Kron Medical Corp. v. Collier Cobb & Associates, Inc.

• Decision Date: 01 September 1992
• Docket Number: No. 9115SC262,9115SC262
• Citation: 107 N.C.App. 331,420 S.E.2d 192
• Court: North Carolina Court of Appeals
• Parties: KRON MEDICAL CORPORATION, Plaintiff, v. COLLIER COBB & ASSOCIATES, INC., and Jack Smith, Defendants.

Page 192

420 S.E.2d 192

107 N.C.App. 331

KRON MEDICAL CORPORATION, Plaintiff, v. COLLIER COBB & ASSOCIATES, INC., and Jack Smith, Defendants.

No. 9115SC262.

Court of Appeals of North Carolina.

Sept. 1, 1992.

Long & Long by Lunsford Long, Chapel Hill, for plaintiff-appellant.

Moore & Van Allen by Laura B. Luger, E.K. Powe and N.A. Ciompi, Durham, for defendants-appellees.

PARKER, Judge.

In this civil action, plaintiff appeals from the entry of judgment notwithstanding the verdict and denial of its motion for a new trial. Plaintiff's complaint and amended complaint alleged claims for negligence, breach of contract, and unfair or deceptive insurance practices constituting unfair or deceptive trade practices pursuant to N.C.G.S. § 75-1.1.

Plaintiff's claims arose from defendants' procurement of medical malpractice insurance policies for plaintiff. Plaintiff's only allegations as to damages were that it had overpaid premiums plus sales tax in the amount of (i) $68,817.00 for the policy year 1985-86 and (ii) $107,521.05 for the policy year 1986-87. Defendants filed answers denying liability as to all claims and raising the defenses of plaintiff's (i) contributory negligence as against the negligence claim and (ii) failure to minimize damages as against the breach of contract claim.

After a four day trial, the jury (i) found for defendants on the negligence claim; (ii) found defendants breached the contract but plaintiff failed to mitigate damages; (iii) answered the special interrogatories on the unfair or deceptive trade practices claim in favor of plaintiff; and (iv) awarded $107,521.00 in damages. In its judgment on the verdict for plaintiff, the trial court found that the acts as found by the jury constituted unfair or deceptive acts within the meaning of N.C.G.S. § 75-1.1. The court concluded as follows:

1) The acts and omissions of the Defendants were in and affected commerce, as stipulated by the parties.

2) The business of the Plaintiff was injured by reason of such acts and omissions ... of Defendants, as found by the Jury.

3) Said acts, conduct, and practices [constitute] violations of N.C.Gen.Stat. § 75-1.1.

4) The actions of Defendants ... as found by the Jury, are unfair, deceptive, violative of public policy, and substantially injurious to Plaintiff.

5) As a matter of law, the damages returned by the Jury should be trebled pursuant to N.C.Gen.Stat. § 75-16.

Defendants moved in timely fashion both for entry of judgment notwithstanding the verdict for plaintiff or to amend the judgment and alternatively for a new trial. After a hearing on 23 July 1990, by order entered 2 August 1990 the trial court granted defendants' motions for judgment notwithstanding the verdict and to amend the judgment. The trial court did not rule on defendants' motion for a new trial. The order states as follows:

3. The following judgment is hereby entered in place of the judgment herein vacated:

Defendants' actions as found by the jury in answers to issues [relating to unfair or deceptive insurance practices] are not unfair and deceptive acts or practices as a matter of law within the meaning of N.C.Gen.Stat. [§§ 58-63-15(1) or 75-1.1].

On 2 August 1990 plaintiff moved both to amend this new ("second") judgment and for a new trial. As grounds for a new trial plaintiff alleged "error of law occurring at the trial and objected to by Plaintiff in connection with the submission of the issue of and instructions on the defenses of contributory negligence and avoidable consequences." By order entered 10 September 1990 the trial court denied plaintiff's motions.

Plaintiff gave notice of appeal from entry of the second judgment and from denial of the motions to amend or for a new trial. Plaintiff's notice of appeal was filed 13 September 1990, more than thirty days from entry of the second judgment. However, as the filing of plaintiff's motion for a new trial tolled the time for taking appeal from the second judgment, see N.C.R.App.P. 3(c)(4), plaintiff has given timely notice of appeal to this Court.

Plaintiff has brought forward four assignments of error in its brief. These assignments of error are grouped under two contentions. Plaintiff first contends the trial court erred in entering judgment notwithstanding the verdict, because the verdict in light of the stipulations of the parties and of other facts, established that the defendants had committed an unfair trade practice in violation of N.C.G.S. § 75-1.1 and plaintiff had been damaged thereby. For reasons which follow, we agree that the court erred in entering judgment notwithstanding the verdict for plaintiff and reverse as to this issue only.

North Carolina insurance law provides as follows:

The purpose of this Article is to regulate trade practices in the business of insurance ... by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts o[r] practices and by prohibiting the trade practices so defined or determined.

N.C.G.S. § 58-63-1 (1991). Defendants argue that the word "all" in this statute means that no unfair or deceptive insurance practices can exist other than those specifically defined in N.C.G.S. § 58-63-15 or determined pursuant to N.C.G.S. § 58-63-40, and that the conduct of defendants in this action is not proscribed by any provision of N.C.G.S. § 58-63-15.

Among practices expressly defined to be unfair or deceptive is "[m]aking ... or causing to be made ... any ... statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby." N.C.G.S. § 58-63-15(1) (1991). The predecessor to this section, section 58-54.4(1), cited in plaintiff's complaint, did not differ in its language. A violation of section 58-63-15(1) "as a matter of law constitutes an unfair or deceptive trade practice in violation of N.C.G.S. § 75-1.1." Pearce v. American Defender Life Ins. Co., 316 N.C. 461, 470, 343 S.E.2d 174, 179 (1986) (construing section 58-54.4). The relationship between the insurance statute and the more general unfair or deceptive trade practices statutes is that the latter provide a remedy in the nature of a private action for the former. Id. (stating that insurance commissioner's enforcement is not the exclusive remedy for unfair trade practices in the insurance industry, as section 75-16 authorizes a private cause of action and "mandates the automatic assessment of treble damages once a violation of section 75-1.1 is shown."). In the present case the question then is whether defendant Smith made or caused to be made a statement misrepresenting the terms of the policies of insurance issued to plaintiff.

Evidence at trial showed plaintiff is a North Carolina corporation engaged in providing physicians' and surgeons' locum tenens services throughout the United States. Plaintiff's president and founder, Dr. Alan Kronhaus, was a pioneer of the concept of temporary replacements for doctors in rural areas. Dr. Kronhaus testified that medical malpractice insurance was the lifeblood of his business; but when he began the business, the only malpractice insurance available was location specific. Nevertheless, for the policy year 18 November 1982 through November 1983, Dr. Kronhaus was able to purchase from a broker other than defendant Cobb malpractice insurance covering many states. The policy's declarations page showed the premium amount was $30,060.00. Among endorsements listed was "4. Premium and Audit Endorsement, Schedule of Positions and Rates." This endorsement read in pertinent part

Upon expiration of this policy, the Insured shall furnish to [the underwriter] a statement of the Insured's actual total premium base as specified herein for the policy period. The actual earned premium shall be computed thereon at the premium rate specified herein. If the actual, earned premium is more than the deposit premium the Insured shall pay the difference to the Company; if less, the Company shall refund the difference to the Insured except that the Company shall be entitled to the minimum premium as stated in the Declarations.

The word "minimum" did not appear on the declarations page.

Dr. Kronhaus testified his understanding of the endorsement was that it rendered the policy an "audit" policy under which plaintiff paid only for insurance actually used. Calculation of the annual premium, also known as a deposit premium, was based on plaintiff's projections as to how much malpractice insurance would be needed. George Sheppard, senior vice president for defendant Cobb, testified he believed the endorsement provided for a refund, but defendant Smith testified "minimum premium" meant there could be no refund. Smith testified further that he told Dr. Kronhaus the 1982-83 policy carried a minimum premium with no possibility of refund. Plaintiff's expert witness testified the policy provided for refunds. Defendant's expert witness testified that the policy provided for refunds or was ambiguous.

For the 1982-83 policy year and for several years thereafter, actual insurance used exceeded plaintiff's projections and purchases. The demand for plaintiff's services was increasing and plaintiff's sales and recruiting efforts were successful. In July 1983 Dr. Kronhaus began to discuss with George Sheppard and defendant Smith plaintiff's malpractice insurance needs for the policy year 1983-84. Dr. Kronhaus testified he furnished a copy of the 1982-83 policy and emphasized in discussions with Sheppard and defendant Smith that the audit feature, or "refundability," was of great importance to plaintiff. By contrast, defendant Smith testified Dr. Kronhaus neither emphasized nor requested refundability.

Plaintiff's 1983-84 policy, purchased through defendant Cobb, did not include a premium and audit endorsement. Instead, on its declarations page, the 1983-84 policy described the $80,769.00 premium as "Minimum &...