Coverage Analysis
Home                    Index of Subject              List of State by State
.
STATE BY STATE SURVEY
NORTH CAROLINA
 (4th Circuit)

  ACCIDENTS OR OCCURRENCES

  Suit against school official for negligent failure to supervise employee that raped plaintiff did not "arise out of" insured's assault and battery or criminal acts.  Durham City Board of Education v. National Union Fire Ins. Co. of Pittsburgh, No. 9114SC779 (N.C. App. March 2, 1993).

  An insureds failure to perform as provided for in their contact is not an “occurrence.”  William C. Vick Construction Company v. Pennsylvania National Mutual Casualty Insurance Company, 1999 WL 412328 (E.D.N.C. March 24, 1999), aff’d mem. No. 99-1577 (4th Cir. April 28, 2000)(unpublished).

  The Court of Appeals ruled in State Auto Ins. Co. v. McClamroch, 497 N.E.2d 439 (N.C. App. 1998) that two "right to life" protesters were not entitled to coverage from their homeowner's insurer for allegations by a doctor that their picketing outside his home had invaded his privacy and caused him emotional distress.  Even though the underlying suit contained allegations of negligence, the court ruled that State Farm had no duty to defend since the factual allegations were that the insureds had continued to picket, even after a court had enjoined them from doing so, with the intention of inflicting sufficient emotional distress to coerce the doctor into ending his abortion practice.

  The North Carolina Court of Appeals has adopted an "inferred intent" standard for sexual harassment claims, holding that there can be no "occurrence" where harm is substantially certain to result from the insured's intentional acts. Russ v. Great American Ins. Co., 464 N.E.2d 723 (N.C. App. 1995), review denied, 467 S.E.2d 905 (N.C. 1996).

  An intentional acts exclusion was held to bar coverage for assault claims against the insured even though he claimed to have been acting in self-defense.  Erie Ins. Group v. Bruckner, 489 S.E.2d 901 (N.C. App. 1997).  See also Stout v. Grain Dealers Mutual Ins. Co., 201 F.Supp. 647, 651 (M.D.N.C. 1961), aff'd 307 F.2d 521 (4th Cir. 1962) (an act of self-defense is not "accidental" since injury was intentionally inflicted whatever the insured's motives).  

  Even the intentional destruction of property will be deemed to constitute an "occurrence" if the conduct was undertaken under the mistaken belief that the acts were authorized. York Industrial Center, Inc. v. Michigan Mutual Liability Co., 155 S.E.2d 501, 504 (N.C. 1967) (trespass deemed covered since insured was mistaken concerning location of property line).

  ALLOCATION AND SCOPE ISSUES

  Ordinarily, an insurer that does not owe coverage may not obtain contribution from another carrier for sums that it paid to or on behalf of its insured.  However, in American Continental Ins.  Co.  v.  Phico Ins.  Co., No.  COA98-728 (N.C. App.  March 2, 1999), the North Carolina Court of Appeals ruled that a successor E&O insurer was entitled to repayment in full, despite its finding that it did not owe coverage, where it had been forced to assume the defense of the underlying suits owing to the wrongful failure of the earlier carrier to acknowledge coverage.

  Where more than one policy is potentially triggered by a claim, defense costs should be shared equally.  Ames v. Continental Cas. Co., 79 N.C. App. 530, 340 S.E.2d 479 (1986); St. Paul Fire & Marine Ins. Co. v. Vigilant, 919 F.2d 235 (4th Cir. 1990).
 

  APPELLATE PROCEDURES

  North Carolina has both an intermediate appellate court and a state Supreme Court.
 

  BAD FAITH

  Unfair or deceptive claims practices are prohibited by N.C. Gen. Stat. §58-54.4. and, more generally, by N.C. Gen. Stat. §75.1-1, the North Carolina Consumer Protection Act.  G.S. §58-63-1 proscribes unfair methods of competition and unfair deceptive acts and practices in the business of insurance.   Recovery under under N.C. Gen.  Stat.  Section 58-63-11(a) requires evidence that the insured’s misconduct was a “general business practice.”  See Gray v.  North Carolina Ins.  Underwriting Assoc., 1999 WL 20394 (N.C. App.  January 19, 1999)(proof that property insurer used same unreasonable valuation technique on two claims didn’t satisfy insured’s burden of proof). 

  The North Carolina Supreme Court has ruled in Gray v. North Carolina Insurance Underwriting Association, No. 84PA99 (N.C. June 16, 2000), that even though only the Commissioner of Insurance has the authority to pursue violations of  the North Carolina Unfair Claims Settlement Practices Statute, violations may be brought forward as evidence of a private claim for relief under NCGS § 75-1.1.  Nevertheless, the court ruled that the insured was not entitled to treble damages as that provision of NCGS § 75-16 only applies to damages that are proximately caused by the insurer’s violation, not the full amount of the underlying claim.

  While it does not confer a private right of action on policyholders, a breach of Section 58-63-15 constitutes a violation of Chapter 75-1.1 as a matter of law.  Belmont Land and Investment Co. v. Standard Fire Ins. Co., 403 S.E.2d 924, 926 (N.C. App. 1991).  See also Miller v. Nationwide Mut. Ins. Co., 435 S.E.2d 537, 542 (N.C. App. 1993)(violation of consumer protection act gives rise to liability under unfair trade practices act).

  In Gray v. Grain Dealers Mutual Ins. Co., 871 F.2d 1128 (D.C. Cir. 1989), the D.C. Circuit predicted that North Carolina would recognize a plaintiff's right to recover an excess judgment based upon an assignment of the insured's claim against its primary insurer without regard to whether the insured could have satisfied the judgment.  The court further found that the insurer's failure to defend the case, after promising the insured that it would "take care of it", required it to provide coverage for the resulting judgment.

  Actions "arising out of contract" are assignable under North Carolina law.  N.C. Gen. Stat. §1-57 (1983).  However, North Carolina courts have ruled that personal tort claims are not assignable since they would promote champerty, which is against public policy.   Accordingly, the Court of Appeals ruled in Horton v. New South Ins. Co., 468 S.E.2d 856 (N.C. App. 1996) that an action against a liability insurer for failing to settle within policy limits and for bad faith were personal to the policyholder and could not be assigned to the underlying tort claimant.

  Under North Carolina law, an injured third-party tort claimant has no right to assert a claim against a liability insurer for unfair or deceptive claims handling practices.  Wilson v. Wilson, 468 S.E.2d 495 (N.C. App. 1996).  

  An insurer may not be held vicariously liable for the malpractice of its appointed defense counsel in defending the insured.  Brown v. Lumbermans Mutual Casualty Co., 369 S.E.2d 367, 371 (N.C. App. 1988), affirmed, 390 S.E.2d 150 (N.C. 1990).  
 

  BREACH OF POLICY CONDITIONS

  The purpose of notice provisions is “to protect the ability of the insurer to defend by preserving its ability fully to investigate the accident.”  Great American Insurance Company v. C.G. Tate Construction Company, 279 S.E.2d 769,775 (N.C. App. 1981).  In analyzing a late notice defense, the North Carolina Supreme Court has articulated a three step test: first, the court must consider whether the notice was given as soon as practicable.  If not, the court should consider whether the insured acted in good faith.  That is to say whether he had actual knowledge that a claim might be filed against him.  If the good faith test is meant, the burden then shifts to the insurer to show that its ability to investigate and defend the claim was materially prejudiced by the delay.  279 S.E.2d 769, 776.

  Under North Carolina law, the requirement of timely notice is an "essential part of the insurance contract."  Great American Ins. Co. v. C.G. Tate Construction Co., 279 S.E.2d 769, 775 (N.C. 1981). Whether an insured has given timely notice is determined by a three step test.  The first step is whether the notice was given "as soon as practicable."   Second, a court will look to whether the insured acted in good faith in attempting to provide timely notice.  If this 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 insured's delay.  Id. at 776.  "Unless the insurer's allegations that notice was not timely are patently groundless, the first part of the test is met by the fact that the insurer has introduced the issue to the court at all."  Great American Ins. Co. v. C.G. Tate Construction Co., 340 S.E.2d 743, 747 (N.C. 1981).  

  The North Carolina Court of Appeals has ruled that an endorsement tolling the notice of "occurrence" requirement in a liability policy until the occurrence comes to the attention of the insured's risk manager does not affect the separate requirement that the insured give immediate written notice upon receipt of a claim or suit.  Royal Ins. Co. of American v. The Cato Corp., No. COA96-545 (N.C. App. March 4, 1997).
 

  "BROAD FORM COVERAGES"

  Coverage is limited to the specifically enumerated torts. Russ v. Great American Ins. Co., 464 N.E.2d 723 (N.C. App. 1995), review denied, 467 S.E.2d 905 (N.C. 1996)(sexual harassment claims are not "invasion of privacy") and Fieldcrest Cannon, Inc. v. Firemans Fund Ins. Co., 1996 WL 635744 (N.C. App. November 5, 1996) (refusing to find that damage to reputation from insured's employment discrimination practices fell within coverage for libel and slander).  

  The Fourth Circuit has affirmed a lower court's ruling that personal injuries suffered by inhalation of toxic fumes inside the plaintiff's restaurant were not a claim for "wrongful entry, eviction or other invasion of the right of private occupancy."   Whiteville Oil Co. v. Federated Mutual Ins. Co., 87 F.3d 1310 (4th Cir. 1996)(Unpublished--full text at 1996 U.S. App. LEXIS 14590). 

  "Unfair competition" only applies to claims between business competitors.  Henderson v. USF&G, 1997 WL 422756 (N.C. App. July 24, 1997).
 

  BURDEN OF PROOF

 Under North Carolina law, an insurer has the burden of proving a claim within the scope of insurance coverage.  Hobson Construction Company, Inc. v. Great American Insurance Company, 322 S.E. 2nd 632, 635 (N.C. App. 1984);Shearin v. Globe Ind. Co., 148 S.E.2d 560, 267 N.C. 505 (1966) and Devine v. Aetna Cas. & Sur. Co., 198 S.E.2d 471, 19 N.C. App. 198 (1973).  If the insured satisfies this burden, the insurer must then prove that a policy exclusion precludes coverage.  Security Ins. Co. v. Parker, 210 S.E.2d 741, 24 N.C. App. 452 (1975).  

  The North Carolina Court of Appeals has ruled that the insured has the burden of proving an exception to an exclusion.  Home Indemnity Co. v. Hoechst Celanese Corp., 494 S.E.2d 774 (N.C. App. 1998), review denied (N.C. 1998).

  CHOICE OF LAWS

  N.C.G.S. §58-3-1 specifies that "all contracts on property, lives or interests in this State shall be deemed to be made therein, and all contracts of insurance the applications for which are made within the State shall be deemed to have been made within this State and are subject to the laws thereof."  The North Carolina Supreme Court has extended this statute to a policy that had been procured in California but insured a North Carolina facility.  Collins & Aikman Corp. v. The Hartford Acc. & Ind. Co., 436 S.E.2d 243 (N.C. 1993).

  North Carolina courts have also found that the choice of law for contract cases is the place of contract and for torts is the law of the situs.  Terry v. Pullman Trailmobile, A Division of Pullman, Inc., 92 N.C. App. 687, 376 S.E.2d 47 (1989); Boudreau v. Baughman, 322 N.C. 331, 368 S.E.2d 849 (1988).    
 

  "CLAIMS MADE" ISSUES

  The North Carolina Court of Appeals ruled in American Continental Ins.  Co.  v.  Phico Ins.  Co., No.  COA98-728 (N.C. App.  March 2, 1999), that a precautionary notice of claim filed by a hospital after receiving a request for medical records triggered coverage under its professional liability policy.  Even though the insured’s risk manager testified that she believed that a “claim” did not arise until suit was actually filed, the court declared that these circumstances fell within the policy’s definition of “claim” as “an act or omission which the insured reasonably believes will result in an express demand for damages....” For similar reasons, the appellate court ruled that the successor carrier whose policy was in effect when suit was actually filed had no obligation to afford coverage since its policy excluded claims that were reasonably foreseeable to the insured prior to the policy period.  

  "DAMAGES"

  North Carolina Supreme Court ruled in C.D. Spangler v. Industrial Crankshaft & Engineering Co., 326 N.C. 133, 388 S.E.2d 557 (1990) that clean up costs are covered.  Punitive damages were held to be "damages because of bodily injury" rather than excluded "fines and penalties"  in Collins & Aikman v. The Hartford Acc. & Ind. Co., 436 S.E.2d 243 (N.C. 1993).

  Where the insured confesses to a judgment and assigns its coverage rights to the tort claimant pursuant to a settlement barring the claimant from recovering under non-insurance proceeds, the resulting action by the claimant against the insurer was not for sums that the insured was "legally obligated to pay." Lida Mfg. Co. v. U.S. Fire Ins. Co., 448 S.E.2d 854 (N.C. App. 1994).  Similarly, the Court of Appeals ruled in Terrell v.  Lawyers Mutual Liability Ins.  Co.  of North Carolina, 1998 WL 865121 (N.C. App.  December 15, 1998) that a professional liability insurer did not owe coverage for a judgment that the insured had confessed to after the carrier withdrew from his defense since these were not sums that the insured was “legally obligated to pay” because the assignment of rights that the insured had executed required the plaintiff to recover only against the insurance company and therefore mooted any personal obligation or liability on the part of the insured.  
 

  DECLARATORY JUDGMENT ACTIONS

  An insurer that receives a demand for a defense should file a coverage suit against its insured seeking a declaration that it does not owe coverage or defend the insured under a reservation of rights.  St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 724 F.Supp. 1173 (M.D.N.C. 1989), aff'd, 919 F.2d 235 (4th Cir. 1990). If it refuses to do either, the insurer will be deemed to have waived the right to contest the scope of its indemnity obligation if it is found to have owed a defense.  Ames v. Continental  Cas. Co., 79 N.C. App. 530, 340 S.E.2d 479 (1986), rev. denied, 316 N.C. 730, 345 S.E.2d 385 (1986).

     An insurer that wrongfully refuses to defend may be liable both for the cost incurred by the insured in defending the suit and for other court costs and expenses incurred by the insured in pursuing coverage.  Bruce Terminix Co.  v.  Zurich Ins.  Co., 1998 WL 610653 (N.C. App.  September 15, 1998), citing Insurance Co.  v.  Insurance Co., 176 S.E.2d 751, 754 (N.C. 1970).  
 

  DISCOVERY ISSUES

   --Claims Manuals
 

   --Drafting History
 

   --Other Policyholder Claims
 

   --Reinsurance Information
 

   --Reserves
 

  DUTY TO DEFEND

  Insurer must consider pleadings and facts known to it.  "Where the insurer knows or could reasonably ascertain facts that, if proven, would be covered by its policy, the duty to defend is not dismissed because the facts alleged...appear to be outside coverage, or within a policy exception to coverage."  Waste Mgt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 340 S.E.2d 374, 377 (1986).  However, an insurer may not deny coverage on the basis of such extrinsic facts.  St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 724 F.Supp. 1173 (M.D.N.C. 1989), aff'd, 919 F.2d 235 (4th Cir. 1990).  

  The cost of pursuing counter-claims are not a cost of defense.  See Duke University v. St. Paul Mercury Insurance Company, 384 S.E.2d 36, 46 (N.C. App. 1989).

  An insurer may not prematurely terminate its defense obligation by tendering its policy limits prior to any judgment or settlement.  Brown v. Lumbermen’s Mutual Casualty Company, 326 N.C. 387, 390 S.E.2d 150 (1990).

  An insured is not entitled to reimbursement for defense costs incurred prior to the date that it tendered the defense of its action to its liability insurer.  William C. Vick Construction Company v. Pennsylvania National Mutual Casualty Insurance Company, 1999 WL 412328 (E.D.N.C. March 24, 1999), aff’d mem. No. 99-1577 (4th Cir. April 28, 2000)(unpublished).

  Legal fees incurred for obtaining coverage advice are not defense costs within the scope of an insurer’s duty to defend.  Absence a claim of bad faith, the insurer has no obligation to pay such fees.  Collins & Aikman Products Company v. Hartford Accident and Indemnity Company, 481 S.E.2d 96, 97-98 (N.C. App. 1996) and William C. Vick Construction Company v. Pennsylvania National Mutual Casualty Insurance Company, 1999 WL 412328 (E.D.N.C. March 24, 1999).

  An insurer who wrongfully refuses to defend a suit against its insured is liable to the insured for the natural consequences of the breach, including sums expended in payment or settlement of the claim, defense costs (including attorneys’ fees and expenses), court costs, and any other costs incurred because of the refusal of the insurer to defend. Bruce-Terminix Co. v. Zurich Ins. Co., 504 S.E.2d 574,580 (N.C. Ct. App. 1998).

  The North Carolina Supreme Court ruled that PRP letters are the equivalent of a "suit" in C.D. Spangler, supra.

  An insurer's duty to defend is not terminated by exhaustion of its indemnity limits; the insurer must continue to defend any pending suits until their conclusion. Brown v. Lumbermens Mut. Cas. Co., 326 N.C. 387, 390 S.E.2d 150 (1990).
 

  ESTOPPEL AND WAIVER

  An insurer that wrongfully refuses to defend is estopped from disputing its obligation to indemnify its insured for an ensuing settlement.  Ames v. Continental Cas. Co., 79 N.C. App. 530, 340 S.E.2d 479 (1986); St. Paul Fire & Marine Ins. Co. v. Vigilant, 919 F.2d 235 (4th Cir. 1990).

  The doctrine of estoppel may not be relied upon to extend coverage to claims or losses beyond what was originally contracted for.  Pearce v. American Defender Life Ins. Co., 343 S.E.2d 174, 177 (N.C. 1986).
 

  EXCESS INSURERS

  An excess insurer may maintain a direct claim against a primary insurer whose negligent claim handling has resulted in a verdict in excess of the primary limits.  U.S. Fire Ins. Co. v. USF&G, 735 F.Supp. 1320 (E.D.N.C. 1990).  An excess insurer was held to have a duty to defend in W & J Rives, Inc. v. Kemper Ins. Group, 92 N.C. App. 313, 374 S.E.2d 430 (1988), further appellate review denied, 378 S.E.2d 809 (N.C. 1989).

  The North Carolina Court of Appeals ruled that an excess carriers whose policies were written over "collectible" primary insurance did not have to "drop down" when the primary insurer became insolvent.  Newton v. U.S. Fire Ins. Co., 98 N.C. App. 619, 391 S.E.2d 837 (1990).  See also  North Carolina Ins. Guaranty Assoc. v. Century Indem. Co., 444 S.E.2d 464 (N.C. App. 1994), rev. denied, 448 N.E.2d 532 (N.C. 1994)(policy issued excess of "amount recoverable" was unambiguous).
 

  NUMBER OF OCCURRENCES

  The North Carolina Supreme Court has ruled that when injury-in-fact occurs on a date certain and all subsequent damages flow from the single event, there is but a single occurrence.  Gaston County Dyeing Machine Company v. Northfield Insurance Company, 524 N.E.2d 558 (N.C. 2000).

  Applying a "cause" test, the North Carolina Court of Appeals has ruled that 24 separate acts of embezzlement committed by a church treasurer over the course of a year all arose out of the employee's "related acts" and therefore were subject to a single "occurrence" limit of $5,000 for fidelity claims. Christ Lutheran Church v. State Farm Fire & Casualty Company, No. COA95-873 (N.C. App. June 4, 1996).
 

  OTHER INSURANCE

  Self-insured retention was not insurance subject to "other insurance" clause.  Wake County Hospital System, Inc. v. National Cas. Co., 804 F.Supp. 768 (E.D.N.C. 1992).
 

  POLLUTION EXCLUSION

  The North Carolina Supreme Court ruling in Waste Management was among the first in the country to give an unambiguous interpretation to "sudden,"  declaring that pollution occurring over a period of years was gradual and therefore not "sudden."  Accord, Harleysville Mutual Ins. Co. v. R.W. Harp and Sons, Inc., 409 S.E.2d 418 (S.C. App. 1991)(interpreting North Carolina law).

  The Court of Appeals has ruled that an insured has the burden of proving that waste discharges were "sudden and accidental." Home Indemnity Co. v. Hoechst Celanese Corp., 494 S.E.2d 774 (N.C. App. 1998), review denied. (N.C. 1998).  The court ruled that spills and leaks which had occurred during the day-to-day operations and which present an overall pattern of discharges are not sudden and accidental.  Further, even in the case of a relatively extreme discharge (a 1974 fire), the court ruled that the insured had not shown that the fire was more than a de minimis source of the pollution, agreeing with the Aerovox analysis of the Supreme Judicial Court of Massachusetts.  

  Regulatory estoppel arguments were rejected by a U.S. District Court in Wysong & Miles Co. v. Employers Ins. Co. of Wausau, 4 F.Supp.2d 421 (M.D.N.C.  1998). the court refused to find that the insured had relied on any statements made by the insurers, nor did the court agree that the insured could make a "secondary reliance" argument based on dealings between the insurers and state regulators.

  A federal district court has also ruled that repetitive and routine disposal is not "accidental." Peerless Ins. Co. v. Strother, 765 F.Supp. 866 (E.D.N.C. 1990).  

  Just as the Supreme Court was one of the first to uphold the old pollution exclusion, the Court of Appeals was the first significant state decision to find fault with the new "absolute" exclusion.  In West American Ins. Co. v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. 1991), the court held that the absolute exclusion did not apply to allegations that emissions of styrene gas from the insured's reflooring operations had contaminated frozen poultry parts in a Perdue plant.  The court questioned whether the exclusion was meant to apply to indoor exposures but based its ruling on a determination that the exclusion did not apply to "completed operations."  Similarly, in Dillon v. American Alliance Ins. Co., Wake No. 92-CVS-04096 (N.C. Super. October 29, 1993), a trial court ruled that the exclusion was inapplicable to indoor exposures.

  However, in Whiteville Oil Co. v. Federated Mutual Ins. Co., 889 F.Supp. 241 (E.D.N.C. 1995), aff'd, 87 F.3d 1310 (4th Cir. 1996), the Fourth Circuit summarily affirmed a District Court ruling that a restaurateur's claim for personal injuries and lost profits after she was forced to close her business because of sickness caused by lead fumes from an abutting gas station was within the scope of the "absolute" pollution exclusion.

  Further, a federal court ruled in Pennsylvania National Mutual Casualty Ins. Co. v. Triangle Paving, Inc., 5:95-CV-892 (E.D.N.C. December 30, 1996), aff'd per curiam, 121 F.3d 699 (4th Cir.  1997)(Unpublished–full text at 1997 U.S. App. LEXIS 19274 (4th Cir. July 29, 1997) that the exclusion would apply to sedimentation claims against a building contractor resulting from his failure to control erosion at the job site  the court rejected the insured's argument that the definition of "pollutant" should only extend to man-made contamination, holding that although "sediment" was not among the enumerated types of pollution in the exclusion, the exclusion itself stated that these were merely examples and were not intended to be all inclusive. the court distinguished Tufco as involving a situation where the discharge of pollutants was central to the insured's business, unlike the facts here, where the policy covered many other risks and the incidents giving rise to pollution were an inadvertent outcome of other work.  These findings were affirmed by the Fourth Circuit in a brief, unpublished opinion.

  The North Carolina Court of Appeals ruled in Home Indemnity Co. v. Hoechst Celanese Corp., 494 S.E.2d 768 (N.C. App. 1998), review denied (N.C. 1998) that the failure of certain insurers to obtain approval from the North Carolina Insurance Commissioner to use absolute pollution exclusions did not render such exclusions void and unenforceable where the form was subsequently approved for use.
.

  PUNITIVE DAMAGES

  Punitive awards are not insurable if awarded on the basis of harm that was expected or intended by the insured.  St. Paul Mercury Ins. Co. v. Duke University, 670 F.Supp. 630 (M.D.N.C. 1987), aff'd in part, rev'd in part, 849 F.2d 133 (4th Cir. 1988).  Coverage allowed if merely based on gross negligence, however.  Mazza v. Medical Mutual Ins. Co., 311 N.C. 621, 319 S.E.2d 217 (1984).  In Mazza, the North Carolina Supreme Court rejected the insurer's argument that it was against public policy to indemnify an insured for such awards.   Accordingly, coverage will be required unless the policy expressly excludes coverage for such awards. Boyd v. Nationwide Mut. Ins. Co., 424 S.E.2d 168 (N.C. App. 1993)(coverage required under policy insuring “any final judgment against insured for bodily injury) and Collins & Aikman v. The Hartford Acc. & Ind. Co., 436 S.E.2d 243 (N.C. 1993).
 

  STANDARDS FOR POLICY INTERPRETATION

  "An insurance contract should be construed as a reasonable person in the position of the insured would have understood it.  If the language used in the policy is reasonably susceptible to different constructions, it must be given the construction most favorable to the insured."  W & J Rives, Inc. v. Kemper Ins. Group, 92 N.C. App. 313, 374 S.E.2d 430 (1988) and Grant v. Emmco Ins. Co., 295 N.C. 39, 243 S.E.2d 894 (1978).  A difference in judicial opinion regarding the meaning of a policy term is some evidence of ambiguity.  Brown v. Lumbermens Mut. Cas. Co., 326 N.C. 387, 390 S.E.2d 150 (1990)(holding that term "exhaust" is ambiguous).  In the absence of a definition in the policy, non-technical terms will be given their ordinary and popular meaning.  Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 172 S.E.2d 518, 522 (1970).  Exclusions are disfavored and will be construed strictly in favor of coverage.  Blake v. St. Paul Fire & Marine Ins. Co., 248 S.E.2d 388, 390 (1978).

  The North Carolina Court of Appeals has ruled that, absent unusual circumstances, a policyholder has no duty to read his or her own insurance policy.  In  Baggett v. Summerlin Insurance, No. COA00-458 (N.C. App. April 17, 2001), the court ruled that an insured’s negligence action against an agent for failing to get insurance with flood coverage was not barred by its failure to read its own insurance policy since a reasonable prudent person, under the circumstances, would not have read the policy or have noticed the flood exclusion in the policy that the agent did procure.

  Reformation is permitted to correct a mutual mistake of fact based upon clear and convincing evidence as to what both parties actually intended.  Metropolitan Property & Casualty Ins. Co. v. Dillard, 1997 WL 393119 (N.C. App. July 15, 1997) (policy reformed where wrong street number given for insured's address).
 

  THEORIES OF ALTERNATIVE LIABILITY

  Federal court refused to adopt theories of "alternative liability", "market share liability" or "enterprise liability." Griffin v. Tenneco Resin, Inc., 648 F.Supp. 964 (W.D.N.C. 1986).  Accord, Ryan v. Eli Lilly & Co., 514 F.Supp. 1004 (D.S.C. 1981).
 

  TRIGGER OF COVERAGE

  Prior to 2000, it was believed that North Carolina would follow a “manifestation” approach to long tail claims.     Home Indemnity Co. v. Hoechst Celanese Corp., 494 S.E.2d 764 (N.C. App. 1998), review denied (N.C. 1998); Bruce Terminix Co.  v.  Zurich Ins.  Co., 504 S.E.2d 574 (N.C. App.  1998) and West American Ins. Co. v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. 1991).  But see  Imperial Cas. & Ind. Co. v. Radiator Specialty Co., 862 F.Supp. 1437 (E.D.N.C. 1994), aff'd mem., No. 94-2325 (4th Cir. October 31, 1995)(predicting that North Carolina would adopt an "exposure" analysis with respect to latent disease claims) and Unimax Corp. v. Lumbermans Mutual Casualty Co., 908 F.Supp. 148 (S.D.N.Y. 1995)(predicting that North Carolina would adopt an “injury in fact” approach for pollution claims).

  In Gaston County Dyeing Machine Company v. Northfield Insurance Company, 524 N.E.2d 558 (N.C. 2000), however, the North Carolina Supreme Court expressly overturned this aspect of Tufco and ruled instead that an “injury in fact” trigger was appropriate for such cases. Thus, “where the date of the injury-in-fact can be known with certainty, the insurance policy or policies on the risk on that date are triggered.”

Home                    Index of Subject              List of State by State