Insurance Law in North Carolina
Policy as a contract
An automobile insurance policy in North Carolina is a contract of insurance between the insurer and the insured, both parties to the contract being bound by the provisions thereof.
A contract of insurance obligates the insurer, as reimbursement or indemnity for destruction, injury, or loss of something in which the insured has an interest, to pay money or do some act of value to or for the insured.
An offer, acceptance, and sufficient consideration form the basis for insurance contracts.
The insured party has the burden or bringing itself within the insuring language of the policy.
General principles governing construction of insurance contracts in North Carolina have been well established by courts.
Contracts must be enforced as written, absent ambiguity reasonably susceptible to conflicting interpretations, giving effect to each word and clause. Under the pretense of interpreting unclear policy provisions, courts may not redraw the contract thus imposing liability upon insurers which they did not assume and for which the insureds did not pay. However, policy provisions will be interpreted in favor of coverage and against the insurer in the event there is any ambiguity in a policy which requires interpretation as to whether policy provisions impose liability.
Where both the policy and the statute contain internally conflicting provisions, the North Carolina Supreme Court has construed the insurance contract against the drafter, which had the best opportunity to protect its interest.
An insurer is liable to an insured only if its liability accrues under the provisions set out in the contract of insurance between the respective parties, and in the absence of any provision in the statutes broadening the liability of the insurer, such liability must be measured by the terms of the policy as written.
A motor vehicle liability policy has been defined by statute to mean an owner's or an operator's policy of liability insurance, certified as provided by statute as proof of financial responsibility, and issued, except as otherwise provided, by an insurer duly authorized to transact business in North Carolina, to or for the benefit of the person named in said policy as the insured.
The entire contract between the insurer and the insured is constituted by the policy, the written application for the policy, and any endorsement or rider which is not in conflict with the provisions of the statute.
Insurance policies and contracts are required by statute to be readable by persons of average intelligence, experience, and education. Furthermore, all insurers are required to utilize policy and contract forms which utilize simple and commonly used language, which are clearly and logically set out, and which are legibly printed.
The Standard Automobile Policy is designed for easy reference, is simplified, and is arranged to better display the available coverage.
All insurance policies and contracts are required to recite that the policy is a legal contract between the insurer and the insured and that the policy should be read carefully. Furthermore, major provisions of the policy must be indexed, and such particulars as margin size, ink color, and headings are required to be approved by the commissioner.
Insurer's Right to Settle
An insurer is required to act in good faith in exercising its right to settle a claim against the insured.
The insurer must give due regard to the interest of the insured, but this does not mean that the insurer must give more consideration or weight to the interests of the insured than to its own interest.
When an insurer brings an action against its insured for indemnity, the insurer bears the burden of showing that the settlement was made in good faith.
Whenever there is a deductible provision in an insurance contract, there is the potential for a conflict between the insurer and the insured.
Notwithstanding that an insured bears the burden of proving that it acted in good faith in settling an action, when an insured has conceded that settlement was reasonable, there must be some allegation beyond the fact that due to the deductible, the insured was liable for a greater share of the settlement amount than the insurer.
Where an insurer makes the insured aware of its right to independent counsel and where the policy provided, "We may investigate and settle any claim or suit as we consider appropriate," and notwithstanding that a case is settled for an amount suspiciously close to the deductible amount, an insurer's failure to notify an insured of its intention to settle suit prior to settlement has been held not to have deprived the insured of its right to independent counsel nor to amount to a breach of duty of the insurer's duty to defend.
Even though there is no case law to the effect that an insurer has been found to have acted in bad faith when it settled a case for an amount suspiciously close to the deductible amount, this does not mean that an insurer can act with impunity in settling a case.
Regardless of any contractual provision reserving to the insurer the exclusive right to settle a claim as it sees fit, any settlement must be made in good faith. Where a contract confers on one party a discretionary power affecting the rights of the other, this discretion must be exercised in a reasonable manner based upon good faith and fair play.
Bad Faith Refusal to Pay
An insurance company is expected to deal fairly and in good faith with its policyholders. The insurance business definitely is one "in commerce," as an "exchange of value" occurs when a consumer purchases a policy. Unfair or deceptive trade practices in the insurance industry are governed by statute. A violation of said statute constitutes an unfair and deceptive trade practice as a matter of law. The relationship between the insurance statute and the more general unfair and deceptive trade practices statutes is that the latter provide a remedy in the nature of a private action for the former.
Statutory definitions of unfair claim settlement practices within the insurance industry include the committing or performing with such frequency as to indicate a general business practice of any of the following, provided, however, that no violation of a statute will create any claim for relief in favor of any person other than the commissioner: (1) not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear; (2) attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled; (3) failing promptly to settle claims where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; and (4) failing promptly to 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 for the offer of a compromise settlement.
Generally, punitive damages are not recoverable for breach of contract, except for a breach of a contract to marry. However, when the breach is accompanied by identifiable tortious conduct and by some element of aggravation, punitive damages may be available.
This is true even if the tort constitutes or accompanies a breach of contract. "Aggravation" has been defined to include fraud, malice, such a degree of negligence as indicates a reckless indifference to plaintiff's rights, oppression, insult, rudeness, caprice, and willfulness. A bad faith refusal to provide insurance coverage or to pay a justifiable claim may give rise to a claim for punitive damages.
Where a plaintiff alleges that a defendant has acted in bad faith accompanied by willful and malicious conduct supported by specific examples, the plaintiff has alleged sufficiently a tortious act accompanied by the requisite element of "aggravation." The facts and allegations in the complaint must be sufficient to prevent confusion and surprise to the defendant and to preclude recovery of punitive damages for breach of contract where tortious conduct does not accompany the breach. It is for the trier of fact to determine whether the alleged facts rise to the level of aggravated conduct necessary to support a claim for punitive damages.
Our courts have held that where a plaintiff alleges, inter alia, that the insurer has adopted a policy and practice in the handling of its first-party insured underinsured motorist claims uniformly to contest and refuse to pay underinsured motorist claims which involve "stacking" of underinsured motorist coverage, this is sufficient to comport with a requirement of N.C. Gen. Stat. § 58-63-15(11) that the plaintiff allege that the defendant violated the prohibited acts "with such frequency as to indicate a general business practice."
Furthermore, where a plaintiff alleges that the insured breached his duty of good faith in refusing, without reason, to pay plaintiff the full underinsured motorist coverage due under a specific policy and in refusing to effectuate a prompt, fair, and equitable settlement of the plaintiff's claim when liability was clear; that in refusing to pay sums due plaintiff under said policy, the insurer had first alleged not to have sufficient information to determine the extent of plaintiff's damages; that the plaintiff in fact had provided defendant with substantial additional documentation; and that the insurer failed to cite any case law or statutory authority to support his refusal to pay, such allegations in a complaint, inter alia, are sufficient to support an award of damages, including punitive damages, based upon a bad faith refusal to pay plaintiff's claim.
An automobile accident victim has no claim against an automobile liability insurer to recover for bad faith or unfair and deceptive trade practices prior to a judicial determination of the insured's liability.
The insurer is subrogated to the insured's claim for relief against a third person where the insured property is destroyed or damaged by the tortious act of a third party and the insurer pays its insured the full amount of his loss. It is necessary that the insurer make payment to the insured under the policy in order to become subrogated to any right of action which that insured may have against a third party. Payment by the insurer to a party not an insured under the policy, not a loss payee under the policy, and not a party to whom a claim is assigned will effect no subrogation rights.
In decisions dated prior to the enactment of the Rules of Civil Procedure, the North Carolina Supreme Court held that a subrogation scenario is in four stages. First, a single and indivisible claim for relief arises against the tort-feasor for the total amount of the loss.
Second, the insurer can be subrogated to the rights of the insured against the tort-feasor only when it pays the insured, not some third party.
Third, the insurer becomes a necessary party plaintiff and must sue in its own name to enforce its rights of subrogation in instances in which it has paid the insured the loss in full.
Fourth, the insurer can bring an action in the name of the insured where the insured retained some interest and the insurer is not a necessary party, although it can be added as a proper party.
In said earlier cases, the North Carolina Supreme Court further held that when the insurer pays a claim in full, it must sue in its own name to enforce its right of subrogation against the tort-feasor in that it has become the real party in interest. As stated, payment in part only for the loss sustained results in the insurer's being subrogated pro tanto in equity to the rights of the insured against the tort-feasor. The insurer, thereupon, holds an equitable interest in the subject matter of the action and becomes a proper although not a necessary party to the litigation. Of course, in an action ex delicto for damages proximately caused by the negligence of a tort-feasor, his insurer is not a proper party defendant. In the absence of special circumstances, it has been strongly held that it is not permissible to introduce evidence of the existence of liability insurance or to make any reference in regard thereto in the presence of the jury.
Subrogation means substitution, not assignment or transfer. Subrogation operates only to secure contribution and indemnity, whereas an assignment transfers the entire claim.
As stated, a single indivisible claim for damages accrues against the tort-feasor. Such claim accrues in favor of the owner, through whom the insurer, upon payment of the insurance, must enforce its subrogation rights, since the insured owner has legal title to the right of action against the tort-feasor. A property damage claim is a single indivisible claim and cannot be partially assigned. To hold otherwise would subject a defendant to multiple actions for the same wrong.
The Standard Automobile Policy provides that in the event the insurer makes a payment under the policy and the individual to or for whom payment was made has a right to recover damages from another, the insurer shall be subrogated to that right. Such individual is required by the policy to do whatever is necessary to enable the insurer to exercise its rights and is further required to do nothing subsequent to any loss to prejudice the insurer. However, the insurer's rights do not apply under the medical payments coverage of the policy; under the uninsured motorists coverage portions of the policy "as those parts contain separate provisions which state our right to recover payment under those Parts"; and under "coverage for damage to your auto" provisions of the policy against any individual using "your covered auto" with a reasonable belief that such person is entitled to do so. The Standard Automobile Policy further provides that in the event the insurer makes a payment under the policy and the individual to or for whom payment is made recovers damages from another, that person shall hold in trust for the insurer the proceeds of the recovery and shall reimburse the insurer to the extent of its payment, except as to medical payments coverage.
Subrogation is not generally decreed in favor of a "volunteer" who, without any moral or other duty, pays the debt or discharges the obligation of another. However, payments made in good faith under a moral obligation, in ignorance of the real state of facts, or under an erroneous impression of one's legal duty is not a mere volunteer.
Primary and Secondary Coverage
An insured might be covered under the terms of the policy issued to him while operating a non-owned vehicle with the permission of the owner, and he is insured simultaneously pursuant to the policy issued to the owner of the vehicle which provides insurance coverage to the person driving the automobile with the permission of the owner.
The Standard Automobile Policy provides that where other applicable liability insurance exists, the insurer will pay only its share of the loss.
Such share is defined as the proportion that the limit under the policy in question bears to the total of all applicable limits.
Said Standard Policy further provides that any insurance provided by the insured in said policy for vehicles not owned by the insured shall be excess over any other collectible insurance.
In jurisdictions which accept the proposition that primary coverage is provided by the vehicle owner's policy, courts ordinarily limit its application to actions involving the construction of opposing "Other Insurance" provisions where one of the policies contains an excess insurance clause pertaining to coverage of vehicles not owned by the insured and the other a pro rata clause.
However, the North Carolina Supreme Court has held that where two policies satisfy the Act's coverage requirements, the driver's insurance carrier, depending on the language of the policies, provides primary coverage.
An insurer by the terms of its policy could exclude liability coverage under the owner's policy if the driver of a vehicle was covered under his own policy for the minimum amount of liability coverage required by the Motor Vehicle Financial Responsibility Act.
Accordingly, whether an owner's insurer or a driver's insurer provides primary coverage for an accident is controlled by the terms and exclusions within each policy.
Since insurance policies are considered contracts between two parties, the court's main purpose in interpreting contacts is to ascertain the intention of the parties; and it is the duty of the court to construe an insurance policy as it is written, not to rewrite it and thus make a new contract for the parties.
When two policies satisfy the Motor Vehicle Financial Responsibility Act's coverage requirements, the driver's insurance carrier, depending on the language of the policies, provides primary coverage.
When comparing two insurance policies, one of which was governed by its "Other Ins." provision and the other governed by its "Out of State Ins." provision, the North Carolina Court of Appeals held that the plain language of the out of state insurance provision excluded coverage where the out of state compulsory insurance law is satisfied by the driver's policy and held that the driver's policy (in that case) should provide primary coverage.
The court held: "Finally, we note our holding is not intended to imply the driver's policy should provide primary coverage in all factual settings. In the instant action, however, we believe our holding allocates responsibility to the party in the best position to avoid loss altogether — the driver."
Insurance Coverage when Renting Motor Vehicles
Many travelers are understandably unsure about their coverage when they approach a car rental counter.
Do I buy the liability coverage or not? Do I buy excess coverage? These are some of the questions people ask.
Out of 632 consumers surveyed by the National Association of Insurance Commissioners (NAIC) 42% were either thoroughly confused or had only a rough idea about insurance. As a result, many consumers purchase unnecessary insurance and end up wasting money.
Most often in North Carolina your personal auto insurance policy and a credit card used for the rental may provide sufficient liability coverage.
However, protection provided by credit card companies can be tricky and may contain strict conditions. For example you may be required to notify the credit card company within 45 days of an incident.
In North Carolina, an insurer (car rental agency) by the terms of its policy can exclude liability coverage under an owner's policy if the driver of a vehicle (you the renter) is covered under your own liability policy for the minimum amount of liability coverage required by the Motor Vehicle Financial Responsibility Act.
The Act is satisfied if the terms of the policy exclude coverage in the event the driver of a vehicle is covered under some other policy for the minimum amount of liability coverage required by law.
In other words your own auto insurance will usually cover the loss if the insurance policy of the rental agency excludes coverage in case your own auto insurance policy carries the minimum amount of liability coverage required by the Motor Vehicle Financial Responsibility Act.
In Jeffreys v. Snappy Car Rental, the NC Court of Appeals ruled that:
A car rental company was not obligated to provide $25,000 of primary liability coverage to a renter for an accident that occurred while the renter was driving the rental vehicle where the renter had a valid liability policy for the minimum amount required by the Financial Responsibility Act, and the car rental agreement specifically excluded liability insurance coverage.
It just happens so that sales of insurance or damage waivers that absolve renters involved in an accident are an important profit center for a car rental company.
Most auto rental companies sell several types of coverage: a loss damage waiver, supplemental liability insurance, personal accident insurance and personal effects protection among others.
Nonetheless, in many cases it makes sense to buy coverage from the car rental company, especially when it comes to coverage of the damage to the rental vehicle (collision coverage).
At times it may be a hassle dealing with a rental car company and others involved in an incident, especially if it happens abroad. The rental car company may charge you upfront until your own auto insurance reimburses the loss. Also, optional coverage can be a good idea even if you have full coverage, so that you can assure good standing with your own insurance company.
It always pays to take the time to understand what your insurance company and credit card issuer will cover.
Finally, note that insurers of automobile rental businesses have been held not to be liable for damages when provisions of the rental agreement have been violated by the renter.
For example in one case the North Carolina Supreme Court held that where automobile liability policy extended coverage to automobile renter and any person legally responsible for use of car, provided actual use was with permission of named insured, and renter rented car under agreement providing that renter would not surrender possession to any person under 21, insurer was not liable for injuries and damage inflicted when vehicle was being operated by 19-year-old to whom renter had surrendered vehicle without knowledge or consent of rental company.
Index of Relevant Terms:
- Absolute Divorce
- Contributory Negligence
- Imputed Negligence
- Defenses to a Negligence Lawsuit
- Driving and Texting in North Carolina
- Emotional Distress
- Punitive Damages
- Res Ipsa Loquitur
- Short Sale
- Traumatic Brain Injury
- Truck Accidents
- Wrongful Death
- Wrongful Discharge from Employment