NC FARM BUREAU MUT. INS. CO. v. Gurley, No. COA99-861.

• Decision Date: 18 July 2000
• Docket Number: No. COA99-861.
• Court: North Carolina Court of Appeals
• Parties: NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, Plaintiff, v. Sherry GURLEY, Jimmy D. Gurley, Guardian Ad Litem for Kathryn Lynn Gurley, and Wendy Woolard, by and through her Guardian Ad Litem, Gregory James, Defendants.

532 S.E.2d 846

139 NC App. 178

NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, Plaintiff, v. Sherry GURLEY, Jimmy D. Gurley, Guardian Ad Litem for Kathryn Lynn Gurley, and Wendy Woolard, by and through her Guardian Ad Litem, Gregory James, Defendants.

No. COA99-861.

Court of Appeals of North Carolina.

July 18, 2000.

Pinto Coates Kyre & Brown, PLLC, by Paul D. Coates and Nancy R. Meyers, Greensboro, for plaintiff-appellant.

Gaskins & Gaskins, P.A., by Herman E. Gaskins, Jr., Washington, for defendant-appellees Sherry Gurley and Kathryn Lynn Gurley.

Ward & Smith, P.A., by V. Stewart Couch and A. Charles Ellis, Greenville, for defendant-appellee Wendy N. Woolard.

LEWIS, Judge.

This is a case of first impression involving the interpretation of our underinsured motorist ("UIM") statute, which appears in section 20-279.21(b)(4) of our General Statutes. Specifically, we address whether the applicable limit of coverage under that statute is the UIM carrier's per-person or per-accident limit.

On 3 March 1996, an automobile owned and operated by defendant Kathryn Gurley collided with another automobile being driven by Charles Fornes. The accident resulted from Mr. Fornes' negligence. The three defendants, Kathryn Gurley and her two passengers, Sherry Gurley and Wendy Woolard, sustained serious injuries in the accident. At the time of the accident, Mr. Fornes was insured by Allstate Insurance Company ("Allstate") under a 25/50 liability policy (i.e. having applicable limits of $25,000 per person and $50,000 per accident). Pursuant to this policy, Allstate tendered its $50,000 limit to defendants, with the Gurleys each receiving $17,000 and Ms. Woolard receiving $16,000. Defendants then sought coverage under Sherry Gurley's UIM policy with North Carolina Farm Bureau Mutual Insurance Company ("Farm Bureau"). That policy had applicable limits of $50,000 per person and $100,000 per accident. Farm Bureau then instituted this declaratory judgment action to ascertain whether the per-person or per-accident limit was the applicable UIM limit. The trial court concluded that the per-person limit applied. From this order, Farm Bureau appeals.

The North Carolina UIM statute necessitates a two-step analysis in resolving any UIM claims. First, we must address whether the insured is even eligible for UIM coverage. UIM coverage is available if two conditions are satisfied: (1) the negligent driver's automobile was an "underinsured highway vehicle"; and (2) the negligent driver's liability coverage has been exhausted. N.C. Gen. Stat. § 20-279.21(b)(4) (1999). Under our statute, an "underinsured highway vehicle" is:

a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of underinsured motorist coverage for the vehicle involved in the accident and insured under the owner's policy.

Id. The respective liability and UIM limits are thus directly compared to each other. Because Mr. Fornes' insurance policy carried 25/50 liability coverage and Sherry Gurley's policy carried 50/100 UIM coverage, Mr. Fornes' automobile was an "underinsured highway vehicle." See generally Ray v. Atlantic Casualty Ins. Co., 112 N.C.App. 259, 261-62, 435 S.E.2d 80, 81,

disc. review denied, 335 N.C. 559, 439 S.E.2d 151 (1993). Furthermore, given that Allstate tendered its $50,000 limit to defendants, Mr. Fornes' liability coverage has been exhausted. Thus, both conditions have been satisfied and defendants are entitled to UIM coverage.

Once UIM coverage is available, the second step in applying our UIM statute is determining how much coverage the insureds are entitled to receive under the UIM policy. Our statute outlines the limit as follows:

[T]he limit of underinsured motorist coverage applicable to any claim is determined to be the difference between the amount paid to the claimant under the exhausted liability policy or policies and the limit of underinsured motorist coverage applicable to the motor vehicle involved in the accident.

N.C. Gen.Stat. § 20-279.21(b)(4) (emphasis added). Thus, each defendant here is entitled to "the limit of underinsured motorist coverage applicable," less the amount each received from Allstate under Mr. Fornes' liability policy. Our task then is to determine that applicable UIM limit.

Farm Bureau contends that the applicable UIM limit is always the per-accident limit. Thus, in this case, defendants would be entitled to a total of $50,000 in UIM coverage (the $100,000 per-accident limit less the $50,000 combined they received from Allstate). Defendants, on the other hand, argue that the per-person limit is always the applicable limit. Under this interpretation, the two Gurleys would receive $33,000 each (the $50,000 per-person limit less the $17,000 already received) and Ms. Woolard would receive $34,000 (the $50,000 per-person limit less the $16,000 already received). Farm Bureau would thus be obligated to pay defendants $100,000 in total UIM coverage, which is within the $100,000 per-accident limit under the policy. The parties have cited Progressive Am. Ins. Co. v. Vasquez, 350 N.C. 386, 515 S.E.2d 8, reh'g denied, 350 N.C. 852, ___ S.E.2d ___ (1999), and Aills v. Nationwide Mutual Ins. Co., 88 N.C.App. 595, 363 S.E.2d 880 (1988), for their respective interpretations. We find neither case instructive, as each ultimately relies on the language of the UIM policy itself, rather than the UIM statute. Progressive, 350 N.C. at 396-97, 515 S.E.2d at 14; Aills, 88 N.C.App. at 598, 363 S.E.2d at 882.

Furthermore, neither party's construction is entirely correct. The applicable UIM limit will not always be the same in every circumstance; it will vary. Specifically, we conclude that the applicable UIM limit under N.C. Gen.Stat. § 20-279.21(b)(4) will depend on two factors: (1) the number of claimants seeking coverage under the UIM policy; and (2) whether the negligent driver's liability policy was exhausted pursuant to a per-person or per-accident cap. Quite intuitively, when only one UIM claimant exists, the per-person limit under the policy will be the applicable UIM limit. But when more than one claimant is seeking UIM coverage, as is the case here, how the liability policy was exhausted will determine the applicable UIM limit. In particular, when the negligent driver's liability policy was exhausted pursuant to the per-person cap, the UIM policy's per-person cap will be the applicable limit. However, when the liability policy was exhausted pursuant to the per-accident cap, the applicable UIM limit will be the UIM policy's per-accident limit.

By way of illustration, suppose A and B are seriously injured due to the negligence of C, who has 100/300 liability coverage. In that situation, the per-person liability cap applies, and A and B each would receive $100,000. Suppose further that A has UIM coverage for A and B of 250/750. If both A and B then claim under the UIM policy, the $250,000 per-person UIM cap would also apply, because that was the limit used to exhaust the liability coverage. Thus A and B would each receive $150,000 from the UIM carrier ($250,000 less the $100,000 already received).

In the case before us, however, we have three claimants who were compensated under the per-accident liability coverage limit. Now, the applicable UIM limit is also the per-accident UIM limit of $100,000. Accordingly, after the $50,000 liability payment is taken into account, defendants are...