartford's letter expressly
reserved the right to assert other rights or defenses it had to the
claim. The October 2001 denial letter was not unethical or
unscrupulous, nor did it have the tendency to deceive plaintiffs,
and therefore it was neither unfair nor deceptive.
Second, similar to their claim under N.C.G.S.
§ 58-63-15(11)(a), plaintiffs contend Hartford failed to provide a
reasonable explanation of the basis in the policy for denial of the
claim pursuant to N.C.G.S. § 58-63-15(11)(n), because Hartford did
not base its denial on the fact that the events causing the mold
occurred before the effective date of the policy. But Hartford's
denial of the claim on its mold and faulty workmanship exceptions
were reasonable, and the omission of a third ground for denial does
not make the explanation unreasonable. The October 2001 letter
provided a reasonable explanation for the denial of coverage, and
was not unfair or deceptive.
Third, plaintiffs argue Hartford failed to adopt and implement
reasonable standards for the prompt investigation of claims arising
under insurance policies, pursuant to N.C.G.S. § 58-63-15(11)(c).
Plaintiffs produced no evidence regarding Hartford's adoption or
implementation of standards for investigation of claims other than
a two-sentence answer Hartford provided to plaintiffs'
interrogatories: All residential property damage claims are
handled in the same manner. The defendant confirms coverage,
conducts an investigation, evaluates the claim, and takes
appropriate action on the claim. With no further evidenceprovided on this claim, plaintiffs cannot show an unfair or
deceptive trade practice concerning adoption and implementation of
Fourth, plaintiffs argue Hartford failed to conduct a
reasonable investigation based upon all available information,
pursuant to N.C.G.S. § 58-63-15(11)(d). Plaintiffs contend the
investigation of their 2001 claim was unreasonable because it did
not discover the water leaks, and because MMA did not submit the
mold samples for identification of the type of mold present. The
investigation, conducted by MMA on behalf of Hartford, determined
that the mold was caused by an oversized HVAC system. Hartford's
purpose in having MMA perform an investigation, and produce a
report, was to determine whether mold was present in the house, and
if so, whether the policy covered the mold contamination. The
purpose of the report was not, however, to determine all the
possible causes of the mold contamination, or to determine the
types of mold present. Thus, the MMA report served Hartford as a
reasonable investigation of whether mold existed in the home, as
plaintiffs claimed; in deciding whether the policy covered the
mold, the causes and types of mold were irrelevant. Having MMA
conduct an investigation and produce a report was neither
unscrupulous nor unethical, and did not deceive plaintiffs as to
whether mold was present in the home.
Finally, plaintiffs argue Hartford failed to affirm or deny
coverage of the second mold claim within a reasonable time,
pursuant to N.C.G.S. § 58-63-15(11)(e). Plaintiffs resubmittedtheir mold claim in March 2002, making the same claim as in 2001
but adding the information about the water leaks, which they had
neglected to share with MMA in its earlier inspection. Hartford
sent MMA back to the plaintiffs' home for a second inspection, and
received MMA's report on 17 July 2002, again finding mold in the
house. On 5 August 2002, before Hartford had made its
determination of whether the mold claim was covered by the policy,
plaintiffs' counsel sent Hartford a letter directing it to have no
further contact with plaintiffs, and plaintiffs then filed suit on
6 September 2002. Hartford's re-investigation of plaintiffs'
earlier mold claim was neither unfair nor deceptive. The
re-investigation was made within a reasonable time. The report
from the second investigation, more thorough than the first, was
provided to Hartford only a few weeks before Hartford was warned
not to have any contact with plaintiffs, providing little time for
Hartford to determine whether it should cover a claim it had
previously denied. The 2002 investigation was not unethical or
unscrupulous, and had no tendency to deceive plaintiffs, and thus
it was neither unfair nor deceptive.
We conclude that none of the actions taken by Hartford in
investigating and deciding the mold claim violated N.C.G.S.
§ 58-63-15(11)(a), (c), (d), (e), or (n). Therefore, we conclude
that plaintiffs have shown no unfair or deceptive practices on the
part of Hartford which would support a claim under N.C.G.S.
§ 75-1.1. Plaintiffs also cannot show how any of the actions taken by
Hartford were the proximate cause of their injury from mold
contamination. North Carolina case law defines proximate cause as
a cause which in natural and continuous sequence, unbroken by any
new and independent cause, produced the plaintiff's injuries, and
without which the injuries would not have occurred. Lynn v.
, 328 N.C. 689, 696, 403 S.E.2d 469, 473 (1991)
(quoting Adams v. Mills
, 312 N.C. 181, 192, 322 S.E.2d 164, 171
(1984)); accord Loftis v. Little League Baseball, Inc.
, 169 N.C.
App. 219, 222, 609 S.E.2d 481, 484 (2005); see also Black's Law
234 (8th ed. 2004) (proximate cause is a cause that
directly produces an event and without which the event would not
The injury suffered by plaintiffs in this case was the mold
contamination of their home. Both parties agree the mold was
caused by three events: the installation of the oversized HVAC
system, and the two separate water leaks. Those events took place
between 1996 and early 1999, prior to Hartford's appearance on the
scene. Although the injury, in the form of mold contamination,
continued after 1999, the contamination had been ongoing for
several years before Hartford became plaintiffs' insurer, and
continued for another two years before Hartford was even made aware
of the contamination in 2001. Thus, the injury suffered by
plaintiffs had been ongoing for approximately five years before
Hartford took any of the actions which plaintiffs contend
proximately caused them harm. Keeping in mind the ongoing injury from mold contamination,
Hartford's actions are related to the response
by the parties to
the injury. A response to an injury is, by its nature, not the
cause of the injury itself; the injury happens first, and the
response to the injury follows. The response is thus not the cause
of the injury, but rather a reaction to it. Hartford's actions, in
the form of the investigation and denial of plaintiffs' mold claim,
based on the 2001 report from MMA, were reactions to the ongoing
injury suffered by plaintiffs, and not a cause of the injury
itself. Furthermore, plaintiffs suffered no new injury from
Hartford's actions. Instead, plaintiffs' ongoing mold
contamination simply proceeded unabated, as a continuation of the
already-existing injury. Accordingly, we hold that Hartford's
actions in response to the mold contamination were not a proximate
cause of plaintiffs' injury.
Plaintiffs also contend that Hartford's actions harmed them by
slowing their remediation of the home. This argument similarly
fails, however, because remediation is the response to the injury.
Even if Hartford's actions slowed the remediation, those actions
slowed only the response to the injury, and did not cause the
injury itself. A lack of abatement of an injury is not equivalent
to causing the injury itself. In any case, none of Hartford's
actions prevented plaintiffs from eliminating the mold from their
home, regardless of the type of mold. The 2001 report from MMA did
not specify the type of mold present in the house, and if it had,
perhaps plaintiffs would have been more quickly spurred toremediation. But the slower remediation was not the proximate
cause of the mold contamination, which had begun in 1996 and
continued until after plaintiffs filed suit.
Plaintiffs' final contention, that Hartford's actions
precluded them from bringing a claim against their previous
insurer, is not persuasive, because Hartford bore no duty to
instruct plaintiffs regarding whom to sue, and when. In any event,
since plaintiffs did not make this argument to the trial court, we
do not consider it on appeal. N.C.R. App. P. 10(b) (2005).
Because plaintiffs cannot produce evidence to show any genuine
issue of material fact that Hartford proximately caused their
injury from mold contamination, or that Hartford's actions were
unfair or deceptive practices, they cannot sustain two essential
elements of an unfair or deceptive trade practices claim.
Accordingly, Hartford is entitled to summary judgment as a matter
Judges HUDSON and BRYANT concur.
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