Brown v. Lumbermens Mut. Cas. Co., 337PA88

• Decision Date: 05 April 1990
• Docket Number: No. 337PA88,337PA88
• Citation: 326 N.C. 387,390 S.E.2d 150
• Court: North Carolina Supreme Court
• Parties: Doyle BROWN and Coleen B. Brown v. LUMBERMENS MUTUAL CASUALTY COMPANY and General Motors Corporation.

Page 150

390 S.E.2d 150

326 N.C. 387

Doyle BROWN and Coleen B. Brown v. LUMBERMENS MUTUAL CASUALTY COMPANY and General Motors Corporation.

No. 337PA88.

Supreme Court of North Carolina.

April 5, 1990.

Franklin Smith, Elkin, for plaintiff-appellee.

Parker, Poe, Thompson, Bernstein, Gage & Preston by Irvin W. Hankins III, Charlotte, for defendant-appellant Lumbermens Mut. Cas. Co.

EXUM, Chief Justice.

This is an action seeking in part damages against Lumbermens Mutual Casualty Company (Lumbermens) for an alleged breach of a "duty to defend" provision in an automobile liability policy issued by Lumbermens. The trial court entered summary judgment for Lumbermens on the ground that it had discharged its duty to defend when it paid its entire coverage limits to one of the claimants allegedly injured by the negligence of its insureds, the plaintiffs. ¹ The Court of Appeals reversed and remanded. We affirm the decision of the Court of Appeals.

On 20 June 1983 plaintiff Doyle Brown purchased a general liability automobile insurance policy from Lumbermens. The policy period was 20 June to 20 December 1983. Coverage under the policy was limited to $25,000 per person and $50,000 per accident. Both plaintiffs were insured as operators of Mr. Brown's 1979 Cadillac. The policy contained this provision:

We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted.

On 14 October 1983 plaintiff Coleen Brown was driving the Cadillac when it collided with a car driven by Joan Hinson. Hinson and Nora Shore, a passenger in Hinson's car, were injured. On 28 March 1984 Hinson filed suit against the Browns for her injuries. ²

Pursuant to the insurance contract, Lumbermens employed counsel to defend Hinson's suit against the Browns. On 1 June 1984 counsel filed answer on behalf of the Browns. In a 3 December 1986 affidavit, counsel gave his opinion that the Browns probably would be found liable and he predicted a jury verdict between $50,000 and $75,000. On 19 August 1984 Lumbermens filed an offer of judgment in the amount of its $25,000 coverage limit. Hinson rejected the offer, saying she would accept $43,000 to settle the claim. Lumbermens then determined to pay its policy limit of $25,000 to Hinson in partial satisfaction of Hinson's claim, and on 4 January 1985 it informed the Browns of its decision. The Browns objected and refused to contribute to the settlement of Hinson's claim. On 7 January 1985 Lumbermens paid $25,000 to Hinson pursuant to N.C.G.S. § 1-540.3 and an "Advance Payment Agreement" in which Hinson released Lumbermens from all claims arising out of the automobile collision and reserved her right to pursue her claim against the Browns. ³

After paying its policy limit to Hinson, Lumbermens stopped defending the Browns and discharged counsel which it had employed for this purpose. The trial court granted counsel's motion to withdraw on 14 January 1985. The Browns did not then employ new counsel.

Hinson's claim against the then unrepresented Browns came on for trial in April 1985. On 1 May 1985 Hinson obtained a verdict against the Browns in the amount of $45,000. The trial court entered judgment on the verdict but credited the judgment with the $25,000 Lumbermens had paid Hinson. The Browns then obtained counsel and appealed. The Court of Appeals found no error. Hinson v. Brown, 80 N.C.App. 661, 343 S.E.2d 284 (1986), disc. rev. denied, 318 N.C. 282, 348 S.E.2d 138 (1986).

The Browns, thereafter, filed this action, alleging that Lumbermens breached its insurance contract by failing properly to defend them and that it negligently failed to investigate the design, construction and assembly of the brake system on the 1979 Cadillac. ⁴ At the hearing on Lumbermens' motion for summary judgment Lumbermens contended that by paying its entire coverage to Hinson it had discharged its duty to defend the Browns under the duty to defend provision of its insurance contract. The trial court agreed with this contention and entered summary judgment for Lumbermens.

The Court of Appeals disagreed, reversed the ruling and remanded the case. The Court of Appeals concluded that the duty to defend provision in Lumbermens' policy was ambiguous in that it failed to specify in what manner Lumbermens' coverage limits would have to be "exhausted" before its duty to defend was discharged. The Court of Appeals concluded the substantive portion of its opinion on this issue by saying, "[G]iven the unnecessarily ambiguous use of the word 'exhaust' in this ... policy, we adopt plaintiffs' interpretation which requires [Lumbermens] to continue defending the Browns until a settlement or judgment is reached despite having paid its policy limits under Section 1-540.3." Brown v. Lumbermens Mut. Casualty Co. 90 N.C.App. at 475-76, 369 S.E.2d at 374.

We allowed Lumbermens' petition for discretionary review, limited to the question of whether the Court of Appeals erred in concluding that the company had not discharged its duty to defend and in reversing summary judgment in its favor. Concluding that the Court of Appeals did not err, we affirm.

There is no statutory requirement that an insurance company provide its insured with a defense. See N.C.G.S. § 20-279.21 (1983 & Cum.Supp.1988) (stating requirements of a "motor vehicle liability policy"). However, a company may provide by contract that it will defend its insured. Carrousel Concessions v. Florida Ins. Guar., 483 So.2d 513, 516 (Fla.Dist.Ct.App.1986); Schiebout v. Citizens Insur. Co. of America, 140 Mich.App. 804, 813, 366 N.W.2d 45, 49 (1985); see also Waste Management of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377, reh'g denied, 316 N.C. 386, 346 S.E.2d 134 (1986) (extent of duty to defend requires resolution of scope of policy provisions). An insurer's duty to defend suits against its insured is determined by the language in the insurance contract, Liberty Mutual Insurance Co. v. Mead Corporation, 219 Ga. 6, 8, 131 S.E.2d 534, 535 (1963); Gross v. Lloyds of London Ins. Co., 121 Wis.2d 78, 87, 358 N.W.2d 266, 270 (1984), and is broader than its obligation to pay damages under a particular policy. Waste Management of Carolinas, Inc., 315 N.C. at 691, 340 S.E.2d at 377.

An insurance policy is a contract and, unless overridden by statute, its provisions govern the rights and duties of the parties thereto. Fidelity Bankers Life Ins. Co. v. Dortch, 318 N.C. 378, 380, 348 S.E.2d 794, 796 (1986). "As with all contracts, the goal of construction is to arrive at the intent of the parties when the policy was issued." Woods v. Insurance Co., 295 N.C. 500, 505, 246 S.E.2d 773, 777 (1978). In construing an insurance policy, "nontechnical words, not defined in the policy, are to be given the same meaning they usually receive in ordinary speech, unless the context requires otherwise." Grant v. Insurance Co., 295 N.C. 39, 42, 243 S.E.2d 894, 897 (1978); see also Davis v. Maryland Casualty Co., 76 N.C.App. 102, 104, 331 S.E.2d 744, 746 (1985).

Any ambiguity in the policy language must be resolved against the insurance company and in favor of the insured. Woods, 295 N.C. at 506, 246 S.E.2d at 777. A difference of judicial opinion regarding proper construction of policy language is some evidence calling for application of this rule. See Maddox v. Insurance Co., 303 N.C. 648, 654, 280 S.E.2d 907, 910 (1981); Electric Co. v. Insurance Co., 229 N.C. 518, 521, 50 S.E.2d 295, 297 (1948); Annot., "Insurance--Ambiguity--Split Court Opinions," 4 A.L.R. 4th 1253, 1255 (1981). While "[t]he fact that a dispute has arisen as to the parties' interpretation of the contract is some indication that the language of the contract is at best, ambiguous," St. Paul Fire & Marine Ins. Co. v. Freeman- White Assoc., Inc., 322 N.C. 77, 83, 366 S.E.2d 480, 484 (1988); accord Mazza v. Medical Mut. Ins. Co., 311 N.C. 621, 630, 319 S.E.2d 217, 223 (1984), "ambiguity ... is not established by the mere fact that the plaintiff makes a claim based upon a construction of its language which the company asserts is not its meaning." Trust Co. v. Insurance Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970).

"All parts of a contract are to be given effect if possible. It is presumed that each part of the contract means something." Bolton Corp. v. T.A. Loving Co., 317 N.C. 623, 628, 347 S.E.2d 369, 372 (1986). See also Williams v. Insurance Co., 269 N.C. 235, 240, 152 S.E.2d 102, 107 (1967) ("each clause and word must be ... given effect if possible by any reasonable construction"); Robbins v. Trading Post, 253 N.C. 474, 477, 117 S.E.2d 438, 440-41 (1960).

The terms of a contract must, if possible, be construed to mean something, rather than nothing at all, and where it is possible to do so by a construction in accordance with the fair intendment of a contract, the tendency of the courts is to give it life, virility, and effect, rather than to nullify or destroy it.

17 Am.Jur.2d Contracts § 254, at 648-49 (1964).

With these principles in mind we conclude that there is ambiguity in the Lumbermens policy's duty to defend provision and this ambiguity must be construed favorably to the insured and that the Court of Appeals correctly reversed the trial court. The relevant policy provision states in part:

We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends...