US Fire Ins. Co. v. Nationwide Mut. Ins. Co.

• Decision Date: 03 April 1990
• Docket Number: No. 87-19-CIV-5.,87-19-CIV-5.
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: UNITED STATES FIRE INSURANCE COMPANY and United States Fidelity and Guaranty Company, Plaintiffs, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.

735 F. Supp. 1320

UNITED STATES FIRE INSURANCE COMPANY and United States Fidelity and Guaranty Company, Plaintiffs, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.

No. 87-19-CIV-5.

United States District Court, E.D. North Carolina, Raleigh Division.

April 3, 1990.

COPYRIGHT MATERIAL OMITTED

Douglas E. Kingsbury, Tharrington, Smith and Hargrove, Raleigh, N.C., for U.S. Fidelity and Guar. Co.

Walter E. Brock, Jr. and Edward B. Clark, Young, Moore, Henderson & Alvis, Raleigh, N.C., for U.S. Fire Ins. Co.

Gary S. Parsons, Bailey & Dixon, Raleigh, N.C., for Nationwide Mut. Ins. Co.

ORDER

BRITT, Chief Judge.

This matter is before the court upon the motions of plaintiffs United States Fire Insurance Company (U.S. Fire) and United States Fidelity and Guaranty Company (USF & G) for partial summary judgment and the motion of defendant Nationwide Mutual Insurance Company (Nationwide) for summary judgment. The court has considered the materials before it and the arguments of counsel and determines that plaintiffs' motions should be allowed in part and denied in part and Nationwide's motion should be denied.

I.

The record before the court shows that on 9 July 1983 a recreational vehicle owned and operated by Charles D. Barbour was struck by a GMC bus. The bus was owned by St. Paul's United Methodist Church and its trustees (Methodist Church) and operated by an employee of the Young Men's Christian Association of Durham, North Carolina, Inc. (Durham YMCA) pursuant to a lease agreement between the Methodist Church and the Durham YMCA. Barbour and his passengers, Robert J. Stauffenberg and Jerry M. Ganey, filed actions in Durham County Superior Court in 1983 and 1984 against the Durham YMCA and the Methodist Church for personal injury and property damage. These claimants subsequently voluntarily dismissed the Methodist Church. The Durham YMCA brought third-party claims against Sid's 66 Service Station (Sid's 66) alleging that Sid's 66 had negligently failed to inspect and repair the bus's braking system as requested by the Durham YMCA the day before the accident.

At the time of the bus accident, liability insurance policies were in effect. First, the Methodist Church, owner of the bus, had a policy issued by Nationwide which insured the Durham YMCA as lessee and permissive user of the bus. This policy, with a single limit of $100,000, obligated Nationwide to defend the actions against the Durham YMCA and by its terms made Nationwide the primary carrier for the Durham YMCA. Second, the Durham YMCA had in effect a policy issued by USF & G which provided liability coverage in excess of that provided by the primary carrier, Nationwide, with combined bodily injury and property damage limits of $1,000,000. Third, the YMCA also had a policy issued by U.S. Fire which provided umbrella coverage in excess of the coverage under the policies by USF & G and Nationwide. Sid's 66 had a policy issued by Jefferson-Pilot Insurance Company which provided primary liability limits of $250,000 for personal injury and property damage.

Nationwide hired an attorney, George Ragsdale, to defend the actions. The combined cases proceeded to trial and resulted in jury verdicts totalling $1,556,625 against the Durham YMCA. Sid's 66 was found not negligent. After the verdict, USF & G and U.S. Fire entered a settlement agreement with the claimants on 3 March 1986 in which they paid $1,000,000 and $157,407.99 respectively. These companies also paid prejudgment and postjudgment interest in the amount of $124,456.88 each. During settlement negotiations, U.S. Fire and USF & G obtained from the Durham YMCA a full assignment of all rights the Durham YMCA may have against Nationwide.

U.S. Fire and USF & G filed this action alleging four claims for relief. First, they seek compensatory and special damages for Nationwide's alleged negligence and failure to act in good faith and deal fairly with them in handling the underlying Durham YMCA litigation. Second, they allege they are entitled to recover the amounts paid as prejudgment and post-judgment interest in settlement of the underlying litigation. Third, they allege Nationwide violated N.C.Gen.Stat. Chapter 75 and Chapter 58, Article 3A, entitling them to treble damages and attorney's fees. Finally, they allege Nationwide acted in willful and wanton disregard of the interests of U.S. Fire and the Durham YMCA entitling plaintiffs to punitive and exemplary damages.

In its answer, Nationwide raises several defenses. By its sixth defense, Nationwide alleges that USF & G ratified Nationwide's actions in the underlying litigation, that USF & G is estopped to claim against Nationwide for failure to settle and that USF & G waived its right to claim against Nationwide for failure to settle. In its seventh defense, Nationwide alleges that even if plaintiffs were damaged by Nationwide's negligence, plaintiffs, especially USF & G, contributed to this injury by their own negligence in failing to offer to contribute sufficient sums to permit Nationwide to settle, in failing to communicate to Nationwide any knowledge of the willingness of the underlying claimants to settle and in failing to counsel and recommend that Nationwide settle the underlying litigation. By its eighth defense, Nationwide alleges that plaintiffs, especially USF & G, concurred with Nationwide's failure to settle the underlying litigation before verdict. By its ninth defense, Nationwide contends plaintiffs failed and refused to settle or to contribute sufficient sums toward settlement. In the eleventh defense, Nationwide contends the claim for punitive damages should be dismissed because such damages constitute excessive fines under the Eighth Amendment to the United States Constitution. Nationwide also filed a counterclaim against USF & G alleging that USF & G breached its own duty to the Durham YMCA and to U.S. Fire in the underlying litigation.

Nationwide moves for summary judgment on each of the claims for relief. It also contends it is entitled to summary judgment on its counterclaim against USF & G.

USF & G moves for partial summary judgment. It contends it is entitled to summary judgment on Nationwide's sixth, seventh, eighth, ninth and eleventh defenses and on Nationwide's counterclaim against it. Additionally, USF & G moves for summary judgment on the claim for prejudgment and post-judgment interest, interest on this amount and attorney's fees for Nationwide's failure to pay these sums.

U.S. Fire has also moved for partial summary judgment. It moves for summary judgment on Nationwide's seventh, eighth, ninth and eleventh defenses. It also contends it is entitled to summary judgment on the claim for prejudgment interest, post-judgment interest, interest and attorney's fees.

II.

Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ.P. 56(c). The party moving for summary judgment has the burden of showing that there is no genuine issues of material fact and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Once this burden is met, the party opposing the motion must come forward to show genuine issues of material fact. Barrett v. Craven County Board of Education, 70 F.R.D. 466, 478 (E.D.N.C.1976). A party may not rest on mere allegations contained in its pleadings in opposition to a motion for summary judgment. Id.

The purpose of a motion for summary judgment is to avoid a useless trial which results in delay and expense, and while the courts should not look the other way to ignore the existence of genuine issues of material facts, neither should they strain to find the existence of such issues where none exists.

Id.

III.

In a diversity case, the court is bound by the law of the forum state. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The court must apply the law of North Carolina as set forth by the legislature or the state appellate courts. Chrysler Credit Corp. v. Burton, 599 F.Supp. 1313, 1316 (M.D.N.C.1984). In the absence of state appellate authority, this court must determine what the North Carolina Supreme Court would find to be the law and apply that law as it believes that court would apply it. Id.

IV.

Nationwide contends it is entitled to summary judgment on plaintiffs' claims for negligence in handling of the underlying litigation because it did not owe a duty to plaintiffs. If the court should find Nationwide did owe a duty to plaintiffs, Nationwide contends it is entitled to summary judgment because it did not breach that duty. The court finds that Nationwide assumed an affirmative duty to plaintiffs in this case and that summary judgment is inappropriate on this claim.

A.

Applying the principles of equitable subrogation, some courts have found the primary insurance carrier owes a duty to the excess carrier. For example, the Minnesota Supreme Court found "that an excess insurer is subrogated to the insured's rights against a primary insurer for breach of the primary insurer's goodfaith duty to settle." Continental Casualty Co. v. Reserve Insurance Co., 307 Minn. 5, 8, 238 N.W.2d 862, 864 (1976). As that court explained:

When there is no excess insurer, the insured becomes his own excess insurer, and his single primary insurer owes him a duty of good faith in protecting him from an excess judgment and personal liability. If the insured purchases excess coverage, he in effect substitutes an excess insurer for himself. It follows that the excess insurer should assume the rights as well as the obligations of the insured in that position.

Id. at 8-9, 238 N.W.2d at 864. Other courts have found the primary carrier owes a direct duty to the excess...