Appeal by plaintiff and defendant from order entered 8
December 2005 by Judge Narley L. Cashwell in Wake County Superior
Court. Heard in the Court of Appeals 25 January 2007.
Taylor, Penry, Rash & Riemann, PLLC, by Neil A. Riemann, for
Smyth & Cioffi, LLP, by Theodore B. Smyth, for Transamerica
Investment, L.L.C., defendant-appellant.
Mabry & McClelland, LLP, by Robert M. Darroch; and Brown,
Crump, Vanore & Tierney, L.L.P., by O. Craig Tierney, Jr., for
American Southern Insurance Company, defendant-appellee.
Plaintiff Pulte Home Corporation and defendant TransAmerica
Investment, L.L.C. appeal from an order denying their motions for
summary judgment against defendant American Southern Insurance
Company and granting American Southern's motion for summary
judgment. This appeal is resolved by the principle, well-
established in North Carolina, that an insurer who unjustifiably
refuses to provide an insured with a defense is liable for the
amount and costs of a reasonable settlement entered into by the
insured. See Ames v. Cont'l Cas. Co., 79 N.C. App. 530, 538, 340
S.E.2d 479, 485, disc. review denied, 316 N.C. 730, 345 S.E.2d 385
As this Court has previously pointed out, an insurer
undertakes a substantial risk when it chooses not to provide a
defense. Pa. Nat'l Mut. Cas. Ins. Co. v. Associated Scaffolders &
Equip. Co., 157 N.C. App. 555, 559, 579 S.E.2d 404, 407 (2003) ("We
note that any insurer who denies a defense takes a significant riskthat he is breaching his duty to defend."). Although in
Pennsylvania National, we concluded the risk was "well-taken," id.
at 560, 579 S.E.2d at 408, the same cannot be said in this appeal.
Because we have determined that the policy language covered the
claims asserted against Pulte, American Southern unjustifiably
refused to defend Pulte and is now liable for the settlement and
Pulte's defense costs. Accordingly, we reverse and remand for
entry of judgment in Pulte's and TransAmerica's favor.
Facts and Procedural History
Pulte is a home-building company doing business in North
Carolina. In the course of its business, Pulte, acting as a
general contractor, hired TransAmerica, as a subcontractor, to
frame houses in a residential subdivision in Wake County called
Breckenridge. The contract between TransAmerica and Pulte required
TransAmerica to have Pulte named as an additional insured under the
subcontractor's commercial general liability coverage. To comply
with this requirement, TransAmerica obtained an additional insured
endorsement to its policy with American Southern. That endorsement
provided that Pulte was covered "as an insured but only with
respect to liability arising out of [TransAmerica's] operations or
premises owned by or rented to [TransAmerica]."
In August 2002, Pulte, TransAmerica, and a third company,
Morlando Enterprises, L.L.C., were sued by Marcos Antonio Mejia,
who had worked at the Breckenridge site for a TransAmerica
subcontractor named Rudolfo Sanchez. Mejia alleged that Sanchez
"worked under the immediate direction, supervision, and control of[TransAmerica]" and, further, that Pulte "oversaw and directed the
work of [TransAmerica] and other contractors at the work site,
including the workers employed by Rudolfo Sanchez." Mejia's
complaint alleged that, in October 2001, he was instructed to help
install trusses on the houses.
Mejia claimed that, during the installation of the trusses, he
was required to "work well above the floor level of the house [and]
he was not provided any safety devices or means of fall
protection." According to the complaint, a crane operator working
for Morlando Enterprises was moving trusses from the ground to the
roof when the crane knocked Mejia from the roof, causing him to
fall to the ground and suffer severe, permanent injuries, including
In March 2003, approximately 7 months after the filing of the
Mejia action, Pulte tendered the Mejia claims to American Southern,
seeking legal defense and indemnity under the TransAmerica policy.
In June 2003, American Southern rejected Pulte's tender and denied
any obligation under the insurance policy to defend or indemnify
Pulte in connection with the Mejia action. Pulte ultimately paid
$700,000.00 to settle Mejia's claims and incurred approximately
$105,000.00 in legal fees, expenses, and expert costs.
On 9 September 2004, Pulte filed this action against
TransAmerica and American Southern, asserting that both parties had
breached a contractual agreement to defend and indemnify Pulte in
the Mejia case and were, therefore, liable for any losses incurred
by Pulte in that litigation. Following discovery, all threeparties moved for summary judgment. By its motion, TransAmerica
sought a declaration that the American Southern policy provided
coverage for Pulte's costs of defense and settlement in the Mejia
action. Pulte moved for summary judgment against only American
Southern, seeking (1) a declaration that American Southern was
obligated to pay its defense and settlement costs and (2) an award
of damages totaling $804,925.14 together with prejudgment interest.
American Southern, in its motion, sought a declaration that the
insurance policy did not cover the allegations against Pulte in the
Mejia litigation and that it therefore had no duty to defend or
A hearing on the motions was held, and on 8 December 2005,
Judge Narley L. Cashwell of the Wake County Superior Court entered
an order granting summary judgment to American Southern and denying
Pulte's and TransAmerica's motions for summary judgment. Following
a voluntary dismissal without prejudice of Pulte's claims against
TransAmerica, both Pulte and TransAmerica gave timely notice of
It is well established in North Carolina that "[w]hen an
insurer without justification refuses to defend its insured, the
insurer is estopped from denying coverage and is obligated to pay
the amount of any reasonable settlement made in good faith by the
insured of the action brought against him by the injured party."
, 79 N.C. App. at 538, 340 S.E.2d at 485. See also Penske
Truck Leasing Co. v. Republic W. Ins. Co.
, 407 F. Supp. 2d 741,753-54 (E.D.N.C. 2006) (noting that "North Carolina cases
consistently hold" that insurer who unjustifiably refuses to defend
insured is obligated to pay amount of reasonable settlement and
insured's attorneys' fees); Naddeo v. Allstate Ins. Co.
, 139 N.C.
App. 311, 320, 533 S.E.2d 501, 507 (2000) (holding that when
carrier "unjustifiably refused to provide a defense," it obligated
itself to pay the amount and costs of reasonable settlement);
Bruce-Terminix Co. v. Zurich Ins. Co.
, 130 N.C. App. 729, 735, 504
S.E.2d 574, 578 (1998) ("If a duty to defend could be found, then
the trial court's granting of summary judgment for [the insured as
to settlement and defense costs] is correct."); Duke Univ. v. St.
Paul Fire & Marine Ins. Co.
, 96 N.C. App. 635, 637, 386 S.E.2d 762,
763 ("By refusing to defend the wrongful death action [where such
a defense was required by the policy], defendant obligated itself
to pay the amount and costs of a reasonable settlement if its
refusal was unjustified."), disc. review denied
, 326 N.C. 595, 393
S.E.2d 876 (1990).
 The dispositive question in this case is whether American
Southern unjustifiably refused to defend Pulte. It is undisputed
that the American Southern policy contained a provision requiring
the carrier to defend its insureds. Our Supreme Court has observed
that "the insurer's duty to defend the insured is broader than its
obligation to pay damages incurred by events covered by a
particular policy." Waste Mgmt. of Carolinas, Inc. v. Peerless
, 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986). This duty
to defend "is ordinarily measured by the facts as alleged in thepleadings . . . ." Id.
"When the pleadings state facts
demonstrating that the alleged injury is covered by the policy,
then the insurer has a duty to defend, whether or not the insured
is ultimately liable." Id.
An insurer is excused from its duty to
defend only "if the facts are not even arguably covered by the
at 692, 340 S.E.2d at 378. See also Builders Mut.
Ins. Co. v. N. Main Constr., Ltd.
, 361 N.C. 85, 88, 637 S.E.2d 528,
530 (2006) (reaffirming principles set forth in Waste Management
Moreover, "[i]f the claim is within the coverage of the policy, the
insurer's refusal to defend is unjustified even if it is based upon
an honest but mistaken belief that the claim is not covered."
, 130 N.C. App. at 735, 504 S.E.2d at 578.
In support of its contention that it had no duty to defend,
American Southern points to the policy endorsement naming Pulte as
an additional insured. That provision specifies: "WHO IS AN
INSURED (Section II) is amended to include as an insured [Pulte
Home Corporation] but only with respect to liability arising out of
[TransAmerica's] operations . . . ." American Southern construes
this provision as meaning that it has insured Pulte only for
vicarious liability based on the negligence of TransAmerica and not
for any independent negligence of Pulte itself. American Southern
then argues that the Mejia complaint only sues Pulte for its
independent negligence and, therefore, does not assert claims
within the scope of the policy's coverage. We disagree.
The proper construction of the additional insured endorsement
turns on the phrase "arising out of." In the insurance context,this phrase frequently appears in policy provisions both extending
and excluding coverage. When construing policies, North Carolina
applies the rule that "[w]hile policy provisions excluding coverage
are strictly construed in favor of the insured, those provisions
which extend coverage 'must be construed liberally so as to provide
coverage, whenever possible by reasonable construction.'" City of
Greenville v. Haywood
, 130 N.C. App. 271, 276, 502 S.E.2d 430, 433
(quoting State Capital Ins. Co. v. Nationwide Mut. Ins. Co.
N.C. 534, 538, 350 S.E.2d 66, 68 (1986)), disc. review denied
N.C. 354, 525 S.E.2d 449 (1998). Further, when, as here, the
policy does not define the phrase "arising out of," we must read
the phrase in accordance with "the ordinary meaning of [that
, 502 S.E.2d at 433-34.
If used to extend, rather than exclude, coverage, our courts
have broadly construed the phrase "arising out of" to require a
simple "causal nexus," id.
at 277, 502 S.E.2d at 434, and not
causation rising to the level of proximate cause, State Capital
318 N.C. at 539-40, 350 S.E.2d at 69. As explained by the Supreme
Court in reference to the words "arising out of the use of an
"The words 'arising out of' are not words of
narrow and specific limitation but are broad,
general, and comprehensive terms affecting
broad coverage. They are intended to, and do,
afford protection to the insured against
liability imposed upon him for all damages
caused by acts done in connection with or
arising out of such use. They are words of
much broader significance than 'caused by.'
They are ordinarily understood to mean . . .
'incident to,' or 'having connection with' the
use of the automobile."
at 539, 350 S.E.2d at 69 (ellipsis original) (quoting Fid. &
Cas. Co. of N.Y. v. N.C. Farm Bureau Mut. Ins. Co.
, 16 N.C. App.
194, 198, 192 S.E.2d 113, 118, cert. denied
, 282 N.C. 425, 192
S.E.2d 840 (1972)). The Supreme Court then held that, when
applying the phrase "arising out of" the use of an automobile, "the
test is whether there is a causal connection between the use of the
automobile and the accident," such that the "injuries were a
natural and reasonable incident or consequence of the use of the
motor vehicle." Id.
at 540, 350 S.E.2d at 69-70.
, 130 N.C. App. at 276, 502 S.E.2d at 433, this
Court applied the State Capital
test in construing an insurance
policy's coverage for injuries that "arise out of the performance
of the INSURED'S law enforcement duties." After noting that State
called for "a liberal construction" of the phrase "arising
out of," id.
, 502 S.E.2d at 434, the Court held that because the
conduct at issue would not have occurred "but for" the insured's
position as a police officer, there was the required "causal nexus"
to establish that the insured's conduct arose out of his law
enforcement duties. Id.
at 277, 502 S.E.2d at 434.
In this case, we are _ like the Supreme Court in State Capital
and this Court in Haywood
_ construing a provision extending
coverage. Accordingly, American Southern's duty to defend rests on
whether there is a causal nexus between Pulte's liability in the
Mejia matter and TransAmerica's "operations." A sufficient nexus
exists if that liability is "a natural and reasonable incident orconsequence of" those operations. State Capital
, 318 N.C. at 540,
350 S.E.2d at 70.
American Southern does not address State Capital
, but rather
argues that the phrase "arises out of TransAmerica's operations"
equates with "arises out of Transamerica's [sic] negligence."
American Southern states in its brief: "Because the additional
insured endorsement limits coverage to liability arising out of
TransAmerica's operations, i.e. arises out of Transamerica's [sic]
negligence, Pulte is not an additional insured or entitled to a
defense for the specific allegations made by Mejia." The simple
answer to this argument is that the policy reads "operations" and
not "negligence." It does not define "operations," and we can
perceive no reasonable basis for equating the two words. To the
extent that this clause can even be viewed as ambiguous, American
Southern's argument disregards the principle that the policy must
be construed in favor of the insured, Pulte. Id.
at 541, 350
S.E.2d at 70.
Moreover, if we were to construe the endorsement in the manner
American Southern urges _ to extend coverage to Pulte only to the
extent that Pulte's liability might arise out of TransAmerica's
negligence _ coverage would be almost non-existent. As American
Southern has acknowledged, in North Carolina, an employer of an
independent contractor generally cannot be held vicariously liable
for the negligent acts of that independent contractor. See Gordon
, 127 N.C. App. 649, 658, 493 S.E.2d 58, 63 (1997)
("Generally, one who employs an independent contractor is notliable for the independent contractor's negligence."), disc. review
, 347 N.C. 670, 500 S.E.2d 86 (1998). Thus, limiting
American Southern's coverage of Pulte to vicarious liability would
provide no genuine insurance for Pulte. American Southern suggests
that the endorsement would still provide insurance for "false
allegations" of vicarious liability and liability arising from the
actions of "loaned servants." Such a cramped reading of coverage
cannot be reconciled with our State's policy of construing
ambiguous insurance policies in favor of the insured and in a
manner that provides coverage.
In support of its narrow reading of the endorsement, American
Southern relies upon a single federal case construing North
Carolina law: St. Paul Fire & Marine Ins. Co. v. Hanover Ins. Co.
187 F. Supp. 2d 584 (E.D.N.C. 2000). At issue in that case was an
additional insured endorsement to a commercial general liability
policy that provided as follows:
WHO IS AN INSURED (Section II) is amended to
include any person or organization you are
required by written contract to include as an
insured, but only with respect to liability
arising out of "your work." This coverage
does not include liability arising out of the
independent acts or omissions of such person
at 587 (emphasis added).
Unlike the endorsement in this case, the endorsement in St.
contains express language excluding coverage for the
"independent acts or omissions" of the additional insured.
(See footnote 1)
Thedistrict court noted first that the insurer "contends that, because
the policy specifically excludes coverage for liability arising
from independent acts or omissions of the additional insured, the
language of the 'Who is an Insured' paragraph effectively limits
coverage to coverage for vicarious liability, i.e., liability
imposed upon the general contractor as a result of the
subcontractor's acts and not as a result of the general
contractor's own acts or failure to act." Id.
at 589-90. The
district court agreed, holding that "to give meaning to the
'independent acts' provision of the endorsement, the court must
construe the 'arising out of [the subcontractor's work]' provision
as one providing coverage in cases where the alleged liability is
Given the absence of similar qualifying language in this case,
, although not controlling on this Court in any event, is
not contrary to our conclusion that the additional insured
endorsement here must be broadly interpreted to provide coverage
for liability arising from Pulte's independent negligence if there
is a causal nexus with TransAmerica's operations. Indeed, St. Paul
demonstrates that insurers are well able to write policies to
accomplish the result urged by American Southern when they desire
to do so. American Southern's position that this endorsement must
be construed to include a limitation that is conspicuously absent
from the policy is untenable. Moreover, we find persuasive those decisions from other
jurisdictions where similar endorsement language contained within
a commercial general liability policy has been interpreted to
provide coverage to the additional insured even for liability
arising from the additional insured's own independent negligence.
See Acceptance Ins. Co. v. Syufy Enters.
, 69 Cal. App. 4th 321,
330, 81 Cal. Rptr. 2d 557, 563 (Cal. Ct. App.) ("We believe the
better view is that when an insurer chooses not to use such clearly
limited language [covering only vicarious liability] in an
additional insured clause, but instead grants coverage for
liability 'arising out of' the named insured's work, the additional
insured is covered without regard to whether injury was caused by
the named insured or the additional insured."), review denied
Cal. LEXIS 2212 (Cal. 1999); Cas. Ins. Co. v. Northbrook Prop. &
Cas. Ins. Co.
, 150 Ill. App. 3d 472, 474-76, 501 N.E.2d 812, 814-15
(Ill. App. Ct. 1986) (where general contractor was listed as
additional insured on subcontractor's policy "but only with respect
to liability arising out of operations performed for [general
contractor] by [subcontractor]," insurer had duty to defend general
contractor irrespective whether subcontractor was negligent);
Admiral Ins. Co. v. Trident NGL, Inc.
, 988 S.W.2d 451, 454 (Tex.
App. 1999) ("The majority view of these cases is that for liability
to 'arise out of operations' of a named insured it is not necessary
for the named insured's acts to have 'caused' the accident.").
In response to Pulte's citation of cases in other
jurisdictions, American Southern, both before the trial court andthis Court, made the broad assertion that, in reality, our sister
jurisdictions are substantially divided as to the proper
interpretation of endorsements of the type at issue here. Notably,
however, American Southern did not cite to any authority, either in
its principal brief or in a memorandum of additional authority
pursuant to N.C.R. App. P. 28(g), save for the one lone example,
, that we find distinguishable.
 Consequently, we agree with Pulte and TransAmerica that
the additional insured endorsement, by its plain terms, triggered
American Southern's duty to defend Pulte against the Mejia claims,
when those claims bore a causal nexus with TransAmerica's
"operations" at the job site. The parties do not dispute that
TransAmerica's "operations" included TransAmerica's framing
activities at Pulte's job site.
In determining whether an insurer has a duty to defend the
underlying lawsuit, "our courts employ the so-called 'comparison
test.'" Holz-Her U.S., Inc. v. U.S. Fid. & Guar. Co.
, 141 N.C.
App. 127, 128, 539 S.E.2d 348, 349 (2000) (quoting Smith v.
Nationwide Mut. Fire Ins. Co.
, 116 N.C. App. 134, 135, 446 S.E.2d
877, 878 (1994)). That test requires us to read the pleadings in
the underlying suit side-by-side with the insurance policy to
determine whether the alleged injuries are covered or excluded.
An insurer is excused from its duty to defend only "if the
facts [alleged in the complaint] are not even arguably covered by
the policy." Waste Mgmt.
, 315 N.C. at 692, 340 S.E.2d at 378. Anydoubt as to coverage must be resolved in favor of the insured.
, 130 N.C. App. at 735, 504 S.E.2d at 578. If the
"pleadings allege multiple claims, some of which may be covered by
the insurer and some of which may not, the mere possibility
insured is liable, and that the potential liability is covered, may
suffice to impose a duty to defend." Id.
In this case, the Mejia complaint alleges that Mejia's
injuries occurred while he was working for a TransAmerica
subcontractor helping with the installation of trusses on a house,
part of TransAmerica's framing activities. Mejia was performing
the work that TransAmerica wanted done, and "Pulte's principals,
agents, and employees oversaw and directed the work of Defendant
TransAmerica and other contractors at the work site, including the
workers employed by Rudolfo Sanchez," which would include Mejia.
In his specific claims against Pulte, Mejia further alleged that
Pulte was negligent in failing to ensure that the work performed by
its subcontractors _ including TransAmerica _ was carried out in a
reasonably safe manner and failed to ensure that those
subcontractors took necessary precautions to reduce risks
accompanying the work performed at the construction site.
On its face, the allegations of the Mejia complaint indicate
that Pulte's liability was "a natural and reasonable incident or
consequence of" TransAmerica's operations. State Capital
, 318 N.C.
at 540, 350 S.E.2d at 70. These allegations set forth a sufficient
connection between the work that Mejia was performing _ part of
TransAmerica's framing operations _ and the liability that Mejiasought to impose on Pulte to require us to conclude that at least
"arguably" the conduct alleged in the complaint is covered by the
additional insured endorsement.
 We therefore hold that American Southern had a duty to
defend Pulte in the Mejia litigation. American Southern further
contends, however, that its refusal to defend Pulte in the Mejia
matter was nevertheless justified, and summary judgment was proper,
because Pulte failed to comply with the policy's notice
requirements. The policy requires any insured to notify American
Southern "as soon as practicable" after a claim is made or suit is
brought against the insured.
Our Supreme Court has articulated the following three-part
test to determine whether, under a policy requiring notice "as soon
as practicable," untimely notice by the insured will excuse the
insurer from an otherwise existing duty to defend and indemnify:
When faced with a claim that notice was not
timely given, the trier of fact must first
decide whether the notice was given as soon as
practicable. If not, the trier of fact must
decide whether the insured has shown that he
acted in good faith, e.g.
, that he had no
actual knowledge that a claim might be filed
against him. If the good faith test is met
the burden then shifts to the insurer to show
that its ability to investigate and defend was
materially prejudiced by the delay.
Great Am. Ins. Co. v. C. G. Tate Constr. Co.
, 303 N.C. 387, 399,
279 S.E.2d 769, 776 (1981) (Great American I
). The Supreme Court
reaffirmed and further explained the three-pronged approach in
Great Am. Ins. Co. v. C. G. Tate Constr. Co.
, 315 N.C. 714, 340
S.E.2d 743 (1986) (Great American II
). With respect to the first prong _ "whether there has been any
delay in notifying the insurer" _ the Court held in Great American
that "[i]n most instances, unless the insurer's allegations that
notice was not timely are patently groundless, this first part of
the test is met by the fact that the insurer has introduced the
issue to the court." Id.
at 719, 340 S.E.2d at 747. In light of
the six-month delay between Pulte's receipt of the Mejia complaint
and Pulte's tender to American Southern, we hold that the first
prong of the Great American I
test has been met. Since American
Southern conceded at oral argument that it was never materially
prejudiced by the delay (the third prong), our focus here is
confined to the second prong of the test: whether Pulte acted in
We note that American Southern, in its 10 June 2003 letter
declining to provide a defense to Pulte, asserted only that
"[t]hese six months clearly materially impaired American Southern's
ability to investigate the claim" _ an argument now abandoned on
appeal. The letter contained no suggestion that Pulte lacked good
faith in delaying its tender of the claim. When asked in
interrogatories to identify any facts on which American Southern
relied to establish the defense of untimely notification, American
Southern stated only: "The facts are laid out clearly in the June
10, 2003 correspondence to Plaintiff's counsel from counsel for
this Defendant which is enclosed." American Southern raised the
issue of good faith for the first time shortly before the summary
judgment hearing. As indicated in Great American I
, the burden is initially on
the insured to demonstrate that it acted in good faith. In this
case, Pulte furnished the trial court with an affidavit of its
corporate counsel, Michael Laramie.
The Laramie affidavit stated
that at the time Pulte was served with the Mejia lawsuit, Pulte had
the policy of investigating to determine whether Pulte could tender
to a subcontractor or an insurer. The affidavit explained further:
"That investigation is not simple, however, as records regarding
our vendors and their insurance are kept in our local market
offices. Under ordinary circumstances, it would involve inquiring
of the local market to retrieve those vendor records and ascertain
which vendors, and which vendor insurers, might be responsible."
Pulte made inquiry of the local market in Raleigh, obtained
the necessary information regarding TransAmerica's insurer, and
tendered the claim to American Southern. The affidavit concludes:
At no time did [Pulte] purposely, knowingly,
or deliberately delay or fail to notify a
potentially responsible vendor or insurer of
the suit. At no time did [Pulte] instruct its
counsel to do those things. At no time did
[Pulte] act in bad faith. No conceivable
benefit would accrue from such actions, and
they would have been contrary to [Pulte's]
policy. Any delays on [Pulte's] part were
either inadvertent or the result of difficulty
American Southern submitted no affidavits, depositions, or other
evidence in response to this affidavit and Pulte's showing of good
On appeal, American Southern argues solely that it was
entitled to summary judgment on this ground because: "Pulte knewthat a claim had been filed against it for which it may be at fault
and failed to notify American Southern. Therefore, as the test
laid out by Great American
requires, 'if the insured knows that he
is liable or . . . that others claim he is at fault, an untimely
delay in notification . . . is a delay without good faith.'"
(Quoting Great American II
, 315 N.C. at 720, 340 S.E.2d at 747.)
American Southern has, however, misread Great American II
that decision, the Supreme Court specifically held:
This test of lack of good faith involves a
1) Was the insured aware of his
possible fault, and
2) Did the insured purposefully and
fail to notify the
Both of these are, in the legal sense of the
term, "subjective" inquiries . . . .
The good faith test is phrased in the
conjunctive: both knowledge and the deliberate
decision not to notify must be met for lack of
good faith to be shown. If the insured can
show that either does not apply, then the
trial court must find that the insured acted
in good faith.
(emphases added). Contrary to American Southern's contention,
the test thus is not simply whether Pulte knew of its potential
In analyzing the evidence (all presented by Pulte) American
Southern first asserts that a delay of six months was not
reasonable _ an assertion that only goes to the first prong of
Great American I
. American Southern then does not point to
anything that suggests that Pulte made a "deliberate decision notto notify" American Southern, the proper test for the good faith
Instead, American Southern asserts simply that "[a]ll
of this [evidence] reveals actual knowledge on the part of Pulte
that shows a lack of good faith in its delayed notification to
Because Pulte has presented evidence that it did not make a
deliberate decision not to notify American Southern, but rather any
delay was a function of its internal policies for processing
claims, American Southern was not entitled to summary judgment on
this argument. Moreover, because American Southern has pointed to
no evidence contrary to that of Pulte, suggesting a purposeful,
intentional, or deliberate decision by Pulte to delay notification,
Pulte is entitled to summary judgment on the question whether
Pulte's delayed notification justified American Southern's refusal
to defend. See Duke Univ. v. St. Paul Mercury Ins. Co.
, 95 N.C.
App. 663, 678, 384 S.E.2d 36, 45 (1989) (holding that delay of
three and a half months was in good faith when delay was due to
insured's system of reporting because while such a system "may be
unwise or negligent, reliance on that system does not constitute a
deliberate failure to notify the insurer under Great American II
 Finally, although Pulte, in support of its motion for
summary judgment, submitted evidence to the trial court regarding
the reasonableness of the settlement and its defense costs,
American Southern presented no counter evidence and makes no
argument on appeal that the settlement or defense costs were
unreasonable. Accordingly, the trial court should have enteredsummary judgment in Pulte's favor in the amount of $805,957.74
together with prejudgment interest, as requested by Pulte.
(See footnote 2)
Pulte has also addressed, on appeal, arguments made by
American Southern before the trial court regarding other insurance
covering Pulte's activities during the relevant time frame. In
response, American Southern argues only that because it had no duty
to defend, one of the other carriers, Legion Insurance Company, was
the primary carrier. Since we have concluded that American
Southern did in fact have a duty to defend, American Southern has
presented no argument on appeal supporting any contention that it
should not be held liable for the amount of $805,957.74 based on
the existence of other coverage. We express no opinion whether
American Southern would be entitled to seek relief from the other
For the foregoing reasons, we hold that Pulte and TransAmerica
were entitled to declarations that American Southern owed a duty to
defend Pulte and that American Southern was unjustified in refusing
to provide that defense. Since American Southern does not contend
that Pulte's settlement or its defense costs in the Mejia
litigation were unreasonable, Pulte is entitled to judgment in the
amount of $805,957.74 plus prejudgment interest. We, therefore,reverse the trial court's order granting summary judgment to
American Southern and remand for entry of judgment in favor of
Pulte and TransAmerica.
Reversed and remanded.
Judges CALABRIA and JACKSON concur.