Opinion
No. 252PA92
Filed 5 November 1993
1. Insurance 99 (NCI4th) — excess liability insurance — delivery of policy in another state — N.C. connections to interests insured — interpretation governed by N.C. law Even though an application for excess liability insurance came from California and the last act to make a binding insurance contract (the delivery of the policy) occurred in California, the contract is deemed to have been made in North Carolina under N.C.G.S. 58-3-1 and the law of North Carolina thus governs in interpreting the policy where North Carolina has close connections with the interests insured by the policy because most of the insured's vehicles were titled in this state and the insured's transportation division is located in this state.
Am Jur 2d, Insurance 320 et seq.
2. Insurance 895 (NCI4th) — excess liability insurance — coverage of punitive damages An umbrella excess liability insurance policy provided coverage for punitive damages awarded in a wrongful death action where the policy insured for loss "because of bodily injury" since punitive damages were recovered because of the recovery for bodily injuries to the decedents.
Am Jur 2d, Insurance 703 et seq.
Liability insurance coverage as extending to liability for punitive or exemplary damages. 16 ALR4th 11.
3. Insurance 895 (NCI4th) — excess liability insurance — punitive damages not fines or penalties Punitive damages do not constitute "fines or penalties" which are excluded from coverage under an excess liability insurance policy.
Am Jur 2d, Insurance 703 et seq.
Liability insurance coverage as extending to liability for punitive or exemplary damages. 16 ALR4th 11.
On discretionary review pursuant to N.C.G.S. 7A-31, from a decision of the Court of Appeals, 106 N.C. App. 357, 416 S.E.2d 591 (1992), reversing and remanding a judgment entered by Saunders, J., in the Superior Court, Mecklenburg County, on 15 March 1991. Heard in the Supreme Court 12 April 1993.
Parker, Poe, Adams Bernstein, by Irvin W. Hankins, III and Josephine H. Hicks, for plaintiff-appellee.
Patterson, Dilthey, Clay Bryson, by Ronald C. Dilthey and Cranfill, Sumner Hartzog, by Susan K. Burkhart, for defendant-appellant The Hartford Accident and Indemnity Company.
Justice MEYER dissenting.
Chief Justice EXUM and Justice PARKER join in this dissenting opinion.
This appeal brings to the Court a question as to the liability insurance coverage under an insurance policy issued by the defendant, the Hartford Accident and Indemnity Company, to plaintiff. The plaintiff is a wholly owned subsidiary of Wickes Companies, Inc., a Delaware corporation with its principal place of business in California. Wickes hired an independent insurance broker in California to procure an insurance policy for the plaintiff. The broker negotiated with Hartford and procured an umbrella/excess liability policy.
The policy provided for $5,000,000 of insurance coverage in excess of a $2,000,000 primary policy issued by defendant Aetna Casualty and Surety Company. The policy period was from 1 March 1987 through 29 February 1988. The policy was sent to the insurance broker's office in California and remained there until 8 March 1988, at which time it was sent to the plaintiff's office in Charlotte, North Carolina. The plaintiff owned one hundred and two trucks of which ninety-seven were titled in North Carolina. The plaintiff's transportation division is located in Albemarle, North Carolina.
On 29 February 1988, one of the trucks which was titled in this state was involved in an accident in Yadkin County, North Carolina, in which two people were killed. In a wrongful death action growing from the accident, the jury awarded $2,500,000 in compensatory damages and $4,000,000 in punitive damages against the plaintiff in this case. The parties settled the case for $4,200,000.
The defendant Hartford denied that it was liable for any punitive damages and this action was commenced for a determination of the rights and liabilities of the parties. The superior court denied a motion for partial summary judgment by the plaintiff and allowed a motion for partial summary judgment by Hartford, holding that Hartford was not responsible for any recovery for punitive damages. The Court of Appeals reversed, holding that Hartford was liable for such a recovery. We allowed Hartford's petition for discretionary review.
The first issue raised by this appeal involves the choice of law to be applied. Hartford contends that California law should be used in interpreting the insurance policy and that punitive damages are not covered by the policy under the law of California. We agree with the Court of Appeals that this case is governed by N.C.G.S. 58-3-1 which provides:
All contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein, and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof.
The policy in this case protects the interest of plaintiff against having to pay damages for the wrongful acts of its agents. The insurance contract is deemed to have been made in North Carolina.
The appellant, relying on Land Co. v. Byrd, 299 N.C. 260, 261 S.E.2d 655 (1980), Fast v. Gulley, 271 N.C. 208, 155 S.E.2d 507 (1967) and Bundy v. Commercial Credit Co., 200 N.C. 511, 157 S.E. 860 (1931), contends that the law of the state in which the last act in the making of a contract governs and that would be California in this case. None of these cases involved insurance policies and the implication of N.C.G.S. 58-3-1 was not considered.
The North Carolina cases involving insurance contracts, Connor v. Insurance Co., 265 N.C. 188, 143 S.E.2d 98 (1965), Roomy v. Insurance Co., 256 N.C. 318, 123 S.E.2d 817 (1962) and Keesler v. Insurance Co., 177 N.C. 394, 99 S.E. 97 (1919), upon which Hartford relies are distinguishable. Keesler involved a life insurance policy issued in Georgia to a resident of Georgia. No interest in North Carolina was involved. Connor and Roomy involved automobile liability policies on vehicles owned by residents of other states. The vehicle in each case was titled in another state and the insurance policy was purchased in another state. This Court held in each case, without any reference to N.C.G.S. 58-3-1 or its predecessor, that the law of the states in which the policies were issued was the law that governed. It is the very few contacts with this state that distinguishes Connor and Roomy from this case.
Hartford also relies on Hartford A. and I. Co. v. Delta and Pine Land Co., 292 U.S. 143, 78 L.Ed. 1178 (1934), in which the Supreme Court of the United States held that a Mississippi statute similar to N.C.G.S. 58-3-1 violated the due process clause as the statute was applied in that case. In that case, the plaintiff had purchased an indemnity bond from the defendant in Tennessee where both parties had offices. A defalcation occurred in Mississippi. The United States Supreme Court reversed a decision by the Supreme Court of Mississippi which had held that Mississippi law governed. The Supreme Court said a state "may not, on grounds of policy, ignore a right which has lawfully vested elsewhere, if, as here, the interest of the forum has but slight connection with the substance of the contract obligations. Here performance at most involved only the casual payment of money in Mississippi." Id. at 150, 78 L.Ed. at 1181. We believe that is the distinction from this case. In this case, the State has much more than a casual connection with the substance of the insurance policy. Most of the vehicles insured were titled in this state and plaintiff's transportation division is located in this state.
The last two cases upon which Hartford relies are Lowe's No. Wilkesboro Hardware v. Fidelity Mut. L. Ins. Co., 206 F. Supp. 427 (M.D.N.C. 1962) and Turner v. Liberty Mut. Ins. Co., 105 F. Supp. 723 (E.D.N.C. 1952). Lowes involved a choice of law question in an action in tort, the plaintiff having alleged that the defendant negligently failed to act on an application for a life insurance policy. A tort claim does not implicate N.C.G.S. 58-3-1. Lowes is not authority for this case.
In Turner, the United States District Court for the Eastern District of North Carolina held that a predecessor statute to N.C.G.S. 58-3-1 did not require that the law of North Carolina govern in interpreting a motor vehicle liability policy when the policy was issued in New Jersey by a New Jersey corporation to a citizen of New Jersey. The motor vehicle was involved in an accident in North Carolina. The court cited Delta and Pine Land Co. and said it would violate the Fourteenth Amendment to allow the statute to require the law of a state to govern "regardless of the relative importance of the interests of the forum as contrasted with those created at the place of the contract." Id. at 726.
We believe that the distinction between this case and those cases upon which Hartford relies and which hold that N.C.G.S. 58-3-1 or similar statutes do not apply or are unconstitutional, lies in the connection of this state with the interests insured. North Carolina has a close connection with the interests insured in this case. N.C.G.S. 58-3-1 clearly means that the law of North Carolina applies and we do not believe the United States Constitution prohibits it.
Hartford contends that if North Carolina law applies it is not liable under the terms of the policy. The policy says:
The company will pay on behalf of the insured ultimate net loss in excess of the total applicable limit . . . of underlying insurance . . . because of bodily injury, personal injury, property damage or advertising injury . . . .
. . . .
When used in reference to this insurance . . .:
"bodily injury" means bodily injury, sickness or disease sustained by any person which occurs during the policy period;
. . . .
"damages" do not include fines or penalties . . .;
. . . .
"ultimate net loss" means all sums which the insured and his or her insurers shall become legally obligated to pay as damages . . . .
Hartford contends that the policy does not cover losses by the plaintiff for punitive damages. It says this is so because the policy insures for loss for "bodily injury, personal injury, property damage or advertising injury" and punitive damages in this case were not awarded for any of the injuries. Hartford argues that compensatory damages were awarded for the damages for bodily injury but punitive damages were not. It says the punitive damages were awarded for the bad conduct of the plaintiff's agent and not for damages for bodily injury. Hartford distinguishes Mazza v. Medical Mut. Ins. Co., 311 N.C. 621, 319 S.E.2d 217 (1984), a medical malpractice case in which we held the insurance carrier was liable for punitive damages awarded against the defendant on the ground that in Mazza the policy provided coverage for all damages, which would include punitive damages. There is no such coverage in this case, says Hartford.
We hold that the policy in this case covers liability for punitive damages. If compensatory or nominal damages for bodily injury had not been recoverable by the personal representatives of the two estates in this case, the plaintiff could not have recovered punitive damages. Hawkins v. Hawkins, 331 N.C. 743, 417 S.E.2d 447 (1992). Punitive damages were recovered because of the recovery for bodily injuries to the deceased persons. This recovery is covered by the policy.
Hartford next contends that punitive damages are penalties and thus not covered by the policy which defines damages as not to include "fines or penalties." Hartford relies on Allred v. Graves, 261 N.C. 31, 134 S.E.2d 186 (1964), to argue that punitive damages are penal in nature and should be construed as a penalty.
We do not believe Allred is authority for this case. In Allred, the plaintiff sued the defendants for assault and battery and prayed for punitive damages. The question before this Court was whether the privilege against self incrimination prevented the plaintiff from examining the defendants before trial. We said that "penalty is an elastic term with many different shades of meaning." Id. at 38, 134 S.E.2d at 192. We held that for purposes of exercising the privilege against self incrimination in that case, in which the defendants would be subject to arrest and bail if punitive damages were awarded, the defendants could not be examined before trial. The references to the definition of a penalty in a case involving the privilege against self incrimination are not authority for this case.
We agree with the Court of Appeals that "penalty" as used in the policy is at best ambiguous. This being so, we must interpret it against the insurer who wrote the policy. Trust Co. v. Insurance Co., 276 N.C. 348, 172 S.E.2d 518 (1970). It takes some construing of the word "penalty" to hold that it includes punitive damages. This we cannot do.
For the reasons stated in this opinion, we affirm the Court of Appeals.
AFFIRMED.