Durham v. Cox

• Decision Date: 03 January 1984
• Docket Number: No. 823SC1048,823SC1048
• Citation: 310 S.E.2d 371,65 N.C.App. 739
• Court: North Carolina Court of Appeals
• Parties: James E. DURHAM, Jr., Penelope K. Durham, and Mid-State Homes, Inc. v. Thomas V. COX, individually, and d/b/a Tom Cox Insurance Agency, and Nationwide Mutual Fire Insurance Company.

Page 371

310 S.E.2d 371

65 N.C.App. 739

James E. DURHAM, Jr., Penelope K. Durham, and Mid-State Homes, Inc. v. Thomas V. COX, individually, and d/b/a Tom Cox Insurance Agency, and Nationwide Mutual Fire Insurance Company.

No. 823SC1048.

Court of Appeals of North Carolina.

Jan. 3, 1984.

Ward, Ward, Willey & Ward by Joshua W. Willey, Jr., New Bern, for plaintiff-appellant.

Ward & Smith, P.A. by Thomas E. Harris, New Bern, for defendant-appellee Thomas V. Cox, individually and d/b/a Tom Cox Insurance Agency.

Sumrell, Sugg & Carmichael by James R. Sugg and Rudolph A. Ashton, III, New Bern, for defendant-appellee Nationwide Mut. Fire Ins. Co.

JOHNSON, Judge.

Plaintiff's appeal presents two questions for review, whether the trial court erred in granting summary judgment in favor of defendants Nationwide and Cox with respect to plaintiffs' breach of contract claim and in granting summary judgment in favor of Nationwide on plaintiff's alternative claim of negligent failure to procure insurance coverage. We find error and reverse.

The evidentiary showing on the summary judgment motion is as follows: At all times pertinent to plaintiffs' claims, the defendant Nationwide and the defendant Cox were parties to a written agreement entitled, "Agent's Agreement," which designated Thomas V. Cox as agent to represent Nationwide Mutual Fire Insurance Company in North Carolina. In this written agreement Nationwide designated Cox as its agent with authority to solicit, negotiate, and effect contracts of insurance in its behalf, and to collect premiums thereon.

Acting pursuant to the above-referenced authority in December, 1977, Cox assisted the plaintiff James Durham in the preparation of an application for homeowner's insurance. The application states that James E. Durham is self-employed and that his occupation is upholstery. According to James Durham's deposition, he told Cox at that time that he was on disability, but was working part-time doing upholstery and refinishing. The plaintiffs contend and defendants deny that during this initial conference James Durham told Cox that he was going to build an appurtenant structure on the premises to be used in his business.

As a result of these negotiations, the defendant Nationwide issued a homeowner's policy which bore effective dates of 17 December 1977 through 17 December 1980. The policy named James E. Durham, Jr. and wife, Penelope K. Durham, as the insured parties and named Mid-State Homes, Inc. as the loss mortgagee. This policy, as initially issued, afforded $2,500 coverage on the appurtenant structure, described as a "garage building used for storage and upholstery work."

The subject policy provided the following language under coverage on appurtenant structures: "This coverage excludes structures used in whole or part for business purposes." Lines 49 through 52 on the back of the first page of the policy contain the following language: "No permission affecting this insurance shall exist, or waiver of any provision be valid, unless granted herein or expressed in writing added hereto."

Plaintiffs subsequently built a detached garage building or workship on the premises and requested that the defendant Cox increase their appurtenant structure coverage to $5,000. Plaintiffs contend and defendants deny that when James Durham requested increased coverage on the appurtenant structure he advised the defendant Cox the appurtenant structure was going to be used for storage and upholstery and refinishing. Further, that Durham advised Cox that his equipment and tools had not yet arrived, but that as soon as they did, he would want to change the insurance on it. As a result of the plaintiffs' request, Nationwide issued an "HO-48" in June, 1978 which changed the appurtenant structure coverage under the homeowner's policy by increasing it to $5,000. An HO-48 is an endorsement used in the insurance industry for the purpose of increasing the limit of liability, as specified in the original policy, on an appurtenant structure. The June, 1978 HO-48 also described the subject appurtenant structure as a "garage building used for storage and upholstery work."

Subsequently, James Durham installed his upholstery and refinishing tools in the structure and began openly operating his business in the building. Additionally, Durham was advertising his business extensively. The plaintiffs contend and the defendants deny that James Durham then went to Cox, advised him that he was at that time actively operating his upholstery business in the subject appurtenant structure and requested a premium quote on a policy of business insurance covering the appurtenant structure and the tools located therein. Durham stated in his deposition that Cox told him that for $800 he could insure his tools, his building and the business itself and Durham decided that he could not afford such a high premium as he was just starting in business. The plaintiffs contend and the defendants deny that Cox then advised Durham that he could obtain additional coverage on the building by obtaining the issuance of a change endorsement on the homeowner's policy and that Cox further advised Durham that by increasing the appurtenant structure coverage under the homeowner's policy he would cover the building but not the tools.

As a result, plaintiffs requested and Nationwide issued, effective December, 1978, an HO-48 which also described the appurtenant structure as a "garage building used for storage and upholstery work." As a result of the increased appurtenant structure coverage, the plaintiffs were billed for and paid an additional premium. These payments of premium were accepted by the defendants. No written waiver of the business use exclusion was obtained by plaintiffs. On 3 November 1979, the garage was destroyed by fire. The defendants refused and have failed to pay for the loss. We turn first to the issues raised by the grant of summary judgment in favor of the defendant insurance company and its agent on plaintiff's contract claim.

Summary judgment is the device whereby judgment is rendered if the pleadings, depositions, interrogatories, and admissions of file, together with any affidavits, 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. G.S. 1A-1, Rule 56; see 10 C. Wright A. Miller & Kane, Federal Practice and Procedure, § 2711 (1983). The party moving for summary judgment has the burden of clearly establishing the lack of any triable issue of material fact by the record properly before the court. Caldwell v. Deese, 288 N.C. 375, 218 S.E.2d 379 (1975); 10A C. Wright A. Miller & Kane, supra, § 2727. In Johnson v. Insurance Co., 300 N.C. 247, 253, 266 S.E.2d 610, 615 (1980), our Supreme Court again delineated the nature of appellate review of the grant of summary judgment as a matter of law on a particular claim.

Summary judgment may not be imposed in a vacuum. The examination of the propriety of its entry must not conclude with the determination that there are no genuine issues of material fact. The very terms of Rule 56 require that it also be established that the movant be entitled to judgment as a matter of law. The second prong of the test may be effected only when the evidence which is offered in support of the motion is examined in light of the substantive rules of law as they relate to a plaintiff's claim for relief.

Defendants argue that summary judgment was correctly granted because the uncontradicted facts establish that at the time of the fire, the plaintiffs' garage was being used for business purposes; the policy by its terms excludes coverage of appurtenant structures used in whole or in part for business purposes; such an exclusion is a matter of coverage which cannot be expanded by application of the doctrine of waiver or estoppel; and, there being no factual dispute, the insurance contract excluded as a matter of law coverage for plaintiffs' appurtenant structure.

Plaintiffs contend that the business use exclusion clause is a forfeiture provision which, despite policy provisions to the contrary, may be waived by the acts and/or conduct of the insurer and that genuine issues of material fact exist with respect to the question of waiver; specifically, whether the agent Cox had notice or knowledge of the business use to which the appurtenant structure was being put, in breach of the policy provision, at any relevant time prior to the time of the loss.

Our courts have long followed the general rule that the doctrines of waiver and estoppel are not available to bring within the coverage of an insurance policy risks not covered by its terms, or risks expressly excluded therefrom. Hunter v. Insurance Co., 241 N.C. 593, 86 S.E.2d 78 (1955); McCabe v. Casualty Co., 209 N.C. 577, 183 S.E. 743 (1936); Currie v. Insurance Co., 17 N.C.App. 458, 194 S.E.2d 642 (1973). See generally Anno., 1 A.L.R.3d 1139 (1965) and 16B Appleman, Insurance Law and Practice, § 9090 (1981).

In Hunter v. Insurance Co., supra 241 N.C. at 595-596, 86 S.E.2d at 80, the Supreme Court quoted the following formulations of the majority rule:

"The doctrines of implied waiver and of estoppel, based upon the conduct or action of the insurer, are not available to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded therefrom; and the application of the doctrine in this respect is, therefore, to be distinguished from the waiver of, or estoppel to deny, grounds of forfeiture."

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"As a general rule, the doctrines of waiver or estoppel can have a field of operation only when the subject matter is within the terms of the contract, and they cannot operate radically to change the terms of the policy so as to cover additional subject matter. Accordingly, it has been held by the weight of authority that waiver or estoppel cannot create a contract of insurance or so apply as to bring within the coverage...