Lincoln Medical Center v NC Insurance, (05-231) 02/07/2006

Appeal by plaintiff from order entered 15 November 2004 by Judge Charles C. Lamm, Jr. in Lincoln County Superior Court. Heard in the Court of Appeals 13 October 2005.

Poyner & Spruill LLP, by Randall A. Adams and Gregory S. Camp, for plaintiff-appellant.

Nelson Mullins Riley & Scarborough LLP, by Christopher J. Blake, for defendant-appellee.

    ELMORE, Judge.

     Elizabeth Scott and James Scott (the Scotts) are residents of Lincoln County, North Carolina. The Scotts gave birth to a son on 28 December 2000 at Lincoln Medical Center, who died later that day. The Scotts prepared a complaint and asserted claims of wrongful death, medical malpractice, and negligent infliction of emotional distress against Lincoln Medical Center; Laura Poovey, RN; CA Mitchum, RN; Berniece Redmond, M.D.; and Lincoln Center for Women's Health, P.A. The Scotts did not file the complaint but did serve it upon the various parties.      At the time of the alleged negligence, Dr. Redmond and Lincoln Center for Women's Health were insured under a policy issued by St. Paul Fire and Marine Insurance Company (St. Paul). The St. Paul policy had liability limits of $2,000,000.00. Lincoln Medical Center was insured under a policy issued by PHICO Insurance Company (PHICO). The PHICO policy had liability limits of $1,000,000.00. PHICO was declared insolvent in an order of liquidation entered in Pennsylvania on 1 February 2002. Following the insolvency, the North Carolina Insurance Guaranty Association (the Guaranty Association) assumed responsibility for defending claims against Lincoln Medical Center pursuant to N.C. Gen. Stat. § 58-48-1 et seq.
     In December of 2002, the Guaranty Association became aware that the Scotts were negotiating a settlement with St. Paul of their claims against Dr. Redmond and Lincoln Center for Women's Health. By letters dated 2 August 2002, the Guaranty Association informed counsel for the Scotts and St. Paul that the Scotts were obligated to exhaust their rights against St. Paul prior to seeking a recovery from it. On 20 December 2002 the Scotts settled with St. Paul for the amount of $150,000.00. Lincoln Medical Center then informed the Guaranty Association of settlement negotiations between it and the Scotts. By letter dated 6 January 2003, the Guaranty Association notified Lincoln Medical Center that it was not obligated to pay for any voluntary settlement with the Scotts because the Scotts had not exhausted their available remedies against the solvent insurer, St. Paul. On 22 February 2003 theScotts settled with Lincoln Medical Center for the amount of $250,000.00.
     On 2 February 2004 Lincoln Medical Center (plaintiff) filed the instant action alleging that the Guaranty Association wrongfully refused to reimburse it for the $250,000.00 medical malpractice settlement with the Scotts. The Guaranty Association filed an answer denying that it was obligated to reimburse plaintiff because it is entitled to a dollar-for-dollar offset from its potential statutory obligations up to the liability limits of the policy issued by St. Paul, the solvent insurer. Both parties filed motions for summary judgment. In an order entered 15 November 2004, the trial court denied plaintiff's motion and granted the Guaranty Association's motion. Plaintiff filed notice of appeal to this Court on 10 December 2004.
     The parties disagree about the Guaranty Association's obligations under the North Carolina Insurance Guaranty Association Act (Guaranty Act), N.C. Gen. Stat. § 58-48-1 et seq. The purpose of this Act is :
         to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment, and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers.

N.C. Gen. Stat. § 58-48-5 (2005) (emphasis added).   (See footnote 1)     Plaintiff contends that the Guaranty Association is obligated to reimburse it, a policyholder, for the payment to the Scotts in order to avoid financial loss because of the insolvency of another insurer, in furtherance of the intent of the Guaranty Act. The Guaranty Association, however, contends that summary judgment in its favor was proper because the Scotts failed to exhaust their rights against St. Paul in settling with St. Paul for an amount less than the policy limit, and thus it has no statutory obligation to reimburse plaintiff for the amount plaintiff paid the Scotts in settlement. The Guaranty Association's argument is based in section 58-48-55 of the Guaranty Act, “Nonduplication of recovery.” The General Assembly amended this section in 2003; the amended statute is applicable to claims against insurers that became insolvent on or after 10 June 2003. See 2003 N.C. Sess. Laws 167, §§ 3 and 5 (“An Act to Make Technical Amendments to the North Carolina Insurance Guaranty Association Act”). As PHICO became insolvent on 1 February 2002, the pre-amendment statute (2001) applies to the claims in the instant case:
        Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his rights under such policy. Any amount payable on a covered claim under this Article shall be reduced by the amount of any recovery under such insurance policy.
N.C. Gen. Stat. § 58-48-55(a) (2001).
    Plaintiff asserts that, under the 2001 law, “claim against an insurer” should be interpreted narrowly and thus the Scotts were not required to exhaust their rights against St. Paul because they did not have a first-party claim against St. Paul. The Guaranty Association argues that the exhaustion requirement applies to third-party claimants such as the Scotts seeking recovery from an insurance company of a joint tortfeasor, not just the insured party.
    In construing the language of the statute, this Court must give effect to the intent of the legislature. See Electric Supply Co. v. Swain Electrical Co., 328 N.C. 651, 656, 403 S.E.2d 291, 294 (1991). A subsequent amendment to the statute that clarifies the legislative intent is properly considered in interpreting the meaning of the original statute. See Ferrell v. Dept. of Transportation, 334 N.C. 650, 659, 435 S.E.2d 309, 315 (1993) (when statute is unclear, court may refer to subsequent amendment clarifying statute); Burgess v. Your House of Raleigh, 326 N.C. 205, 216, 388 S.E.2d 134, 141 (1990) (“Courts may use subsequent enactments or amendments as an aid in arriving at the correct meaning of a prior statute by utilizing the natural inferences arising out of the legislative history as it continues to evolve.”). The following language was inserted into N.C. Gen. Stat. § 58-48-55(a) by the 2003 amendment:
        For purposes of this section, a claim under an insurance policy shall include a claim under or covered by any kind of insurance, whether it is a first-party or a third-party claim,and whether it is a policy covering the policyholder or another person liable to the claimant, and shall include, without limitation, policies of accident and health insurance, workers' compensation insurance, medical expense coverage, and all other coverage except for policies of an insolvent insurer.

N.C. Gen. Stat. § 58-48-55(a) (2005). Under the plain language of the amended statute, a third-party claimant is required to exhaust his rights against the solvent insurer.
     We now consider, then, whether in amending N.C. Gen. Stat. § 58-48-55(a) the General Assembly effected a change in the law or a mere clarification.
        In construing a statute with reference to an amendment it is presumed that the legislature intended either (a) to change the substance of the original act, or (b) to clarify the meaning of it. . . . Whereas it is logical to conclude that an amendment to an unambiguous statute indicates the intent to change the law, no such inference arises when the legislature amends an ambiguous provision.

Childers v. Parker's, Inc., 274 N.C. 256, 260, 162 S.E.2d 481, 483 (1968). To determine whether an amendment is clarifying or altering, a court should carefully compare the amended statute with the pre-amendment statute. Ferrell, 334 N.C. at 659, 435 S.E.2d at 315.
    Here, the original statute, in particular “claim against an insurer,” was ambiguous, as it did not address whether the exhaustion requirement applied to third-party claimants or just policyholders. The amendment specifies that the exhaustion requirement includes third-party claims as well as claims by the policyholder. As the amended statute addresses a point that wasambiguous under the original statute, the amendment is more likely an enactment to clarify the law, rather than to change it. The amendment, then, is compelling evidence that even before 2003 the General Assembly intended that third-party claimants be within the classification of persons required to exhaust their rights with respect to policies of solvent insurers. See id. (a subsequent amendment adding language on a point not addressed in the statute before the amendment is strong evidence of the legislature's intent in enacting the original statute).
     We next consider whether the actions of the Scotts in settling with St. Paul satisfied the statutory exhaustion requirement. If the Scotts failed to exhaust their rights, then the Guaranty Association has no obligation to the Scotts or to plaintiff. The plain language of the statute dictates that any person seeking recovery from the Guaranty Association must “exhaust first his rights” under a solvent policy. The Guaranty Act does not define “exhaust,” and the question of whether any settlement with the solvent insurer is sufficient to exhaust rights under the policy or whether the claimant must settle for the full policy limit in order to exhaust appears to be a question of first impression in North Carolina.   (See footnote 2) As the issue was not argued in the parties' briefs, we do not decide it here. See N.C.R. App. P. 28(b)(6) (scope ofreview limited to issues argued in briefs). Several other jurisdictions have held, in the context of uninsured motorist insurance, that a guaranty association is entitled to an offset of the full policy limit of the solvent insurer where a claimant settles for less than the policy limit. See, e.g., Robinson v. Gailno, 880 A.2d 127, 136-37 (Conn. 2005) (settlement constitutes exhaustion of rights, but guaranty association entitled to offset by full amount of uninsured motorist policy limits regardless of amount claimant actually received); see also Colorado Ins. Guar. Assn v. Harris, 827 P.2d 1139, 1142 (Colo. 1992); Hetzel v. Clarkin, 772 P.2d 800, 806 (Kan. 1989); Hassemann v. White, 686 N.E.2d 571, 573 (Ill. 1997). However, cases involving uninsured motorist coverage implicate the concern of a collusive settlement between a claimant and his uninsured motorist carrier for less than the claimant's actual damages. A medical malpractice plaintiff cannot as readily calculate a measure of damages, especially where there are joint tortfeasors. Also, policy limits of uninsured motorist coverage may be lower than the $300,000.00 statutory limit of the Guaranty Association, whereas the policy limits of medical malpractice insurers often exceed the statutory limit of the Guaranty Association. Thus, the reasoning of courts interpreting the exhaustion requirement as mandating that a plaintiff settle for the full policy limit with his uninsured motorist carrier may not apply beyond the context of uninsured motorist policies. But see A.W. Chesterton Co. v. Mass. Insurers Insolvency Fund, 838 N.E.2d 1237, 1254-55 (Mass. 2005) (applying uninsured motorist insurancecases in interpreting exhaustion requirement in context of asbestos-related injury claims).
    We assume for purposes of this appeal only that the Scotts failed to exhaust their rights against St. Paul in settling for an amount below the policy limit of $2,000,000.00. And, as the St. Paul policy limit exceeds defendant's $300,000.00 statutory limit, defendant is not obligated to pay any amount in reimbursement based upon the Scotts' settlement with plaintiff. Accordingly, we hold that the trial court correctly determined that defendant had no obligation to reimburse plaintiff for the $250,000.00 settlement with the Scotts.
    Affirmed.
    Judges McCULLOUGH and LEVINSON concur.
    Report per Rule 30(e).

Footnote: 1