N.C. Farm Bureau Mut. Ins. Co. v. Lunsford

• Court: North Carolina Supreme Court
• Writing for the Court: EARLS, Justice.
• Citation: N.C. Farm Bureau Mut. Ins. Co. v. Lunsford, 378 N.C. 181, 861 S.E.2d 705 (N.C. 2021)
• Decision Date: 13 August 2021
• Docket Number: No. 242A20-1,242A20-1
• Parties: NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, INC. v. Judy LUNSFORD

378 N.C. 181

861 S.E.2d 705

NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, INC.

v.Judy LUNSFORD

No. 242A20-1

Supreme Court of North Carolina.

Filed August 13, 2021

William F. Lipscomb, Wilkesboro, for the Plaintiff-Appellee.

Burton Law Firm, PLLC, by Jason M. Burton, for the Defendant-Appellant.

Jon. R. Moore, Charlotte, and C. Douglas Maynard, Jr., Winston-Salem, for North Carolina Advocates for Justice, amicus curiae.

Bailey & Dixon, LLP, by J.T. Crook, for North Carolina Association of Defense Attorneys, amicus curiae

EARLS, Justice.

¶ 1 Cars and people are, naturally, mobile. They regularly traverse state lines. Unfortunately, but inevitably, cars and people also get into accidents. When they do, it can raise issues regarding which state's law governs the interpretation of various provisions of each of the involved parties’ insurance contracts. In this case, we must determine whether a North Carolina resident is entitled to collect underinsured motor vehicle coverage benefits from her North Carolina insurer, after she was injured while traveling in Alabama in a car owned and operated by a Tennessee resident and insured by a Tennessee insurer. To answer that question, we must decide if North Carolina or Tennessee law applies when ascertaining whether the Tennessee vehicle is "underinsured" within the meaning of a contract executed in North Carolina between a North Carolina resident and a North Carolina insurer.

¶ 2 Judy Lunsford, a North Carolina resident, was a passenger in her sister Levonda Chapman's vehicle when a serious accident occurred as they were travelling through Alabama. Chapman negligently drove her vehicle across a highway median into oncoming traffic, where it collided with an 18-wheeler. As a result of the accident, Lunsford was severely injured. Chapman was tragically killed.

¶ 3 Chapman was insured by a Nationwide Insurance Company policy purchased in her home state of Tennessee. As a passenger in Chapman's vehicle, Lunsford was entitled to recover from Nationwide, under the terms of Chapman's bodily injury liability coverage. Nationwide offered—and Lunsford accepted—the full $50,000 available under the policy's per person bodily injury coverage limit. Lunsford also claimed she was entitled to coverage under the underinsured motorist (UIM) provision of her own insurance contract executed in North Carolina with a different insurer, North Carolina Farm Bureau Mutual Insurance Company, Inc. (NC Farm Bureau). NC Farm Bureau denied her claim and initiated a declaratory judgment action to establish its liability to Lunsford. The trial court agreed with NC Farm Bureau's position, concluding that Chapman's vehicle was not an "underinsured highway vehicle" as defined under North Carolina's Financial Responsibility Act (FRA). A divided panel of the Court of Appeals affirmed.

¶ 4 In its argument before this Court, NC Farm Bureau concedes that the majority below "employed incorrect reasoning" in reaching its conclusion that Lunsford was not entitled to coverage under the UIM provision of her insurance contract. Still, NC Farm Bureau argues the Court of Appeals "reached the correct result" in affirming the trial court's entry of declaratory judgment for NC Farm Bureau, contending that Chapman's vehicle is not an underinsured motor vehicle as defined by the terms of Chapman's Nationwide insurance contract, which incorporates Tennessee law.

¶ 5 However, in determining whether Lunsford is entitled to collect pursuant to the contract she entered into with NC Farm Bureau, we must apply North Carolina law to interpret the terms of a contract executed in North Carolina that necessarily incorporates North Carolina's FRA. We need not interpret Chapman's Nationwide insurance contract incorporating Tennessee law. Resolving this dispute does not require us to adjudicate any of Chapman's or Nationwide's rights, nor does it implicate any other state's interest in enforcing its own laws regulating the provision and maintenance of motor vehicle insurance.

¶ 6 Applying North Carolina law, we affirm prior decisions of the Court of Appeals allowing interpolicy stacking when calculating the "applicable" policy limits as required under the relevant provision of the FRA, N.C.G.S. § 20-279.21(b)(4) (2019). Because the amount of the stacked UIM coverage limits exceeds the sum of the applicable bodily injury coverage limits, Chapman's car is an "underinsured motor vehicle" as defined by the FRA for the purposes of giving effect to Lunsford's contract with NC Farm Bureau. Accordingly, we reverse the decision of the Court of Appeals, vacate the trial court's order entering declaratory judgment for NC Farm Bureau, and remand to the trial court for further proceedings consistent with this opinion.

I. Factual Background

¶ 7 At the time of the crash, both Lunsford and Chapman maintained motor vehicle accident insurance policies. Chapman's Nationwide policy provided her and her vehicle with bodily injury liability coverage subject to limits of $50,000 per person and $100,000 per accident, and UIM coverage subject to the same limits. Lunsford's NC Farm Bureau policy provided her with UIM coverage subject to the same limits as Chapman's bodily injury liability coverage ($50,000 per person / $100,000 per accident). After the crash, Nationwide offered, and Lunsford accepted, the full $50,000 available under the Nationwide bodily injury liability policy per person limit. Lunsford then sought an additional $50,000 in UIM coverage from her own insurer, NC Farm Bureau.

¶ 8 NC Farm Bureau denied Lunsford's claim and initiated a declaratory judgment action in Superior Court, Guilford County seeking a ruling establishing that "the UIM coverage of [the NC Farm Bureau policy] does not apply to [Lunsford's] injuries from the ... motor vehicle collision in question and that [Lunsford] is not entitled to recover any UIM coverage from said policy." NC Farm Bureau contended that Chapman's vehicle was not an "underinsured motor vehicle" under North Carolina law. Lunsford argued in response that, under the relevant provision of the FRA as interpreted by the Court of Appeals in Benton v. Hanford , 195 N.C. App. 88, 671 S.E.2d 31 (2009), she was entitled to stack her NC Farm Bureau UIM coverage limit ($50,000) with the Nationwide UIM coverage limit ($50,000) for the purposes of determining whether "the applicable limits of underinsured motorist coverage for the vehicle involved in the accident and insured under the owner's policy" exceeded "the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident." Id. at 92, 671 S.E.2d 31 (quoting N.C.G.S. § 20-279.21(b)(4) ). After stacking the policies, Lunsford contended she would be entitled to recover UIM benefits from NC Farm Bureau because the stacked UIM limits ($100,000) would be greater than Nationwide's bodily injury liability coverage limit ($50,000).

¶ 9 On 19 December 2018, the trial court entered judgment on the pleadings in NC Farm Bureau's favor. The trial court reasoned that because the Nationwide insurance contract was executed in Tennessee, "Chapman's policy is governed by Tennessee law." Under Tennessee law, an "uninsured¹ motor vehicle does not include a motor vehicle ... [i]nsured under the liability coverage of the same policy of which the uninsured motor vehicle coverage is a part." Tenn. Code § 56-7-1201(2) (2016). Because Chapman's vehicle was "insured under the liability coverage of the same policy from which the claimant [Lunsford] is seeking UIM coverage," the trial court concluded that Chapman's vehicle "cannot be an underinsured motor vehicle under Chapman's policy, the UIM coverage of Chapman's policy does not apply to the accident in question and, therefore, it is not ‘applicable’ UIM coverage within the meaning of the North Carolina UIM statute's definition of the ‘underinsured highway vehicle’ and [ Benton ]." Since the Nationwide UIM coverage was not "applicable," there was no limit for Lunsford to stack with her own NC Farm Bureau UIM coverage limit. Defined thusly, "Chapman's vehicle does not satisfy [the FRA's definition of an underinsured motor vehicle] because the liability coverage of Chapman's policy ($50,000 / $100,000) is equal to (not less than) the UIM coverage of Lunsford's policy."

¶ 10 A divided panel of the Court of Appeals affirmed, but on a different rationale than the one utilized by the trial court. The majority agreed with the trial court that Chapman's Nationwide UIM policy was not "applicable at the time of an accident under [N.C.G.S.] § 20-279.21(b)(4)." North Carolina Farm Bureau Mut. Ins. Co., Inc. v. Lunsford , 271 N.C. App. 234, 238, 843 S.E.2d 677 (2020). However, the majority's conclusion that the Nationwide policy was not "applicable" rested upon its belief that Lunsford did not "qualif[y] as a ‘person insured’ [under the Nationwide policy] as that term is defined by [ N.C.G.S. § 20-279.21(b)(3) ]." Id. According to the majority, because Lunsford was neither "the named insured [nor], while resident of the same household, the spouse of the named insured [or] relatives of either," she did not "qualif[y] as a ‘person insured’ " under Chapman's Nationwide policy, precluding Lunsford from stacking the Nationwide UIM coverage limit. Id. at 237, 843 S.E.2d 677 (quoting Sproles v. Greene , 329 N.C. 603, 608, 407 S.E.2d 497 (1991) ).

¶ 11 Judge Murphy dissented based upon his interpretation of Chapman's contract with Nationwide. According to Judge Murphy, Chapman's Nationwide policy contained a "conformity clause" stating that the insurer would "adjust this policy to comply ... [w]ith the financial responsibility law of any state or province which requires higher liability limits than those provided by this policy." Id. at 242–43, 843 S.E.2d 677 (Murphy, J., dissenting). Therefore, Judge Murphy read Chapman's Nationwide policy as "explicitly incorporat[ing] our FRA," requiring the court...