Powe v. Odell, 88PA84

• Decision Date: 04 December 1984
• Docket Number: No. 88PA84,88PA84
• Citation: 322 S.E.2d 762,312 N.C. 410
• Parties: , 53 USLW 2312 Margaret S. POWE v. A.G. ODELL, Jr. and Odell Associates, Inc.
• Court: North Carolina Supreme Court

Page 762

322 S.E.2d 762

312 N.C. 410, 53 USLW 2312

Margaret S. POWE v. A.G. ODELL, Jr. and Odell Associates, Inc.

No. 88PA84.

Supreme Court of North Carolina.

Dec. 4, 1984.

Parker, Poe, Thompson, Bernstein, Gage & Preston by William E. Poe and Christian R. Troy, Charlotte, for plaintiff.

Boyle, Alexander, Hord & Smith by B. Irvin Boyle, Charlotte, for defendants.

Henson, Henson & Bayliss by Paul D. Coates, Perry C. Henson, and Perry C. Henson, Jr., Greensboro, for Samuel Ingham Tarble and ARA Services, Inc., amici curiae.

MARTIN, Justice.

The sole question properly before the Court for review is whether the trial court erred in holding that N.C.G.S. 24-5 violates the equal protection clause of the fourteenth amendment to the Constitution of the United States and article I, section 19 of the Constitution of North Carolina. We hold that the trial court did err in holding that the statute violates these constitutional provisions.

N.C.G.S. 24-5 (Cum.Supp.1983) provides as follows:

All sums of money due by contract of any kind, excepting money due on penal bonds, shall bear interest, and when a jury shall render a verdict therefor they shall distinguish the principal from the sum allowed as interest; and the principal sum due on all such contracts shall bear interest from the time of rendering judgment thereon until it is paid and satisfied. The portion of all money judgments designated by the fact-finder as compensatory damages in actions other than contract shall bear interest from the time the action is instituted until the judgment is paid and satisfied, and the judgment and decree of the court shall be rendered accordingly. The preceding sentence shall apply only to claims covered by liability insurance. The portion of all money judgments designated by the fact-finder as compensatory damages in actions other than contract which are not covered by liability insurance shall bear interest from the time of the verdict until the judgment is paid and satisfied, and the judgment and decree of the court shall be rendered accordingly.

In determining whether a statute violates the equal protection clause of the fourteenth amendment to the United States Constitution or article I, section 19 of the North Carolina Constitution, we must decide whether the legislative classification in the statute could provide a reasonable means to a legitimate state objective. As this Court stated in Glusman v. Trustees and Lamb v. Board of Trustees, 281 N.C. 629, 638, 190 S.E.2d 213, 219 (1972), vacated on other grounds, 412 U.S. 947, 93 S.Ct. 2999, 37 L.Ed.2d 999 (1973):

The traditional equal-protection test does not require the very best classification in the light of a legislative or regulatory purpose; it does require that such classification in relation to such purpose attain a minimum (undefined and undefinable) level of rationality. "In the area of economics and social welfare, a state does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some 'reasonable basis,' it does not offend the Constitution simply because the classification 'is not made with mathematical nicety or because in practice it results in some inequality.' " Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 1161, 25 L.Ed.2d 491, 501-02 (1970).

As long as a legislative classification in a statute concerning matters of economics or social welfare has a reasonable basis and is rationally related to a governmental objective which is permissible under the state and federal constitutions, this Court will defer to the wisdom of the legislature.

Defendants concede that the probable goals of N.C.G.S. 24-5 are legitimate state purposes. These include:

(a) to compensate a plaintiff for loss of the use value of a damage award or compensation for delay in payment; ²

(b) to prevent unjust enrichment to a defendant for the use value of the money, and

(c) to promote settlement. ³

However, defendants argue that N.C.G.S. 24-5 violates the principles of equal protection because the statute's classification of claims covered by liability insurance and claims not covered by liability insurance does not have any reasonable basis and therefore is not rationally related to the legitimate state purposes. Thus the instant controversy centers on the question whether the legislative classification of claims in N.C.G.S. 24-5 is rationally related to achievement of the statute's purposes.

Under Glusman, we need only determine if the classification's relation to the objectives sought by the General Assembly attains a minimum level of rationality. As long as there exist reasonable facts on which the legislature could have relied in creating the classification, we will not interfere with the legislature's decision. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 101 S.Ct. 715, 66 L.Ed.2d 659 (1981).

Although no precise formula has been developed, the Court has held that the Fourteenth Amendment permits the States a wide scope of discretion in enacting laws which affect some groups of citizens differently than others. The constitutional safeguard is offended only if the classification rests on grounds wholly irrelevant to the achievement of the State's objective. State legislatures are presumed to have acted within their constitutional power despite the fact that, in practice, their laws result in some inequality. A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.

McGowan v. Maryland, 366 U.S. 420, 425-26, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393, 399 (1961).

Defendants contend that there is no rational reason why claims against self-insurers should not be subject to prejudgment interest to the same extent that claims covered by liability insurance are so subject. Defendants argue that the claim holders in both instances are similarly situated with respect to litigating claims and paying judgments and thus should not be treated differently. Either all defendants in non-contract actions should be required to pay prejudgment interest, or none should be.

In so arguing defendants overlook the fundamental differences between self-insurers and liability insurance companies. Self-insurers are basically concerned with the operation of their businesses, e.g., sales, manufacturing, utilities. The business of liability insurance companies is the receiving and investing of insurance premiums and the settling and payment of insurance claims. Self-insurers only incidentally settle claims; it is the business of liability carriers.

The General Assembly could have taken note that insurance companies have an incentive to delay litigation involving claims they insure. This incentive stems from the fact that unlike self-insurers, insurance companies are required by statute to establish loss reserves, which are invested for profit until specific claims are paid off. See N.C.Gen.Stat. § 58-35.2 (1982). While self-insurers and other defendants can also delay trial of an action, they do not have the incentive to delay the time when claims must be paid in order to maximize the investment of legislatively mandated loss reserves. The legislature's recognition of this difference could have led it to attempt to curb some of the pretrial delay in non-contract cases handled by insurance companies by providing for prejudgment interest in such cases. Because the insurance company defending a non-contract claim would have to pay interest on the judgment from the time the suit is filed until judgment is paid, insurance companies would have an incentive not to delay trial but, instead, to speed up the process leading to settlement or trial. ⁴

Providing for prejudgment interest on claims covered by liability insurance is thus a rational step to achieve the legitimate state goals enunciated above. "[T]hose challenging the legislative judgment must convince the court that the legislative facts on which the classification is apparently based could not reasonably be conceived to be true by the government decisionmaker." Vance v. Bradley, 440 U.S. 93, 111, 99 S.Ct. 939, 949, 59 L.Ed.2d 171, 184 (1979). Accord Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 469, 101 S.Ct. 715, 726, 66 L.Ed.2d 659, 672. Defendants have failed to meet this burden. ⁵ Because there is a rational basis upon which the legislature could have classified defendants as it did in N.C.G.S. 24-5, we hold that this statute does not violate the equal protection clause of the fourteenth amendment to the United States Constitution or article I, section 19 of the Constitution of North Carolina.

Appellees in their brief attempt to raise the issue that the statute is unconstitutional as violating substantive due process rights under the fourteenth amendment to the Constitution of the United States and article I, section 19 of the Constitution of North Carolina. They also argue that the statute is unconstitutional because it impermissibly impairs the obligation of the contract of insurance.

Neither of these issues was presented to or passed upon by the trial court. The trial court's order was based solely upon the finding that the statute is unconstitutional because it violates the requirements of equal protection of the law. It is a well settled rule of this Court that we will not pass upon a constitutional question unless it affirmatively appears that such question was raised and passed upon in the court below. State v. Woods, 307 N.C. 213, 297 S.E.2d 574 (1982); City of Durham v. Manson, 285 N.C. 741, 208 S.E.2d 662 (1974); State v. Cumber, 280 N.C. 127, 185 S.E.2d 141 (1971); Wilcox v. Highway Comm., 279 N.C. 185, 181 S.E.2d 435 (1971). This is in accord with the decisions of the United States Supreme Court. Irvine v. California, 347 U.S. 128, 74 S.Ct. 381, 98 L.Ed. 561 (1954); Edelman v. California, 344 U.S. 357, 73 S.Ct. 293, 97 L.Ed. 387 (1953). While it is true that the...