North River Ins. Co. v. Young

• Decision Date: 07 February 1995
• Docket Number: No. 9414SC175,9414SC175
• Citation: 453 S.E.2d 205,117 N.C.App. 663
• Parties: NORTH RIVER INSURANCE COMPANY and United States Fire Insurance Company, Plaintiffs, v. Joel R. YOUNG, Camilla A. Young and Matthew Ashworth Young, The Glenn Powell Insurance Agency, Inc., Cathy Frazier, and Richard N. Aycock, III, Defendants.
• Court: North Carolina Court of Appeals

Page 205

453 S.E.2d 205

117 N.C.App. 663

NORTH RIVER INSURANCE COMPANY and United States Fire Insurance Company, Plaintiffs, v. Joel R. YOUNG, Camilla A. Young and Matthew Ashworth Young The Glenn Powell Insurance Agency, Inc., Cathy Frazier, and Richard N. Aycock, III, Defendants.

No. 9414SC175.

Court of Appeals of North Carolina.

Feb. 7, 1995.

Poe, Hoof & Reinhardt by J. Bruce Hoof and James C. Worthington, Durham, for plaintiffs appellants.

Pipkin & Knott by Ashmead P. Pipkin, Raleigh, for defendants appellees Joel R. Young, Camilla A. Young and Matthew Ashworth Young.

Bailey & Dixon, L.L.P. by Gary S. Parsons and Renee C. Rigsbee, Raleigh, for defendant appellee Richard N. Aycock, III.

Michael T. Medford, Manning, Fulton & Skinner, P.A., Raleigh, for appellee.

ARNOLD, Chief Judge.

This appeal is interlocutory because the trial court's summary judgment did not determine the entire controversy between the parties. Veazey v. Durham, 231 N.C. 357, 57 S.E.2d 377, reh'g denied, 232 N.C. 744, 59 S.E.2d 429 (1950). But, this interlocutory appeal is properly considered on appeal since the trial judge certified the order for appeal pursuant to N.C.Gen.Stat. § 1A-1, Rule 54(b) (1990), which states "if there has been a final disposition as to one or more but fewer than all of the claims or parties in a case, the trial judge may certify that there is no just reason to delay appeal." Taylor v. Brinkman, 108 N.C.App. 767, 769, 425 S.E.2d 429, 431, disc. review denied, 333 N.C. 795, 431 S.E.2d 30 (1993).

Plaintiffs' first assignment of error is that the trial court erred in allowing defendants' respective motions for summary judgment and denying plaintiffs' oral motion for summary judgment. After amending their answers to include as an additional basis for reformation plaintiff North River's failure to adequately notify the insured of a reduction in coverage, defendants moved for summary judgment. Following a hearing, the trial court concluded that there was no genuine issue of material fact, and defendants were entitled to judgment as a matter of law on all plaintiffs' claims for declaratory relief. The trial court further ordered:

In the alternative, because of Plaintiff North River Insurance Company's failure to call the Young Defendants' attention to the alleged reductions in its policy coverage in the June 1988 renewal of its homeowners insurance policy issued to the Young Defendants, the Young Defendants are entitled to reformation of the watercraft exclusion applicable to the liability coverages in Plaintiff North River Insurance Company's homeowners insurance policy described in Plaintiffs' Second Amended Complaint to read as described in Exhibit 9 to the Deposition of Denise Lorz Abels taken in this action.

Where a summary judgment motion has been granted the two critical questions of law on appeal are whether, on the basis of the materials presented to the trial court, (1) there is a genuine issue of material fact and, (2) whether the movant is entitled to judgment as a matter of law. Berkeley Federal Savings and Loan Assn. v. Terra Del Sol, 111 N.C.App. 692, 433 S.E.2d 449 (1993), disc. review denied, 335 N.C. 552, 441 S.E.2d 110 (1994). Review of summary judgment on appeal is necessarily limited to whether the trial court's conclusions as to these questions of law were correct ones. Ellis v. Williams, 319 N.C. 413, 355 S.E.2d 479 (1987). The purpose of summary judgment is to eliminate the need for a formal trial where only questions of law are involved, and a fatal weakness in the claim of a party, such as an insurmountable affirmative defense or the nonexistence of an essential element, is exposed. Hall v. Post, 85 N.C.App. 610, 355 S.E.2d 819 (1987), rev'd on other grounds, 323 N.C. 259, 372 S.E.2d 711 (1988).

The threshold issue in this case is the determination of whether the policy in effect at the time of the accident was a new contract or a renewal of the original policy. The significance of this determination was discussed in Setzer v. Old Republic Insurance Co., 257 N.C. 396, 126 S.E.2d 135 (1962):

It is a matter of common knowledge that insurance companies from time to time change the terms of their policies. One may not assume that a new insurance contract of any kind will conform to the terms of a prior policy of the same type. However, a different rule applies to renewals and the law does not impose the same degree of care upon an insured to examine a renewal policy as it does to examine an original policy. With reference to renewals, Appleman states the rule to be as follows: "Unless otherwise provided, the rights of the parties are controlled by the terms of the original contract, and the insured is entitled to assume, unless he has notice to the contrary, that the terms of the renewal policy are the same as those of the original contract."

Id. at 403, 126 S.E.2d at 140.

Plaintiffs contend that the policy in effect at the time of the accident, Form 4-84, excluded liability coverage for bodily injury or property damages arising out of "the ownership, maintenance, use, loading or unloading of a watercraft ... with inboard or inboard-outdrive motor power owned by an insured...." They argue that although the prior policy, Form 7-80, would not have excluded the accident in question from coverage, the Form 4-84 policy issued in 1988 before the accident was a new contract, which the insured had a duty to read and to which he is bound. Defendants, however, argue that summary judgment should be upheld because Form 4-84 was merely a renewal of the prior policy, and therefore defendants had a right to rely on the assumption that, absent sufficient notice to the contrary, their renewal was the same in terms of coverage as the original; because plaintiffs failed to give adequate notice of the reduction in coverage from Form 7-80 to Form 4-84, defendants were entitled to reformation of Form 4-84 by applying the original policy exclusion, which provides liability insurance coverage for all sums owed by defendants Young to defendant Aycock.

The question of whether the policy at issue is a renewal of the original policy or a new contract is a question of law for the court, and thus proper for summary judgment. See Borders v. Global Ins. Co., 208 Ga.App. 480, 430 S.E.2d 854 (1993). Both parties cite to Gaston-Lincoln Transit, Inc. v. Maryland Casualty Co., 20 N.C.App. 215, 201 S.E.2d 216 (1973), aff'd, 285 N.C. 541, 206 S.E.2d 155 (1974), in which this Court held that "in the renewal of an insurance contract, absent notice to the contrary, the insured has a right to expect that the coverage of the new policy will be substantially the same as that afforded by its predecessor." Id. at 223, 201 S.E.2d at 221; see also Fireman's Fund Ins. Co. v. A.T. Williams Oil Co., 70 N.C.App. 484, 319 S.E.2d 679 (1984). The rationale behind the rule announced in Transit, Inc. is

that if an insurance company knows that the renewal policy differs and does not inform the insured, it is guilty of fraud or unequitable conduct, or that if it does not know, it is because of a mistake, and in either event the insured, who has relied on the assumption that he is receiving a policy based on the same terms and conditions as the earlier one, is entitled to recover as though there had not been a change in the coverage in the renewal policy.

Id. 20 N.C.App. at 222, 201 S.E.2d at 220 (quoting D.C. Barrett, Annotation, Renewal Policy--Reduction in Coverage, 91 A.L.R.2d 546, 549 (1963)).

The trial court in the instant case found that plaintiff North River failed to give proper notice of the reductions in coverage in the June 1988 "renewal." After examining the record, we are satisfied that the trial court correctly determined that the contract at issue was a renewal. The declarations page of each insurance contract issued annually, subsequent to the original policy, had the word "Renewal" printed under the line "Reason for Issuance." The homeowners insurance policy number remained the same for each subsequent policy. Furthermore, the "Homeowners Coverage Update" issued with the June 1988 renewal policy stated that the changes made on the current homeowners policy were "[e]ffective on your policy renewal date." Therefore, based on the face of the contract alone it is clear that the policy was a continuous renewal of the original policy.

Since the insurance policy issued was a renewal, the next question is whether the insurer gave sufficient notice of changes in coverage to eliminate the insured's right to rely on the terms of the original policy. "If, absent notice to the contrary, the insurer inserts an endorsement varying the original coverage, the renewal contract may be reformed to conform with the...