Bentley v. North Carolina Ins. Guar. Ass'n

• Decision Date: 21 July 1992
• Docket Number: No. 9022SC1355,9022SC1355
• Citation: 107 N.C.App. 1,418 S.E.2d 705
• Court: North Carolina Court of Appeals
• Parties: Junior William BENTLEY, Plaintiff, v. NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, Corporate Defendant, and Matheson Insurance Agency, Inc., Corporate Defendant, and W.A. Deal, Individual Defendant, Jointly and Severally.

Page 705

418 S.E.2d 705

107 N.C.App. 1

Junior William BENTLEY, Plaintiff, v. NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, Corporate Defendant, and Matheson Insurance Agency, Inc., Corporate Defendant,

and

W.A. Deal, Individual Defendant, Jointly and Severally.

No. 9022SC1355.

Court of Appeals of North Carolina.

July 21, 1992.

Edward Jennings, Taylorsville, for plaintiff-appellant.

Moore & Van Allen, by Joseph W. Eason, Christopher J. Blake, and Margaret A. Nowell, Yates, McLamb & Weyher, by R. Scott Brown, Raleigh, for defendant-appellee North Carolina Ins. Guar. Ass'n.

Kennedy Covington Lobdell & Hickman, by Wayne P. Huckel and Michelle C. Landers, Charlotte, for defendant-appellees Matheson Ins. Agency, Inc., and W.A. Deal.

PARKER, Judge.

Plaintiff appeals from summary judgment granted in favor of all defendants. On 2 August 1989 plaintiff filed a complaint against defendants Interstate Casualty Insurance Company, Inc. ("Interstate"), Matheson Insurance Agency, Inc., and W.A. Deal. Alleging fire loss under a dwelling policy, plaintiff's claims included (i) bad faith refusal to settle plaintiff's claim for loss, (ii) negligence and breach of fiduciary duty, and (iii) unfair or deceptive trade practices. Relief prayed for included compensatory damages in the amount of $65,000.00, punitive damages, treble damages, and pre-judgment interest. By order of the trial court filed 1 August 1990, defendant North Carolina Insurance Guaranty Association ("the Association") was substituted as the real party in interest for Interstate.

On appeal, plaintiff presents two contentions. He contends granting summary judgment effected an impermissible taking of plaintiff's property under Article I, Section 19, of the North Carolina Constitution and deprived plaintiff of the right to trial by jury under Article I, Section 25. Plaintiff's second contention is that the court erred in granting summary judgment on his claims for bad faith refusal to settle, negligence and breach of fiduciary duty, and unfair or deceptive trade practices. For reasons which follow, we affirm summary judgment for all defendants.

I.

Defendant Association did not participate in any of the settlement negotiations at issue. On appeal defendant Association argues that as a matter of law, it cannot be held liable for the torts of an insolvent insurer. This is an issue of first impression requiring interpretation of General Statutes Chapter 58, Article 48. We find defendant's argument persuasive.

The Association was created by the Insurance Guaranty Association Act, N.C.G.S. §§ 58-48-1 through 58-48-100 (1991). According to the Act, "The purpose of [Article 48] is to provide a mechanism for the payment of covered claims under certain insurance policies...." N.C.G.S. § 58-48-5 (1991). The Act provides in addition

"Covered claim" means an unpaid claim, including one of unearned premiums, which is in excess of fifty dollars ($50.00) and arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this Article applies as issued by an insurer, if such insurer becomes an insolvent insurer after the effective date of this Article.... "Covered claim" shall not include any amount awarded as punitive or exemplary damages....

N.C.G.S. § 58-48-20(4) (1991) (emphasis added). The Act provides further

(a) The Association shall:

(1) Be obligated to the extent of the covered claims existing prior to the determination of insolvency.... This obligation includes only the amount of each covered claim that is in excess of fifty dollars ($50.00) and is less than three hundred thousand dollars ($300,000)....

(2) Be deemed the insurer to the extent of the Association's obligation on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent.

N.C.G.S. § 58-48-35 (1991).

Under the plain language of section 58-48-20(4), punitive damages cannot be recovered from the Association. Other jurisdictions have construed similar statutes to exclude claims based on bad faith of the insolvent insurer. The Florida First District Court of Appeal held that the Florida Insurance Guaranty Association ("FIGA") "is not liable for any amounts in excess of policy limits and is not vicariously liable for tortious acts of members' insurers." Rivera v. Southern Am. Fire Ins. Co., 361 So.2d 193, 194 (1978), cert. denied, 368 So.2d 1372 (1979). The court so held even though the Florida statute did not specifically exclude punitive damages. Fla.Stat.Ann. § 631.57(1)(a)(3) (West 1984). Similarly, the Washington Court of Appeals rejected an argument that the Washington Insurance Guaranty Association "stepped into the shoes of" an insolvent insurer. Quoting statutory language the court said, "A covered claim is an 'unpaid claim ... which arises out of and is within the coverage of an insurance policy to which [the Act] applies.' " The court held that since an action by an insured against his insurer for bad faith in handling a claim or suit sounds in tort, rather than contract, such an action could not constitute a covered claim. Vaughn v. Vaughn, 23 Wash.App. 527, 529-30, 597 P.2d 932, 934, disc. rev. denied, 92 Wash.2d 1023 (1979) (not available on Westlaw). Other jurisdictions have also held insurance guaranty associations to be immune from suit arising from their own tortious conduct in settling claims after insolvency of an insurer. Isaacson v. California Ins. Guar. Ass'n, 44 Cal.3d 775, 244 Cal.Rptr. 655, 750 P.2d 297 (1988) (wherein insolvent's insureds sued California Insurance Guaranty Association for alleged bad faith in settling malpractice claim against insureds); Florida Ins. Guar. Ass'n v. Giordano, 485 So.2d 453 (1986) (wherein insolvent's insured sued FIGA based on the latter's rejection of settlement offer).

Punitive or exemplary damages may be recovered "in breach of contract actions that 'smack of tort because of the fraud and deceit involved' or those actions 'with substantial tort overtones emanating from the fraud and deceit.' " Dailey v. Integon Ins. Corp., 75 N.C.App. 387, 394, 331 S.E.2d 148, 153 (quoting Oestreicher v. Stores, 290 N.C. 118, 136, 225 S.E.2d 797, 809 (1976)), disc. rev. denied, 314 N.C. 664, 336 S.E.2d 399 (1985). There must be an identifiable tort and "the tortious conduct must be accompanied by or partake of some element of aggravation before punitive damages will be allowed." Newton v. Standard Fire Insurance Co., 291 N.C. 105, 112, 229 S.E.2d 297, 301 (1976) (citing Oestreicher ).

North Carolina cases permit recovery of punitive damages for breach of contract only for identifiable torts accompanied by aggravation. The plain language of Article 48 both speaks of contracts and precludes recovery of punitive damages. Finding the reasoning of the Florida and Washington courts to be persuasive, we hold the Association is not subject to vicarious liability for the tortious conduct of insolvent insurers.

"An action for unfair or deceptive acts or practices is 'the creation of ... statute. It is, therefore, sui generis. It is neither wholly tortious nor wholly contractual in nature.' " Bernard v. Central Carolina Truck Sales, 68 N.C.App. 228, 230, 314 S.E.2d 582, 584 (quoting Slaney v. Westwood Auto, Inc., 366 Mass. 688, 704, 322 N.E.2d 768, 779 (1975)), disc. rev. denied, 311 N.C. 751, 321 S.E.2d 126 (1984). Given that actions for unfair or deceptive practices sound partly in tort, because we have held the Association is not liable for the torts of insolvent insurers, we hold further that no action will lie against the Association for an insolvent insurer's violation of the Unfair or Deceptive Trade Practices Act.

Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C.G.S. § 1A-1, Rule 56(c) (1990). Since, as a matter of law, defendant Association was not vicariously liable for the torts or unfair practices of Interstate, we hold the trial court did not err in granting summary judgment for defendant Association on these claims.

Plaintiff also contends the granting of summary judgment for the Association violated his rights under the North Carolina Constitution. Plaintiff argues that the inclusion of an appraisal clause in his insurance policy deprived him of his property without due process of law and, alternatively, that the appraisal process as carried out violated his right to due process. Plaintiff also argues the appraisal clause deprived him of the right to a jury trial. Since in following the statutory mandate to pay covered claims, defendant Association could pay claims settled through the appraisal process, we conclude plaintiff may properly raise as against defendant Association claims arising from alleged violations of constitutional rights. Nevertheless, we do not find plaintiff's arguments persuasive.

Every policy of fire insurance written in North Carolina must conform to the provisions of the standard fire insurance policy provided by statute. N.C.G.S. § 58-44-15 (1991). The Standard Policy provides Appraisal In case the insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately...