Pitts v. American Sec. Ins. Co.

• Decision Date: 05 June 2001
• Docket Number: No. COA00-703.,COA00-703.
• Citation: Pitts v. American Sec. Ins. Co., 144 N.C. App. 1, 550 S.E.2d 179 (N.C. App. 2001)
• Court: North Carolina Court of Appeals
• Parties: Margaret Williams PITTS, Individually and on behalf of all persons similarly situated, Plaintiff, v. AMERICAN SECURITY INSURANCE COMPANY, American Security Insurance Group, Standard Guaranty Insurance Company, and Wachovia Bank of North Carolina, N.A., Defendants.

550 S.E.2d 179

144 NC App. 1

Margaret Williams PITTS, Individually and on behalf of all persons similarly situated, Plaintiff, v.AMERICAN SECURITY INSURANCE COMPANY, American Security Insurance Group, Standard Guaranty Insurance Company, andWachovia Bank of North Carolina, N.A., Defendants.

No. COA00-703.

Court of Appeals of North Carolina.

June 5, 2001.

The Blount Law Firm, P.L.L.C., by Marvin K. Blount, Jr., and Darren M. Dawson, Greenville; and Murray & Murray Co., L.P.A., by John T. Murray and Sylvia M. Antalis, Sandusky, OH, for plaintiff-appellant.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., by Carl N. Patterson, Jr. and Melinda S. Dumeer, Raleigh, for defendant-appelleesAmerican Security Insurance Company and Standard Guaranty Insurance Company.

Womble Carlyle Sandridge & Rice, P.L.L.C., by Reid C. Adams, Jr., Hada V. Haulsee, and John J. Bowers, Winston-Salem, for defendant-appelleeWachovia Bank of North Carolina, N.A.

GREENE, Judge.

Margaret Williams Pitts(Plaintiff), individually and on behalf of all persons similarly situated, appeals an order filed 7 February 2000 denying Plaintiff's motion for class certification, pursuant to Rule 23 of the North Carolina Rules of Civil Procedure, of claims against American Security Insurance Company(ASIC), Standard Guaranty Insurance Company(SGIC)(collectively, the American Security Defendants), and Wachovia Bank of North Carolina, N.A.(Wachovia).¹Additionally, Plaintiff appeals the trial court's 7 February 2000 order granting summary judgment in favor of SGIC and granting partial summary judgment in favor of ASIC.

Plaintiff's claims against the American Security Defendants and Wachovia arise out of a collateral protection insurance (CPI) program² underwritten by the American Security Defendants and utilized by Wachovia.The record shows the following undisputed facts: In 1990, Plaintiff purchased a vehicle and financed the purchase through Wachovia.Plaintiff entered into a Note and Purchase Money Security Agreement (the Note) with Wachovia that contained the following pertinent provisions:

The Purchaser-Debtor agrees to insure the collateral against theft, loss[,] and destruction, with policies acceptable to Seller-Secured Party and payable to Purchaser-Debtor and Seller-Secured Party as their interests may appear....

... Seller-Secured Party can, at its option, purchase insurance or perform any other obligations of Purchaser-Debtor for the account of Purchaser-Debtor and, unless Seller-Secured Party is reimbursed for such advance within ten days of notice to Purchaser-Debtor, Seller-Secured Party may, as of the date of such advance, add such advance ... to the unpaid balance due hereunder.

Subsequent to obtaining the financing, Plaintiff breached her loan agreement with Wachovia on three occasions by failing to maintain the insurance required by the Note.When each breach occurred, Plaintiff was sent notice by Wachovia of her obligation to maintain insurance on the collateral and Plaintiff was force-placed under a CPI policy.The first insurance certificate force-placing Plaintiff became effective on 28 July 1991; the second insurance certificate force-placing Plaintiff became effective on 30 November 1991; and the third insurance certificate force-placing Plaintiff became effective on 20 July 1992.Plaintiff received notice from Wachovia of each forced-placement, and Wachovia extended to Plaintiff additional credit in the amount required to pay for the CPI policies.This amount of additional credit was added to Plaintiff's loan balance with Wachovia.The CPI program used by Wachovia to force-place insurance on borrowers was created by ASIC and, at all relevant times, was underwritten by one of the American Security Defendants.

In a complaint filed 25 March 1996, Plaintiff alleged the following regarding the CPI program underwritten by the American Security Defendants³ pursuant to which she was force-placed: the amount financed for borrowers by lending institutions to pay for the force-placed insurance was based on the borrowers' gross loan balances, including unearned interest, rather than the net loan balances, resulting in greater profits for the lending institution; the force-placed insurance program "offered numerous endorsements in addition to basic comprehensive and collision coverage" required by the borrowers' lending agreements, and these additional endorsements resulted in a greater extension of credit to the borrowers; the amount of extension of credit for the purchase of the insurance premium was based on the remaining term of the loan rather than a more limited period of time, thereby generating a greater premium and greater loan amount; and the CPI program "offered monetary payments to lenders as an incentive to force-place borrowers," including "administrative fees, special cancellation payments, premium refunds[,] and offers to purchase CD[ ]s from lending institutions."

Based on the allegations regarding the American Security Defendants' CPI program, Plaintiff alleged claims against the American Security Defendants for tortious interference with contract, unjust enrichment, and unfair or deceptive trade practices.Additionally, Plaintiff alleged claims against Wachovia for unjust enrichment, breach of contract, breach of good faith and fair dealing, breach of fiduciary duties, fraud/fraudulent concealment, and unfair or deceptive trade practices.Plaintiff alleged these claims individually and on behalf of members of the following proposed class: "All persons and entities who ... were extended additional credit by Wachovia as a result of an insurance loan program designed and marketed by [the American Security Defendants, for the purchase of the [American Security Defendants' CPI] policy."Additionally, Plaintiff alleged:

The members of the Class for whose benefit this action is brought are so numerous that joinder of all class members is impracticable.The exact number of the Class is unknown to Plaintiff.However, the number of these persons is reasonably believed to be in excess of 1,000 persons and can be determined from records maintained by [d]efendants.

On 25 March 1996, Plaintiff filed a motion for certification of the proposed class.In a deposition taken 6 March 1997, Plaintiff testified that she understood what it meant to be named as a representative of a class action.Plaintiff testified that she did not know what the terms "tortious interference with contract" and "breach of fiduciary duty" meant; however, she understood that these causes of action dealt with insurance that Wachovia provided when Plaintiff failed to maintain insurance on her vehicle.She also understood she was alleging Wachovia had breached the contract that it had entered into with her.

In motions dated 21 August 1997, the American Security Defendants and Wachovia requested summary judgment on all claims alleged against them.In an order dated 2 February 1998, the trial court denied these motions.The American Security Defendants subsequently filed a second motion for partial summary judgment dated 17 March 1998 on the ground Plaintiff's claims for tortious interference with contract and unjust enrichment as to both ASIC and SGIC were barred by the applicable statutes of limitations.Additionally, the American Security Defendants moved for summary judgment as to Plaintiff's claim for unfair or deceptive trade practices against SGIC on the ground the claim was barred by the applicable statute of limitations.Finally, the American Security Defendants moved for summary judgment as to Plaintiff's unfair or deceptive trade practices claim against ASIC "to the extent that this claim is based on the first two CPI certificates issued to Plaintiff" on the ground the claim was barred by the applicable statute of limitations.On 14 August 1998, the trial court heard arguments regarding the American Security Defendants' motions for summary judgment and Plaintiff's motion to certify the proposed class.In an order filed 7 February 2000, the trial court granted summary judgment in favor of SGIC as to all of Plaintiff's claims and granted summary judgment in favor of ASIC as to Plaintiff's tortious interference with contract claim and unjust enrichment claim.⁴

Additionally, in its 7 February 2000 order, the trial court addressed the issue of whether a class existed, Plaintiff was an adequate representative for the class, and a class action was the superior method to determine the claims alleged in Plaintiff's complaint.

I. existence of a class

Plaintiff argued at the certification hearing that "uniform actions give rise to common issues that predominate over individual issues, rendering the case appropriate for class action treatment."Plaintiff contended "the language in the promissory notes is the same for all potential class members"; "the policies issued by the American Security Defendants were all substantially the same"; "Wachovia's response to a borrower's breach of the loan contract was uniform—a standard notice was sent informing the borrower that Wachovia had force-placed insurance on the collateral"; and "Wachovia owned a master insurance policy covering all potential class members."Subsequent to the certification hearing, the trial court found "there is some common nucleus of operative facts"; nevertheless, the trial court concluded a class did not exist.The trial court recognized the following individual issues: (1)"the proposed class includes individuals who financed the purchase of an automobile through Wachovia from 1969 to the date of the institution of this lawsuit," thus, the applicable statutes of limitations may bar some proposed class members from maintaining the alleged claims; (2)"establishing the elements of fraud requires Plaintiff to make individual showings of facts," thus, Plaintiff's claims "are not appropriate for class action treatment"; (3) although "Plaintiff's proof with respect to ...