Allstate Ins. Co. v. Old Republic Ins. Co., 8026SC235

• Decision Date: 07 October 1980
• Docket Number: No. 8026SC235,8026SC235
• Citation: 49 N.C.App. 32,270 S.E.2d 510
• Court: North Carolina Court of Appeals
• Parties: ALLSTATE INSURANCE COMPANY, v. OLD REPUBLIC INSURANCE COMPANY.

Page 510

270 S.E.2d 510

49 N.C.App. 32

ALLSTATE INSURANCE COMPANY, v. OLD REPUBLIC INSURANCE COMPANY.

No. 8026SC235.

Court of Appeals of North Carolina.

Oct. 7, 1980.

Walker, Palmer & Miller by James E. Walker and Robert P. Johnston, Charlotte, for plaintiff-appellant.

Golding, Crews, Meekins, Gordon & Gray by John G. Golding, Charlotte, for defendant-appellee.

VAUGHN, Judge.

The substantive issue is whether an insurance company may invalidate its binder coverage because the insured procured other insurance, as prohibited by the company's standard insurance policy, when no actual policy was ever issued. Plaintiff argues that termination of binder coverage in this manner violates G.S. 58-176, and therefore First, it is necessary to understand the position plaintiff is taking here. Plaintiff does not deny its own coverage of the Watkins' house on the date of the fire, 26 August 1975. Rather, it contends that certain statutory provisions prevented defendant's imposition of an "other insurance" clause upon its binder, and thus defendant is liable for its prorata share of the fire loss. In sum (and we quote), "(a)t the root of Plaintiff's theory of the case is its view that both Plaintiff and Defendant had bound coverage on the same Watkins' dwelling, and that, consequently, both parties to the lawsuit were bound by the terms of the policy provided by statute, as neither had issued policies." On the other hand, defendant denies that its coverage was in effect beyond 20 August 1975, the date plaintiff bound coverage on the property and relies exclusively on its standard policy provision:

defendant's motion for summary judgment was erroneously granted. We do not agree.

Unless otherwise provided in writing added hereto, other insurance covering on any item of this policy is prohibited. If, during the term of this policy, the Insured shall have any such other insurance, whether collectible or not, and unless permitted by written endorsement added hereto, the insurance under this policy, insofar as it applies to such item(s) on which other insurance exists, shall be suspended and of no effect.

Plaintiff does not dispute that this "other insurance" clause is included in all of defendant's fire insurance policies or that defendant did not allow other insurance on the house by its written endorsement. It also admits that if defendant had issued its standard policy with an endorsement prohibiting other insurance before 20 August 1975, defendant's coverage would have been invalidated.

Second, it is necessary to consider insurance binders generally. A binder is a temporary contract of insurance, consisting of the insurer's bare acknowledgment of its contract to protect the insured against a specified casualty until a formal policy can be issued. A binder does not have to be in a specific form or set forth all the terms of the contemplated policy. Sloan v. Wells, 296 N.C. 570, 251 S.E.2d 449 (1979); Wiles v. Mullinax, 270 N.C. 661, 155 S.E.2d 246 (1967). The statutory fire insurance provisions, however, are read into all binders whether oral or written. G.S. 58-177(4); Mayo v. Casualty Co., 282 N.C. 346, 192 S.E.2d 828 (1972). The provisions of G.S. 58-176 at lines 25-27 and 86-89, respectively are pertinent to the instant case:

Other Insurance. Other insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto.

Pro-rata liability. This Company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not.

At the outset, we must note that G.S. 58-176 does not prohibit the inclusion of other insurance clauses in policies written in this State. The statute clearly permits such a clause to be included in a policy by endorsement. It merely declines to make the clause a standard policy provision as it was formerly. See Johnson v. Insurance Co., 201 N.C. 362, 160 S.E. 454 (1931); Black v. Insurance Co., 148 N.C. 169, 61 S.E. 672 (1908). Thus, G.S. 58-176 does not change prior law that if a valid other insurance clause is breached, the insurer may void the entire policy. Hiatt v. Insurance Co., 250 N.C. 553, 109 S.E.2d 185 (1959); Insurance Co. v. Indemnity Corp., 24 N.C.App. 538, 211 S.E.2d 463 (1975).

What we have before us then is not a case like Insurance Co. v. Casualty Co., 283 N.C. 87, 194 S.E.2d 834 (1973), where the terms of an insurance policy conflicted with the statutory provisions deemed to be included therein. The question here is whether the clause in defendant's standard policy may be given effect in a binder when no policy was ever issued, and even though the binder is deemed to include all of the provisions of G.S. 58-176. We conclude that it may.

A binder is subject to the conditions of the policy contemplated, and generally when one accepts a binder, he accepts all the terms of the underlying insurance contract. 12 Appleman, Insurance Law and Practice § 7225 (1943 & Supp. 1980). This is true even though the policy is never issued.

By intendment, it is subject to all the conditions in the policy to be issued. These informal writings are but incomplete and temporary contracts-memoranda given in aid of parol agreements. Such memoranda usually fix all the essential provisions that are available, but they are not ordinarily intended to include all the terms of the agreement, and always look to the formal policy that is expected subsequently to issue for a complete statement of the contract made. Hence, as heretofore stated, the contract evidenced by the binding slip is subject to all the conditions of the contemplated policy, even though it may never issue, and the same is true of other informal written contracts.

Gardner v. Insurance Co., 163 N.C. 367, 371-72, 79 S.E. 806, 808 (1913) (citations omitted). There can be no question in the present case that the binder was expressly controlled by the policy. The Federal Land Bank notified Mr. Watkins by letter that it had obtained the binder from defendant on his behalf because of a lapse in insurance coverage. That letter dated 22 August 1975 included the following attached announcement:

IMPORTANT

(1) Your rights, duties and responsibilities under the insurance contract which the bank has procured are controlled generally by the standard policy provisions and the provisions of standard forms attached thereto. It is suggested that you acquaint yourself with these provisions.....

Since defendant included a provision against additional insurance in all of its policies, its binders were also...