HUBER ENGINEERED WOODS v. Canal Ins. Co.

• Decision Date: 16 March 2010
• Docket Number: No. COA09-335.,COA09-335.
• Citation: 690 S.E.2d 739
• Parties: HUBER ENGINEERED WOODS, LLC, Plaintiff-Appellee, v. CANAL INSURANCE COMPANY, Defendant-Appellant.
• Court: North Carolina Court of Appeals

690 S.E.2d 739

HUBER ENGINEERED WOODS, LLC, Plaintiff-Appellee, v. CANAL INSURANCE COMPANY, Defendant-Appellant.

No. COA09-335.

Court of Appeals of North Carolina.

March 16, 2010.

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Robinson, Bradshaw & Hinson, P.A., by R. Steven DeGeorge, Charlotte, for Plaintiff-Appellee.

Smith Moore Leatherwood LLP, by Robert D. Moseley, Jr., Greenville, C. Fredric Marcinak III, Greensboro, Sidney S. Eagles, Jr., and Elizabeth Brooks Scherer, Raleigh, for Defendant-Appellant.

McGEE, Judge.

Plaintiff is a North Carolina building products manufacturer and Defendant is a South Carolina insurer of trucking operations. W.M. Jr. Trucking, Inc. (W.M.) is a Maine trucking company. Plaintiff and W.M. entered into a contract (the contract) in 2004. In the contract, W.M. agreed to provide Plaintiff with trucking services. The contract required W.M. to maintain insurance, including "broad form comprehensive general liability insurance . . . for personal injury and property damage covering liability assumed by W.M. under this AGREEMENT." W.M. obtained a commercial automobile liability policy (the policy) from Defendant. According to an affidavit from Wallace Mahan, Jr., W.M.'s president, W.M. intended for the policy to fulfill the requirements of the contract, and "directly benefit" Plaintiff, affording Plaintiff with "protection against . . . bodily injuries arising from the performance of W.M.'s trucking services."

Joseph Nichols (Nichols), a truck driver employed by W.M., was fatally injured on 17 June 2005 after falling from his truck while attempting to secure a tarp over a load of plywood at Plaintiff's manufacturing plant in Easton, Maine. On 11 September 2006, Nichols' estate filed a wrongful death action against Plaintiff in superior court, Aroostook County, Maine. Plaintiff filed a complaint against Defendant in Mecklenburg County Superior Court on 4 March 2008. Plaintiff sought (1) compensatory damages for breach of contract and (2) compensatory damages, punitive damages, and attorney's fees for "bad faith." Plaintiff also sought an order compelling Defendant to "defend and indemnify" Plaintiff in the Maine action.

Defendant filed a motion to dismiss Plaintiff's action on 5 May 2008, pursuant to N.C. Gen.Stat. § 1A-1, Rule 12(b)(6). Plaintiff amended its complaint on 28 May 2008, specifically asking for a declaratory judgment that Defendant was obligated to defend and indemnify Plaintiff from the claims made against Plaintiff in the Maine action. By motion filed 9 June 2008, Defendant again moved to dismiss Plaintiff's amended complaint, pursuant to Rule 12(b)(6). In an order entered 22 July 2008, the trial court denied Defendant's motion to dismiss.

Plaintiff moved for summary judgment on its declaratory judgment action on 10 September 2008. By motion filed 15 September 2008, Defendant moved for summary judgment on the declaratory judgment action. By order entered 15 December 2008, the trial court denied Defendant's motion for summary judgment, granted Plaintiff's motion for summary judgment, and declared that the policy "provides defense and indemnity coverage to Plaintiff for the claims asserted against Plaintiff" in the Maine action. Defendant appeals.

In Defendant's two arguments on appeal, it contends that the trial court erred in denying its motion for summary judgment, in granting summary judgment in favor of Plaintiff, and in determining that the policy required Defendant to both defend and indemnify Plaintiff with respect to Nichols' 11 September 2006 action. We agree in part.

Summary judgment is proper when "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." The moving party bears the burden of demonstrating the lack of triable issues of fact. Once the movant satisfies its burden of proof, the burden then shifts to the non-movant to present specific facts showing triable issues of material fact. On appeal from summary judgment, "we review the record in the light most favorable to the non-moving party."

Broughton v. McClatchy Newspapers, Inc., 161 N.C.App. 20, 26, 588 S.E.2d 20, 25-26 (2003) (internal citations omitted).

We first note that though this appeal is from an interlocutory order, the interlocutory order affects a substantial right of Defendant and, therefore, this appeal is properly before us. Carlson v. Old Republic Ins. Co., 160 N.C.App. 399, 401, 585 S.E.2d 497, 499 (2003) ("An order of partial summary judgment on the issue of whether an insurance company has a duty to defend in the underlying action `affects a substantial right that might be lost absent immediate appeal.'" (Citation omitted)).

"Our review of the trial court's construction of the provisions of an insurance policy is de novo." Smith v. Stover, 179 N.C.App. 843, 845, 635 S.E.2d 501, 502 (2006) (citation omitted).

Next, we must determine the correct substantive law to apply in this case.

The general rule is that an automobile insurance contract should be interpreted and the rights and liabilities of the parties thereto determined in accordance with the laws of the state where the contract was entered even if the liability of the insured arose out of an accident in North Carolina. With insurance contracts the principle of lex loci contractus mandates that the substantive law of the state where the last act to make a binding contract occurred, usually delivery of the policy, controls the interpretation of the contract.

Fortune Ins. Co. v. Owens, 351 N.C. 424, 428, 526 S.E.2d 463, 465-66 (2000); see also Szymczyk v. Signs Now Corp., 168 N.C.App. 182, 187, 606 S.E.2d 728, 733 (2005) ("The interpretation of a contract is governed by the law of the place where the contract was made."); N.C. Farm Bureau Mut. Ins. Co. v. Holt, 154 N.C.App. 156, 163, 574 S.E.2d 6, 11 (2002) (citation omitted). Though this action was filed in North Carolina, Plaintiff and Defendant stipulated that W.M. "obtained an automobile liability policy from Defendant. The policy was issued and delivered in Maine to W.M.." We therefore look to Maine substantive law to interpret the policy.

We first address the issue of indemnification.

An insurer may not litigate its duty to indemnify until the liability of the insured has been determined. The duty to defend is broader than the duty to indemnify, and an insurer may have to defend before it is clear whether a duty to indemnify exists.

Hanover Ins. Co. v. Crocker, 688 A.2d 928, 929 n. 1 (Me.1997) (internal citations omitted); see also Maine State Academy of Hair Design v. Commercial Union Ins. Co., 699 A.2d 1153, 1160 n. 2 (Me.1997); State Mut. Ins. Co. v. Bragg, 589 A.2d 35, 36 (Me.1991); American Policyholders' Ins. Co. v. Cumberland Cold Storage Co., 373 A.2d 247, 250-251 (Me.1977); but see Farm Bureau Mut. Ins. Co. v. Waugh, 159 Me. 115, 188 A.2d 889, 891-92 (1963). We are therefore constrained to hold that the trial court erred in deciding the issue of indemnification by summary judgment because the "liability of the insured" had not been determined when this action was filed, and we vacate that portion of the 15 December 2008 order.

We must next address the issue of Defendant's duty to defend Plaintiff.

We determine the duty to defend by comparing the allegations in the underlying complaint with the provisions of the insurance policy. "If a complaint reveals a `potential. . . that the facts ultimately proved may come within the coverage,' a duty to defend exists." See also Gibson v. Farm Family Mut. Ins. Co., 673 A.2d 1350, 1352 (Me.1996) (describing the comparison test as whether "there is any potential basis for recovery . . . regardless of the actual facts on which the insured's ultimate liability may be based," and stating that "an insured is not at the mercy of the notice pleading of the third party suing him to establish his own insurer's duty to defend."). "Even a complaint which is legally insufficient to withstand a motion to dismiss gives rise to a duty to defend if it shows an intent to state a claim within the insurance coverage."

Maine State Academy, 699 A.2d at 1156 (internal citations omitted).

For the judicial construction of policies of insurance this Court has adopted and soundly applied certain rational canons.

"No rule, in the interpretation of a policy, is more fully established, or more imperative and controlling, than that which declares that, in all cases, it must be liberally construed in favor of the insured, so as not to defeat, without a plain necessity, his claim to indemnity, which, in making the insurance, it was his object to secure. When the words are, without violence, susceptible of two interpretations, that which will sustain his claim and cover the loss must, in preference, be adopted. While courts will extend all reasonable protection to insurers, by allowing them to hedge themselves about by conditions intended to guard against fraud, carelessness, want of interest, and the like, they will nevertheless enforce the salutary rule of construction, that, as the language of the condition is theirs, and it is therefore in their power to provide for every proper case, it is to be construed most favorably to the insured."

. . . .

"In case of ambiguity or inconsistency, it is often said that the court will give the policy a construction most favorable to the assured, for the reason that, as the insurer makes the policy and selects his own language, he is presumed to have employed terms which express his real intention."

. . . .

"A contract of insurance, like any other contract, is to be construed in accordance with the intention of the parties, which is to be ascertained from an examination of the whole instrument. All parts and clauses must be considered together that it may be seen if and how far one clause is explained,

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