North Carolina Ins. Guar. Ass'n v. Century Indem. Co.

• Decision Date: 21 June 1994
• Docket Number: No. 9310SC677,9310SC677
• Citation: 444 S.E.2d 464,115 N.C.App. 175
• Parties: NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, Plaintiff, v. CENTURY INDEMNITY COMPANY, Defendant.
• Court: North Carolina Court of Appeals

Page 464

444 S.E.2d 464

115 N.C.App. 175

NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, Plaintiff, v. CENTURY INDEMNITY COMPANY, Defendant.

No. 9310SC677.

Court of Appeals of North Carolina.

June 21, 1994.

Moore & Van Allen by Joseph W. Eason, Christopher J. Blake, & Louis S. Watson, Jr., Raleigh, for plaintiff-appellant.

Cranfill, Sumner & Hartzog by Robert W. Sumner and Susan K. Burkhart, Raleigh, for defendant-appellee.

EAGLES, Judge.

Plaintiff-Association brings forth two assignments of error. After careful review, we affirm.

I.

The first issue presented by plaintiff-Association is whether defendant-Century's commercial umbrella policy must "drop down" and serve as primary insurance as a result of the insolvency of Long's primary liability carrier (AMLIC). See Annotation, "Primary Insurer's Solvency as Affecting Excess Insurer's Liability," 85 ALR 4th 729, 734 n. 4 (1991) ("Drop down coverage occurs when an insurance carrier of a higher level of coverage is obligated to provide the coverage that the carrier of the immediately underlying level of coverage had agreed to provide"). At stake is defendant-Century's liability to plaintiff-Association for the $200,000.00 that plaintiff-Association paid in settlement of the Brooks' lawsuit.

In urging the reversal of the trial court's order, plaintiff-Association argues that the trial court erred because the language of defendant-Century's commercial umbrella policy requires it to "drop down" and provide primary coverage to Long. Plaintiff-Association contends that: 1) defendant-Century is required to drop down because the amount recoverable from the underlying insurance is zero; 2) the loss payable condition further supports defendant-Century's obligation to drop down; 3) the occurrence requiring coverage by defendant-Century is the accident in the underlying action, and; 4) because defendant-Century was obligated to drop down, defendant-Century must also pay the costs incurred by plaintiff-Association in defending Long in the underlying action.

There are several well established principles governing the construction of insurance policies. "In North Carolina, it is well settled that when construing an insurance policy a court must enforce the policy as written, 'without rewriting the contract or disregarding the express language used.' " Newton v. United States Fire Ins. Co., 98 N.C.App. 619, 623, 391 S.E.2d 837, 839, disc. review denied, 327 N.C. 637, 399 S.E.2d 329 (1990) (quoting Fidelity Bankers Life Ins. Co. v. Dortch, 318 N.C. 378, 380, 348 S.E.2d 794, 796 (1986)); Industrial Center v. Liability Co., 271 N.C. 158, 155 S.E.2d 501 (1967). " '[R]esolution of [an insurance policy's scope] involves construing the language of the coverage ... and determining whether events as alleged in the pleadings and papers before the court are covered by the policies. As such, it is an appropriate subject for summary judgment.' " C.D. Spangler Constr. Co. v. Indus. Crankshaft & Eng. Co., 326 N.C. 133, 141, 388 S.E.2d 557, 562 (1990) (alterations in original) (quoting Waste Management of Carolinas, Inc. v. Peerless Insurance Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986)). Regarding the construction of policy language containing allegedly ambiguous terms, our Supreme Court has stated:

Any ambiguity in the policy language must be resolved against the insurance company and in favor of the insured. Woods [v. Insurance Co.], 295 N.C. at 506, 246 S.E.2d at 777 [1978]. A difference of judicial opinion regarding proper construction of policy language is some evidence calling for application of this rule. See Maddox v. Insurance Co., 303 N.C. 648, 654, 280 S.E.2d 907, 910 (1981); Electric Co. v. Insurance Co., 229 N.C. 518, 521, 50 S.E.2d 295, 297 (1948); Annot., "Insurance--Ambiguity--Split Court Opinions," 4 A.L.R.4th 1253, 1255 (1981). While "[t]he fact that a dispute has arisen as to the parties' interpretation of the contract is some indication that the language of the contract is at best, ambiguous," St. Paul Fire & Marine Ins. Co. v. Freeman-White Assoc., Inc., 322 N.C. 77, 83, 366 S.E.2d 480, 484 (1988); accord Mazza v. Medical Mut. Ins. Co., 311 N.C. 621, 630, 319 S.E.2d 217, 223 (1984), "ambiguity ... is not established by the mere fact that the plaintiff makes a claim based upon a construction of its language which the company asserts is not its meaning." Trust Co. v. Insurance Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970).

"All parts of a contract are to be given effect if possible. It is presumed that each part of the contract means something." Bolton Corp. v. T.A. Loving Co., 317 N.C. 623, 628, 347 S.E.2d 369, 372 (1986). See also Williams v. Insurance Co., 269 N.C. 235, 240, 152 S.E.2d 102, 107 (1967) ("each clause and word must be ... given effect if possible by any reasonable construction"); Robbins v. Trading Post, 253 N.C. 474, 477, 117 S.E.2d 438, 440-41 (1960).

The terms of a contract must, if possible, be construed to mean something, rather than nothing at all, and where it is possible to do so by a construction in accordance with the fair intendment of a contract, the tendency of the courts is to give it life, virility, and effect, rather than to nullify or destroy it.

17 Am.Jur.2d Contracts § 254, at 648-49 (1964).

Brown v. Lumbermens Mut. Casualty Co., 326 N.C. 387, 392-93, 390 S.E.2d 150, 153 (1990).

The pertinent provisions of the commercial umbrella policy at issue here provide as follows:

COVERAGE AGREEMENTS

I. COVERAGE. The Company hereby agrees, subject to the limitations, terms and conditions hereinafter mentioned, to indemnify the Insured for all sums which the Insured shall be obligated to pay by reason of liability

(a) imposed upon the Insured by law, or

(b) assumed under contract or agreement by the Named Insured and/or any officer, director, stockholder, partner or employee of the Named Insured, while acting in his capacity as such,

for damages, direct or consequential, and expenses, all as more fully defined by the term "ultimate net loss" on account of

(1) personal injury, (2) property damage, (3) advertising liability,

caused by or arising out of an occurrence occurring anywhere in the world.

II. LIMIT OF LIABILITY. The company shall only be liable for the ultimate net loss the excess of either

(a) the amount recoverable under the underlying insurances as set out in Item 7 of the Declarations, or

(b) the amount of the retained limit stated in Item 4 of the Declarations in respect of each occurrence not covered by said underlying insurances,

(hereinafter called the "underlying limits"):

and then only up to a further limit as stated in Item 5 of the Declarations in respect of each occurrence--subject to a limit as stated in Item 6 of the Declarations in the aggregate for each annual period during the currency of this policy, commencing from the effective date and arising out of any hazard for which an aggregate limit of liability applies in the underlying policies scheduled or listed herein. In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurances by reason of payment of claims in respect of occurrences occurring during the period of this policy, this policy, subject to all the terms, conditions and definitions hereof, shall

(1) in the event of reduction pay the excess of the reduced underlying limit;

(2) in the event of exhaustion continue in force as underlying insurance.

....

DEFINITIONS

THIS POLICY IS SUBJECT TO THE FOLLOWING DEFINITIONS:

....

5. OCCURRENCE. The term "occurrence" means an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one location shall be deemed one occurrence.

....

CONDITIONS

THIS POLICY IS SUBJECT TO THE FOLLOWING CONDITIONS:

....

J. LOSS PAYABLE. Liability under this policy with respect to any occurrence shall not attach unless and until the Insured, or the Insured's underlying insurer, shall have paid the amount of the underlying limits on account of such occurrence. The Insured shall make a definite claim for any loss for which the Company may be liable under the policy within 12 months after the Insured shall have paid an amount of ultimate net loss in excess of the underlying limits or after the Insured's liability shall have been fixed and rendered certain either by final judgment against the Insured after actual trial or by written agreement of the Insured, the claimant, and the Company. If any subsequent payments shall be made by the Insured on account of the same occurrence, additional claims shall be made similarly from time to time. Such losses shall be due and payable within 30 days after they are respectively claimed and proven in conformity with this policy.

We find the policy clear and unambiguous and interpret the policy as written and according to its plain meaning. Barbee v. Harford Mutual Insurance Co., 330 N.C. 100, 408 S.E.2d 840 (1991); Fidelity Bankers Life Ins. Co., 318 N.C. 378, 348 S.E.2d 794. The policy provisions recited supra are identical to the provisions at issue in Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 836 P.2d 703 (1992). Plaintiff argues that the phrase "amount recoverable" appearing in the Coverage Agreements means "that amount actually recoverable and collectible from the primary insurer.... Because AMLIC is now insolvent, no amount is recoverable from the primary insurer, and Century is required to drop down to provide primary coverage." (Emphasis in original.) Presented with a similar proposed interpretation of the meaning of the phrase "amount recoverable," in Hoffman Construction Co. the Supreme Court of Oregon stated:

Plaintiffs argue that "amount recoverable" means the amount "able to be recovered," i.e., the...