Caldwell Freight Lines, Inc. v. Lumbermens Mut. Cas. Co., Inc.
Docket Number: | 2006-CA-00088-SCT | |
Supreme Court: | Opinion Link Opinion Date: 02-01-2007 Opinion Author: DICKINSON, J. Holding: AFFIRMED |
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Additional Case Information: |
Topic: Insurance - Drop down coverage Judge(s) Concurring: SMITH, C.J., WALLER AND COBB, P.JJ., EASLEY, CARLSON AND RANDOLPH, JJ. Dissenting Author : GRAVES, J. J. Concurs in Result Only: DIAZ, J. Procedural History: Summary Judgment Nature of the Case: CIVIL - INSURANCE |
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Trial Court: |
Date of Trial Judgment: 01-03-2006 Appealed from: PEARL RIVER COUNTY CIRCUIT COURT Judge: Michael R. Eubanks Disposition: Granted Appellee's Motion for Summary Judgment & denied Appellant's Motion for Summary Judgment |
Party Name: | Attorney Name: | |||
Appellant: | CALDWELL FREIGHT LINES, INC. |
DONNA POWE GREEN |
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Appellee: | LUMBERMENS MUTUAL CASUALTY COMPANY, INC. | DORRANCE D. AULTMAN, JR. |
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Topic: | Insurance - Drop down coverage |
Summary of the Facts: | Jared Harvey filed suit against Caldwell Freight Lines to recover damages he claims resulted from an accident involving one of Caldwell’s trucks. Caldwell’s primary liability insurer, Legion Insurance Company, became insolvent, causing Caldwell to turn to its Commercial Catastrophe Liability Policy written by Lumbermens Mutual Casualty Company to fill the gap in coverage caused by Legion’s insolvency. When the North Carolina Department of Insurance placed Legion into insolvency, the North Carolina Insurance Guaranty Association became obligated to pay up to $300,000 on behalf of Caldwell, should Caldwell be found liable to Harvey. LMCC filed a motion for summary judgment alleging the Catastrophe Policy covered only the damages exceeding the primary insurer’s policy limits, and therefore, LMCC could not be liable for the gap in coverage caused by Legion’s insolvency. Caldwell filed its own motion for summary judgment arguing the Catastrophe Policy required LMCC to “drop down” and fill the gap caused by Legion’s insolvency. The trial court granted LMCC’s motion for summary judgment and denied Caldwell’s. Caldwell appeals. |
Summary of Opinion Analysis: | Caldwell argues that the circuit court erred in finding that LMCC’s policy did not require “drop down” coverage. The parties agree that North Carolina law applies in this case. The provision in question states that “[LMCC] will pay only the amount in excess of the sums actually payable under the terms of the ‘underlying insurance.’ No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments. In the event the duty of the underlying insurer to defend the insured against a ‘suit’ ceases solely because the applicable limit of insurance is used up in the payment of judgments, then we shall assume the duty for such defense.” The parties dispute whether the term “sums actually payable” refers to the limit of $1,000,000 under Legion’s policy or to the actual amount Legion was able to pay, which was zero due to insolvency. The disputed term “sums actually payable” is unambiguous, particularly when read in connection with the “Underlying Insurance” provision. North Carolina law provides that where words are not clear in their immediate context, other clauses may be used to bring the policy into harmony. Furthermore, the clause in Section V, part 9 of the policy clearly defines LMCC’s obligation should the underlying insurer become insolvent. It provides that, in the event of insolvency, LMCC will be liable “only to the extent we would otherwise have been liable.” Taken together, the policy terms evidence that the Catastrophe Policy was not required to “drop down” and provide primary coverage due to Legion’s insolvency. Therefore, the Catastrophe Policy, by its plain language, covered only losses in excess of $1,000,000. Caldwell also argues that LMCC’s failure to use a “loss payable” clause evidences that LMCC’s coverage should “drop down” and fill the gap caused by Legion’s insolvency. Caldwell cites no authority which mandates that a “loss payable” clause must be included in an excess insurer’s policy in order to preclude “drop down” coverage. Furthermore, the “Underlying Insurance” provision in the Catastrophe Policy adequately addresses LMCC’s obligations in the event the underlying insurer becomes insolvent. The “Underlying Insurance” provision clearly and unambiguously provides that, in the event of insolvency of the underlying insurer, LMCC is liable only for losses exceeding $1,000,000. LMCC paid $200,000, which was the portion of the loss that exceeded $1,000,000. Therefore, LMCC paid the amount it contracted to pay and, consequently, is not liable for any gap in coverage caused by Legion’s insolvency. The LMCC Catastrophe Policy includes an “Other Insurance” provision, and Caldwell argues that the Catastrophe Policy will be excess of such other insurance. Interpreting the “Other Insurance” clause as implying a duty to provide “drop down” coverage would not only contradict the specific policy provisions, but it would also contradict North Carolina law, which states that “drop down” coverage will not be found unless the policy expressly provides for such coverage. Caldwell argues that the Catastrophe Policy “is more like an umbrella policy, which can certainly ‘drop down’” because it contemplates excess protection in Coverage A and primary protection in Coverage B. However, Coverage B provides that where neither the terms and conditions of the Catastrophe Policy or any other policy apply, then Coverage B of the Catastrophe Policy may apply. There is no dispute that Legion was the primary insurer and its policy covered the instant loss. Therefore, Coverage B is neither applicable nor does it require LMCC to “drop down” and provide primary coverage due to Legion’s insolvency. Caldwell argues, because it understood the policy to provide “drop down” coverage, the policy should be interpreted based on what it (the insured) understood the terms of the policy to mean. North Carolina courts enforce the terms of a contract pursuant to objective evidence, such as the language of the contract, rather than the subjective thoughts and expectations of the parties, which are irrelevant, absent an ambiguous term capable of more than one reasonable interpretation. Caldwell’s subjective expectations and beliefs concerning “drop down” coverage are irrelevant in the face of the clear contract language which contradicts those expectations. Caldwell argues that LMCC has a duty to defend it in the litigation because in “dropping down,” LMCC assumes the primary insurer’s obligations, including defense. The language in the Catastrophe Policy clearly states that LMCC has a duty to defend only when the applicable limit of insurance is used up in the payment of judgments, which did not happen here. |
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