Ames v. Continental Cas. Co.

Decision Date04 March 1986
Docket NumberNo. 8518SC587,8518SC587
Citation79 N.C.App. 530,340 S.E.2d 479
CourtNorth Carolina Court of Appeals
PartiesAntony Williams AMES, as representative of those underwriters at Lloyd's, London subscribing Lloyd's Professional Indemnity Policy Number 0110147/0146036, Walbrook Insurance Company, Winterthur Swiss Insurance Company, Southern American Insurance Company, Mutual Reinsurance Company Limited, St. Katherine Insurance Company Limited, London & Edinburgh General Insurance Company Limited, Bermuda Fire & Marine Insurance Company Limited, Excess Insurance Company Limited, Turegum Insurance Company, Unionamerica Insurance Company Limited, Yasuda Fire & Marine Insurance Company (U.K.) Limited, Guardian Royal Exchange Assurance, Trident General Insurance Company Limited, Bellefonte Insurance Company, Terra Nova Insurance Company Limited, Assicurazioni Generali, T. Frank Booth, Clark C. Burritt, Jr., Thomas J. Cribbin, Robert E. Edmonds, Jimmy D. Gambill, Oba T. Hanna, Jr., Christopher J. Moran, John R. Pugh, C. Robert Surratt, Harry L. Laing, Billy G. Clodfelter, Bobby R. Curtis, Kenneth H. Eidson, Billy E. Green, Sterling L. Hudson, Ashley S. James, Jr., Frederick E. Lewis, Richard H. Llewellyn, Mildred Mashburn, John L. Matthews, Bernard B. Moreland, William H. Stone, Jr., Thomas R. Woodard, Billy Mittelstadt, H. James Toland, Jr., S. Ben Herbert, George H. Rogers, Jr., James A. Shaver, C. Edward Barger, Charles L. Ezell, III, James D. Fussell, Robert P. McNairy, Joe F. Ogburn, Earl H. Ward, Claude F. Phillips, Gale D. Eidson, M.T. Daniel, O. Kenneth Spainhour, Benny F. Stroupe, Gorrell L. Tate, Dick R. Warfford, Julian C. Knott, Sam B. Andrews, Samuel R. Henderson, D. Frederick Weir, Jr., Kenneth F. Winton, Thomas G. Horne, John S. Tolbert, Gerald C. Burke, Ralph M. Hungerpiller, W. Glenn Jenkins, Paul R. Oken, Joe M. Knowles, Brice L. Holland, George D. Harris, James D. Moulton, Carlton E. Taylor, James L. Dallas, Wesley W. Taylor, A.K. Anderson, Marlin P. Alt, Mensel D. Dean, Jr., James G. Sprinkel, Mervin B. Stickley, Robert C. Peery, C. Philip Avery, Jr., Forrest W. Br

Brooks, Pierce, McLendon, Humphrey & Leonard by L.P. McLendon, Jr. and John L. Sarratt, Greensboro, for plaintiffs-appellants.

Henson, Henson & Bayliss by Perry C. Henson and Paul D. Coates, Greensboro, for defendant-appellant.

ARNOLD, Judge.

I.

Continental first contends that the trial court erred in concluding that the Lloyd's policy provided "excess" coverage for acts and omissions occurring before December 1971. Assuming its policies covered Travelers' underlying claims, Continental does not dispute that it is a primary insurer for occurrences in 1971. Continental argues instead that Lloyd's is also a primary carrier for acts and omissions occurring in 1971, and that any obligations owed to Pullen should have been shared on a pro rata basis by Continental and Lloyd's. We disagree.

The controversy centers upon the following section of the Lloyd's policy:

III. EXCLUSIONS

This policy excludes:

....

2. any claim which is insured by any other existing valid policy under which payment of the claim is actually made, except in respect of any excess beyond the amount or amounts of such payments under such other policy....

Continental alleges the facts in this case do not trigger the exclusion, and therefore Lloyd's cannot claim benefit under this clause. Continental asserts that its policy is not "existing" within the meaning of the exclusion, claiming that its policy was "a previously existing policy" rather than an "existing valid policy." This is not a proper distinction. Continental's policy provided coverage if the act or omission occurred during the policy period. Continental's expert witness Mr. Perry Fuller testified that theoretically an "occurrence" policy would provide coverage forever, subject of course to any applicable statute of limitations. So, even though premiums were no longer being paid toward the Continental policy, that policy was still providing coverage for acts or omissions occurring before December 1971. Thus that policy is valid and "existing" within the meaning of the exclusion.

Continental also asserts its policy is not one "under which payment of the claim was actually made." Payment has not been made under the Continental policy simply because Continental has denied coverage and refused to pay. For reasons stated later in this opinion, the trial court properly found that this denial of coverage was wrongful and unjustified. An insurer cannot avoid its liability by refusing to defend or pay a claim for which it is liable under the terms of its policy. An insurer cannot profit at the expense of another by its own breach of contract. See Maryland Casualty Co. v. Marquette Casualty Co., 143 So.2d 249 (La.App.1962). The trial court properly concluded that the exclusion in the Lloyd's policy is applicable to this action. Under that exclusion, Lloyd's provides only "excess" coverage for acts and omissions occurring before December 1971.

II.

Continental next contends that the trial court erred in retroactively applying the decision of Great American Insurance Co. v. Tate Construction Co., 303 N.C. 387, 279 S.E.2d 769 (1981), to the facts in this case. In Great American the court rejected a strict contract construction of the notice requirement contained in insurance policies and overruled the Peeler-Muncie-Fleming line of cases. Fleming v. Insurance Co., 261 N.C. 303, 134 S.E.2d 614 (1964); Muncie v. Insurance Co., 253 N.C. 74, 116 S.E.2d 474 (1960); Peeler v. Casualty Company, 197 N.C. 286, 148 S.E. 261 (1929). Plaintiffs argue in rebuttal, among other things, that even under the law prior to Great American, Continental was not relieved of its obligation to defend Pullen. We need not address the question of the retroactive application of Great American. We agree with plaintiffs that even under the more restrictive prior law Continental was obligated to defend Pullen, and its denial of coverage was wrongful and unjustified.

The Continental policy required that notice of any act or omission which might be expected to be the basis of a claim or suit be given by the insured "as soon as practicable." "As soon as practicable" under the Muncie line of cases means to give notice within a reasonable time. Muncie, 253 N.C. at 82, 116 S.E.2d at 480 (Parker, J., concurring); Trust Co. v. Insurance Co., 44 N.C.App. 414, 261 S.E.2d 242 (1980). Continental claims the notice it received was untimely, thus relieving it from any alleged duty to defend.

What constitutes a reasonable time depends upon the facts and circumstances of each particular case. Harris v. Insurance Co., 261 N.C. 499, 135 S.E.2d 209 (1964); see also Annot., 18 A.L.R.2d 443, § 16 (1951). The facts relating to the notice given Continental are not in dispute. In December 1976 Pullen allowed attorneys for Travelers to examine certain work papers pertaining to financial statements issued between 1967 and 1973. Pullen notified Lloyd's of a possible suit by Travelers in a letter dated 4 January 1977. Travelers filed and served its complaint in the Fulton County Superior Court in Atlanta, Georgia on 14 January 1977. During discovery in that case, Pullen became aware that the Continental policies might also cover the Travelers' claims. Pullen notified Continental of the Travelers' action by letter dated 15 September 1977.

What is a reasonable time, when the facts are not in dispute, as here, is a question of law to be decided by the Court. Muncie, 253 N.C. at 83, 116 S.E.2d at 480 (Parker, J., concurring); Trust Co. 44 N.C.App. at 421, 261 S.E.2d at 246. The trial court found that the notice given Continental was untimely, stating that Pullen negligently failed to investigate Continental's possible coverage and exhibited a lack of diligence in failing to comply with the requirements of timely notice. The evidence does not support the trial court's finding of negligence and lack of diligence. The conclusion of untimely notice was error.

The evidence indicates that at the earliest, Pullen was aware of a potential suit sometime in December 1976--providing at most a nine-month delay in giving Continental notice. The Continental policy had been cancelled for over five years and no premiums had been paid on this policy since its cancellation. Mr. Thomas J. Cribbin, the managing partner of Pullen, was responsible for handling the firm's insurance matters. He did not become managing partner until 1 November 1976, and thus had had no contact with Continental. The Travelers' suit was a very complex case of alleged professional malpractice involving large numbers of documents. The discovery in that case lasted for months. During discovery Pullen learned that the Continental policy, though cancelled for over five years, might still provide coverage for the Travelers' action. Immediately upon becoming aware of the possible coverage, and within two days after having reviewed the Continental policies, Pullen sent written notification of the Travelers' suit to Continental....

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