Nationwide Mut. Ins. Co. v. Chantos

• Decision Date: 11 November 1977
• Docket Number: No. 10,10
• Citation: 293 N.C. 431,238 S.E.2d 597
• Court: North Carolina Supreme Court
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY v. Andrew Currie CHANTOS.

Page 597

238 S.E.2d 597

293 N.C. 431

NATIONWIDE MUTUAL INSURANCE COMPANY v. Andrew Currie CHANTOS.

No. 10.

Supreme Court of North Carolina.

Nov. 11, 1977.

Ragsdale, Liggett & Cheshire, by George R. Ragsdale, William J. Bruckel, Jr., and Robert R. Gardner, Raleigh, for plaintiff-appellant.

Teague, Johnson, Patterson, Dilthey & Clay, by Ronald C. Dilthey, Raleigh, for defendant-appellee.

BRANCH, Justice.

At the threshold of this case, we consider it proper to state that our denial of certiorari in the case of Nationwide Mutual Insurance Company v. Chantos, 25 N.C.App. 482, 214 S.E.2d 438, cert. denied, 287 N.C. 465, 215 S.E.2d 624, does not necessarily constitute approval of the reasoning or the merits of that decision. In the appeal now before us, we may consider any error which has occurred during the course of this litigation, provided the parties have taken proper steps to preserve the questions for appellate review. Peaseley v. Coke Co., 282 N.C. 585, 194 S.E.2d 133.

As between the insurer and the named insured, the validity of the reimbursement provision of the policy sub judice is not before us. However, we note, in passing, that this question has been decided in other jurisdictions. Although there is a conflict in other jurisdictions, the majority view appears to uphold such provisions as between an insurer and the named insured. See 29 A.L.R.3d 291. We wish to make it clear that this decision is not to be construed as approving or disapproving the reimbursement provisions of this policy as between insurer and the named insureds.

The posture of appellant is that since it was required by statute to provide liability coverage for defendant, it is entitled to reimbursement from defendant in accordance with the reimbursement provisions of the Williams' policy and by reason of the provisions of G.S. 20-279.21(h).

G.S. 20-279.21(h) provides:

Any motor vehicle liability policy may provide that the insured shall reimburse the insurance carrier for any payment the insurance carrier would not have been obligated to make under the terms of the policy except for the provisions of this Article.

Pursuant to this authorization, appellant included in the Williams' policy the following:

Financial Responsibility Laws

When this policy is certified as proof of financial responsibility for the future under the provisions of any motor vehicle financial responsibility law, such insurance as is afforded by this policy for bodily injury liability or for property damage liability shall comply with the provisions of such law to the extent of the coverage and limits of liability required by such law, but in no event in excess of the limits of liability stated in this policy. The Insured agrees to reimburse the Company for any payment made by the Company which it would not have been obligated to make under the terms of this policy except for the agreement contained in this paragraph.

While the policy provision does comply with the statutory authorization, G.S. 20-279.21(h) does not compel reimbursement by the insured, it merely allows the insurer and the insured to enter into such an agreement. The policy provision is, then, merely a contractual agreement between the parties to the policy and does not have the effect or force of a statute of which we could charge defendant with constructive knowledge. See, Annot., 58 Am.Jur.2d, Notice Section 21. It is a fundamental principle of contract law that parties to a contract may bind only themselves and that the parties to the contract may not bind a third person who is not a party to the contract in absence of his consent to be bound. 17A C.J.S. Contracts § 520, page 999. However, appellant contends that defendant sought protection under the policy by submitting a claim for medical expenses incurred in the treatment for injuries sustained by him in the accident and that defendant led appellant to believe that he was relying on it for protection because he failed to respond to its letters of 21 April 1971 and 5 November 1971. We reject these contentions.

The mandatory coverage required by the Financial Responsibility Act is solely for the protection of innocent victims who may be injured by financially irresponsible motorists. It does not require the insurer to extend medical payment coverage beyond the terms of the policy to one who receives liability coverage solely by virtue of the Act. G.S. 20-279.21(b)(2). Thus the filing of a claim by defendant under the medical payment clause of the policy did not amount to seeking protection under the mandatory liability provisions of the policy. Neither was a contractual relationship created between the parties to this action because of defendant's failure to reply to appellant's letters. Except in unusual circumstances, silence will not result in the formation of a contract between primary parties. Calamari, Contracts, Section 31. Certainly this rule would not operate to bind a third party who is without any knowledge of the provisions of the contract.

Appellant's letter of 21 April 1971 reserved certain rights but made no mention of any right to reimbursement. The letter of 5 November 1971 informed defendant that appellant was attempting to negotiate a settlement with McDonald. Plaintiff's inaction and silence, under these circumstances, could not bind him to a contract provision of which he had no knowledge.

We, therefore, hold that plaintiff cannot rely upon the reimbursement clauses contained in the Williams' policy to support its action. By so holding, we do not decide that there is no theory upon which appellant could recover. We are therefore faced with the troublesome question of whether an insurer may have reimbursement from a stranger to the insurance contract whose negligence caused the injuries and damages for which the insurer had paid as a result of liability imposed by statute. We are unable to find a case in which any court has considered this question. We must, therefore, look to the applicable statutes and relevant holdings of our courts for guidance.

G.S. 20-279.21(b), in part provides:

Such owner's policy of liability insurance:

(2) Shall insure the person named therein and any other person, as insured, using any such motor vehicle or motor vehicles with the express or implied permission of such named insured, or any other persons in lawful possession, against loss from the liability imposed by law for damages arising out of the ownership, maintenance or use of such motor vehicle, or motor vehicles . . . .

Also pertinent to our decision is G.S. 20-279.21(f) which reads as follows:

(1) Except as hereinafter provided, and with respect to policies of motor vehicle liability insurance written under the North Carolina assigned risk plan, the liability of the insurance carrier with respect to the insurance required by this Article shall become absolute whenever injury or damage covered by said motor vehicle liability policy occurs; . . .

In interpreting statutes, our task is to seek and apply the legislative intent. Housing Authority v. Farabee, 284 N.C. 242, 200 S.E.2d 12. The Court will not adopt an interpretation which results in injustice when the statute may reasonably be otherwise consistently construed with the intent of the act. Puckett v. Sellars, 235 N.C. 264, 69 S.E.2d 497. Obviously, the Court will, whenever possible, interpret a statute so as to avoid absurd consequences. State v. Spencer, 276 N.C. 535, 173 S.E.2d 765.

Under the Financial Responsibility Act, all insurance policies covering loss from liability growing out of the ownership, maintenance and use of an automobile are mandatory to the extent coverage is required by G.S. 20-279.21. The primary purpose of this compulsory motor vehicle liability insurance is to compensate innocent victims who have been injured by financially irresponsible motorists. The victim's rights against the insurer are not derived through the insured, as in the case of voluntary insurance. Such rights are statutory and become absolute upon the occurrence of injury or damage inflicted by the named insured, by one driving with his permission, or by one driving while in lawful possession of the named insured's car, regardless of whether or not the nature or circumstances of the injury are covered by the contractual terms of the policy. The provisions of the Financial Responsibility Act are "written" into every automobile liability policy as a matter of law, and, when the terms of the policy conflict with the statute, the provisions of the statute will prevail. Insurance Co. v. Casualty Co., 283 N.C. 87, 194 S.E.2d 834; Strickland v. Hughes, supra; Jones v. Insurance Co., 270 N.C. 454, 155 S.E.2d 118; Insurance Co. v. Roberts, 261 N.C. 285, 134 S.E.2d 654.

In this action it is alleged and admitted in the pleadings and stipulated by the parties that, at the time of the collision between the automobile operated by defendant Chantos and the automobile operated by McDonald, defendant was in lawful possession of the automobile insured by the policy issued by appellant to Mr. and Mrs. Williams. Thus, while defendant was not an "insured" under the contractual terms of the policy, he was made an "insured" for the protection of the public by virtue of G.S. 20-279.21(b)(2). McDonald's right to recover against appellant became absolute upon the occurrence of the accident which caused injury and damage to him. Insurance Co. v. Casualty Co., supra.

Appellant's liability to McDonald did not arise out of any actionable negligence on its part but by operation of law. While the Financial Responsibility Act does impose liability upon an insurer as a matter of public policy, it is obvious that, but for the actions of defendant, McDonald would have had no claim or cause of action against appellant. Thus, liability has been imposed upon appellant in much the same manner that public policy imposes liability upon an employer for the tortious conduct of his employee under the doctrine...