Manning v. Fletcher

• Decision Date: 08 June 1989
• Docket Number: No. 492PA88,492PA88
• Citation: 379 S.E.2d 854,324 N.C. 513
• Parties: Arthur Bennett MANNING and wife, Lugene Manning v. Clarence Ernest FLETCHER, Jr. and North Carolina Farm Bureau Mutual Insurance Company.
• Court: North Carolina Supreme Court

Page 854

379 S.E.2d 854

324 N.C. 513

Arthur Bennett MANNING and wife, Lugene Manning v. Clarence Ernest FLETCHER, Jr. and North Carolina Farm Bureau

Mutual Insurance Company.

No. 492PA88.

Supreme Court of North Carolina.

June 8, 1989.

Ralph G. Willey, P.A. by Ralph G. Willey, III, Rocky Mount, for plaintiffs-appellees.

Poyner & Spruill by Ernie K. Murray, Rocky Mount, for defendant-appellant North Carolina Farm Bureau Mut. Ins. Co.

MEYER, Justice.

In this case, we decide whether an insurance company's underinsured motorist coverage obligation can be reduced by payments made to the injured insured pursuant to the Workers' Compensation Act. We conclude that it can be so reduced.

On 13 March 1985 plaintiff Arthur Manning was injured in an automobile accident during the course and scope of his employment. Plaintiff and his wife, Lugene Manning, brought suit against defendant Clarence Fletcher. At the time of the accident, Fletcher had liability insurance with State Farm Insurance Company in the amount of $25,000, and plaintiff's employer had a business auto policy with defendant North Carolina Farm Bureau Mutual Insurance Company ("Farm Bureau") which insured against liability in the amount of $100,000 per person. In addition to providing liability coverage to plaintiff as an employee, the business auto policy also provided uninsured and underinsured motorist coverages. The underinsured motorist coverage was in the face amount of $100,000. Plaintiff's employer maintained separate workers' compensation insurance on his employees, including plaintiff, also with North Carolina Farm Bureau Mutual Insurance Company ("Farm Bureau Workers' Compensation"). Plaintiff received $59,000 in workers' compensation benefits from Farm Bureau Workers' Compensation.

On 22 July 1987 an Order on Final Pretrial Conference added Farm Bureau as a party defendant, stipulated to Fletcher's liability and release and to plaintiff's damages as "not less than $100,000.00," and The Court of Appeals determined that no statutory provision or court decision allows "an additional reduction in the amount of underinsured coverage by deducting workers' compensation benefits paid to the employee." Manning v. Fletcher, 91 N.C.App. at 398, 371 S.E.2d at 773. The Court of Appeals affirmed the trial court. On 8 December 1988 this Court allowed Farm Bureau's petition for discretionary review. We now reverse.

converted the action to one for declaratory judgment to determine the extent of Farm Bureau's liability under the underinsured motorist coverage. The trial court refused to allow Farm Bureau to reduce its underinsured motorist obligation by the $59,000 that Farm Bureau Workers' Compensation paid to plaintiff in workers' compensation benefits, and on 26 August 1987 judgment was entered for plaintiff in the amount of $75,000, representing Farm Bureau's $100,000 underinsured motorist coverage as specified in the business auto policy reduced only by Fletcher's liability coverage of $25,000. The trial court also ordered that plaintiff was to have $41,000 of the $75,000 paid by Farm Bureau free and clear of any lien and that he was to retain the $34,000 balance until a future hearing, at which time the court would distribute that amount between plaintiff and Farm Bureau Workers' Compensation. Farm Bureau appealed.

Initially, we note that, for the purposes of this case, Farm Bureau Workers' Compensation and Farm Bureau should be treated as separate entities. Farm Bureau Workers' Compensation was aligned in interest with plaintiff against Farm Bureau because it was seeking to recover for workers' compensation payments by subrogation. See Montedoro v. City of Asbury Park, 174 N.J.Super. 305, 416 A.2d 433 (1980). Since the two entities had separate and adverse interests, they were represented by separate counsel. By stipulation, Farm Bureau was added as a party defendant in the pretrial order. Furthermore, the interests of Farm Bureau Workers' Compensation are not at issue in this appeal.

The version of N.C.G.S. § 20-279.21(b)(4) in effect at the time of plaintiff's accident required insurers to provide underinsured motorist coverage to the extent that "the limit of payment is only the difference between the limits of the liability insurance that is applicable and the limits of the underinsured motorist coverage as specified in the owner's policy." N.C.G.S. § 20-279.21(b)(4) (1983). The payment to plaintiff was therefore limited to the difference between Fletcher's liability coverage of $25,000 and the $100,000 limit of Farm Bureau's underinsured motorist coverage as specified in the policy. Plaintiff and Farm Bureau agree that the maximum amount of Farm Bureau's liability under N.C.G.S. § 20-279.21(b)(4) is $75,000.

Farm Bureau argues that, under the limit of liability provision in its underinsured motorist coverage policy with plaintiff's employer, the $75,000 may be further reduced by the $59,000 paid to plaintiff as workers' compensation benefits, for a total payment to plaintiff of $16,000. The pertinent policy language reads as follows:

OUR LIMIT OF LIABILITY

....

2. Any amount payable under this insurance shall be reduced by:

a. All sums paid or payable under any workers' compensation, disability benefits or similar law exclusive of non-occupational disability benefits....

Farm Bureau contends that this policy language is specifically authorized by N.C.G.S. § 20-279.21(e), which provides:

(e) Such motor vehicle liability policy need not insure against loss from any liability for which benefits are in whole or in part either payable or required to be provided under any workmen's compensation law nor any liability for damage to property owned by, rented to, in charge of or transported by the insured.

N.C.G.S. § 20-279.21(e) (1983) (emphasis added).

N.C.G.S. § 20-279.21 sets forth mandatory coverages in motor vehicle liability policies. N.C.G.S. § 20-279.21 (1983 and Cum.Supp.1988). The statute mandates that a policy of liability insurance shall insure against (1) loss to the insured due to the liability of the insured to another person, N.C.G.S. § 20-279.21(b)(2); (2) loss to the insured due to the liability of an uninsured motorist to the insured, N.C.G.S. § 20-279.21(b)(3); and (3) loss to the insured due to the liability of an underinsured motorist to the insured, N.C.G.S. § 20-279.21(b)(4), where the policy limit exceeds the limits prescribed by N.C.G.S. § 20-279.21(b)(2) and (3). Unless the uninsured and underinsured coverages are specifically rejected, a liability insurance policy must contain all three types of coverage. N.C.G.S. § 20-279.21(b)(3), (4) (1983 and Cum.Supp.1988).

N.C.G.S. § 20-279.21(e) provides that a motor vehicle liability policy need not afford coverage to an employee receiving benefits under the workers' compensation law. N.C.G.S. § 20-279.21(e) (1983). Plaintiff contends that section (e) authorizes the exclusion of an employee from the employer's liability coverage to the extent that the employee is covered under the workers' compensation law, but that it does not permit exclusion from the underinsured motorist coverage. We disagree.

The current version of N.C.G.S. § 20-279.21 is the result of numerous revisions to North Carolina's Financial Responsibility Act. As originally written, section (e) applied only to liability coverage because the original Act did not mandate uninsured and underinsured coverage in motor vehicle liability policies. See 1953 N.C. Sess. Laws ch. 1300, § 21(e). However,...