Harris v. Nationwide Mutual Insurance

420 S.E.2d 124, 332 N.C. 184, 1992 N.C. LEXIS 475

• Court: Supreme Court of North Carolina
• Decided: September 4, 1992
• Docket: 305A91
• Status: Published

Opinions

FRYE, Justice.

Defendant Nationwide Mutual Insurance Company (Nationwide) presents two distinct issues on this appeal: (1) whether the Court of Appeals erred in holding that intrapolicy stacking is permitted in determining an insurer’s limit of liability when the injured party is the minor daughter of the named insured; and (2) whether the tortfeasor’s vehicle in which the minor plaintiff was riding when injured was an “underinsured highway vehicle,” even though the liability coverage on the vehicle was equal to the liability limit under the Nationwide policy issued to the minor’s parents. As to the first issue, we hold that the Court of Appeals did not err. We answer the second question in the affirmative, thus agreeing with the implicit holding of both the trial court and Court of Appeals.

Plaintiff Michelle K. Harris, the minor daughter of plaintiffs David and Ellen Harris, was injured in an automobile accident while traveling as a passenger in a vehicle owned by George Wayne Faust and operated by his daughter, Mary Elizabeth Faust, on 25 September 1989. The Faust vehicle was insured under a State Farm Insurance Company policy having liability limits of $100,000/$300,000. Michelle’s medical expenses alone exceeded $102,000. At the time of the accident, Michelle’s parents owned three vehicles insured under a single policy issued by Nationwide. This policy provided uninsured and underinsured motorist (UM/UIM) coverage of $100,000 per person for each vehicle insured. Plaintiffs paid to defendant separate premiums on each vehicle for UM/UIM coverage.

Plaintiffs filed this action for declaratory judgment on 2 March 1990, requesting that the trial court determine whether Michelle was entitled to stack the UIM coverages of three separate vehicles covered under the single policy issued by Nationwide. Plaintiffs subsequently moved for judgment on the pleadings or, in the alternative, summary judgment. Nationwide also made a motion for summary judgment pursuant to N.C. R. Civ. P. 56(b). In a judgment dated 14 June 1990, the trial court granted plaintiffs’ motion for summary judgment and denied Nationwide’s motion. The trial court’s judgment included the following significant “findings of fact”:

2. That the coverage for the three vehicles listed in the insurance policy referred to in the Complaint and issued by the defendant to the plaintiffs David A. Harris and Ellen E. Harris can be stacked so as to provide underinsured motorist coverage in the amount of $300,000 for injuries and damages sustained by the plaintiffs arising out of the accident described in the Complaint, and that the underinsured motorist coverage available to Michelle Harris is identical to the coverage available to David A. Harris and Ellen E. Harris under the insurance policy issued by defendant;

3. That the defendant’s limit of liability to the plaintiff shall be $300,000, less the primary coverage paid to the plaintiffs pursuant to N.C.G.S. § 20-279.21(b)(4).

The Court of Appeals affirmed the trial court’s decision, with Judge Greene dissenting. Harris v. Nationwide Mut. Ins. Co., 103 N.C. App. 101, 404 S.E.2d 499 (1991). Nationwide appealed to this Court based on Judge Greene’s dissent, and we granted its petition for discretionary review as to additional issues. Harris v. Nationwide Mut. Ins. Co., 329 N.C. 788, 408 S.E.2d 521 (1991).

We address Nationwide’s second issue first. Nationwide contends that the Faust vehicle in which the minor plaintiff was riding when injured was not an “underinsured highway vehicle” because the $100,000 per person liability limit on the Faust vehicle was equal to the per person liability/UIM limit of $100,000 in plaintiffs’ Nationwide policy.¹ UIM coverage is deemed to apply when “all liability bonds or insurance policies providing coverage for bodily injury caused by the ownership, maintenance or use of the ímderinsured highway vehicle have been exhausted.” N.C.G.S. § 20-279.21(b)(4) (1989) (emphasis added). Therefore, the determination of whether the tortfeasor’s (Faust) vehicle is an underinsured highway vehicle is crucial in determining if UIM coverage is available under the Nationwide policy.

The threshhold question, then, is whether the tortfeasor’s vehicle is an “underinsured highway vehicle” as the term is used in N.C.G.S. § 20-279.21(b)(4). An “underinsured highway vehicle” is defined as

a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of liability under the owner’s policy ....

N.C.G.S. § 20-279.21(b)(4) (1989) (emphasis added). In essence, defendant’s second issue can be divided into two subissues: first, whether the proper comparison outlined in the statute above is between the tortfeasor’s liability coverage and plaintiffs liability coverage or between the tortfeasor’s liability coverage and the plaintiff’s UIM coverage;² and second, if the proper comparison is to plaintiff’s UIM coverage, whether the UIM coverage limits can be stacked to determine if the tortfeasor’s vehicle is an “underinsured highway vehicle.”

The resolution of these subissues hinges upon the interpretation of the phrase “applicable limits of liability under the owner’s policy.” We note that this language is found in N.C.G.S. § 20-279.21(b)(4), which deals exclusively with underinsured motorist coverage. While it may be argued that “limits of liability” refers to the limits under the plaintiff’s liability coverage,³ we are convinced that the limits referred to are the limits of liability under plaintiff’s UIM coverage. Following an automobile accident, a tortfeasor’s liability coverage is called upon to compensate the injured plaintiff, who then turns to his own UIM coverage when the tortfeasor’s liability coverage is exhausted. In this situation, the injured plaintiff’s liability coverages are not applicable to the accident and a comparison to the plaintiff’s liability coverage is inappropriate. Taken in context with the surrounding subsection on underinsured motorist coverage, the “liability limits” referred to are clearly those under the UIM coverage portion of the owners’ policy. Therefore, the limits of liability in the instant case are the limits of liability under the UIM coverage portion of the minor plaintiff’s parents’ policy and not under the liability portion of their policy.

The Financial Responsibility Act, of which N.C.G.S. § 20-279.21(b)(4) is a part, is a “remedial statute to be liberally construed so that the beneficial purpose intended by its enactment may be accomplished.” Sutton v. Aetna Casualty & Surety Co., 325 N.C. 259, 265, 382 S.E.2d 759, 763, reh’g denied, 325 N.C. 437, 384 S.E.2d 546 (1989). A treatise on North Carolina automobile insurance law discusses the concept of UIM coverage and concludes that it “allows the insured to recover when the tortfeasor has insurance, but his coverage is in an amount insufficient to compensate the injured party for his full damages.” J. Snyder, Jr., North Carolina Automobile Insurance Law § 30-1 (1988). Our interpretation of the statute is in accord with this approach.

Another noted treatise on automobile insurance has evaluated the various legislative definitions of an “underinsured motor vehicle” and has classified them in three categories which demonstrate the different approaches used by the various states for determining whether a tortfeasor is underinsured. 2 A. Widiss, Uninsured and Underinsured Motorist Insurance § 35.2 (2d ed. 1990). “There are three primary types of comparisons which are defined in these statutes: determinations based on comparisons of the tortfeasor’s liability insurance (1) with the amount of underinsured motorist insurance, (2) with the amount of uninsured motorist insurance, or (3) with the damages or injuries sustained by the insured.” Id. (emphases in original). Noticeably absent from these categories is any comparison of the tortfeasor’s liability insurance with the amount of a plaintiff’s liability insurance. We have found no authority which leads us to believe that the determination of whether a tortfeasor’s vehicle is an “underinsured highway vehicle” requires a comparison between the tortfeasor’s liability insurance and the plaintiff’s liability coverage. “[T]he obligation to provide uninsured motorist coverage was tied to liability coverage to facilitate its purchase and to determine the persons who must be provided with uninsured motorist coverage, and not to provide insurers a means of limiting the coverage to situations in which liability coverage would be in effect.” Smith v. Nationwide Mutual Ins. Co., 328 N.C. 139, 148-49, 400 S.E.2d 44, 50 (quoting Bradley v. Mid-Century Ins. Co., 409 Mich. 1, 35-36, 294 N.W.2d 141, 151 (1980)), reh’g denied, 328 N.C. 577, 403 S.E.2d 514 (1991).

Having decided the proper comparison in determining whether a tortfeasor’s vehicle is an “underinsured highway vehicle,” we now address the question of whether UIM coverages may be stacked when making this determination. Anticipating this Court’s rejection of a liability to liability comparison argument, Nationwide contends that, even under a liability to UIM coverage comparison, the automobile owned and operated by Faust (the tortfeasor) is not an “underinsured highway vehicle” as defined by N.C.G.S. § 20-279.21(b)(4). Nationwide argues that, as a threshold issue, plaintiffs must show that the limits of UIM coverage under their policy with Nationwide exceed the limits of liability coverage under Faust’s policy with State Farm. Thus, Nationwide contends that the comparison between the tortfeasor’s liability limit and the plaintiff’s UIM limit must occur prior to the stacking of any UIM coverage. As such, Nationwide argues that in cases like the instant case, where the tortfeasor’s liability coverage is equal to the plaintiff’s UIM limit before stacking, the plaintiff fails to meet the “threshold” definition of an underinsured highway vehicle, and there is no underinsured motorist coverage to stack. We reject this contention.

When examining cases to determine whether insurance coverage is provided by a particular automobile insurance policy, careful attention must be given to the type of coverage, the terms of the policy, and the relevant statutory provisions. Smith, 328 N.C. at 142, 400 S.E.2d at 47. In the present case, the type of coverage sought by plaintiffs is UIM coverage. The policy in question is a personal automobile insurance policy issued to the parents of the minor plaintiff. This Nationwide policy includes UIM coverage, but Nationwide argues that the policy prohibits “stacking” in determining whether a vehicle is an “underinsured motor vehicle.”

The Nationwide policy in question defines an underinsured motor vehicle in the “uninsured/underinsured motorists coverage” endorsement as follows:

A land motor vehicle ... of any type . . . [t]o which . . . the sum of the limits of liability bonds and insurance policies applicable at the time of the accident is:

a. equal to or greater than the minimum limit specified by the financial responsibility law of North Carolina; and

b. less than the limit of liability for this coverage.

(Emphasis added.) Nationwide notes that the word “limit” in this definition is singular, and therefore argues that the policy refers to a singular limit. As such, Nationwide contends that “the singular limit of the policy with defendant ($100,000) must be greater than the liability coverage of the tortfeasor in order for the tortfeasor’s vehicle to qualify as underinsured.” We recognize that our Court of Appeals has treated similar language in the medical payments provision of automobile insurance policies as prohibiting stacking of medical payments. See, e.g., Tyler v. Nationwide Mut. Ins. Co., 101 N.C. App. 713, 401 S.E.2d 80 (1991). Assuming, arguendo, that the provision in the Nationwide policy would prohibit stacking to determine the “limit of liability,” we must then consider the statutory provisions relevant to this issue.

As discussed above, the statute provides that an “underinsured highway vehicle” is

a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of liability under the owner’s policy.

N.C.G.S. § 20-279.21(b)(4) (emphasis added). The statute does not define “the applicable limits of liability under the owner’s policy.” While Nationwide interprets “the applicable limits of liability” as meaning a single limit of UIM coverage under the owner’s policy, this language may also be interpreted to mean the sum of all UIM limits under the policy which are applicable to the particular claim.

When interpreting a statute, the cardinal principle is to ensure that the purpose of the legislature is accomplished. Electric Supply Co. v. Swain Electrical Co., 328 N.C. 651, 656, 403 S.E.2d 291, 294 (1991). Accordingly, “a court must consider the act as a whole, weighing the language of the statute, its spirit, and that which the statute seeks to accomplish.” Shelton v. Morehead Memorial Hospital, 318 N.C. 76, 82, 347 S.E.2d 824, 828 (1986). Also, “[i]t is presumed that the legislature acted in accordance with reason and common sense and that it did not intend an unjust or absurd result” when it enacted the particular legislation. King v. Baldwin, 276 N.C. 316, 325, 172 S.E.2d 12, 18 (1970) (citations omitted). Furthermore, “the statute’s words should be given their natural and ordinary meaning unless the context requires them to be construed differently.” Shelton, 318 N.C. at 82, 347 S.E.2d at 828.

Applying these rules to the language “applicable limits of liability,” we are convinced that the “applicable limits” are the sum of all UIM coverages provided in the Nationwide policy which are applicable to the plaintiff’s claim. Initially, we note that the statute refers to “applicable limits of liability.” Given the natural and ordinary meaning of the plural form of the word limit, we are convinced that, with reference to a single policy, “applicable limits” refers to all available UIM limits under the policy. Furthermore, we find that this result is consistent with our previous decision in Sutton. In Sutton, we held that stacking is required by the provisions of N.C.G.S. § 20-279.21(b)(4) when determining an insured’s recovery under the UIM provisions of an automobile insurance policy. Sutton, 325 N.C. at 265, 382 S.E.2d at 763. To deny an insured access to the recovery approved in Sutton by prohibiting stacking of UIM coverages in determining whether the tortfeasor’s vehicle is an “underinsured highway vehicle” would be inconsistent with the rationale of Sutton and the purpose of the Financial Responsibility Act.

Thus, we conclude that the language of N.C.G.S. § 20-279.21(b)(4) allows the stacking of an insured’s UIM coverages in determining whether a tortfeasor’s vehicle is an “underinsured highway vehicle.” The statute compares the aggregate liability coverage of the tortfeasor’s vehicle to the applicable limits of liability under the owner’s policy, meaning the aggregate or stacked UIM “limits” under the policy. To the extent that the provisions of a statute and the terms of the policy conflict, the provisions of the statute will prevail. Id. at 263, 382 S.E.2d at 762; Nationwide Mut. Ins. Co. v. Chantos, 293 N.C. 431, 441, 238 S.E.2d 597, 604 (1977). Because the tortfeasor’s aggregate liability coverage is less than the aggregate limits of liability under the UIM provisions of the Nationwide policy, the tortfeasor’s vehicle in this case qualifies as an underinsured highway vehicle. In the language of the statute, the Faust vehicle was an “underinsured highway vehicle” because it was “a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds [$0] and insurance policies [$100,000] applicable at the time of the accident [was] less than the applicable limits of liability under the owner’s policy [$300,000].” N.C.G.S. § 20-279.21(b)(4) (1989).

Nationwide next argues that even if this Court rejects its “threshold” argument and allows stacking in determining whether a vehicle is an “underinsured highway vehicle,” the Court of Appeals nevertheless erred in holding that a nonowner family member is entitled to such stacking. Nationwide relies upon the following portion of the statute:

In any event, the limit of underinsured motorist coverage applicable to any claim is determined to be the difference between the amount paid to the claimant pursuant to the exhausted liability policy and the total limits of the owner’s underinsured motorist coverages provided in the owner’s policies of insurance; it being the intent of this paragraph to provide to the owner, in instances where more than one policy may apply, the benefits of all limits of liability of underinsured motorist coverage under all such policies ....

N.C.G.S. § 20-279.21(b)(4) .(emphasis added). Nationwide contends that the statute’s repeated references to “owner” and “owner’s policy” demonstrate that only the owners of the policy or vehicle may avail themselves of benefits under the statute, such as the intrapolicy stacking approved in Sutton. Thus, Nationwide argues, because Michelle is not the owner of the policy or vehicle, she is not entitled to stack UIM coverages.

Assuming, without deciding, that Nationwide is correct in interpreting the statute to mean that only “owners” are intended to benefit from the stacking of UIM coverages, there is no factual dispute that Mr. and Mrs. Harris “benefit” when their child Michelle is allowed to stack. To accept Nationwide’s argument would be to say that the legislature intended for Michelle’s parents, the policy owners, to benefit financially from their UIM coverage when they are injured by an underinsured motorist, but did not intend for them to benefit financially when their minor daughter, a member of their household, is injured by an underinsured motorist. Clearly, the legislature “did not intend [such] an unjust or absurd result.” See King, 276 N.C. at 325, 172 S.E.2d at 18.

When one member of a household purchases first-party UIM coverage, it may fairly be said that he or she intends to protect all members of the family unit within the household. The legislature recognized this family unit for purposes of UIM coverage when it defined “persons insured” of the first class as “the named insured and, while resident of the same household, the spouse of any named insured and relatives of either . . . .” See Bass v. North Carolina Farm Bureau Mut. Ins. Co., 332 N.C. 109, 418 S.E.2d 221 (1992) (quoting Crowder v. North Carolina Farm Bureau Mut. Ins. Co., 79 N.C. App. 551, 554, 340 S.E.2d 127, 129, disc. rev. denied, 316 , 345 S.E.2d 387 (1986)). These persons insured of the first class are protected, based on their relationship, whether they are injured while riding in one of the covered vehicles or otherwise. See id. Certainly, the policy owner “benefits” when a spouse or family member residing in his or her household' can stack UIM coverages. We conclude that the principles enumerated in Sutton which allow intrapolicy stacking when the owner is injured also allow intrapolicy stacking of UIM coverages when the injured party is a person insured of the first class.

The facts of this case demonstrate perfectly the logical reasoning behind allowing a member of the family unit and a person insured of the first class to stack UIM coverages. Because of her minority status, Michelle was under no duty to honor any contract of insurance she might have purchased on her own. 3 Robert E. Lee, North Carolina Family Law § 270 (4th ed. 1981). Therefore, Michelle was dependent on her parents for insurance coverage. Also, since Michelle was a minor at the time of the accident, it was her parents’ duty to support her to the best of their abilities. See id. § 229; N.C.G.S. § 50-13.4(b) (1989). Purchasing insurance to benefit their daughter Michelle is an example of such support. By discharging their duty of support and protecting their daughter, the Harrises plainly “benefit” by limiting their out-of-pocket expenses, as well as increasing their peace of mind. Therefore, we hold that Michelle, as a nonowner family member living in the same household as the named insured, is entitled to stack UIM coverages under her parents’ policy with Nationwide.

Nationwide also contends that our decision in Smith supports its argument that intrapolicy stacking should not be allowed in the instant case. We find this argument unconvincing. Nationwide argues that this Court in Smith rejected intrapolicy stacking for nonowner family members and allowed only interpolicy stacking. We disagree. Whether intrapolicy stacking is permissible for a nonowner family member was not at issue in Smith, and we confined our decision to the interpolicy stacking issue presented on appeal. Therefore, Smith should not be read to reject intrapolicy stacking, an issue not before the Court in that case.

Nationwide further argues that stacking multiple vehicles on one policy by a nonowner is “excess” or “additional” coverage within the meaning of N.C.G.S. § 20-279.21(g), and therefore not subject to the compulsory provisions of the Financial Responsibility Act. We rejected this argument in Sutton-, we reject it again today. Sutton, 325 N.C. at 268, 382 S.E.2d at 765.

We hold that intrapolicy stacking of UIM coverages is permissible when determining whether the tortfeasor’s vehicle is an “underinsured highway vehicle.” We further hold that the tortfeasor’s vehicle in this case qualifies as an underinsured highway vehicle, since the plaintiff’s aggregate UIM coverages exceed the aggregate liability coverage of the tortfeasor. We also hold that the minor plaintiff, as a nonowner family member living in the same household as the named insured, is entitled to stack UIM coverages in her parents’ policy in determining Nationwide’s limit of liability. For the reasons stated herein, the decision of the Court of Appeals, which affirmed the judgment of the trial court, is affirmed.

Affirmed.

1 . Under N.C.G.S. § 20-279.21(b)(4), as it existed at the time of the accident, the UIM limits in any given policy were identical to the liability limits. N.C.G.S. § 20-279.21 was amended by the General Assembly in 1991. 1991 N.C. Sess. Laws eh. 646, §§ 1-4. However, the amendments do not affect claims arising or litigation pending prior to the amendments. Id. § 4. Unless otherwise noted, any citation to or discussion of N.C.G.S. § 20-279.21 in this opinion will be with respect to that version of the statute in effect at the time of the accident.

2 . This same issue is before us in another case, Amos v. N.C. Farm Bureau, Mut. Ins. Co., 103 N.C. App. 629, 406 S.E.2d 652, disc. rev. allowed, 330 N.C. 193, 412 S.E.2d 52 (1991). Because this issue affects both of these cases, and is implicit in all UIM cases, we will decide it here.

3 . This is North Carolina Farm Bureau Mutual Insurance Company’s contention in Amos v. N.C. Farm Bureau Mut. Ins. Co., 103 N.C. App. 629, 406 S.E.2d 652.