PENN NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Plaintiff, v. VIKING PIZZA, INC., MARCUS ALFONSO KEARSE, JUWAN CHRISTOPHER HARRINGTON, and YOLANA IRVING, Defendants.
1:17CV1155
IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
July 27, 2020
OSTEEN, JR., District Judge
OSTEEN, JR., District Judge
Before the court are cross-motions for summary judgment filed by Plaintiff/Counter-Defendant Penn National Mutual Casualty Insurance Company (“Penn National“) and Defendants/Counter-Plaintiffs Yolanda Irving (“Irving“) and Juwan Christopher Harrington (“Harrington“). (Docs. 54, 62.) Defendants Viking Pizza, Inc. (“Viking“) and Marcus Alfonso Kearse (“Kearse“) have not appeared in this action in any way. Penn National filed this declaratory judgment action seeking relief from any duty to indemnify Defendant Viking or Kearse due to Viking‘s alleged failure to cooperate or provide notice about a vehicle accident that occurred on September 14, 2014, while Kearse was working as a Domino‘s delivery driver for Viking;
I. FACTUAL AND PROCEDURAL BACKGROUND
The court addresses the relevant facts here but will address other facts as necessary throughout this Opinion.
A. The Parties
Plaintiff Penn National is a multi-line insurance company that is incorporated under the laws of Pennsylvania, where it also has its principal place of business. (Am. Compl. (Doc. 22) ¶ 2.) Defendant Viking is a North Carolina Corporation with its principal place of business there as well. (Id. ¶ 3; Answer (Doc. 23) ¶ 3.) Viking‘s president is Steven Kuone (“Kuone“); Kuone is not personally a party to this action. (Am. Compl. (Doc. 22) ¶ 3.) Kuone is the sole officer of Viking. (Deposition of Steven Kuone (“Kuone Dep.“) (Doc. 56) at 64-65.) Kearse is a North Carolina resident and a former employee of Viking. (Am. Compl. (Doc. 22) ¶ 4; Pl.‘s Brief in Supp. of Mot. for Summary
B. Kuone Founded Viking Pizza to Run Domino‘s Franchises
Steven Kuone founded Viking in 2012 to become a Domino‘s Pizza franchise owner. (Kuone Dep. (Doc. 56) at 11-12; Pl.‘s Br. (Doc. 63) Ex. B, Viking Pizza Business Registration (“Viking Info“) (Doc. 63-2).) Kuone has always been the sole owner and officer of Viking. (Kuone Dep. (Doc. 56) at 65; Viking Info (Doc. 63-2).) Viking operated four Domino‘s franchises in and around Wake County, North Carolina. (Kuone Dep. (Doc. 56) at 11-12.) Viking purchased insurance coverage through the Upton Group, an insurance agency in Alabama that worked frequently with Domino‘s franchises and sold Viking two Penn National
C. Kearse Hits Harrington on September 14, 2014
Kearse was an employee at Viking‘s Domino location on New Bern Avenue in Raleigh, North Carolina. (Kearse Dep. (Doc. 63-4) at 3.) In the early afternoon of September 14, 2014, Kearse was returning to the New Bern Avenue store after delivering a pizza. (Id. at 9.) While Kearse was on his way back to the store, he struck Harrington with his car. (Id.; RPD Report (Doc. 63-6) at 2.)
No charges were filed against Kearse, and several witnesses told police that Harrington “darted in front of” Kearse. (RPD Report (Doc. 63-6) at 7.) Raleigh Police took statements from several witnesses, some of whom claimed that Kearse was driving too fast. (Id. at 11, 16.) Other witnesses disagreed. (Id. at 11.) The report included some contact information for all witnesses interviewed by Raleigh Police. (Id. at 11-13, 16.) One of the witnesses was Xavier Harrington, Harrington‘s brother who was one of the three crossing the street when Kearse struck; his contact information was also included in the report. (Id. at
D. Viking‘s Response to the Accident
Kuone learned about Kearse‘s accident on the same day it occurred, September 14, 2014, when the general manager of the New Bern Avenue store, Rebecca Dixon, called Kuone to inform him. (Kuone Dep. (Doc. 56) at 20-21.) The remainder of Kuone‘s recount of that day and the steps he took was based on his recollection of what were the “typical steps that [Viking] would take” after an accident. (Id. at 21.) Kuone noted that those steps included the following:
Q. And after you found about that, what steps did you take to investigate it or --
A. Uh-huh.
Q. -- find out about it, other than talking to her?
A. Yeah. Suspended [Kearse] and -- I mean -- and this is, you know, not speculation, but the typical steps that we would take. I don‘t recall specifically the steps, but --
Q. Uh-huh.
A. -- typically the first thing you would do is suspend the driver pending a motor vehicle report. Once it‘s deemed that the motor vehicle report, that they‘re still eligible to drive for Domino‘s, then they return to work.
Q. Okay.
A. Report, of course, to the insurance agency, as well, and, of course, get a -- you know, any other corresponding info that the insurance agency might need. Q. Okay. So you believe in this -- with this accident you contacted the insurance agency --
A. Yes.
Q. -- shortly after the accident?
A. Yes.
(Id. at 21-22.) Kuone did not recall how he notified the insurance agency, but, when asked if he remembered doing it, Kuone responded “yeah, absolutely.” (Id. at 22.) Later during his deposition, Kuone also stated he did not have a “specific recollection” of reporting the incident but instead believes he did because it was “part of the process.” (Id. at 82, 104.) The parties agree that there is no record of the accident being reported to Upton or Penn National on or around September 14, 2014. (Defs.’ Brief in Supp. of Mot. for Summ. Judgment (“Defs.’ Br.“) (Doc. 55) at 22; Pl.‘s Br. (Doc. 63) at 4 n.2.)
Kuone was also asked, “Do you remember specifically making any decision, ‘I‘m not going to talk to [Penn National]‘?” (Kuone Dep. (Doc. 56) at 105.) Kuone responded, “No.” (Id.) At another point, Kuone testified that he did not “intentionally decide to not follow [his] standard practice for [reporting the] accident.” (Id. at 104.)
Shortly after the accident, Harrington and Irving contacted Julie L. Bell, an attorney with the law firm Patterson Dilthey, LLP, to discuss pursuing a negligence action against Kearse and Viking (the “Underlying Lawsuit“). (Dilthey Dep. (Doc. 58) at 17.) A formal retainer was signed two years later. (Id. at 18.)
Ronald Dilthey, one of Bell‘s partners, and Bell began attempting to reach out to Viking via mail. On December 16, 2015, Bell sent a letter to Viking at Viking‘s registered address, 305 Chastain Court, Jacksonville, North Carolina, 28546. (Pl.‘s Br. (Doc. 63) Ex. N, December 16, 2015 Letter from Julie Bell to Viking (“Bell Letter“) (Doc. 63-14) at 2; Viking Info (Doc. 63-2).) The letter was sent via regular mail and not returned as undeliverable. (Dilthey Dep. (Doc. 58) at 48-49.) Kuone was “sure” he did not recall seeing the letter before his 2019 deposition. (Kuone Dep. (Doc. 56) at 25.) While Viking owned the Domino‘s franchises, Kuone, Viking‘s only officer, was splitting his time between his home in Jacksonville and an apartment he rented in Raleigh. (Id. at 26-27; Deposition of Shonda Kuone (“Shonda Kuone Dep.“) (Doc. 59) at 12.) The Bell Letter did not ever use the words “sue,” “suit,” “lawsuit,” or “claim,” but it was on law firm letterhead and requested that Viking have their insurance carrier contact the firm directly.
Viking sold its four Domino‘s franchises in fall of 2016 for reasons unrelated to the accident. (Kuone Dep. (Doc. 56) at 52.) Viking did not buy any other franchises or engage in any other business after that sale. (Id. at 52-53.)
Dilthey filed suit against Viking and Kearse in state court on November 30, 2016. (Pl.‘s Br. (Doc. 63) Ex. Q, Process in Underlying Lawsuit (“Service“) (Doc. 63-17) at 3.) On the same day, Dilthey mailed the summons, complaint, discovery materials, and a cover letter to Viking at the 305 Chastain Court address. (Id. at 2.) The documents were sent via registered mail, return receipt requested. (Id.) Shonda Kuone, Steven Kuone‘s wife, signed for the documents. (Shonda Kuone Dep. (Doc. 59) at 71.) Shonda Kuone noted that she would regularly sign for Viking mail sent to 305 Chastain Court, and that she would place it in one of two places where Steven Kuone would work. (Id. at 11-12, 16.) Steven Kuone was in the habit of looking at mail left for him in those locations. (Kuone Dep. (Doc. 56) at 89-90.) Shonda Kuone also stated that there was a period of time in 2016 and 2017 where Steven Kuone was not living at 305 Chastain Court and that there were time frames when the two of them would not speak.
After serving process on Viking, Dilthey still received no response. (Dilthey Dep. (Doc. 58) at 51.) Though Viking was technically in default, Dilthey did not move for an entry of default. (Pl.‘s Br. (Doc. 63) Ex. W, Penn National Claim Notes (“Claim Notes“) (Doc. 63-23) at 2.) To elicit a response from Viking, Dilthey subpoenaed both Kuones for a deposition to take place on April 11, 2017. (Dilthey Dep. (Doc. 58) at 52.) Dilthey used a private investigator at a cost of “60 bucks” to physically hand Kuone his subpoena for the deposition. (Id. at 95-96.)
F. April 11, 2017 Deposition and Notice to Penn National
On April 10, 2017, the day before the deposition, Kuone contacted the Upton Insurance Group and sent the summons, complaint, and discovery documents for the suit against Viking. (Doc. 63-20.) Upton then forwarded that information to Penn National, which Penn National received on April 11, 2017, at 11:00 a.m. EST. (Deposition of Gary R. Gibson (“Gibson Dep.“) (Doc. 57) at 66.) Upton emailed the wrong email address, but Penn National eventually received all the documents. (Id. at 66-67.)
I said to him, why are you not getting up with me about this. And he said, because I don‘t own the company. I have sold the company. And his whole fixation as to why this was happening was, he was convinced that, since he was not the owner of the company when the papers were being served, he didn‘t feel that he had any responsibility to do anything.
(Id. at 84.) Dilthey said that was Steven Kuone‘s “excuse” for “not following up on letters or subpoenas.” (Id. at 84-85.) Dilthey further stated that Steven Kuone was “convinced” that since Viking had sold the franchises, he was no longer involved. (Id. at 95.) Kuone does not remember these conversations with Dilthey. (Kuone Dep. (Doc. 56) at 95.) When Gary Gibson, Penn National‘s
At the April 11, 2017 deposition, Kuone called and spoke with Candace Leatherberry with Penn National. (Id. at 81-82.) As Kuone put it, he called to see if he could get an “assist” with
[Kuone]: I was looking for assistance. I don‘t remember -- that‘s -- might be the origin of why I called the Upton insurance agency.
Q. Okay. To get assistance with the lawsuit?
[Kuone]: Yeah, to see if -- if there was anything that could be done, seeing that the transaction had already taken place and the stores were already sold.
(Id. at 37.)
After the April 11, 2017 deposition, Viking did not respond to any of Penn National‘s communications. (Pl.‘s Br. (Doc. 63) at 7-8.)2 Penn National sent numerous communications to Viking, to include calling Kuone at the proper phone number, emailing the email address Kuone used, and mailing letters to 305 Chastain Court. (Doc. 63-1 at 27, 30, 33; see generally Claim Notes (Doc. 63-23).) Steven Kuone himself signed for one reservation of rights letter Penn National sent on June 13, 2017. (Pl.‘s Br. (Doc. 63) Ex. Y, June 13, 2017 Penn National Letters (“Penn National Letters“) (Doc. 63-25) at 2; Kuone Dep. (Doc. 56) at 49.) Penn National sometimes uses investigators to reach unresponsive persons, but it decided to not use in-person service to reach Kuone. (Gibson Dep. (Doc. 57) at 8-9, 126.)
In light of its difficulties reaching Viking, Penn National sent Viking several reservation of rights letters pending further inquiry about coverage issues. (See generally Penn National Letters (Doc. 63-25).) After Kuone‘s April 11, 2017 deposition, Dilthey made efforts to get Penn National involved in the Underlying Lawsuit. (Dilthey Dep. (Doc. 58) at 98-99.) Dilthey sent initial information to Penn National; Dilthey also stated that he would have “done anything” to get Penn National involved. (Id. at 98.) Dilthey would have given his additional witness information to Penn National “without discovery.” (Id. at 100.) Gibson asserts that Penn National “would have preferred” to have their own investigators interview witnesses and examine the accident scene. (Gibson Dep. (Doc. 57) at 157.) The Claim Notes do not mention this as a factor in why the tort action might be difficult to defend. (Id. at 155.) Dilthey continued to try and get Penn National involved throughout Spring 2017, but in May 2017, the Claim Notes state that “Gary [Gibson] does not suggest we follow up with the plaintiff atty at this time.” (Claim Notes (Doc. 63-23) at 5.)
Dilthey gave Penn National until July 4, 2017, to defend the case, but actually delayed entry of default until August 30, 2017. (Gibson Dep. (Doc. 57) at 144-45.) A bench trial was held
H. Procedural History
Penn National filed this declaratory judgment action on December 28, 2017. (Complaint (Doc. 1).) Penn National filed an amended complaint on January 15, 2019, (Am. Compl. (Doc. 22)),3 and Defendants Irving and Harrington filed their answer and counter-claims on January 29, 2019, (Answer (Doc. 23)). Penn National did not demand a jury, but Irving and Harrington did. (Am. Compl. (Doc. 22); Answer (Doc. 23) at 19.) Defendants Kearse and Viking have not entered appearances in this action. Following discovery, Irving and Harrington filed their present Motion for Summary Judgment and a supporting brief. (Docs. 54, 55.) Penn National responded, (Doc. 64), and Defendants replied,
II. STANDARD OF REVIEW
Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
When facing cross-motions for summary judgement, this court reviews “each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)
III. ANALYSIS OF PENN NATIONAL‘S MOTION FOR SUMMARY JUDGMENT
The court begins by analyzing Penn National‘s Motion for Summary Judgment. (Doc. 62.) Penn National claims that Viking breached the notification and cooperation provisions of its insurance contracts. (See Auto Policy (Doc. 22-1) at 24; Umbrella Policy (Doc. 22-2) at 37-38.) Therefore, Penn National argues, they should be legally absolved from indemnifying Viking in the Underlying Lawsuit.
On the failure to notify claim, Penn National argues that Kuone, as Viking‘s sole officer, acted in bad faith in failing to notify Penn National about the 2014 accident until April 2017. First, Penn National argues that since Kuone indisputably knew about the accident but did not report it, he acted with bad faith as a matter of law. (Pl.‘s Br. (Doc. 63) at 15.) Penn National also argues that Kuone acted in bad faith when he failed to notify Penn National after Dilthey served the suit papers in November 2016. (Id. at 16.) Penn National argues that
Regarding Kuone‘s alleged failure to cooperate, Penn National argues that Kuone breached his duty to cooperate when he failed to respond to their numerous communications sent to the proper addresses and phone number. (Id. at 20-21.) As for prejudice resulting from Kuone‘s failure to cooperate, Penn National‘s only argument is that since they could not contact Kuone, they could not have retained counsel to represent Viking, even if they decided to do so. (Id. at 21.)
Since there are genuine issues of material fact regarding Viking‘s subjective good faith and any prejudice to Penn National from the late notice of lack of cooperation by Viking, this court finds that Penn National‘s Motion for Summary Judgment should be denied.5
“In resolving this diversity action, we are obliged to apply the substantive law of North Carolina.” Metric/Kvaerner Fayetteville v. Fed. Ins. Co., 403 F.3d 188, 197 (4th Cir. 2005).7
To determine if an “insurer may be relieved of its obligation to indemnify due to its insured‘s asserted failure to comply with a policy requirement that notice of loss be given to the insurer ‘as soon as practicable,’ North Carolina utilizes the test enunciated in its Supreme Court‘s Great American decisions.” Id. at 197-98 (citing Great Am. Ins. Co. v. C.G. Tate Constr. Co. (Great American I), 303 N.C. 387,
In Great American I, the North Carolina Supreme Court “redefined the ‘notice as soon as practicable’ provision to mean that the requirement is satisfied despite any delay in notifying the insured, so long as it is occasioned in good faith and the insurer is not materially prejudiced.” Great American II, 315 N.C. at 719, 340 S.E.2d at 747. The “Great American test” includes three prongs:
(1) whether there was a delay in notifying the insurer of a covered loss (the “Notice Element“); (2) if such notice was delayed, whether the insured acted in good faith with respect to the delay (the “Good Faith Element“); and (3) if the insured acted in good faith, whether the insurer was nevertheless materially prejudiced by the delay (the “Prejudice Element“).
Metric/Kvaerner Fayetteville, 403 F.3d at 197-98 (citing Great American II, 315 N.C. at 718-19, 340 S.E.2d at 746-47).
The first prong of the test is relatively straightforward. “[I]n most instances, unless the insurer‘s allegations that notice was not timely are patently groundless, the first part of the test is met by the fact that the insurer has introduced the issue to the court.” Pa. Nat‘l Mut. Cas. Ins. Co. v. JJA Constr., Inc., Civil Action No. 3:18-CV-00266-GCM, 2019 WL 2241685, at *4 (W.D.N.C. May 23, 2019) (quoting Great American II, 315 N.C. at 719, 340 S.E.2d at 747). “How much time must
The parties do not dispute that the first prong is met for purposes of this motion. (Defs.’ Br. (Doc. 55) at 22; Pl.‘s Br. (Doc. 63) at 4 n.2). With no dispute between the parties that the first Great American prong is satisfied, and the parties appear to rely on April 10, 2017, as the date of notification, the court turns to the next two prongs: good faith and prejudice. The court notes that April 10, 2017, is thirty months after the September 14, 2014 accident, but sixteen months after the Bell Letter was sent.
1. Good Faith Prong
The burden is on the insured to show they acted in good faith. St. Paul Reinsurance Co. v. Rudd, 67 F. App‘x 190, 194 (4th Cir. 2003); see Great American I, 303 N.C. at 399, 279 S.E.2d at 776. On the “good faith prong,” Great American I held that “[a]nyone who knows that he may be at fault or that others have claimed he is at fault and who purposefully and knowingly fails to notify ought not to recover even if no prejudice results.” Great American I, 303 N.C. at 399, 279 S.E.2d at 776 (emphasis added). As later expounded by the Great American II court, the second prong is composed of two questions: “1) Was”
Both good faith questions ask, “not what a reasonable person in the position of the insured would have known, but what the insured actually did know.” Id. Further, “the test ... is not simply whether [an insured] knew of its potential liability.” Pulte Home Corp. v. Am. S. Ins. Co., 185 N.C. App. 162, 174, 647 S.E.2d 614, 622 (2007). Rather, there must be evidence “suggesting a purposeful, intentional, or deliberate decision by [the insured] to delay notification ...” Id. at 175, 647 S.E.2d at 622. Delays in reporting that result from faulty or negligent reporting systems are not bad faith delays, Duke Univ. v. St. Paul Mercury Ins. Co., 95 N.C. App. 663, 678, 384 S.E.2d 36, 45 (1989), nor are negligent mistakes by the insured himself, St. Paul Reinsurance Co., 67 F. App‘x at 196-97. The Great American II court offered several examples of what would and would not qualify as a good faith delay, including the following:
[W]here the insured simply negligently forgets to report the accident, there is knowledge, but there is no knowing, purposeful failure to notify the insurer. But where the insured does not think he is involved but knows that claims might be filed against him, and he fails to notify the insurer because of that
uncertainty, then there is both actual knowledge of possible liability and there is a knowing and purposeful decision not to inform the insurer.
Great American II, 315 N.C. at 721, 340 S.E.2d at 748 (emphasis added). Further, if an insured “had no actual awareness of any accusation that he might be liable, then his failure to notify, though deliberate, is in good faith.” Id. at 720, 340 S.E.2d at 747 (emphasis added).
Specifically discussing the “good faith prong” of the Great American test, the North Carolina Supreme Court has noted that “summary judgment is rarely appropriate in actions in which the litigant‘s state of mind, motive, or subjective intent is an element of plaintiff‘s claim.” Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571, 580, 573 S.E.2d 118, 124-25 (2002) (internal quotations and citations omitted).8
Starting with the first period, there is a genuine dispute of material fact about whether Viking “purposefully and knowingly fail[ed] to notify the insurer.” Great American II, 315 N.C. at 720, 340 S.E.2d at 747. Although the parties do not dispute the fact that no notice was given to Penn National in 2014, (Defs.’ Br. (Doc. 55) at 22), Kuone testified that he “absolutely” contacted the insurance agency after the accident, (Kuone Dep. (Doc. 56) at 22). Later, Kuone stated that he did not “have any specific recollection” of reporting the accident, but instead he did “remember the process,” and the process included notifying the insurer. (Id. at 82-83.) Kuone further stated that he did not “intentionally decide to not follow [his] standard [reporting] practice for this accident.” (Id. at 104.) Finally, Kuone noted that his recollection of the process he would have followed was “not speculation.” (Id. at 21.) Even if the parties agree no notice was given, this testimony creates an issue of fact as to whether Kuone purposefully and knowingly failed to notify Penn National in 2014. The jury could find from Kuone‘s testimony that he did notify Penn National, or that he tried and failed to notify Penn National as a result of faulty
The second relevant time period is from the time the Bell Letter was mailed in December 2015 until Dilthey mailed the suit papers in November 2016. Penn National contends that the Bell Letter was mailed in 2014, and that the letter put Viking and Kuone on renewed notice that Viking was “at fault or that others have claimed [it was] at fault ...” Great American I, 303 N.C. at 399, 279 S.E.2d at 776. During this time period there is
There is no dispute that Julie Bell mailed a letter to 305 Chastain Court on December 16, 2015. (Bell Letter (Doc. 63-14) at 2.) That letter also included a copy of the accident report generated by the Raleigh Police Department following the accident, but did not use the words “suit,” “claim,” or a synonym. (Id.) The letter did request that Viking have its insurance carrier contact the law firm directly. (Id.) 305 Chastain Court was the appropriate address for Viking Pizza, Inc. (Viking Info (Doc. 63-2).) Despite this, Kuone testified that he was “sure” he did not remember seeing the Bell Letter before his 2019 deposition. (Kuone Dep. (Doc. 56) at 25.)
“Evidence of the deposit in the mails of a letter, properly stamped and addressed, establishes prima facie that it was received ...” Wilson v. Claude J. Welch Builders Corp., 115 N.C. App. 384, 386, 444 S.E.2d 628, 629 (1994). “Evidence of nonreceipt of the letter by the addressee or by his agent, is some evidence that the letter was not mailed and raises a question of fact for the trier of fact.” Id. As the Fourth Circuit noted in Benner v. Nationwide Mutual Insurance Co., 93 F.3d 1228 (4th Cir. 1996),
[w]hile the presumption may be rebutted so as to create a question of fact, testimony by the addressee
that he ... does not remember receiving[] the material is not conclusive. The trier of fact should consider that proof along with all of the other evidence offered in the case to determine whether the item was mailed and received.
Kuone‘s testimony that he does not recall seeing the Bell Letter is some evidence of whether Viking received the letter, though it is not conclusive. Furthermore, the Bell Letter was sent via regular mail, (Dilthey Dep. (Doc. 58) at 48-49), and, according to the evidence, during December 2015, Kuone, Viking‘s only officer, was not at 305 Chastain Court as often due to his ongoing business around Wake County, where he also had an apartment, (Kuone Dep. (Doc. 56) at 29). These facts, along with Kuone‘s testimony that he was “sure” he did not see the letter, (id. at 25), make receipt of the Bell Letter uncertain enough to create a genuine issue of fact for the jury. The Bell Letter therefore cannot, as a matter of law, serve as evidence of Kuone and Viking‘s knowledge that Viking was at fault or others claimed it was at fault.
The third period spans from November 30, 2016, the date Dilthey mailed the process papers and interrogatories in the
Penn National contends that the facts during this timeframe establish Kuone‘s, and thus Viking‘s, knowledge that others claimed they were at fault. First, Dilthey served process on Kuone at 305 Chastain Court by registered mail, return receipt requested. (Shonda Kuone Dep. (Doc. 59) at 71.) Kuone‘s wife, Shonda, signed for the papers on December 1, 2016. (Id.) However, Kuone testified he did not recall ever seeing the documents. (Kuone Dep. (Doc. 56) at 88.) The facts submitted show that Shonda Kuone signed for the papers during a time when Steven Kuone was not living at 305 Chastain Court and when the two of them would go periods of time without speaking. (Id. at 88-89; Shonda Kuone Dep. (Doc. 59) at 17.) Also, the record indicates that by November 30, 2016, Viking had sold all its Domino‘s franchises, making it more reasonable to infer that Kuone would ignore mail addressed to Viking, as the evidence suggests. Steven Kuone stated there were periods of time after he sold the franchise where he might not have seen mail addressed to Viking. (Kuone Dep. (Doc. 56) at 28.)
The finder-of-fact is free to evaluate credibility and could find, from this evidence, multiple instances in which Kuone had actual knowledge of an asserted claim; however, viewing the record in a light most favorable to Defendants, there is evidence from which a jury could find that Steven Kuone did not have actual knowledge of a claim, or that one was asserted, until March 16, 2017. As a matter of law and for purposes of summary judgment, the undisputed facts permit this court to find that Kuone had knowledge within the meaning of Great American I and II as of March 16, 2017.12 He then waited a month to notify Penn National on April 17, 2017. This is a time
In addition to the limited period of delay, the material and undisputed facts include Kuone‘s own statements about his
2. Prejudice Prong
If the insured shows that his delayed notice was done in good faith, the burden then shifts back to the insurer to show that they were materially prejudiced by the delay in notice. St. Paul Reinsurance Co., 67 F. App‘x at 194; Bissette v. Auto-Owners Ins. Co., 208 N.C. App. 321, 334, 703 S.E.2d 168, 177 (2010); Pennington, 141 N.C. App. at 500, 541 S.E.2d at 507. Wm. C. Vick Constr. Co. v. Pa. Nat‘l Mut. Cas. Ins. Co., 52 F. Supp. 2d 569, 577 (E.D.N.C. 1999), aff‘d sub nom. Wm. C. Vick Const. Co. v. Great Am. Ins. Co., 213 F.3d 634 (4th Cir. 2000) (“[U]nder the three-step test in Great American I, ‘the burden then shifts to the insurer to show that its ability to investigate and defend was materially prejudiced by the delay.‘” (quoting Great American I, 303 N.C. at 399, 279 S.E.2d at 776)).
The Great American I court laid out a non-exhaustive list of factors to consider when determining if an insurer was prejudiced by a delay in notification:
[T]he availability of witnesses to the accident; the ability to discover other information regarding the conditions of the locale where the accident occurred; any physical changes in the location of the accident during the period of the delay; the existence of official reports concerning the occurrence; the preparation and preservation of demonstrative and illustrative evidence, such as the vehicles involved in the occurrence, or photographs and diagrams of the scene; the ability of experts to reconstruct the scene and the occurrence; and so on.
Great American I, 303 N.C. at 398, 279 S.E.2d at 776 (quoting Great Am. Ins. Co. v. C. G. Tate Const. Co., 46 N.C. App. 427, 437, 265 S.E.2d 467, 473 (1980), aff‘d as modified, 303 N.C. 387, 279 S.E.2d 769 (1981)). “Proof of the existence of any of the above factors is not determinative; the insurer must also show that the changed circumstance materially impairs its
Penn National has failed to show that it was so prejudiced by the delay as to negate coverage as a matter of law. As Defendants point out, Penn National claims that witnesses were unavailable in 2017, but it fails to cite a specific witness who was not available. (Pl.‘s Br. (Doc. 63) at 17-19.) Throughout its Motion for Summary Judgment, Penn National uses conditional language to describe the unavailability of witnesses. “Several witnesses to Kearse‘s accident would not have been available by the time Penn National could have interviewed them.” (Id. at 18.) “Other witnesses may have been interviewed by police or by Dilthey, but could not have been located for an interview in
Beyond witnesses, Penn National also points out that it was not able to participate in a May 2016 deposition of Kearse, the driver who struck Harrington. (Pl.‘s Br. (Doc. 63) at 18.) Penn National argues that, had counsel for Viking been present, “different or additional testimony could have been elicited,” (id. at 18-19), specifically as it pertained to Kearse‘s recollection of where he was when he first saw Harrington and the other boys in the road. Assuming Penn National is correct, there is nothing that would have prevented them from redeposing
Finally, Penn National argues that they were prejudiced in that they were not able to independently investigate the accident. (Pl.‘s Br. (Doc. 63) at 19.) Dilthey stated that the accident reconstruction report done by the Raleigh Police Department was “all anybody would need to evaluate what went on that day.” (Dilthey Dep. (Doc. 58) at 38-39.) Dilthey also stated that the accident report was “better than mine ever,” despite the fact that Dilthey had been “on the scene for months and almost a year or so.” (Id. at 98.) The report was so good
Finally, Penn National‘s arguments about prejudice are undercut by their contemporaneous claim notes; the only challenges in the case that Penn National noted at the time were the severity of the injuries and the fact that a lawyer had been retained by Harrington. (Gibson Dep. (Doc. 57) at 154-55.)
Penn National cites no other examples of the prejudice it suffered due to the delay in notice. The court cannot say that, as a matter of law, Penn National was prejudiced by the delay. The prejudice prong of the Great American test “is not designed to determine whether the insurer has suffered material prejudice in any and all respects. Rather, the prejudice with which [Great American] is concerned is that relative to the ability of the insurer to investigate and defend the claim in question.” Pennington, 356 N.C. at 581, 573 S.E.2d at 125. Penn National
3. Conclusion on Failure to Notify
Penn National has failed to show that there is no genuine dispute about material facts underpinning their failure to notify argument and that they are entitled to judgment as a matter of law. For that reason, Penn National‘s motion will be denied on that claim.
B. Duty to Cooperate
There are also genuine issues of material fact on Penn National‘s duty to cooperate claim.19
Cooperation clauses in insurance contracts are generally binding on the parties, and, when “[p]roperly interpreted, they
“[I]t is well settled that, to relieve the insurer of liability on the ground of lack of cooperation, discrepancies in statements by the insured must be made in bad faith and must be material in nature and prejudicial in effect.” Henderson, 254 N.C. at 332-33, 118 S.E.2d at 887. Other than cases where the
1. Penn National‘s Ability to Defend Underlying Lawsuit
Penn National, in its Motion for Summary Judgment, alleges Viking‘s failure to cooperate was prejudicial in that “[e]ven if Penn National had hired counsel to defend Viking Pizza, counsel could not have represented Viking Pizza without first getting in touch with Kuone.” (Pl.‘s Br. (Doc. 63) at 21.) In other words, Penn National argues it was prejudiced because, without Kuone‘s cooperation, there was no way for them to defend Viking in the Underlying Lawsuit. In support of that assertion, Plaintiff cites to several cases, most prominent of which is Dunkley v. Shoemate, 350 N.C. 573, 515 S.E.2d 442 (1999). Dunkley was
Our Supreme Court in the recent decision of Dunkley v. Shoemate, held “that a law firm or attorney may not represent a client without the client‘s permission to do so[.]” Dunkley . . . involved an attorney employed by an insurance carrier who attempted to contact the insured without success and therefore was not authorized to appear on his behalf and defend the lawsuit. The Supreme Court affirmed this Court‘s ruling that no attorney-client relationship existed between defendant and the attorney seeking to represent him.
Morin v. Sharp, 144 N.C. App. 369, 372, 549 S.E.2d 871, 873 (2001) (internal citations omitted). Dunkley, however, also noted that an insurer can often intervene under
prospective intervenor seeking such intervention as a matter of right under
Rule 24(a)(2) must show that (1) it has a direct and immediate interest relating to the property or transaction, (2) denying intervention would result in a practical impairment of the protection of that interest, and (3) there is inadequate representation of that interest by existing parties.
Virmani v. Presbyterian Health Servs. Corp., 350 N.C. 449, 459, 515 S.E.2d 675, 683 (1999).
Morin dealt with an insurer who was unable to locate two insured parties in a pending lawsuit. Morin, the plaintiff, had been injured by Sharp, a truck driver, while Morin was riding his motorcycle. Sharp was an employee of U.S. Transport. Both Transport and Sharp were insured by Legion Insurance Company.
Among its arguments on appeal, Legion argued that it intervened because it was “being forced” to do so in order to avoid a default judgment against its insured. Id. at 372, 549 S.E.2d at 873. Legion also argued that “such intervention would prejudice defendant Legion, as issues of insurance coverage and the availability of insurance would be improperly raised during the trial.” Id. The Court of Appeals disagreed. Citing Dunkley, the court noted that though Dunkley held a lawyer cannot represent a client with whom she has no contact, the Dunkley court also pointed out that
Taking the facts in the light most favorable to Defendants, the prejudice that Penn National asserts resulted from Kuone‘s
Penn National was also in a better position compared to the insurer in Morin. Kuone, though unresponsive, could be found. It took in-person service to find him, but he could be contacted at relatively low cost.23 (Dilthey Dep. (Doc. 58) at 96-97.) Second,
2. Conclusion Regarding Duty to Cooperate
“The burden of proving material prejudice lies with the insurer.” Bissette, 208 N.C. App. at 334, 703 S.E.2d at 177. Penn National has failed to present evidence that shows that there is no genuine issue of material fact and that they are entitled to judgment as a matter of law as a result of any failure to cooperate by Kuone or Viking. In its motion for summary judgment, Penn National focuses on Kuone‘s
C. Conclusion: Penn National‘s Motion for Summary Judgment
Other than the delayed notice prong of the failure to notify claim, Penn National has failed to show that there is no genuine issue of material fact underpinning its failure to notify and failure to cooperate claims. When taking the facts in a light most favorable to Defendants, there are genuine issues of material fact as they pertain to the good faith and prejudice prongs of the Great American test for delayed notice. Likewise, there are genuine issues of material fact on the failure to cooperate claim. For these reasons, Penn National‘s Motion for Summary Judgment will be denied.
IV. ANALYSIS OF DEFENDANTS IRVING AND HARRINGTON‘S MOTION FOR SUMMARY JUDGMENT
Defendants Irving and Harrington, as counter-claimants, also move for summary judgment on their own declaratory judgment action. Defendants move for summary judgment on the grounds that the record establishes, as a matter of law, that Viking did not breach either the notice or cooperation provisions of its
Pursuant to the law and analysis, as explained and applied in Section III supra, the court briefly addresses each issue, taking the facts in a light most favorable to Penn National. Rossignol, 316 F.3d at 523. The court finds that there are genuine issues of material fact that require submission of the notice and cooperation questions to the trier-of-fact. The court will therefore deny Irving and Harrington‘s Motion of Summary Judgment.
A. Viking‘s Failure to Notify
To review, the “Great American test” includes three prongs:
(1) whether there was a delay in notifying the insurer of a covered loss (the “Notice Element“); (2) if such notice was delayed, whether the insured acted in good faith with respect to the delay (the “Good Faith Element“); and (3) if the insured acted in good faith, whether the insurer was nevertheless materially prejudiced by the delay (the “Prejudice Element“).
Metric/Kvaerner Fayetteville, 403 F.3d at 197-98 (citing Great American II, 315 N.C. at 718-19, 340 S.E.2d at 746-47). The
1. Good Faith Prong
There are genuine issues of material fact that prevent the court from granting summary judgment to Defendants Irving and Harrington on the failure to notify claim.
Beginning with the good faith prong, there are issues of fact that cannot be resolved at this stage. First, there is an issue of whether Kuone actually did attempt to report the accident in 2014, but his franchise‘s reporting systems failed. Second, there is an issue of whether Kuone received the Bell Letter in 2015 and whether that letter would have put him on notice that there was a possible claim against him. Finally, there are factual issues about when Kuone received notice of the Underlying Lawsuit and why he delayed notification. Kuone‘s credibility is a dispositive issue on most of these questions. As stated above, resolving issues of credibility is normally not appropriate on a motion for summary judgment. Reasonable jurors could choose not to believe Kuone‘s accounting of the events or his reasons for delay, making summary judgment on the failure-to-notify claim inappropriate.
Reasonable jurors could also apply the presumption that Viking actually received the Bell Letter in 2015 when Viking
Kuone maintained, as stated by Dilthey, that even though he knew something was going on with Viking in late 2016, that he did not think it actually involved him since Viking sold the
Added to all these issues is the fact that it is ultimately Defendants’ burden to prove Viking acted in good faith in its failure to notify. Issues of subjective good faith are rarely appropriate for resolution on summary judgment. See supra, note 8. For that reason, the court will deny Defendants Irving and Harrington‘s Motion for Summary Judgment as to the good faith prong.
2. Prejudice to Penn National
The question of prejudice incurred by Penn National is closer, but the court still finds that there are genuine issues of material fact that preclude granting Defendants’ motion.
By the time Penn National received notice in April 2017, more than thirty months had passed since the accident in September 2014. Penn National has not pointed to a specific witness which it could not reach, but the fact is that, after thirty months, memories fade. Since contributory negligence was one of the only mitigating factors cited by Penn National in its internal communications, (Gibson Dep. (Doc. 57) at 154), the testimony of eye witnesses would have been critical. Since the
Furthermore, some witnesses were not included in the accident report. (Id. at 23.) Though the report provided the names and some contact information for several witnesses, there could have been important witnesses who were not included. The witnesses who were interviewed also gave differing accounts. (RPD Report (Doc. 63-6) at 6-16.)
Since contributory negligence is a complete bar to recovery in North Carolina,25 any lost evidence on this point would be both material and prejudicial in the defense of a negligence action. A reasonable juror could infer from the lapse of time that Penn National was materially prejudiced by Viking‘s failure to notify.
3. Defendants’ Motion Denied on Failure to Notify
When viewing the record in a light most favorable to Penn National, there are genuine issues of material fact on both the
B. Failure to Cooperate
The court finds that there is also a genuine issue of material fact as it pertains to the failure to cooperate claim.
“[T]he failure to co-operate in any instance alleged must be attended by prejudice to the insurer in conducting the defense.” Henderson, 254 N.C. at 332, 118 S.E.2d at 887. “The burden of proving material prejudice lies with the insurer.” Bissette, 208 N.C. App. at 334, 703 S.E.2d at 177; Guessford, 918 F. Supp. 2d at 470.
Penn National‘s primary argument about prejudice resulting from Kuone‘s failure to cooperate is its inability to defend the Underlying Lawsuit. (Pl.‘s Resp. (Doc. 64) at 10; see also Pl.‘s Br. (Doc. 63) at 21-22.) In light of
Second, the issue of Kearse‘s negligence was not clear. Cf. Bissette, 208 N.C. App. at 335-36, 703 S.E.2d at 178 (noting that an insured‘s complete absence was not prejudicial since the driver‘s negligence was so clear it was stipulated to by defense). There was evidence pointing to the contributory
Even more important than Viking‘s knowledge of the accident itself was Viking‘s understanding of its relationship with Kearse and whether Kearse was covered under its Penn National policies. This information was especially important since the Underlying Lawsuit proceeded on a theory of respondeat superior. (Doc. 1-3 ¶¶ 16, 21.) Viking was in the best position to describe its relationship with Kearse, the driver who struck Harrington.
Third, Penn National requested several pieces of information from Viking to assist in defending the Underlying Lawsuit. (See Penn National Letters (Doc. 63-25) at 2.) The first two items requested were any employee manual in effect at the time of the accident and any specific rules for drivers not listed in such a manual. (Id.) Though Gibson noted that there was no policy requirement that insureds have such manuals, nor did he cite any policy exclusions that might have applied to such rules, (see Gibson Dep. (Doc. 57) at 95-95), this evidence
Fourth, Penn National also requested any motor vehicle reports on Kearse that Viking pulled before or after the accident. (Penn National Letters (Doc. 63-25) at 2.) These reports were not required by Penn National‘s policy, (Gibson Dep. (Doc. 57) at 94), but would have been helpful in showing that Viking reviewed Kearse‘s driving record before hiring him and acted swiftly to correct any deficiencies soon after the accident. Again, the court cannot say as a matter of law that the lack of such evidence would not have materially prejudiced Penn National in its defense.
The materiality of prejudice resulting from an insured‘s failure to cooperate is usually a question for the jury. Henderson, 254 N.C. at 333, 118 S.E.2d at 888. Such is the case here. It is possible that Viking‘s failure to cooperate would not have materially prejudiced Penn National in defending this particular action; however, the record does not allow the court to conclude that as a matter of law. For that reason, Defendants’ Motion for Summary Judgment will also be denied on the failure to cooperate claim.
For the foregoing reasons,
IT IS THEREFORE ORDERED that Plaintiff‘s Motion for Summary Judgment, (Doc. 62), is DENIED.
IT IS FURTHER ORDERED that Defendants Irving and Harrington‘s Motion for Summary Judgment, (Doc. 54), is DENIED.
This the 27th day of July, 2020.
William L. Osteen, Jr.
United States District Judge
Notes
[W]hen the disposition of a case turns on a determination of intent, courts must be especially cautious in granting summary judgment, since the resolution of that issue depends so much on the credibility of the witnesses, which can best be determined by the trier of facts after observation of the demeanor of the witnesses during direct and cross-examination.
Morrison v. Nissan Co., 601 F.2d 139, 141 (4th Cir. 1979). (“Summary judgment is generally not appropriate for the disposition of a fraudulent transfer claim based on actual intent because the debtor‘s subjective intent is at issue.” (quoting Allman v. Wappler (In re Cansorb Indus. Corp.), No. 07-6072, 2009 WL 4062220, at *9 (Bankr. M.D.N.C. Nov. 20, 2009)))).(Dilthey Dep. (Doc. 58) at 84.) Based on Dilthey‘s testimony about his conversation with Kuone, Kuone did not believe he was facing any suit, because he had effectively sold Viking when Viking sold the franchises. The suit was against Viking Pizza, Inc., not Kuone. (Service (Doc. 63-17) at 3.) In Dilthey‘s words, Kuone “was convinced, [that since he] sold the corporation,” he was not involved. (Dilthey Dep. (Doc. 58) at 95.) The record suggests that Kuone, assuming he was aware there was a suit against Viking, believed that the fact Viking sold the franchises removed him from the situation.I said to him, why are you not getting up with me about this. And he said, because I don‘t own the company. I have sold the company. And his whole fixation as to why this was happening was, he was convinced that, since he was not the owner of the company when the papers were being served, he didn‘t feel that he had any responsibility to do anything.
State Farm Fire & Cas. Co. v. Garrity, 785 F.2d 1225, 1226-27 (4th Cir. 1986) (quoting Strickland v. Hughes, 273 N.C. 481, 487, 160 S.E.2d 313, 318 (1968)). As these sources show, an insurer with a duty to defend takes a risk when they elect not to defend, and it is not a risk that is attributable to the insured absent collusion, fraud, or failure to notify.when [an] insurer is later sued by the injured person, if the insurer had a right to defend the action against the insured, had timely notice of such action, and defends or elects not to defend, the judgment in such case, in the absence of fraud or collusion, is generally binding upon the insurer as to issues which were or might have been litigated therein.