Nhung Ha v. Nationwide Gen. Ins. Co.

• Decision Date: 18 June 2019
• Docket Number: No. COA19-75,COA19-75
• Citation: 829 S.E.2d 919,266 N.C.App. 10
• Parties: NHUNG HA and Nhiem Tran, Plaintiffs, v. NATIONWIDE GENERAL INSURANCE COMPANY, Defendant.
• Court: North Carolina Court of Appeals

266 N.C.App. 10

829 S.E.2d 919

NHUNG HA and Nhiem Tran, Plaintiffs,

v.NATIONWIDE GENERAL INSURANCE COMPANY, Defendant.

No. COA19-75

Court of Appeals of North Carolina.

Filed: June 18, 2019

John M. Kirby, Raleigh, for plaintiff-appellants.

Bailey & Dixon, LLP, by David S. Wisz, Raleigh, for defendant-appellee.

ARROWOOD, Judge.

Nhung Ha ("Ms. Ha") and Nhiem Tran ("Mr. Tran") (collectively, "plaintiffs") appeal from a judgment dismissing their complaint in part, and declaring Nationwide General Insurance Company ("defendant" or "Nationwide") properly cancelled the homeowner's insurance policy it issued to plaintiffs. For the reasons stated herein, we reverse and remand.

I. Background

Mr. Tran contacted Nationwide on or about 1 April 2015 to secure a homeowner's insurance policy for plaintiffs’ home. Nationwide issued the policy that same day.

On or about 14 April 2015, Nationwide's underwriting department sent an inspector to plaintiffs’ home. The inspector issued a report on 25 April 2015, identifying several hazards he discovered at the home: (1) rotten siding, (2) an unsecured trampoline, and (3) an unfenced inground pool. Based on this report, Nationwide decided to cancel plaintiffs’ policy. The underwriter who made this decision contacted Ms. Brenda Elkerson, a Nationwide employee whose job responsibilities include drafting written notices of policy cancellations, and asked her to prepare a notice cancelling plaintiffs’ policy. Ms. Elkerson drafted the letter and sent a memo to the agent on plaintiffs’ policy regarding the cancellation. The letter of cancellation listed the hazards identified by the inspector as the reason for the policy's cancellation, and explained the specific steps plaintiffs could take to ameliorate the hazards to reinstate coverage. The letter, dated 22 May 2015, gave plaintiffs until 6 June 2015 to address the hazards. If they did not, Nationwide would cancel the policy at 12:01 a.m. on 6 June 2015.

Ms. Elkerson instructed Nationwide's processing department to print the cancellation letter for mailing. The certificate of mail report maintained by Nationwide shows that the cancellation letter was presented for mailing on 22 May 2015. Although the letter was not returned to Nationwide, plaintiffs never received it.

On 24 July 2015, a fire destroyed plaintiffs’ home. When plaintiffs contacted Nationwide to file a claim, they were informed they were not insured, as the policy had been cancelled. Thereafter, plaintiffs retained legal counsel to pursue a claim for reimbursement, which Nationwide denied by letter on 1 October 2015.

Plaintiffs initiated an action against defendant by filing a complaint in Wake County Superior Court on 24 January 2017, seeking damages for breach of contract and a declaratory judgment that Nationwide did not timely and properly cancel the policy. Nationwide answered and asserted a counterclaim requesting a declaratory judgment that it properly cancelled plaintiffs’ policy.

The matter came on for hearing before the Honorable Rebecca W. Holt in Wake County Superior Court on 27 August 2018. On 31 August 2018, the trial court entered a judgment dismissing plaintiffs’ breach of contract claim, and declaring: "Nationwide has no duty or obligation under the Policy to make payment to the Plaintiffs for the damage to the Residence and its contents which resulted from the loss on the grounds that the Policy was timely and properly cancelled." The trial court taxed the costs of the action to plaintiffs.

Plaintiffs appeal.

II. Discussion

Plaintiffs argue the trial court erred by concluding Nationwide complied with: (1) N.C. Gen. Stat. § 58-41-15(c) (2017), and (2) the insurance policy's termination requirements. Because we agree with plaintiffs that the trial court erred by concluding Nationwide complied with N.C. Gen. Stat. § 58-41-15(c), we reverse and do not reach the second issue on appeal.

"In reviewing a trial judge's findings of fact, we are strictly limited to determining whether the trial judge's underlying findings of fact are supported by competent evidence, in which event they are conclusively binding on appeal, and whether those factual findings in turn support the ... ultimate conclusions of law." State v. Navarro , ––– N.C. App. ––––, ––––, 787 S.E.2d 57, 62 (2016) (citations and internal quotation marks omitted). "Conclusions of law are reviewed de novo and are subject to full review." State v. Biber, 365 N.C. 162, 168, 712 S.E.2d 874, 878 (2011).

N.C. Gen. Stat. § 58-41-15 governs the cancellation of homeowners’ insurance policies. Pursuant to this section, an insurer may only cancel an insurance policy, or renewal thereof "prior to the expiration of the term or anniversary date stated in the policy and without the prior written consent of the insured" if the insurer cancels for one of the reasons listed in N.C. Gen. Stat. § 58-41-15(a), which are:

(1) Nonpayment of premium in accordance with the policy terms;

(2) An act or omission by the insured or his representative that constitutes material misrepresentation or nondisclosure of a material fact in obtaining the policy, continuing the policy, or presenting a claim under the policy;

(3) Increased hazard or material change in the risk assumed that could not have been reasonably contemplated by the parties at the time of assumption of the risk;

(4) Substantial breach of contractual duties, conditions, or warranties that materially affects the insurability of the risk;

(5) A fraudulent act against the company by the insured or his representative that materially affects the insurability of the risk;

(6) Willful failure by the insured or his representative to institute reasonable loss control measures that materially affect the insurability of the risk after written notice by the insurer;

(7) Loss of facultative reinsurance, or loss of or substantial changes in applicable reinsurance as provided in G.S. 58-41-30 ;

(8) Conviction of the insured of a crime arising out of acts that materially affect the insurability of the risk; or

(9) A determination by the Commissioner that the continuation of the policy would place the insurer in violation of the laws of this State;

(10) The named insured fails to meet the requirements contained in the corporate charter, articles of incorporation, or bylaws of the insurer, when the insurer is a company organized for the sole purpose of providing members of an organization with insurance coverage in this State.

N.C. Gen. Stat. § 58-41-15(a)(1)-(10).

A cancellation permitted by N.C. Gen. Stat. § 58-41-15(a) :

is not effective unless written notice of cancellation has been delivered or mailed to the insured, not less than 15 days before the proposed effective date of cancellation. The notice must be given or mailed to the insured, and any designated mortgagee or loss payee at their addresses shown in the policy or, if not indicated in the policy, at their last known addresses. The notice must state the precise reason for cancellation. Proof of mailing is sufficient proof of notice. Failure to send this notice to any designated mortgagee or loss payee invalidates the cancellation only as to the mortgagee's or loss payee's interest.

N.C. Gen. Stat. § 58-41-15(b) (emphasis added). However, N.C. Gen. Stat. § 58-41-15(b)

does not apply to any insurance policy that has been in effect for less than 60 days and is not a renewal of a policy. That policy may be cancelled for any reason by furnishing to the insured at least 15 days prior written notice of and reasons for cancellation.

N.C. Gen. Stat. § 58-41-15(c) (emphasis added). The failure to comply with the statutory requirements for cancelling an insurance policy renders the cancellation ineffective. Pearson v. Nationwide Mut. Ins. Co. , 325 N.C. 246, 259, 382 S.E.2d 745, 751-52 (1989).

Here, the trial court found that plaintiffs "did not receive the cancellation letter." But the trial court concluded that Nationwide proved by a preponderance of the evidence that it complied with N.C. Gen. Stat. § 58-41-15(c), explaining:

Although [sub]section (c) does not include the language,[ ] ["]proof of mailing is sufficient proof of notice", that language is included in [sub]section (b). Reading the statute as a whole and giving the term "furnishing" it's [sic ] ordinary meaning – "to provide, supply of equip [sic ], for the accomplishment of a particular purpose" (Black's Law Dictionary 608 – 5[th] ed. 1979), this Court finds that the proof of mailing by Nationwide is sufficient notice under the statute. This Court declines to interpret the statute to require Nationwide to prove actual knowledge on the part of the insureds.

It is undisputed that the cancellation of plaintiffs’ policy is controlled by N.C. Gen. Stat. § 58-41-15(c) : the policy was in effect less than 60 days and was not the renewal of a policy. However, plaintiffs contend the trial court erred by concluding proof of mailing provided sufficient notice to the insured under this subsection. Instead, plaintiffs argue, subsection (c)’s use of the statutory term "furnishing" required actual delivery to and/or receipt of the notice by the insured. We agree.

N.C. Gen. Stat. § 58-41-15 does not define "furnishing[,]" and no case law in North Carolina directly addresses what is required for an insurer to "furnish" notice of cancellation. The only North Carolina case that addresses the definition of "furnishing" is Queensboro Steel Corp. v. E. Coast Mach. & Iron Works, Inc. , 82 N.C. App. 182, 346 S.E.2d 248 (1986). However, Queensboro is not controlling here, as it involved this Court's interpretation of the term "furnish" in the context of a materialman's lien statute claim under Chapter 44A of the General Statutes, and the relevant statute specifically required furnishing "at the site[.]" See id. at 184, 346 S.E.2d at 250 (analyzing N.C. Gen. Stat. § 44A-10 (2017) ). Nonetheless, as in Queensboro , the language before our Court in the instant case is ambiguous, and therefore subject to judicial...