In the Matter of the Appeal by Sue S. McCRARY from a Decision of the North Carolina Insurance Underwriting Association and the North Carolina Commissioner of Insurance.
Court of Appeals of North Carolina.
*361 Shipman & Lea by Gary K. Shipman and Jennifer L. Umbaugh, Wilmington, for petitioner-appellant.
Hunton & Williams by Walton K. Joyner and Christopher G. Browning, Jr., Raleigh, for appellee.
JOHN, Judge.
Petitioner Sue S. McCrary contends the trial court erred by affirming an order of a Deputy Commissioner of Insurance (Commissioner) *362 which voided, ab initio, insurance coverage on her property at Topsail Beach, North Carolina. We disagree.
On or about 24 September 1990, Donnie Hamm (Hamm), a licensed State Farm Insurance Agent, was assisting petitioner in obtaining insurance coverage for her beach house at Topsail Beach, North Carolina. Hamm and petitioner submitted an insurance application to the North Carolina Insurance Underwriting Association (Association), which was entitled "SUPPLEMENTAL APPLICATIONPRODUCER'S INSPECTION REPORT."
On this application form were questions addressing occupancy and vacancy of the property. These inquiries and petitioner's responses thereto were as follows:
4. OCCUPANCY (SHOW EACH TYPE OF OCCUPANT IN BUILDING) used as seasonal dwelling for single family IF HABITATIONAL, SHOW NUMBER OF FAMILIES: 1 IF VACANT: ___ ATTACH VACANCY QUESTIONNAIRENo "Vacancy Questionnaire" was ever attached to the application or sent to the Association.
At the time petitioner submitted the insurance application, the house had not been occupied for at least one year and nine months due to damage from arson on two previous occasions; no electricity or water served the house; the beds, interior panelling, and sheetrock were gone; and the ceilings had been removed. Although petitioner was conducting renovations to the property, it would not have been ready for occupancy until approximately May or June, 1991.
On 26 September 1990, the Association accepted petitioner's property as an insurable risk. The property was subsequently destroyed by fire on or about 30 October 1990.
After the fire, petitioner filed a claim with the Association. On the basis of discrepancies between petitioner's representations and the actual condition of the house at the time the insurance application was submitted, the Association voided petitioner's insurance coverage ab initio for false and material representations. Petitioner appealed to the Commissioner of Insurance who upheld the Association's actions. Petitioner then appealed to the Superior Court which affirmed the Commissioner's decision.
I.
Petitioner initially contends the standard of judicial review to be applied in reviewing the Commissioner's decision is "de novo" as opposed to the "whole record" test. Petitioner's argument is misdirected.
As a preliminary matter, since the present case concerns both (1) an appeal to the Superior Court of the Commissioner's order and (2) the subsequent appeal to this Court, we find it helpful to elaborate upon the pertinent review procedures applicable at each stage of the appeals process.
The Department of Insurance is a state agency and as such is subject to the Administrative Procedure Act (APA), N.C.G.S. §§ 150B-1 to -52 (1991). N.C. Reinsurance Facility v. Long,
Any person who is aggrieved by the final decision in a contested case, and who has exhausted all administrative remedies made available to him by statute or agency rule, is entitled to judicial review of the decision under this Article, unless adequate procedure for judicial review is provided by another statute, in which case the review shall be under such other statute.
G.S. § 150B-43. While N.C.G.S. § 58-2-75 (1991) also provides for judicial review of a decision of the Commissioner, this Court has determined G.S. § 150B-51 of the APA to be controlling. Reinsurance Facility v. Long,
*363 The APA delineates the appropriate scope of judicial review of a final agency decision. A reviewing court may modify or reverse an agency's decision if the substantial rights of the petitioner may have been prejudiced because the agency's findings, inferences, conclusions, or decisions are:
(4) Affected by ... error of law;
(5) Unsupported by substantial evidence... in view of the entire record as submitted; or
(6) Arbitrary or capricious.
G.S. § 150B-51(b).
The proper standard of review under this statute depends upon the issues presented on appeal. Walker v. N.C. Department of Human Resources,
The aforementioned principles apply to the initial appeal of the agency's decision. A subsequent appeal to this Court of a trial court's order affirming the agency's decision presents a different question. Under G.S. § 150B-52, our review of a trial court's order is the same as in any other civil caseconsideration of whether the court committed any error of law. In re Kozy,
Under the aforementioned principles, therefore, the task of this Court is twofold: (1) determine the appropriate standard of review and, when applicable, (2) determine whether the trial court properly applied this standard. See Wiggins v. N.C. Department of Human Resources,
II.
As previously discussed, the standard of review which should be employed in reviewing an agency decision depends upon the nature of the alleged error. Walker v. N.C. Department of Human Resources,
A.
In arguing the Commissioner's decision was contrary to law, petitioner advances a single argument; she maintains the Commissioner did not properly interpret the term "fraudulent" as contained in N.C.G.S. § 58-3-10 (1991). Incorrect statutory interpretation by an agency constitutes an error of law and allows this Court to apply de novo review. Brooks v. Rebarco, Inc.,
G.S. § 58-3-10 provides:
*364 All statements or descriptions in any application for a policy of insurance, or in the policy itself, shall be deemed representations and not warranties, and a representation, unless material or fraudulent, will not prevent a recovery on the policy.
Petitioner insists this statute requires a showing of fraud, i.e., a false representation of a material fact, reasonably calculated and intentionally made to deceive, which does deceive, causing injury thereby. Shreve v. Combs,
Petitioner's argument misses the mark. Under G.S. § 58-3-10, an insurer may avoid the policy if the insured makes a representation which is both (1) false and (2) material; the misrepresentation need not be fraudulent. "If the representation is material and false, it is not necessary for avoidance of the policy that the misrepresentation be intentional." Tedder v. Union Fidelity Life Ins. Co.,
A review of the record reveals the Association, in seeking avoidance of the policy, at all times relied upon the defense of material misrepresentation under G.S. § 58-3-10. Furthermore, while the Commissioner's order does not specifically cite the statute, it tracks the language of G.S. § 58-3-10 and concludes petitioner's application "contained a misrepresentation of material fact." While not necessary, we also note the superior court "examined ... the [b]riefs and heard the arguments of counsel," yet made no reference to fraud in its order, thus suggesting this defense was neither advanced at the trial level nor relied upon by the trial court in affirming the Commissioner's decision. See Cellu Products Co. v. G.T.E. Products Corp.,
B.
Petitioner also argues the Commissioner's decision to deny coverage was contrary to the evidence presented. Resolution of this issue must be decided by application of the "whole record" test. Walker v. N.C. Department of Human Resources,
The "whole record" test does not allow the reviewing court (here, the superior court) to substitute its judgment for the agency's as between two reasonably conflicting views, even though the court could justifiably have reached a different result had the matter been before it de novo. Thompson v. Wake County Board of Education,
With these principles in mind, we turn to the questions of whether the trial court (1) utilized and (2) properly applied the "whole record" standard of review. See Sherrod v. N.C. Department of Human Resources,
1.
As a preliminary matter, we note plaintiff does not contend the trial court failed to apply "whole record" review; rather her sole argument regarding the applicable standard of review is that this Court should apply "de novo" review to all issues on appeal. Having previously rejected that argument, we also note the Superior Court's order enumerates it "examined the transcript and the record in this matter and... examined the Briefs and heard the arguments of counsel for Petitioner and Respondent," and specifies it "Finds as a Fact that the ... Order of the Commissioner ... is supported by substantial evidence...." This indicates the Superior Court utilized the appropriate standard of review, and, there being no allegation to the contrary, we determine it did.
2.
We further conclude the Superior Court properly applied the "whole record" test in affirming the Commissioner's order. The Commissioner denied coverage on the basis of petitioner's misrepresentation of a material fact. Under N.C.G.S. § 58-3-10, an insurance policy may be avoided if the insured makes a representation which is both (1) false and (2) material. See discussion of Tedder v. Union Fidelity, supra.
There is substantial evidence of record to support the Commissioner's decision that petitioner made a false statement on her application of insurance. Petitioner's affirmation (on the insurance application) that the beach house was "used as seasonal dwelling for single family" can only be read, in conjunction with her leaving the "vacancy" question blank and failing to prepare and forward a "vacancy questionnaire," as a declaration the house was inhabited on a regular basis. Yet, by petitioner's own admission (during the hearing before the Commissioner), the house could not be inhabited in 1990, was unoccupied in 1989 and 1990, and was "completely without anybody in it since about 1985 or 1986." Nonetheless, Hamm testified that when assisting petitioner with the insurance application, he asked her, "[d]o you stay there?" and she responded "yes." At another point, Hamm testified he asked petitioner, "[d]o you stay down there?" and she replied "yes." Furthermore, there was no electricity or water serving the house; the beds, interior panelling, and sheetrock were gone; and the ceilings removed. A house physically incapable of being occupied cannot be "used as seasonal dwelling for single family" or be "habitational" for one family. Thus, substantial evidence supports the Commissioner's finding of falsity.
There is also substantial evidence of record to support the Commissioner's finding of a material false statement. The test for materiality is relatively simple. "[E]very fact untruly asserted or wrongfully suppressed must be regarded as material if the knowledge or ignorance of it would naturally influence the judgment of the insurer in making the contract, or in estimating the degree and character of the risk, or in fixing the rate of premium." Wells v. Jefferson Standard Life Ins. Co.,
In the case sub judice, the misrepresentations were made in response to written questions on the insurance application, thereby satisfying the test for materiality under Tolbert. Testimony before the Commissioner further indicates the materiality of the statements. Corliss Battle, an underwriter, testified had the Association known the condition of the building it would never have agreed to insure the property. Donnie Hamm, petitioner's own insurance agent, also testified that extended periods of vacancy are critical matters to insurance companies in underwriting insurance. Applying the standards announced in both Tolbert and Goodwin, we conclude substantial evidence supported the Commissioner's finding of materiality.
Because (1) substantial evidence in the record supports the Commissioner's findings regarding material misrepresentations, and because (2) these findings in turn support the Commissioner's conclusion affirming the Association's denial of insurance coverage, we hold the trial court committed no error by affirming the Commissioner's decision.
III.
Petitioner lastly argues even if the answers to the occupancy and vacancy portions of the application were unanswered or insufficiently answered, the Association has waived the right to full disclosure because it issued the policy without further inquiry. In addition, petitioner insists the Association was put on notice there were periods of time when the property would be vacant because she used the term "seasonal dwelling", and thus the Association waived any objections it had with respect to the condition of the property. However, these contentions are not properly before this Court, and we therefore decline to address them.
Appellate review is limited to consideration of those assignments of error set out in the record on appeal. N.C.R.App.P. 10(a); Watson v. N.C. Real Estate Commission,
Without expressly considering petitioner's waiver contention, we note an insurer waives a policy provision (which would have allowed avoidance of the policy) if at the time the policy is issued, the insurer has knowledge of existing conditions which would otherwise void the policy under the provision's terms. Winston-Salem Fire Fighters Club, Inc. v. State Farm Fire & Casualty Co.,
For the foregoing reasons, the judgment of the lower court is affirmed.
Affirmed.
WELLS and COZORT, JJ., concur.