UNDERINSURED MOTORIST COVERAGE: RESIDENCY; ROLE OF PER-ACCIDENT BASIS; CHOICE OF LAW

The North Carolina appellate courts seem to always be addressing various issues of insurance law, especially uninsured and underinsured issues in the context of automobile insurance. Paul Coates, who wrote Chapter 2 on Automobile Insurance for the New Appleman North Carolina Insurance Litigation (a LexisNexis Practice Guide), has found that he needs to update that chapter by adding new cases. LexisNexis publishes its New Appleman North Carolina Insurance Litigation every year so that updates can be added. As examples, we will set forth below excerpts from several of Paul’s updates for his Chapter 2; they pertain to underinsured motorists coverage with a discussion of new cases that appear in the 2023 Edition in Sections 2.05[4][b], 2.06[9], and 2.06[21]:

Residency in the context of underinsured motorist coverage was addressed in the case of N.C. Farm Bureau Mut. Ins. Co. v. Herring, ___ N.C. App. ___, 876 S.E.2d 577, 2022-NCCOA-456, 2022 N.C. App. LEXIS 464 (2022), in which the Court stated:

The sworn statement of the Defendant reveals that Defendant lives in her mother’s home for “four months out of the year,” an arrangement that she has “always” had. Defendant’s residence in the home need not be continuous nor must it be without interruption. Thus, contrary to Plaintiff’s assertion that this constitutes no more than family visits, the “basic prerequisite” that the insured must live in the dwelling for a “meaningful period of time” is surely met here.

Defendant added that she retains a permanent room in her mother’s home and keeps clothing that she shares with her mother. Affidavits submitted by Defendant’s mother and stepfather explain that she keeps personal belongings at the mother’s home, including items of daily living like toiletries and bedding. The affidavits show that Defendant is included as a named driver on the UIM policy and that her mother and stepfather intended she would be covered under their policy. Additionally, the trial court noted the irony of Plaintiff having previously sent a $5,000 check to the home.

Taken together, the evidence found in the record could establish at the very least that Defendant maintains a split residence between her father’s home and her mother’s home. Defendant need not be an exclusive resident of the mother’s home in order to be covered under the UIM policy. Thus, the fact that Defendant lists her father’s address on her driver’s license and vehicle registration does not contravene the conclusion that she is a resident of the mother’s home. . . . 

The material question of fact in this case is not whether the mother’s home is Defendant’s primary residence; rather, it is whether Defendant maintains multiple residences, a conclusion which is uncontroverted based upon the provided evidence.

Herring, 2022-NCCOA-456, ¶¶ 15–17, 19 (citations omitted).

Judge Dillon dissented and contended there were issues of fact to preclude summary judgment. Judge Dillon also contended there were issues of fact on whether Farm Bureau had waived the denial of coverage where they admitted in “another action” that Farm Bureau issued a policy “available” to Ms. Herring and that it was rare to grant summary judgment for the party with the burden of proof.

The Herring case is a good review of the factors that go into residency, such as maintaining a permanent room, personal belongings, clothing, toiletries, bedding, that a diagnosis of depression supports her having two residences, mail delivery, the parents intent to include the daughter on the policy, dual residency, present for a meaningful period of time (here, four months out of the year), being a named driver on the policy, and sending the med pay check to the parent’s home. The majority accepted her “dual residency” even though she was an adult.

[9] Per Accident/Per Person Tender.

The question in N.C. Farm Bureau Mut. Ins. Co. v. Dana, 267 N.C. App. 42, 832 S.E.2d 501 (2019), was whether when the underlying liability insurance policy is exhausted on a per-accident basis, will the applicable UIM limit be the UIM policy’s per-accident limit. The Court answered in the affirmative, following and applying N.C. Farm Bureau Mut. Ins. Co. v. Gurley, 139 N.C. App. 178, 532 S.E.2d 846 (2000). As for the calculations in the Dana case, multiple claimants had settled the primary liability coverage of $50,000/$100,000, and received the per accident limit of $100,000 paid to all claimants. (UIM was $100,000/$300,000). Primary coverage was exhausted on a per accident basis. Dana received $32,000. Farm Bureau tendered UIM of $68,000 ($100,000 minus $32,000) on a per person limit basis. The Court held that the claimants were entitled to split $200,000, comparing the per accident liability limit of $100,000 and the UIM per accident limit of $300,000.

Dana was reversed by the Supreme Court, which held:

Although the purpose of N.C.G.S.§ 20-279.21 is, of course, to provide protection for innocent victims of motor vehicle negligence, that fact does not inevitably require that one interpret the relevant statutory language to produce the maximum possible recovery for persons injured as a result of motor vehicle negligence regardless of any other consideration. Instead, the usual rules of statutory construction govern the interpretation of N.C.G.S. § 20-279.21(b)(4), subject to the caveat that the relevant statutory language should be construed to produce the greatest possible protection for the innocent victims of negligent conduct permitted by a reasonable interpretation of the relevant statutory language. In the absence of something in the relevant statutory language that otherwise compels such a result, we are unable to conclude that the General Assembly intended N.C.G.S. § 20-279.21(b)(4) to be applied in a manner that fails to take into account the existence of multiple limits of liability and places an injured party in a more favorable position than he or she would have occupied had the tortfeasor been fully insured. In light of the fact that the relevant statutory language can be construed in such a manner as to avoid such a result, this case is appropriately resolved in such a manner as to make the total amount of underinsured coverage payments received by the claimants subject to per-accident limit of liability while limiting the amount received by any individual claimant by the per-person liability limit.

N.C. Farm Bureau Mut. Ins. Co. v. Dana, 379 N.C. 502, 512, 866 S.E.2d 710, 717–18, 2021-NCSC-161, ¶ 20 (2021). Therefore, the per person limit controls even if the primary liability carrier pays on a per accident basis.

[21] Conflict of Law/Choice of Law.

In N.C. Farm Bureau Mut. Ins. Co. v. Lunsford, 378 N.C. 181, 861 S.E.2d 705, 2021-NCSC-83 (2021), rev’g 271 N.C. App. 234, 843 S.E.2d 677 (2020), the North Carolina Supreme Court had to determine whether a North Carolina resident is entitled to collect underinsured motor vehicle coverage benefits from their North Carolina insurer, after they were injured while traveling in Alabama in a car owned and operated by a Tennessee resident and insured by a Tennessee insurer. The Court observed that “[t]o answer that question, we must decide if North Carolina or Tennessee law applies when ascertaining whether the Tennessee vehicle is ‘underinsured’ within the meaning of a contract executed in North Carolina between a North Carolina resident and a North Carolina insurer.” Lunsford, 378 N.C. at 182, 861 S.E.2d at 707, 2021-NCSC-83, ¶ 1.

The Court then proceeded to explain and hold that:

in determining whether Lunsford [, who was a passenger in the car driven by Chapman, the person who caused the accident,] is entitled to collect pursuant to the [insurance] contract she entered into with NC Farm Bureau, we must apply North Carolina law to interpret the terms of a contract executed in North Carolina that necessarily incorporates North Carolina’s FRA [(Financial Responsibility Act)]. We need not interpret Chapman’s Nationwide insurance contract incorporating Tennessee law. Resolving this dispute does not require us to adjudicate any of Chapman’s or Nationwide’s rights, nor does it implicate any other state’s interest in enforcing its own laws regulating the provision and maintenance of motor vehicle insurance.

Applying North Carolina law, we affirm prior decisions of the Court of Appeals allowing interpolicy stacking when calculating the “applicable” policy limits as required under the relevant provision of the FRA, N.C.G.S. § 20-279.21(b)(4) (2019). Because the amount of the stacked UIM coverage limits exceeds the sum of the applicable bodily injury coverage limits, Chapman’s car is an “underinsured motor vehicle” as defined by the FRA for the purposes of giving effect to Lunsford’s contract with NC Farm Bureau.

Id. at 183, 861 S.E.2d at 708, 2021-NCSC-83, ¶¶ 5–6.

Choice of law questions are discussed in Anglin v. Dunbar Armored, Inc., 226 N.C. App. 203, 226 N.C. App. 203 (2013), and later in Walker v. K&W Cafeterias, ___ N.C. App. ___, 872 S.E.2d 68, 2022-NCCOA-219 (2022). These cases relate to the interplay of UIM subrogation in the Workers Compensation context. Each case will depend upon the specific UIM contract language involved and where the insurance contract was entered into.

General choice of law principles are discussed in Fortune Ins. Co. v. Owens, 351 N.C. 424, 526 S.E.2d 463 (2000). There the Court stated:

[T]he general rule is that an automobile insurance contract should be interpreted and the rights and liabilities of the parties thereto determined in accordance with the laws of the state where the contract was entered even if the liability of the insured arose out of an accident in North Carolina. With insurance contracts the principle of lex loci contractus mandates that the substantive law of the state where the last act to make a binding contract occurred, usually delivery of the policy, controls the interpretation of the contract. Construing N.C.G.S. § 58-3-1, this Court [has] recognized an exception to this general rule where a close connection exists between this State and the interests insured by an insurance policy. However, the mere presence of the insured interests in this State at the time of an accident does not constitute a sufficient connection to warrant application of North Carolina law.

Fortune Ins. Co. v. Owens, 351 N.C. 424, 428, 526 S.E.2d 463, 465–66 (2000) (citations omitted).