529 S.E.2d 676 (N.C. 2000), 84PA99, Gray v. North Carolina Ins. Underwriting Ass'n

• Citation: 529 S.E.2d 676, 352 N.C. 61
• Party Name: Jack S. GRAY and Mary B. Gray t/a Tower Circle Motel v. NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION.
• Case Date: June 16, 2000
• Court: North Carolina Supreme Court

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529 S.E.2d 676 (N.C. 2000)

352 N.C. 61

Jack S. GRAY and Mary B. Gray t/a Tower Circle Motel

v.

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION.

No. 84PA99.

Supreme Court of North Carolina

June 16, 2000

Page 677

[Copyrighted Material Omitted]

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[352 N.C. 62] On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision of the Court of Appeals, 132 N.C.App. 63, 510 S.E.2d 396 (1999), finding no error in part and reversing in part an amended judgment entered by Parker, J., on 22 April 1997 in Superior Court, Dare County. Heard in the Supreme Court 15 November 1999.

Vandeventer Black LLP, by Norman W. Shearin, Jr., and Robert L. O'Donnell, Kitty Hawk, for plaintiff-appellants.

Cranfill, Sumner & Hartzog, L.L.P., by William W. Pollock; and Smith Helms Mulliss & Moore, L.L.P., by Larry B. Sitton and Matthew W. Sawchak, Raleigh, for defendant-appellee.

FRYE, Chief Justice.

This case involves the relationship between N.C.G.S. § 75-1.1, which prohibits unfair and deceptive acts or practices, and N.C.G.S. § 58-63-15(11), which defines unfair practices in the settlement of insurance claims. See N.C.G.S. § 75-1.1(a) (1999); N.C.G.S. § 58-63-15(11) (1999). Plaintiffs contend that there is competent evidence to support a jury finding that defendant engaged in one or more acts prohibited by N.C.G.S. § 58-63-15(11), with such frequency as to indicate a general business practice constituting a violation of N.C.G.S. § 75-1.1; that the jury's special verdict and the trial court's findings in the amended judgment entitle plaintiffs to a finding that the said acts constituted a violation of N.C.G.S. § 75-1.1 separate from [352 N.C. 63] and not based upon the conclusions made by the trial court in reliance upon a per se violation of N.C.G.S. § 58-63-15(11); that plaintiffs are entitled to treble damages in the amount of $1,119,770.73; and that plaintiffs are entitled to reasonable attorneys' fees pursuant to N.C.G.S. § 75-16.1. For the reasons stated below, we reverse and remand the decision of the Court of Appeals and hold that defendant violated N.C.G.S. § 75-1.1 separate and apart from any violation of N.C.G.S. § 58-63-15(11).

Defendant, the North Carolina Insurance Underwriting Association, is an association of insurance carriers created by the General Assembly under N.C.G.S. § 58-45-10 for the purpose of providing "essential property insurance" for the "beach area." N.C.G.S. §§ 58-45-1, -5, -10 (1999). Defendant issued a commercial windstorm and hail policy of insurance, effective 14 August 1993, to plaintiffs trading as the Tower Circle Motel. The Tower Circle Motel, which consisted of five buildings, was located in the Village of Buxton on Hatteras Island.

The policy insured the Tower Circle Motel against windstorm and hail damage but not against damage arising from flooding or rain. The policy did not provide fire insurance. The policy contained a standard mortgage clause, which provided in pertinent part:

7. MORTGAGE HOLDERS

a. The term "mortgage holder" includes trustees.

b. We will pay for covered loss of or damage to buildings or structures to each mortgage holder shown in the Declarations in their order of precedence, as interests may appear.

.No mortgage holders were listed in the declarations. Further, under the declarations in the insurance policy, plaintiffs' limits for covered losses were as follows: Buildings One and Two in the amount of $116,000 on each building; Buildings Three and Four in the amount of $58,000 on each building; and Building Five in the amount of $81,000. The policy limit for the covered loss to contents was $17,000 each for Buildings One and Two; $5,000 each for Buildings Three and Four; and $8,000 for Building Five.

On 31 August 1993, Hurricane Emily struck the Outer Banks and caused extensive damage to Hatteras Island, including the Tower Circle Motel. Plaintiffs timely filed a claim under their policy with [352 N.C. 64] defendant for the wind damage to their property. Defendant contracted with Crittenden Adjustment Company (Crittenden) to adjust plaintiffs' claim. In a report dated 30 September 1993, Crittenden informed defendant that wind

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damage to Buildings One and Two exceeded the policy limits and recommended damage settlement of $116,000 each for Buildings One and Two. Crittenden also recommended damage settlements for Building Three in the amount of $4,276.38; Building Four in the amount of $4,144.38; and Building Five in the amount of $6,053. Crittenden's assessment of the cause of damages by wind to Buildings One and Two was later substantially corroborated, as were Crittenden's damages estimates. However, defendant did not pay the claims. Defendant concluded that the photographs taken by Crittenden did not reflect substantial damage and did not support the conclusion that Buildings One and Two were "total losses." On 6 October 1993, defendant assigned Martin Cutler as a co-adjuster. About two weeks later, defendant asked Crittenden to withdraw from further handling plaintiffs' claims.

On or about 30 September 1993, during the adjustment process, Georgia Gray, plaintiff Jack Gray's sister-in-law, through her counsel, forwarded to defendant a deed of trust on plaintiffs' property. In a letter accompanying the deed of trust, Ms. Gray's counsel indicated that the deed of trust in favor of Ms. Gray's deceased husband, Charles Gray, was outstanding and that Ms. Gray had succeeded to Charles Gray's interest in the property. Ms. Gray's counsel requested "that any loss payment be made payable to the note holder." Defendant then issued an "advance payment" of $25,000 on 21 October 1993, in the form of a check made payable to plaintiffs and Georgia B. Gray as joint payees. Plaintiffs returned the check on 5 November 1993, advising defendant that Georgia Gray was not a payee on their policy and that plaintiffs' obligation on the deed of trust had been paid in full.

On 10 May 1994, pursuant to a recommendation by Martin Cutler, defendant offered plaintiffs $60,821.51 in settlement of plaintiffs' claims under the policy. Plaintiffs rejected that offer.

Plaintiffs commenced a civil action against defendant in July 1994, asserting claims of breach of contract and unfair and deceptive practices and seeking declaratory judgment. On 10 August 1995, plaintiffs filed a motion for partial summary judgment, specifically asking the court to enter an order finding that "Georgia B. Gray is not entitled to any portion of any payments under the policy of insurance issued by defendant to plaintiffs trading as the Tower Circle Motel." On 11 September 1995, the trial court denied the motion.

[352 N.C. 65] In December 1996, plaintiffs' claims were tried before a jury in the Superior Court, Dare County. After the presentation of evidence from both sides, the trial court submitted issues that were answered by the jury as follows:

ISSUE ONE:

Did the defendant, North Carolina Insurance Underwriting Association, breach the terms of the policy of insurance which was issued to the plaintiffs, Jack and Mary Gray?

ANSWER: YES

ISSUE TWO:

What amount of money damages are the Grays entitled to recover?

ANSWER: $256,256.91

ISSUE THREE:

Did the defendant, North Carolina Insurance Underwriting Association, do at least one of the following:

[ANSWER:] YES

(A) Fail to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;

(B) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear[;]

(C) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled;

(D) Delay in the investigation or payment of claims by requiring an insured claimant to submit a preliminary claim report and then requiring subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;

(E) Failing to promptly settle claims where liability has become reasonably

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clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage[.]

[352 N.C. 66] ISSUE FOUR:

Did North Carolina Insurance Underwriting Association do any one or more of the above-stated acts with such frequency as to indicate a general business practice?

[ANSWER:] YES

ISSUE FIVE:

Were the plaintiffs, Jack and Mary Gray, injured as a proximate result of the defendant, North Carolina Insurance Underwriting Association's conduct?

[ANSWER:] YES

ISSUE SIX:

What amount, if any, have the Grays been injured?

ANSWER: $117,000.00

ISSUE SEVEN:

Are the plaintiffs, Jack and Mary Gray, entitled to be paid the proceeds under the insurance policy free of any claim or interest of any party not entitled to receive payment under said policy?

ANSWER: YES

On 26 March 1997, the trial court entered a judgment that incorporated the jury's verdict and findings. The trial court entered an amended judgment on 22 April 1997, setting out additional findings of fact; awarding plaintiffs $607,256.91, which included breach of contract damages in the amount of $256,256.91 and trebled damages in the amount of $351,000 for defendant's unfair and deceptive acts; awarding prejudgment interest on all sums awarded; and taxing costs to defendant, including attorneys' fees in the sum of $117,000. The trial court found that plaintiffs were entitled to the "proceeds under the policy of insurance free of any claim or interest of any party not entitled to receive payment under that policy."

Defendant appealed to the North Carolina Court of Appeals. Plaintiffs cross-appealed, contending, among other things, that the trial court erred by not concluding that defendant's conduct constituted a violation of N.C.G.S. § 75-1.1 separate and...