Fieldcrest Cannon, Inc. v. Fireman's Fund Ins. Co., COA95-721

• Citation: 124 N.C.App. 232,477 S.E.2d 59
• Decision Date: 05 November 1996
• Docket Number: No. COA95-721,COA95-721
• Parties: FIELDCREST CANNON, INC., Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY; the North River Insurance Company; and North Carolina Insurance Guaranty Association, Defendants.
• Court: Court of Appeal of North Carolina (US)

Page 59

477 S.E.2d 59

124 N.C.App. 232

FIELDCREST CANNON, INC., Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY; the North River Insurance

Company; and North Carolina Insurance Guaranty

Association, Defendants.

No. COA95-721.

Court of Appeals of North Carolina.

Nov. 5, 1996.

Blair, Conaway, Bograd & Martin, P.A. by Bentford E. Martin, Charlotte, for plaintiff.

Baucom, Claytor, Benton, Morgan, Wood & White, P.A. by James F. Wood, III, Charlotte; and Patterson, Dilthey, Clay & Bryson, L.L.P. by Ronald C. Dilthey and G. Lawrence Reeves, Raleigh, for defendant Fireman's Fund Insurance Company.

Wilson & McIlvaine by Dwight B. Palmer, Jr., Chicago, IL; and Robinson, Bradshaw & Hinson, P.A. by Mark W. Merritt and Edward F. Hennessey, IV, Charlotte, for defendant North River Insurance Company.

Moore & Van Allen, PLLC by Christopher J. Blake and Joseph W. Eason, Raleigh, for defendant North Carolina Insurance Guaranty Association.

JOHNSON, Judge.

Plaintiff Fieldcrest Cannon, Inc. brought this action to recover legal defense costs incurred in defending its predecessor, Cannon Mills, Inc. (hereinafter "Cannon"), against certain employment discrimination claims during the 1980s, and to recover sums paid pursuant to judgments and settlements of certain of those claims. Cannon had been insured by defendant Fireman's Fund Insurance Company (hereinafter "Fireman's Fund") under four (4) consecutive comprehensive general liability policies written as primary insurance and covering occurrences during a period from 15 May 1978 through and including 15 May 1982. All of defendant Fireman's Fund's policies are identical in form and contain the same language and coverages.

Defendant North River Insurance Company (hereinafter "North River") and Mission Insurance Company (hereinafter "Mission") insured Cannon pursuant to "umbrella" liability policies which were written in excess of defendant Fireman's Fund's primary insurance. Defendant North River's policy covered occurrences during a period from 15 May 1977 through 15 May 1980, and the Mission policy covered occurrences during the period of 15 May 1980 through 15 May 1981. Mission became insolvent in 1987, and defendant North Carolina Insurance Guaranty Association (hereinafter "Guaranty") assumed responsibility for certain of Mission's obligations, as provided and limited by the North Carolina Insurance Guaranty Association Act, N.C. Gen.Stat. § 58-48-1, et seq.

Plaintiff purchased the above-mentioned insurance policies through an insurance broker, Johnson & Higgins Carolinas, Inc. (hereinafter "Johnson & Higgins"). At all times relevant to this action, Johnson & Higgins also acted as agent for defendant Fireman's Fund pursuant to a written agency agreement. Johnson & Higgins' role as Cannon's insurance broker terminated in 1982.

There are six (6) underlying claims of employment discrimination at issue in this action:

1. Stanley Rosenthal filed a lawsuit against Cannon in the state courts of New York on 6 January 1982, alleging wrongful termination of employment, individual and systemic age discrimination, individual and systemic religious discrimination, negligent and intentional infliction of emotional distress, mental and emotional pain and suffering resulting in a decreased life expectancy, and damage to reputation. (hereinafter "Rosenthal suit").

2. Patricia Price filed three (3) EEOC complaints against Cannon in 1981, alleging individual and systemic sex discrimination, harassment and defamation. (hereinafter "Price EEOC complaint").

3. Nine (9) female employees of Cannon filed EEOC complaints from December 1980 through May 1981 alleging sex discrimination. These complaints were subsequently consolidated for investigation by the EEOC as a potential class action involving sex discrimination in 1981. (hereinafter "EEOC sex class investigation").

4. Nell Wilson filed an EEOC complaint against Cannon on 15 May 1980, amended on 20 August 1980, and a related lawsuit before the United States District Court, District of South Carolina, on 27 May 1981, alleging sex and age discrimination. (hereinafter "Wilson suit").

5. Patricia Price filed a lawsuit against Cannon before the United States District Court, Middle District of North Carolina, on 11 May 1982, alleging sex and age discrimination. (hereinafter "Price suit").

6. On 18 October 1984, Patricia Price, Nancy Lytton and Agatha Overcash filed a lawsuit against Cannon, including a motion for class certification, before the United States District Court, Middle District of North Carolina, based upon their EEOC complaints, alleging sex discrimination and claims of defamation by Price. (hereinafter "Overcash /class action").

In regards to the Rosenthal suit, Cannon provided Johnson & Higgins, as defendant Fireman's Fund's agent, with timely written notice of the pending action by letter dated 25 January 1982. By letter dated 12 February 1982, Johnson & Higgins notified defendant Fireman's Fund of the Rosenthal suit and defendant Fireman's Fund denied coverage of the claims asserted by Mr. Rosenthal and refused to defend Cannon by letter dated 18 February 1982. Defendant Fireman's Fund's letter of denial characterized the claims in Mr. Rosenthal's complaint simply as discrimination claims, uncovered by plaintiff's policy.

After defendant Fireman's Fund refused to defend Cannon against the Rosenthal suit, Johnson & Higgins reported that suit to Mission, through Mission's general agent, Sayre & Toso, Inc. Johnson & Higgins advised Mission's agent that the primary insurer, defendant Fireman's Fund, had denied coverage and requested that Mission accept Cannon's defense under its umbrella policy. Subsequently, Mission agreed to defend Cannon against the Rosenthal suit by reimbursing its defense costs. Thereafter, Mission did reimburse Cannon's defense cost in the Rosenthal suit from the beginning of the case through February 1993, in the total of $7,245.72.

In early 1982, one of Cannon's in-house attorneys, Susan Hartzoge Gray, received a copy of a letter from Johnson & Higgins to Cannon's insurance manager, Joe Lambert, regarding the status of Mission's reimbursement of Cannon's defense costs in the Rosenthal suit. Upon receiving this letter, Ms. Gray reported the pending claims (the Price EEOC complaint, the EEOC sex class investigation, the Price suit and the Wilson suit) to Mr. Lambert, Cannon's insurance manager, who immediately reported the claims to Johnson & Higgins.

In February or March 1984, Gray, Lambert and Wayne Johnson, Johnson & Higgins' claims manager, met to discuss defendant Fireman's Fund's refusal to cover the Rosenthal suit, and the possibility of insurance coverage for the additional pending claims--the Price EEOC complaint, the EEOC sex class investigation, the Price suit and the Wilson suit. Because of Johnson's belief that defendant Fireman's Fund's policies would not cover the additional pending claims and that defendant Fireman's Fund would refuse to defend Cannon with respect to those claims--as they had with the Rosenthal suit--but that Mission or defendant North River might accept the defense, it was decided to report the additional claims directly to Mission and defendant North River, the umbrella carriers, rather than to defendant Fireman's Fund. In fact, evidence tended to show and the trial court found as fact that defendant "Fireman's Fund did not receive actual notice of the Price and Wilson lawsuits or the EEOC Class Investigation until the plaintiff filed this action." Later, after receiving notice of the additional pending claims against Cannon, the umbrella carriers acknowledged notice of the additional claims and corresponded with Johnson & Higgins seeking additional information about those claims.

By letter dated 5 February 1985, Cannon notified Johnson & Higgins of the Overcash /class action, which was filed in October 1984. Johnson & Higgins subsequently reported this lawsuit, by letter dated 14 February 1985, to defendant North River and Mission, requesting that they provide Cannon with a defense. By letter dated 22 October 1985, Mission's agent, Sayre & Toso, requested coverage determination from defendant Fireman's Fund as to the Overcash /class action. Thereafter, on 22 November 1985, Johnson & Higgins sent defendant Fireman's Fund notice of the Overcash /class action. By letter dated 4 December 1985, defendant Fireman's Fund notified Cannon's insurance manager, Joe Lambert, that defendant Fireman's Fund's insurance policies did not provide coverage for the Overcash /class action.

Following defendant Fireman's Fund refusal to defend Cannon in the Overcash /class action, Johnson & Higgins continued to correspond with the agents of the umbrella carriers about that case and the other additional employment discrimination claims throughout 1986 and early 1987. In 1986, agents for both umbrella carriers indicated that they would provide a defense to Cannon, or reimburse Cannon's defense costs--as they had agreed in the Rosenthal suit--with respect to said claims.

After Mission became insolvent in early 1987, defendant Guaranty began receiving and responding to the communications from Johnson & Higgins regarding the reimbursement of plaintiff's defense costs in the Rosenthal suit and the additional underlying claims. By letter dated 19 October 1987, counsel for defendant Guaranty informed plaintiff that defendant Guaranty would not reimburse plaintiff's defense costs in the Rosenthal suit or the additional underlying claims, since defendant Guaranty thought that defendant Fireman's Fund's policies covered those claims. Defendant Guaranty also advised plaintiff that it would not consider further reimbursement of plaintiff's defense costs until plaintiff first exhausted all legal remedies against defendant Fireman's Fund.

Consequently, plaintiff contacted defendant Fireman's Fund and notified the company of defendant Guaranty's position, and requested a meeting to...