NATIONWIDE MUTUAL INSURANCE COMPANY v. ROBERT A. EDWARDS, AMERICAN INSURANCE COMPANY AND ETTA W. HENRY, ADMINISTRATRIX OF THE ESTATE OF DONALD RAY HENRY
No. 825SC1326
COURT OF APPEALS OF NORTH CAROLINA AT RALEIGH
6 March 1984
67 N.C. App. 1
A liability insurer had no liability above the limits required by the Financial Responsibility Act for an accident involving an insured tractor because of a clause excluding coverage for a vehicle while used by one other than the named insured with any trailer owned by such other person and not covered by like insurance in the company where the driver was purchasing the tractor from a person who retained title pending full payment; pursuant to advice from plaintiff insurer‘s agent, the policy listed the titleholder as the named insured, but the driver paid the premium; and at the time of the accident, the driver was operating the tractor to pull his own uninsured trailer, which he had acquired six days after issuance of the policy.
2. Insurance §§ 8, 90- vehicle liability insurance-no waiver of “trailer exclusion” and “like insurance” clause
Plaintiff liability insurer‘s agent did not possess any knowledge which would constitute a waiver of its rights to assert an exclusion from coverage for a vehicle while used by one other than the named insured with any trailer owned by such other person and not covered by like insurance in the company where the evidence showed that the agent knew the driver of the insured tractor was in the process of buying the tractor, that he would operate it, and that the named insured had no use of it or interest in it except as holder of legal title while awaiting the outstanding balance of the purchase price, but the evidence did not show that plaintiff‘s agent knew the purchaser intended to operate the tractor with an uninsured trailer.
Defendant could not rely on appeal on the affirmative defense of equitable estoppel where she neither pled such defense nor tried the case on this theory.
4. Insurance §§ 8, 90- vehicle liability insurance-no estoppel to assert “trailer exclusion” and “like insurance” clause
Given the general rule in North Carolina that one who does not hold legal title to a vehicle cannot obtain owner‘s liability insurance thereon and that a vendee cannot acquire such insurance until legal title has been transferred or assigned to him, a statement by plaintiff liability insurer‘s agent that only the titleholder of a tractor could be the “named insured” did not constitute a false representation or concealment of a material fact which estopped plaintiff insurer from asserting an exclusion from coverage for a vehicle while used by one other than the named insured with any trailer owned by such other person and not covered by like insurance in the company.
Judge PHILLIPS dissenting.
APPEAL by plaintiff from Rouse, Judge. Judgment entered 28 July 1982 in Superior Court, NEW HANOVER County. Heard in the Court of Appeals 16 November 1983.
Plaintiff insurance company brought this action for declaratory judgment against, inter alia, an administratrix who had filed a wrongful death action for her decedent‘s demise in a collision with a tractor-trailer driven by defendant Edwards. Edwards was purchasing the tractor pursuant to a “gentlemen‘s agreement” with one Brafford, who retained title pending full payment.
Edwards had informed plaintiff‘s agent of this arrangement, and the agent had advised him that the policy should list Brafford, the titleholder, as the named insured. Edwards had paid the premiums and had operated the tractor to tow his own uninsured trailer, which he had acquired six days after issuance of plaintiff‘s policy.
The policy contained the following “trailer exclusion” or “like insurance” clause:
None of the following is an insured:
. . . .
(iii) any person or organization, other than the named insured, with respect to:
(1) a motor vehicle while used with any trailer owned or hired by such person or organization and not covered by like insurance in the company (except a trailer designed for use with a four wheel private passenger automobile and not being used for business purposes with another type motor vehicle), or
(2) a trailer while used with any motor vehicle owned or hired by such person or organization and not covered by like insurance in the company . . . .
Plaintiff sought a declaration that because of this clause it had no liability beyond that required by the Financial Responsibility Act,
Plaintiff appeals.
Murchison, Taylor & Shell, by Vaiden P. Kendrick, for plaintiff appellant.
Yow, Yow, Culbreth & Fox, by Stephen E. Culbreth, for defendant appellee Etta W. Henry, Administratrix.
WHICHARD, Judge.
The court made findings of fact, which are supported by competent evidence and are thus conclusive on appeal. Broughton v. Broughton, 58 N.C. App. 778, 781, 294 S.E. 2d 772, 775, disc. rev. denied, 307 N.C. 269, 299 S.E. 2d 214 (1982). The sole issue is the propriety of the conclusion and adjudication that plaintiff‘s policy provided coverage to the extent of its limits.
While the court did not state the basis of its conclusion, it appears to be that because of its agent‘s knowledge of conditions extant at the issuance of the policy, plaintiff either waived or was estopped to assert the trailer exclusion. We find evidence neither of such knowledge nor of other facts sufficient to create a waiver or estoppel, and accordingly reverse.
Specific exclusions of coverage when an insured vehicle is used with an uninsured trailer, or when an insured trailer is used with an uninsured vehicle, consistently have been held valid and enforceable because of the added hazard created by towing a
Under North Carolina law, coverage in excess of that required by the Financial Responsibility Act,
Our Supreme Court set forth general principles governing construction of insurance contracts in North Carolina in Trust Co. v. Insurance Co., 276 N.C. 348, 354-55, 172 S.E. 2d 518, 522 (1970); see also Woods v. Insurance Co., 295 N.C. 500, 505-06, 246 S.E. 2d 773, 777 (1978). Absent ambiguity reasonably susceptible to conflicting interpretations, courts must enforce the contract as written, giving effect to each word and clause. They “may not, under the guise of interpreting an ambiguous provision, remake the contract and impose liability upon the company which it did not assume and for which the policyholder did not pay.” Trust Co., supra, 276 N.C. at 354, 172 S.E. 2d at 522. See generally 1 R. Anderson, Couch on Insurance 2d §§ 15:15 to :17 (1959); 13 J. Appleman, Insurance Law and Practice §§ 7383-84 (1976).
[1] The policy here covers the tractor and “any semi-trailer.” This coverage is, however, “subject to all the terms of [the] policy having reference thereto.” The “Basic Automobile Liability Insurance” section includes the “trailer exclusion” set forth above. The court found as facts that Brafford was the only named insured, that the trailer was owned by Edwards, that the trailer was not covered by “like insurance,” and that the trailer was not designed for use with a four wheel private passenger automobile. At the time of the accident, then, the tractor fell within the
An insurance company may waive its right to assert exclusions from coverage.
If an insurer, notwithstanding knowledge of facts then existing which by the language of the policy defeats the contract of insurance, nevertheless insures property, it will be held to have waived the policy provisions so far as they relate to the then existing conditions.
Fire Fighters Club v. Casualty Co., 259 N.C. 582, 585, 131 S.E. 2d 430, 432 (1963); see Rea v. Casualty Co., 15 N.C. App. 620, 625, 190 S.E. 2d 708, 712, cert. denied, 282 N.C. 153, 191 S.E. 2d 759 (1972); see also Cato v. Hospital Care Association, 220 N.C. 479, 484, 17 S.E. 2d 671, 674 (1941); Midkiff v. Insurance Co., 198 N.C. 568, 571-72, 152 S.E. 792, 794 (1930); Midkiff v. Insurance Co., 197 N.C. 139, 143, 147 S.E. 812, 814 (1929); Aldridge v. Insurance Co., 194 N.C. 683, 686, 140 S.E. 706, 708 (1927) (all finding waiver based on actual knowledge of agent). But see Iowa National Insurance Co. v. Coltrain, 143 F. Supp. 87, 89 (M.D.N.C. 1956) (general knowledge of operations insufficient where agent had no specific knowledge of operation of trucks by third party in violation of policy provision); Midkiff v. Insurance Co., 197 N.C. 144, 145, 147 S.E. 814, 815 (1929) (knowledge of general practice in community insufficient; agent must have knowledge of particular insured‘s violation of provision of policy at time policy issued); Greene v. Insurance Co., 196 N.C. 335, 340, 145 S.E. 616, 618 (1928) (knowledge of agent of insured‘s violation, when acquired after issuance of policy, not imputed to insurer so as to create waiver or estoppel). The claimant has the burden, on a waiver issue, of establishing knowledge by the agent of facts existing at the issuance of the policy. Fire Fighters, supra, 259 N.C. at 586, 131 S.E. 2d at 433.
[2] The evidence here shows that plaintiff‘s agent knew defendant Edwards was in the process of acquiring the tractor, that he would operate it, and that the named insured had no use of it or
Knowledge by the agent of events occurring after issuance of the policy cannot support waiver. Greene v. Insurance Co., supra, 196 N.C. at 340, 145 S.E. at 618. Arrangements between Edwards and plaintiff or its agent subsequent to the accident are thus irrelevant.
[3] Defendant has argued, in effect, that the actions of plaintiff‘s agent amounted to a misrepresentation which equitably estops plaintiff‘s assertion of the exclusion. Estoppel is an affirmative defense which must be specially pleaded.
Defendant-administratrix neither pled nor tried the case on this theory. She thus cannot now present it on appeal. Delp v. Delp, 53 N.C. App. 72, 76, 280 S.E. 2d 27, 30, disc. rev. denied, 304 N.C. 194, 285 S.E. 2d 97 (1981); Grissett v. Ward, 10 N.C. App. 685, 687, 179 S.E. 2d 867, 869 (1971).
[4] Had defendant-administratrix properly presented the issue, she did not offer sufficient evidence thereon to support a judgment in her favor. The party claiming protection under the rule of equitable estoppel has the burden of establishing facts warranting its application. In re Will of Covington, 252 N.C. 546, 549, 114 S.E. 2d 257, 260 (1960); 31 C.J.S. Estoppel § 160 (1964). Defendant has not sustained this burden.
Our Supreme Court has stated:
[T]he essential elements of an equitable estoppel as related to the party estopped are: (1) Conduct which amounts to a false
representation or concealment of material facts, or, at least, which is reasonably calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party afterwards attempts to assert; (2) intention or expectation that such conduct shall be acted upon by the other party, or conduct which at least is calculated to induce a reasonably prudent person to believe such conduct was intended or expected to be relied and acted upon; (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, they are: (1) lack of knowledge and the means of knowledge of the truth as to the facts in question; (2) reliance upon the conduct of the party sought to be estopped; and (3) action based thereon of such a character as to change his position prejudicially.
Hawkins v. Finance Corp., 238 N.C. 174, 177-78, 77 S.E. 2d 669, 672 (1953), quoted with approval in Transit, Inc. v. Casualty Co., 285 N.C. 541, 549, 206 S.E. 2d 155, 160 (1974). It is not necessary that the conduct of the party estopped be intentional; negligence may provide a basis for application of the doctrine. Transit, Inc., supra, 285 N.C. at 550-51, 206 S.E. 2d at 160-61 (failure to inform insured of changed business coverage in renewal); see also 16B J. Appleman, Insurance Law and Practice § 9088, at 560 (1981); 28 Am. Jur. 2d Estoppel and Waiver § 61 (1966).
The facts found here show only that (1) Edwards went to plaintiff‘s agent to obtain insurance for the tractor, (2) the agent knew he did not have legal title, (3) the agent told him Brafford would have to be the “named insured,” (4) he accepted this arrangement and bought insurance so that he could operate the tractor, and (5) six days later he bought a trailer. There is no evidence that Edwards owned a trailer at the time he obtained the policy, or that he told the agent, then or later, that he intended to purchase one for use with the insured tractor.
There is no evidence that plaintiff‘s agent informed Edwards of the consequences of someone other than the “named insured” towing his own uninsured trailer with the insured tractor. She had no duty to warn him of all contingencies which could defeat coverage, however. “[A]n insurance agent is not required to affirmatively warn his customers of provisions contained in insurance policies.” 16C J. Appleman, Insurance Law and Practice
There is no evidence of knowledge on the part of the agent, actual or constructive, of real facts inconsistent with the terms of the policy when issued. When the policy was issued, Edwards did not own the trailer, and there is no evidence indicative of an intent to purchase or hire one. “[T]o make the rule of imputing notice from facts exciting inquiry apply, it must appear that the inquiry suggested, if fairly pursued, would have resulted in knowledge of the fact.” 44 Am. Jur. 2d Insurance § 1589, at 597 (1982); see also Lancaster v. Insurance Co., 153 N.C. 285, 69 S.E. 214 (1910) (insurance company not estopped to assert non-ownership exclusion by failure to inquire about ownership); 16B J. Appleman, supra, at 571-72.
There is no evidence from which an estoppel could be found, then, unless the statement by the agent that Brafford would have to be the “named insured,” since he was the titleholder, amounts to a misrepresentation or concealment of a material fact.
[a] person holding the legal title to a vehicle, or in the event a vehicle is the subject of a chattel mortgage or an agreement for the conditional sale or lease thereof or other like agree-
ment, with the right of purchase upon performance of the conditions stated in the agreement, and with the immediate right of possession vested in the . . . conditional vendee . . . said . . . conditional vendee . . . shall be deemed the owner for the purpose of this Chapter.
Under this definition the agent arguably could have issued the policy with Edwards as the “named insured.” In that event, the accident would have been covered.
The legal milieu in which the agent acted, however, included not only the foregoing statute, but also the case law interpreting the term “owner.” The general rule is that “as between a vendor and vendee of a vehicle, the vendee cannot acquire valid owner‘s liability insurance until legal title has been transferred or assigned to him by or at the direction of the vendor.” Ohio Casualty Ins. Co. v. Anderson, 59 N.C. App. 621, 623, 298 S.E. 2d 56, 58 (1982), cert. denied, 307 N.C. 698, 301 S.E. 2d 101 (1983); see also Insurance Co. v. Hayes, 276 N.C. 620, 640, 174 S.E. 2d 511, 524 (1970); Gaddy v. Insurance Co., 32 N.C. App. 714, 716, 233 S.E. 2d 613, 614 (1977); Gore v. Insurance Co., 21 N.C. App. 730, 733, 205 S.E. 2d 579, 582 (1974). Our Supreme Court has stated that
for purposes of tort law and liability insurance coverage, no ownership passes to the purchaser of a motor vehicle which requires registration under the Motor Vehicle Act . . . until (1) the owner executes, in the presence of a person authorized to administer oaths, an assignment and warranty of title on the reverse of the certificate of title, including the name and address of the transferee, (2) there is an actual or constructive delivery of the motor vehicle, and (3) the duly assigned certificate of title is delivered to the transferee.
Insurance Co. v. Hayes, supra.
In Ohio Casualty Ins. Co. v. Anderson, supra, 59 N.C. App. at 624, 298 S.E. 2d at 58, this Court rejected the argument that “one who does not hold legal title to a vehicle cannot under any circumstances obtain owner‘s liability insurance thereon.” It stated that “[t]he ‘owner’ of a vehicle is the holder of the legal title ‘[u]nless the context otherwise requires.‘” Id. at 626, 298 S.E. 2d at 59 (quoting
Given the general rules in North Carolina that one who does not hold legal title to a vehicle cannot obtain owner‘s liability insurance thereon, and that a vendee cannot acquire such insurance until legal title has been transferred or assigned to him, we do not believe the agent‘s statement that only the titleholder could be the “named insured” can be held to constitute “[c]onduct which amounts to a false representation or concealment of material facts.” Hawkins v. Finance Corp., supra. Defendants thus have failed to show conduct on the part of the agent from which an estoppel could be found.
The continued acceptance of premiums by the company does not constitute grounds for waiver or estoppel. The law does not require automatic notification to insurers when their insureds purchase additional vehicles, nor do insurers have a legal duty to determine what other vehicles the insured owns. There is no evidence that the company knew Edwards owned a trailer until after the accident. It thus continued to provide the limited coverage for which it had contracted.
Had Edwards been involved in a second accident under like conditions, acceptance of premiums might have supplied grounds for waiver or estoppel. See Gouldin v. Insurance Co., 248 N.C. 161, 164-66, 102 S.E. 2d 846, 848-49 (1958) (general rules); Annot., 1 A.L.R. 3d 1139 (1965). Such is not the case here, however.
On this record we find no basis for holding that the plaintiff provides coverage in the full amount of its policy. Accordingly, the judgment is reversed, and the cause is remanded for entry of a judgment in accordance with this opinion.
Reversed and remanded.
Judge WEBB concurs.
Judge PHILLIPS dissents.
I dissent for two reasons. First and foremost, I am of the opinion that Judge Rouse‘s conclusion that, under the evidence recorded, plaintiff company is obligated for the full limits of the policy it sold defendant Edwards was proper. But even if that was not the case, the exclusionary provisions of the policy that plaintiff relies on to escape its obligation are contrary to public policy, in my opinion, and therefore unenforceable by law. To sooner put in focus the indefensible character of the exclusionary provisions involved, I discuss the public policy ground first.
Though insurance policies are contractual in nature, they are not to be confused with ordinary bargain and sale contracts, from which the law of contracts mostly developed. Insurance policies are “contracts of adhesion” between parties of grossly unequal bargaining power. 43 Am. Jur. 2d Insurance § 159 (1982). The terms of insurance policies, except the policy limits, are seldom negotiated for. Insurance companies usually fix the conditions under which they will pay and, as with other exercises of arbitrary power, the conditions fixed occasionally defeat the purposes that such policies are supposed to serve. Yet, motor vehicle owners in this state are required by statute to insure their vehicles against legal liability to the minimum limits specified; and coverage in larger limits is a practical, if not statutory, necessity for most owners, particularly those engaged in business. The two central purposes of liability insurance in this state are to protect the public by compensating innocent tort victims and to indemnify those who negligently injure others against financial detriment, up to the limits paid for. The “trailer exclusion” and “like insurance” provisions are inimical to the achievement of either purpose, with no counterbalancing benefits. These provisions arbitrarily reduce the insurer‘s exposure, without the risk insured against having been enhanced in any way; and they arbitrarily deprive both insureds and the public of needed protection that has been fully paid for. That such effects can arbitrarily result from a trailer not insured by that company being towed by an insured tractor, not operated by the registered owner or “named insured,” is an absurdity that good and sound law cannot tolerate. Nor can it tolerate insurance policies that are largely counterfeit. It is a matter of common knowledge that highway traveling tractors are built, bought, maintained and operated for one main
But however contracts are arrived at, provisions therein contrary to public policy will not be enforced in this state. In re Port Publishing Co., 231 N.C. 395, 57 S.E. 2d 366 (1950). Contract provisions are against public policy “when they tend clearly among other things to injure ‘the public confidence in the purity of the administration of the law,‘” Cauble v. Trexler, 227 N.C. 307, 311, 42 S.E. 2d 77, 80 (1947), and when “the enforcement of them by the courts would have a direct tendency to injure the public good.” Electrova Co. v. Spring Garden Insurance Co., 156 N.C. 232, 235, 72 S.E. 306, 307 (1911). Also, “[a]greements which are unconscionable as a result of inequality of bargaining or sharp practices are clearly recognized as offensive to public policy and subject to equitable adjustment or rescission.” Williston On Contracts Third Edition § 1628, p. 6 (1972). The “trailer exclusion” and “like insurance” provisions in the policy involved are clearly contrary to these principles. In Mount Vernon Fire Insurance Co. v. Travelers Indemnity Co., 407 N.Y.S. 23, 63 A.D. 2d 254 (1978), the New York Supreme Court declared similar provisions to be void as against public policy. In Great American Insurance Co. v. C. G. Tate Construction Co., 303 N.C. 387, 279 S.E. 2d 769 (1981), though not mentioning public policy, our Supreme Court correctly ruled that arbitrary policy cancellation provisions requiring timely notice of loss would no longer be automatically enforced to the ruination of insureds and members of the public, but would be enforced thereafter only when the failure to give notice harmed insurers. In doing so, the Court recognized that the provision requiring notice is a proper one, which serves the necessary purpose of enabling the companies to investigate and defend claims made against their insureds. Even so, the court irresistibly con-
But the majority opinion‘s main failing is not the central holding that Edwards failed to prove that Nationwide had waived the exclusionary provisions that Nationwide relies on. Its main failing is the faulty premise that it starts from-that the insurance policy involved was really, rather than nominally, that of Brafford, in whose name it was issued. By starting there and treating the policy as written as though that was what the parties really agreed to, and moving thence to Edwards’ technical status thereunder, which is essentially that of an uninterested stranger, and moving thence to the waiver question, the majority bypassed the undisputed import and thrust of the evidence; which was that the policy was really Edwards’ and Brafford was but a straw or paper man, whose name was inserted as “named insured” only because the agent did not realize that the policy could properly be issued in Edwards’ name or in both their names, and that in all events it was the purpose and agreement of both Nationwide and Edwards that his activities, rather than Brafford‘s inactivity, would be covered by the policy. This evidence, to my mind, not only shows that Nationwide waived, and is estopped from relying upon, the exclusionary provisions in the policy; it also shows that Nationwide agreed through its agent to cover Edwards’ use of the tractor to the same full extent that it would have if he, Edwards, was designated “named insured,” rather than Brafford. Had Brafford, as the “named insured,” been operating the tractor when the accident involved in this case occurred, he would have been fully indemnified under the policy, regardless of whose trailer was being pulled. Edwards, who stands in Brafford‘s shoes, is entitled to no less.
The evidence, though brief, is without contradiction from Nationwide and shows that: The old tractor involved, which Bill Brafford owned, had been idle for several months, was not in condition to operate on the highway, had neither a license tag nor insurance, and Brafford had no desire to operate it. When Robert
Though, as the majority recognizes, the agent was misinformed about it being necessary to issue the policy in Brafford‘s name, that is not important. What is important is that after being asked what to do to insure Edwards’ operation the agent did not tell Edwards that if the policy was enforced as written, it would not provide the coverage that he came there to get and paid for.
Nor do I attach any significance to the fact, as the majority does, that the agent did not know Edwards was going to purchase the trailer that was involved in the collision. Under the circumstances, it was enough that she knew that the tractor would be pulling trailers of any kind, and that if Edwards did not receive the same coverage Brafford would have that the policy would be a pointless waste of time and money for Edwards. “If an insurer, notwithstanding knowledge of facts then existing which by the language of the policy defeats the contract of insurance, nevertheless insures property, it will be held to have waived the policy provisions so far as they relate to the then existing conditions.” (Citations omitted.) Winston-Salem Fire Fighters Club, Inc. v. State Farm Fire and Casualty Co., 259 N.C. 582, 585, 131 S.E. 2d 430, 432 (1963).
I vote to affirm the decision of the trial judge.