Aetna Cas. & Sur. Co. v. Welch

373 S.E.2d 887 (1988)

The AETNA CASUALTY & SURETY COMPANY v. Anne Stuart WELCH and Deborah Moreland Thacker.

No. 8826SC292.

Court of Appeals of North Carolina.

December 6, 1988.

*888 Underwood, Kinsey & Warren by C. Ralph Kinsey, Jr. and Kenneth S. Cannaday, Charlotte, for plaintiff-appellee.

Collie and Wood by James F. Wood, III, Charlotte, for defendants-appellants.

EAGLES, Judge.

The sole issue on appeal is whether the trial court properly granted plaintiff's summary judgment motion. We hold that there is a genuine issue of material fact and, accordingly, we vacate the trial court's summary judgment and remand for trial.

The standard of review for summary judgment is whether there is any genuine issue of material fact and whether the movant is entitled to judgment as a matter of law. Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971). An issue is material if "the facts alleged would constitute a legal defense or would affect the result of the action." Bank v. Gillespie, 291 N.C. 303, 310, 230 S.E.2d 375, 379 (1976). Further, we must view the record in the light most favorable to the non-movant, Durham v. Vine, 40 N.C.App. 564, 253 S.E.2d 316 (1979), and draw all reasonable inferences in the non-movant's favor. Caldwell v. Deese, 288 N.C. 375, 218 S.E.2d 379 (1975).

Viewed in the light most favorable to defendant Welch, the facts here show the following. After being injured while riding as a passenger in her own car, defendant Welch sued defendant Thacker, the driver of the car, for damages. Welch's insurance policy covered Thacker at the time of the accident. Defendant Welch issued a civil summons against defendant Thacker notifying Thacker of the complaint against her. Defendant Thacker asserts that she mailed a copy of the complaint to Aetna, but never talked to any of their agents. Defendant Thacker never filed an answer nor did anyone on her behalf. Consequently, the clerk of court made an entry of default against her. After notice of the hearing on default and inquiry was sent by Welch to Thacker, the trial court conducted a hearing on the issue of damages. Again, neither defendant Thacker nor anyone on her behalf appeared. The trial court granted defendant Welch a default judgment for $200,000. In her deposition defendant Thacker admits that though she mailed a copy of Welch's complaint against her to Aetna, she never forwarded any other legal documents to them.

Plaintiff here argues that by operation of its insurance policy with defendant Welch and G.S. 20-279.21, the trial court's *889 summary judgment order was proper. We disagree.

The insurance policy states that its insured has the following general duties:

A person seeking any coverage must:

1. Cooperate with us in the investigation, settlement or defense of any claim or suit. 2. Promptly send us copies of any notices or legal papers received in connection with the accident or loss.

Aetna argues that Thacker's failure to send them the entry of default notice and the notice of hearing on default and inquiry prejudiced their rights as against Welch. Plaintiff relies on Swain v. Insurance Co., 253 N.C. 120, 116 S.E.2d 482 (1960), and Jones v. Insurance Co., 270 N.C. 454, 155 S.E.2d 118 (1967), for the proposition that if an insured fails to give his insurer notice of any legal document, then the insurer is only liable to third parties in the amount of the compulsory coverage. We disagree.

In Swain our Supreme Court stated that G.S. 20-279.21 provided that a violation of the insurance policy on the part of the insured could not be used by the insurer to void the compulsory coverage required by the State. Swain, 253 N.C. at 127-128, 116 S.E.2d at 488. The Jones court applied the Swain rationale to assigned risk policyholders. Jones, 270 N.C. at 464, 155 S.E.2d at 125. In both of these cases the insured failed to forward copies of the complaint to their insurer. This court recognizes the validity of provisions requiring the "prompt forwarding of legal process as a condition precedent to recovery on the policy." Poultry Corp. v. Insurance Co., 34 N.C. App. 224, 226, 237 S.E.2d 564, 566 (1977).

In her deposition defendant Thacker asserted that she sent a copy of defendant Welch's complaint against her to Aetna. She admits that she never sent a copy of the entry of default notice or any other legal document that she subsequently received. Aetna argues that this admitted failure to forward copies of other notices and legal papers constitutes a violation of its contract and voids any coverage on behalf of the insured above the compulsory amount. We disagree.

In an effort to reduce their liability, plaintiff's argument would allow an insurer, in effect, to "count" the legal documents forwarded from their insured and if any document had not been forwarded, to void the coverage. This is not the law of North Carolina. Once the insurer is notified of the pending action, the insurer is in the better position to take whatever action is necessary and appropriate to ensure that it receives all subsequent legal documents. Since the parties' testimony conflicts as to whether or not defendant Thacker notified Aetna of Welch's suit, there is a genuine issue of material fact. Accordingly, we vacate the trial court's summary judgment and remand for trial.

VACATE AND REMAND.

PHILLIPS and PARKER, JJ., concur.