NORTH CAROLINA COURT OF APPEALS
Filed: 21 October 2003
No. 00 CVS 1316
STEVE ALLEN WHITE,
Appeal by plaintiff from order entered 5 August 2002 by Judge
Benjamin G. Alford in Craven County Superior Court.
Heard in the
Court of Appeals 11 September 2003.
Duffus & Melvin, P.A., by J. David Duffus, Jr., and Benjamin
E. Waller, for plaintiff-appellant.
Harris, Creech, Ward and Blackerby, P.A., by Charles E.
Simpson, Jr., and Joseph E. Elder, for unnamed defendantappellee.
Melissa Register (“plaintiff”) appeals the 5 August 2002 order
plaintiff’s claim was not barred by the applicable statute of
limitations and plaintiff did not waive her right to arbitration,
On 30 June 1998, plaintiff was involved in an automobile
tendered the full limits of its policy, $50,000.00, to plaintiff.
-2On 24 September 2001, plaintiff demanded arbitration with unnamed
defendant, North Carolina Farm Bureau Insurance Company (“Farm
Bureau”), who provided underinsured motorist coverage (“UIM”) to
The trial court held “[p]laintiff failed to demand
arbitration of Farm Bureau Insurance of North Carolina, Inc. within
arbitration.” The court further concluded, pursuant to the factors
in Sullivan v. Bright, 129 N.C. App. 84, 497 S.E.2d 118 (1998),
plaintiff waived her right to arbitration.
Although an order denying arbitration is interlocutory, the
parties do not dispute it is immediately appealable because it
involves a substantial right that might be lost were the right to
Park v. Merrill Lynch, __ N.C. App. ___, ___, 582
S.E.2d 375, 377 (2003).
Therefore, we properly have jurisdiction
to consider plaintiff’s appeal.
“In considering a motion to compel arbitration, the trial
court must determine (1) whether the parties have a valid agreement
to arbitrate, and (2) whether the subject in dispute is covered by
reviewable de novo by this Court.”
Brevorka v. Wolfe Constr.,
Inc., 155 N.C. App. 353, 356, 573 S.E.2d 656, 658-59 (2002)
enforceable agreement exists, the court considers whether the
parties have waived their contractual right to arbitrate and
whether the demand for arbitration was timely.
Sullivan, 129 N.C.
App. at 86, 497 S.E.2d at 120 (regarding waiver); Adams v. Nelsen,
-3313 N.C. 442, 329 S.E.2d 322 (1985) (regarding waiver and time
The trial court concluded a valid contract existed
and provided for arbitration, but that plaintiff failed to demand
arbitration within the time limit set forth in the contract, and,
alternatively, she waived her right to arbitration by taking
advantage of judicial discovery procedures.
“North Carolina has a strong public policy favoring the
settlement of disputes by arbitration.
Our strong public policy
requires that the courts resolve any doubts concerning the scope of
arbitrable issues in favor of arbitration.”
Johnston County v. R.
N. Rouse & Co., 331 N.C. 88, 91, 414 S.E.2d 30, 32 (1992).
rule applies “‘“whether the problem at hand is the construction of
the contract language itself or an allegation of waiver[,]”’” the
issues we now consider.
Id., (quoting Cyclone Roofing Co. v.
LaFave Co., 312 N.C. 224, 229, 321 S.E.2d 872, 876 (1984)(quoting
Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 74
L. Ed. 2d 765, 785 (1983))).
I. Time Limitation
Plaintiff asserts the trial court erred in concluding she
failed to assert her right to arbitration of her UIM coverage from
Farm Bureau within the time limitation provided in the contract.
An insurance policy is a contract and “its provisions govern
the rights and duties of the parties thereto.
‘As with all
contracts, the goal of construction is to arrive at the intent of
the parties when the policy was issued.’” Brown v. Lumbermens Mut.
-4Casualty Co., 326 N.C. 387, 392, 390 S.E.2d 150, 153 (1990)
(quoting Woods v. Insurance Co., 295 N.C. 500, 505, 246 S.E.2d 773,
“‘All parts of a contract are to be given effect if
possible. It is presumed that each part of the contract means
Brown, 326 N.C. at 393, 390 S.E.2d at 153 (quoting
Bolton Corp. v. T. A. Loving Co., 317 N.C. 623, 628, 347 S.E.2d
369, 372 (1986)).
However, “‘[a] latent ambiguity may arise where
the words of a written agreement are plain, but by reason of
extraneous facts the definite and certain application of those
words is found impracticable.’”
Jefferson-Pilot Life Ins. Co. v.
Smith Helms Mulliss & Moore, 110 N.C. App. 78, 81, 429 S.E.2d 183,
185 (1993) (quoting Miller v. Green, 183 N.C. 652, 654, 112 S.E.
417, 418 (1922)).
“[T]he meaning of ambiguous language within an insurance
policy is a question of law for the court.”
Markham v. Nationwide
Mut. Fire Ins. Co., 125 N.C. App. 443, 452-53, 481 S.E.2d 349, 355
“Any ambiguity in the policy language must be resolved
against the insurance company and in favor of the insured.” Brown,
326 N.C. at 392, 390 S.E.2d at 153.
“Further, as our courts are
not favorably disposed toward provisions limiting the scope of
coverage, exclusions are ‘“to be strictly construed to provide the
coverage which would otherwise be afforded by the policy.”’”
Markham, 125 N.C. App. at 454, 481 S.E.2d at 356 (quoting Durham
City Bd. of Education v. National Union Fire Ins. Co., 109 N.C.
App. 152, 156, 426 S.E.2d 451, 453 (1993) (quoting Maddox v.
Insurance Co., 303 N.C. 648, 650, 280 S.E.2d 907, 908 (1981))).
-5With these principals in mind we turn to the issue of time
limitation in the case at bar.
Plaintiff sought to enforce the UIM
provision of the insurance contract, which provides:
We will also pay compensatory damages which an
insured is legally entitled to recover from
the owner or operator of an underinsured motor
vehicle because of bodily injury sustained by
an insured caused by an accident. The owner’s
or operator’s liability for these damages must
arise out of the ownership, maintenance or use
of the underinsured motor vehicle.
pay for these damages only after the limits of
liability under any applicable liability bonds
or policies have been exhausted by payments of
judgments or settlements. . . .
liability policy has paid to the full extent of its limits.
policy language tracks the statutory language of N.C. Gen. Stat. §
20-279.21(b)(4) which explains UIM coverage.1
To enforce this
provision, the contract further provided, “the insured may demand
to settle the dispute by arbitration.”
Finally, the contract
provided the following time limitation for demanding
“[a]ny arbitration action against the company must begin within the
time limit allowed for bodily injury or death actions in the state
where the accident occurred.”
This language is precisely as
Amendatory Endorsement NC 00 09 (Ed. 5-94) for personal auto
“Underinsured motorist coverage is deemed to apply when, by
reason of payment of judgment or settlement, all liability bonds or
insurance policies providing coverage for bodily injury caused by
the ownership, maintenance, or use of the underinsured highway
vehicle have been exhausted.”
N.C. Gen. Stat. § 20-279.21
Since the accident in the case at bar occurred in North
Carolina, a three-year time limit is applicable and begins when the
bodily harm reasonably should have become, or actually became,
N.C. Gen. Stat. § 1-52(16) (2001).
The terms of the contract, on their face, appear plain and
The coverage provision states that UIM insurance is
triggered only when the liability policy has been exhausted; the
arbitration provision provides plaintiff must demand arbitration of
a UIM claim within the time limit for bodily injury claims.
limitation is an independent provision, and an insured must demand
arbitration of the UIM coverage regardless of whether her right
thereto has arisen.3
In considering the interaction between the UIM and arbitration
provisions of an identical insurance contract, this Court held a
plaintiff’s arbitration rights do not arise until her right to UIM
coverage arises, which is when she is offered a settlement for the
The endorsement amended the Personal Auto Policies NC 00 01,
for those written on or after 1 May 1994.
The new arbitration
provision was required to either be attached or incorporated into
a company’s policy. See George L. Simpson, III, North Carolina
Uninsured and Underinsured Motorist Insurance, 2002 Edition: A
Handbook, App. G (2002).
This argument conflicts with George L. Simpson, III, North
Carolina Uninsured and Underinsured Motorist Insurance, 2002
Edition: A Handbook, 256-57 (2002), which explains that since an
insured may demand arbitration only after the liability policy has
been exhausted, the insured may not demand arbitration before the
insurer tenders its limits.
-7full extent of the liability policy.4
Hackett v. Bonta, 113 N.C.
App. 89, 97, 437 S.E.2d 687, 692 (1993).
Therefore, a plaintiff’s
right to demand arbitration for UIM coverage does not arise until
the liability insurer offers a settlement exhausting its limits.
dependent upon a full settlement from the liability insurer, and
such a settlement may occur after the three-year time limitation
limitation for demanding arbitration.
See Jefferson-Pilot, 110
N.C. App. at 81, 429 S.E.2d at 185 (a latent ambiguity is where the
words appear clear until facts make application of those words
A latent ambiguity must be resolved in favor of
the insured and providing coverage.
See Brown, 326 N.C. at 392,
390 S.E.2d at 153 (in favor of the insured);
Markham, 125 N.C.
App. at 454, 481 S.E.2d at 356 (in favor of coverage).
“[i]n no event can the limitations period begin to run until the
injured party is at liberty to sue.”
Glover v. First Union
National Bank, 109 N.C. App. 451, 455, 428 S.E.2d 206, 208 (1993).
We see no reason to distinguish arbitration, and hold this rule
also applies to injured parties who have foregone their right to
sue in favor of arbitration.
We hold a UIM insured’s right to
We find the factual distinction in Hackett, that one
insurance company provided both the liability and the UIM
In Hackett, the Court held plaintiff’s
arbitration rights under the UIM policy were triggered when State
Farm offered to settle both claims for more than the limits on the
liability policy, because only then could plaintiff reasonably
assume the limits of the liability policy were exhausted. We apply
the same rule here, where two different insurance companies provide
the liability and UIM coverage.
-8demand arbitration arises when the liability insurer has offered a
settlement exhausting its coverage, and only once this right has
arisen may the time limitation for demanding arbitration commence.
Applying this rule in the case at bar, plaintiff’s right to
demand arbitration did not arise when she was injured on 30 June
1998, but rather arose on 8 August 2001, and therefore she timely
demanded arbitration on 24 September 2001.5
We find the trial
court erred in determining plaintiff’s claim was time barred before
her right to pursue compensation from Farm Bureau vested.6
Plaintiff also asserts the trial court erred in determining
she waived her right to arbitration by “t[aking] advantage of
judicial discovery procedures not available in arbitration” and
that Farm Bureau “expended significant amounts of money” on behalf
of defendant in the underlying action.
Our Supreme Court has explained:
Waiver of a contractual right to arbitration
is a question of fact. Because of the strong
public policy in North Carolina favoring
arbitration, courts must closely scrutinize
any allegation of waiver of such a favored
Because of the reluctance to find
waiver, we hold that a party has impliedly
waived its contractual right to arbitration if
by its delay or by actions it takes which are
No issue of notice arises since the contract provides the
insured must notify the insurer “promptly of how, when and where
the accident or loss happened.”
We note our analysis is distinct from that utilized by this
Court in its recent unpublished opinion Carter v. Cook, ___ N.C.
App. ___, 582 S.E.2d 82 (2003).
Since this opinion was not
published it has no precedential value and we need not address it
-9inconsistent with arbitration, another party
to the contract is prejudiced by the order
Cyclone Roofing Co., 312 N.C. at 229, 321 S.E.2d at 876 (internal
citations omitted). Examples of such prejudice include, “a party's
opponent takes advantage of judicial discovery procedures not
available in arbitration; or, by reason of delay, a party has taken
steps in litigation to its detriment or expended significant
amounts of money thereupon. . . .”
Id., 312 N.C. at 230, 321
presented are: (1) whether plaintiff has taken actions which are
inconsistent with arbitration; and (2) whether Farm Bureau was
prejudiced by such actions.
Since we find plaintiff has taken
no action inconsistent with her right to arbitration, we need not
reach the issue of prejudice.
Farm Bureau asserts plaintiff’s suit against defendant was
inconsistent with her arbitration rights because plaintiff availed
herself of discovery unavailable in arbitration and Farm Bureau
expended significant funds to defend the suit.
However, the suit
was necessary for plaintiff to enforce her rights against the
liability insurer, and Farm Bureau voluntarily exercised its right
to appear in the lawsuit.
N.C. Gen. Stat. § 20-279.21(b)(3)(a)
(2001). Plaintiff’s right to arbitration cannot be waived by a UIM
carrier’s choice to participate in litigation brought to pursue the
liability policy claim.
Moreover, in determining the issue of
waiver raised by a UIM carrier, our Court has considered only those
actions by plaintiff in the existing lawsuit occurring after the
-10liability insurer tendered its full coverage upon settlement of the
Sullivan, 129 N.C. App. at 87, 497 S.E.2d at
In the case at bar, following the liability carrier’s
demanded arbitration of her UIM coverage pursuant to her contract
with Farm Bureau.
Therefore, we find plaintiff in no way acted
inconsistently with her right for arbitration.
hold the trial court erred finding plaintiff waived her arbitration
We reverse the order of the trial court and remand with
instructions to enter an order compelling arbitration.
Reversed and remanded.
Judges McGEE and HUNTER concur.