Title: Bryant v. Nationwide Mut. Fire Ins. Co.

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

329 S.E.2d 333 (1985)
313 N.C. 362
Teddy Ray BRYANT and wife, Oma P. Bryant
v.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY.
No. 274PA84.

Supreme Court of North Carolina.
May 7, 1985.
*335 Gardner, Gardner, Johnson and Donnelly by Gus L. Donnelly, Mount Airy, for plaintiffs-appellees.
Petree, Stockton, Robinson, Vaughn, Glaze and Maready by W. Thompson Comerford, Jr., and G. Gray Wilson, Winston-Salem, for defendant-appellant.
FRYE, Justice.
This appeal presents two separate and distinct issues that are procedural in nature. The first issue is whether the Court of Appeals erred in reversing the trial court's entry of judgment notwithstanding the verdict in favor of defendant on two of the issues submitted to the jury. The answer is no. The second issue is whether the Court of Appeals erred in reversing the trial court's alternative grant of a new trial for defendant. The answer is yes.
On 20 September 1980, defendant, Nationwide Mutual Fire Insurance Company, issued a fire insurance policy insuring the dwelling and contents owned by plaintiffs, Teddy Ray and Oma P. Bryant. The insured property was located near Pinnacle, within Stokes County. At approximately 4:30 a.m. on 14 April 1981, while plaintiffs' policy was in full force and effect, plaintiffs' insured dwelling and contents were totally destroyed by fire. The evidence at trial tended to show that Mr. Bryant had taken his family to his brother-in-law's house in Mt. Airy, approximately twelve miles from Pinnacle, the evening before. One of the reasons, according to Mr. Bryant, for going to Mt. Airy was to work on a painting job for a Mrs. Grover Hyatt; however, Mrs. Hyatt testified and denied ever hiring or even knowing Mr. Bryant. Plaintiffs were notified of the fire at approximately 6:30 a.m. the morning of 14 April 1981. At approximately 10:00 a.m. that same morning, a detective and arson expert with the State Bureau of Investigation arrived at the scene of the fire to investigate its origin and cause. It was the opinion of the SBI detective that the fire was incendiary in nature, i.e., a fire nonaccidental in nature and that is intentionally caused.
Roger Cranford, a large loss adjuster for Nationwide, testified that he was contacted the following morning about the fire and that the fire was being investigated by the local authorities. After receiving a company report, Mr. Cranford contacted Mr. Bryant and conducted a recorded telephone interview on 16 April 1981. Mr. Bryant expressly consented to the interview being recorded. According to Mr. Cranford, the purpose of this interview was "to try and determine where the insured was, possibly how the fire happened, and financial conditions of the insured."
During this telephone interview, Mr. Bryant was asked general questions regarding his personal background and family, the approximate value of his home and its contents, circumstances surrounding the fire and its possible cause, and the value of his assets. Although he was not specifically asked to enumerate any debts, he was asked whether his mortgage was current and if he owed "anybody any money that they've come and asked you for...." Additionally, Mr. Bryant stated that he was married to Oma P. Bryant, when, in fact, he was still legally married to his first wife, Eunice. Teddy and Oma Bryant had lived together for fifteen years and were the parents of three children. In May 1982, approximately one year later, they did become legally married.
On or about 3 June 1981, plaintiffs prepared and submitted a proof of loss form to Nationwide. On the proof of loss form plaintiffs listed three mortgages, Bank of Pilot Mountain, J.R. Jessup, and Ronnie Bennett, as encumbrances on the insured property. No other portion of this form required that the insured list additional outstanding debts. Afterwards, on 1 July 1981, a sworn statement was obtained by Nationwide's attorney from both plaintiffs. During this question-and-answer period, plaintiffs estimated their debts to be approximately $22,293. This sum included the three mortgages that had previously been listed on plaintiffs' proof of loss form *336 dated 3 June 1981, plus five outstanding judgments. Mr. Bryant also stated that he and Oma had never been legally married.
On 14 August 1981, plaintiffs instituted an action against Nationwide, claiming that defendant "has failed and refused to pay to the plaintiffs the amounts due to them under its policy of insurance; ..." Nationwide denied coverage in its answer and alleged inter alia that plaintiffs deliberately set the fire and made repeated material misrepresentations to defendant during investigation of the fire. Nationwide based its defense of misrepresentation on the answers given by plaintiffs during the foregoing interview sessions and the results of their independent investigations of the claim.
During May 1982, after this action was commenced and approximately five months prior to trial, Nationwide took the deposition of Mr. and Mrs. Bryant. These depositions were not introduced into evidence at trial but were referred to during cross-examination of plaintiffs. In this pre-trial deposition, Mr. Bryant revealed for the first time the existence of a disputed debt in the amount of $5,000 or $6,000 that he owed to a Mrs. Effie Stanley. At trial Mr. Bryant testified that the amount he owed to Mrs. Stanley should actually be reduced by $3,000 and offered the following explanation:
The evidence at trial further tended to show that prior to the fire Mr. Bryant actually owed an undisputed amount of approximately $27,000,[1] comprised primarily of debts in excess of $25,000 previously revealed by plaintiffs during pre-trial interviews. Additional debts totaling approximately $1,300, which had not been referred to by plaintiff in earlier interviews, were disclosed at trial. At the close of plaintiff's evidence, defendant moved for a directed verdict, which was denied by the trial judge. At the close of all the evidence, both parties' motions for directed verdicts were denied. The trial judge submitted three issues to the jury, which were answered as follows:
After return of the jury verdict for plaintiffs, plaintiffs moved for judgment notwithstanding the verdict on issue 3(a), or in the alternative, for a new trial on that same issue. This motion was denied by the trial judge. Defendant's motions for judgment notwithstanding the verdict and a conditional new trial were allowed "as to the second and third issues on the ground that the verdict is contrary to the greater weight of the evidence and that defendant is entitled to judgment as a matter of law." Furthermore, the court ordered a new trial as to those two issues in the event that judgment notwithstanding the verdict in defendant's favor was subsequently vacated or reversed. Plaintiffs appealed to the Court of Appeals. That court reversed the judgment of the trial court and remanded the case with instructions that judgment for the plaintiffs be entered on the jury's verdict. Defendant filed a petition for rehearing with the Court of Appeals, which was denied. This Court subsequently granted defendant's petition for discretionary review pursuant to G.S. 7A-31.
Rule 50 of the North Carolina Rules of Civil Procedure is entitled: Motion for a directed verdict and for judgment notwithstanding the verdict. It provides in pertinent part as follows:
Defendant argues that the Court of Appeals should not have reversed the trial judge's entry of judgment notwithstanding the verdict on the second and third issues pursuant to Rule 50(b) of the North Carolina Rules of Civil Procedure. The Court of Appeals did not directly address nor advance its reasoning for reversing the trial court's entry of judgment notwithstanding the verdict in favor of defendant. Although the Rule 59 motion in the alternative to set aside the verdict and for a new trial was dealt with in that court's opinion, the only apparent justification for reversing the Rule 50(b) motion seems to be because "[i]t is clear that there was sufficient evidence to support the jury's verdict...." Bryant v. Nationwide Mutual Fire Insurance Co., 67 N.C.App. 616, 622, 313 S.E.2d 803, 808 (1984). It thus becomes the duty of this Court to review the applicable law and determine whether the trial judge erred in granting defendant's motion pursuant to Rule 50(b).
Our analysis begins with a review of certain basic principles applicable to a Rule 50(b) motion. First, such a motion is essentially a renewal of an earlier motion for directed verdict. Dickinson v. Pake, 284 N.C. 576, 201 S.E.2d 897 (1974). Accordingly, if the motion for directed verdict could have been properly granted, then the subsequent motion for judgment notwithstanding the verdict should also be granted. Manganello v. Permastone, Inc., 291 N.C. 666, 231 S.E.2d 678 (1977) (cited in 90 A.L.R.3d 525). In considering any motion for directed verdict, the trial court must view all the evidence that supports the non-movant's claim as being true and that *338 evidence must be considered in the light most favorable to the non-movant, giving to the non-movant the benefit of every reasonable inference that may legitimately be drawn from the evidence with contradictions, conflicts, and inconsistencies being resolved in the non-movant's favor. Farmer v. Chaney, 292 N.C. 451, 233 S.E.2d 582 (1977). This Court has also held that a motion for judgment notwithstanding the verdict is cautiously and sparingly granted. Investment Properties of Asheville, Inc. v. Allen, 281 N.C. 174, 188 S.E.2d 441 (1972), rev'd on other grounds, 283 N.C. 277, 196 S.E.2d 262 (1973). It is also elementary that the movant for a Rule 50(b) motion must make a motion for directed verdict at the close of all the evidence. Whitaker v. Earnhardt, 289 N.C. 260, 221 S.E.2d 316 (1976). And finally where, as in the case sub judice, defendant has the burden of proof on its affirmative defense of misrepresentation, the granting of a directed verdict or judgment notwithstanding the verdict will be more closely scrutinized. North Carolina National Bank v. Burnette, 38 N.C.App. 120, 247 S.E.2d 648 (1978), rev'd on other grounds, 297 N.C. 524, 256 S.E.2d 388 (1979).
In the present case, the statutory provision of G.S. 58-176(c) was controlling on Issue 2, that is, whether plaintiffs had made material misrepresentations that would void the policy. That statute provides:
Generally, this is referred to as a fraud and false swearing provision. See R. Keeton, Basic Text on Insurance Law § 7.2(b) (1971). As is true in the present case, many insurers raise misrepresentation as a basis for an affirmative defense and seek to void the policy on that ground. R. Keeton, supra. To prevail in its defense, the insurance company must prove the insured made statements that were: 1) false, 2) material, and 3) knowingly and willfully made. Watkins v. Continental Insurance Companies, 690 F.2d 449, 451 (5th Cir.1982). Relative to these elements, the trial judge charged the jury as follows:
We consider the substance of these instructions, read in context with the remaining charges to the jury, to accurately explain the applicable law for consideration by the jury. Furthermore, we note that neither party contends that any of the trial court's instructions were erroneous. Hence, the pivotal question to be resolved is simply whether the evidence was of such a character that reasonable men could form divergent opinions of its import, thereby justifying submission of the issues to the jury. Brewer v. Majors, 48 N.C.App. 202, 268 S.E.2d 229, disc. review denied, 301 N.C. 400, 273 S.E.2d 445 (1980).
A review of the evidence relative to the issue of fraud and false swearing convinces this Court that such evidence, when viewed in a light more favorable to the plaintiffs, the non-movants, was sufficient to support a jury finding that plaintiffs did not swear falsely or willfully make material misrepresentations during the investigation of their claim by defendant. There was clearly conflicting evidence as to whether plaintiffs knowingly and willfully made material misrepresentations of fact, all essential elements to prove fraud and false swearing.
Defendant argues that plaintiffs' misrepresentation of their marital status and financial condition at the time of the fire should void coverage pursuant to G.S. 58-176(c). The evidence established that Mr. Bryant did misrepresent his marital status when he first spoke with defendant's adjuster during the initial telephone interview. However, this was corrected in Mr. Bryant's subsequent sworn statement of 1 July 1981. Defendant contends that such a misrepresentation was material because it led defendant to assume that the risk insured was entireties property rather than property held as tenants in common. It is true that the deed to plaintiffs' dwelling was in the names of both Mr. and Mrs. Bryant as tenants in common. As tenants in common, it is clear that both would have an insurable interest in the property.
First, since Mr. Bryant corrected his original misstatement in his later sworn statement taken by defendant on 1 July 1981, the jury could reasonably question whether the prior statement constituted any misrepresentation whatsoever. Secondly, if the jury did consider the statement a misrepresentation, there is a question of whether it was material in nature. *340 Certainly the jury could have reasonably concluded that the question of marriage or non-marriage could not have reasonably influenced defendant's decisions in investigating, adjusting, or paying the claim.
Further evidence established that the Bryants fully informed defendant of the existence of $22,293 in debts and obligations existing prior to the time of the fire. During the 16 April 1981 telephone interview, defendant's first contact with the insured, Mr. Bryant was not asked to estimate or enumerate any of his debts. Despite defendant's failure to specifically ask about debts, defendant contends that the initial telephone interview revealed material misrepresentations on the part of Mr. Bryant when he was asked the following:
During trial, Mr. Bryant, when confronted on cross-examination with the above statements given during the telephone interview with Mr. Cranford, stated and explained as follows:
A jury could infer from the foregoing testimony that Mr. Bryant's statements were not willful or knowing. "To `willfully misrepresent' is to make a statement deliberately and intentionally knowing it to be false." 12A Appleman, Insurance Law *341 and Practice § 7300 at 404 (1981). The trial judge's instructions to the jury on the element of willfulness was essentially in conformance with the foregoing definition. Such an inference by the jury could very well be attributable also to the limited education of Mr. Bryant. Mr. Bryant in fact testified on cross-examination that he had completed formal schooling only through the fifth grade. Thus, the jury was entitled to consider what role, if any, Mr. Bryant's limited education might have played in his understanding of defendant's question during the course of the investigation. His difficulty in understanding the questions propounded to him by defendant's attorneys is apparent in other areas of his testimony.
Mr. Bryant next correctly indicated the amounts owed to these three creditors.
Bearing on the element of willfulness, the jury may have inferred from the foregoing testimony that Mr. Bryant did not even understand the use of the word "outstanding" in relation to debts. During trial, Mr. Bryant further testified as follows:
From this testimony, a jury could have concluded that Mr. Bryant did not understand or have any concept of what a civil action or lawsuit meant when these questions were asked of him. Thus, the jury may have reasonably inferred that Mr. Bryant did not willfully and knowingly misrepresent any facts, even if they were material. *342 The jury was certainly at liberty to reject defendant's contention that Mr. Bryant willfully concealed or misrepresented facts regarding lawsuits and his finances.
During the telephone interview, sworn statement, pretrial deposition, and trial, Mr. Bryant was asked repeatedly by defense counsel whether his creditors were "pressing" him for payment. Mr. Bryant's response to intensive questioning regarding his denial of being pressured by his creditors and his interpretation of the meaning of such questions are illustrated by the following testimony:
Following this same theme of questioning, Mr. Bryant was specifically asked about judgments:
The foregoing questions concerning Mr. Bryant's idea of "pressure" from creditors seem to call for a response in the form of an opinion rather than a fact. Whether or not Mr. Bryant's opinion was an honest one was a matter for the jury to consider. Additionally, Mr. Bryant's testimony during the trial spans nearly two hundred pages in the transcript, and his sworn statement taken prior to trial consisted of seventy pages of continuous questions and answers. Within the sworn statement alone, Mr. Bryant revealed to Nationwide during their initial investigation a substantial majority of his actual total outstanding debts and obligations. Considering the extensive questioning, reasonable men could also certainly form differing opinions about whether Mr. Bryant related his financial circumstances to the best of his ability, considering the average person's capacity to remember figures and amounts with precision.
When plaintiffs have made out a case sufficient to go to the jury, as did plaintiffs in the present case, it is error for the trial court to enter judgment for the defendant notwithstanding the verdict. Horton v. Iowa Mutual Insurance Company, 9 N.C.App. 140, 175 S.E.2d 725 (1970). Since plaintiffs' evidence was sufficient to withstand defendant's earlier motion for a directed verdict, the trial court's entry of judgment notwithstanding the verdict was improper on the question of misrepresentation. Norwood v. Sherwin Williams Company, 303 N.C. 462, 279 S.E.2d 559 (1981). Thus, the Court of Appeals did not err in reversing the trial court's entry of judgment notwithstanding the verdict on the second issue. Although the trial judge also granted defendant's Rule 50 motion for judgment notwithstanding the verdict *343 as to the third issue, damages, defendant did not argue this issue in its brief. Pursuant to Rule 28(a) of the North Carolina Rules of Appellate Procedure, this question is deemed abandoned.
In the case sub judice, defendant prayed for a new trial in the alternative pursuant to Rules 50 and 59. Rule 50 provides in relevant part as follows:
Rule 59 lists the grounds available for a new trial. Defendant premised its motion on Rule 59(a)(7), "insufficiency of the evidence to justify the verdict ...;" Also, the trial judge premised his decision to grant defendant's motion for a new trial on this ground as stated in his order:
When a motion for judgment notwithstanding the verdict is joined with a motion for a new trial, it is the duty of the trial court to rule on both. Graves v. Walston, 302 N.C. 332, 275 S.E.2d 485 (1981). It is evident that the trial judge did just that in this case.
The trial judge indicated that he was granting the motion in his discretion when he responded to defense counsel's questions while ruling on the parties' motions:
Therefore, this Court's scope of review is limited to determining whether the trial judge abused his discretion in ordering a new trial because of insufficient evidence. The law is summarized as follows:
Worthington v. Bynum, 305 N.C. 478, 482, 290 S.E.2d 599, 602 (1982).
A ruling in the discretion of the trial judge raises no question of law. Britt v. Allen, 291 N.C. 630, 231 S.E.2d 607 (1977). A review of the record in the present case demonstrates no manifest abuse of discretion by the trial judge. Therefore, the ruling of the trial judge will not be disturbed on this appeal. See, e.g., Worthington v. Bynum, 305 N.C. 478, 290 S.E.2d 599 (1982) (this case contains a thorough discussion of the trial judge's discretionary power pursuant to Rule 59 and thoroughly covers the ramifications of that rule).
We disagree with the Court of Appeals' interpretation of the trial judge's ruling on this motion. The Court of Appeals, in its opinion, stated that "where the trial court grants the Rule 59 motion based on an issue of law, its decision may be fully reviewed on appeal." Bryant, 67 N.C.App. at 620, 313 S.E.2d  at 807. The following language, taken from the trial judge's dialogue with the attorneys while ruling on the post-trial motions, was then quoted by the Court of Appeals: "`... there were too many misrepresentations, and there's no question that they were material...."`. Id. This phrase influenced the Court of Appeals and seemed to convince that court that the court's ruling below involved an issue of law, which was fully reviewable on appeal.
The Court of Appeals seems to be laboring under the misapprehension that defendant's motion was pursuant to Rule 59(a)(8), an additional ground for granting a new trial for an "[e]rror in law occurring at the trial and objected to by the party making the motion...." The Court of Appeals cited In re Will of Herring, 19 N.C.App. 357, 198 S.E.2d 737 (1973) to support its conclusion and holding that the Rule 59 motion is fully reviewable, because it was "based on an issue of law, ..." Bryant, 67 N.C.App. at 620, 313 S.E.2d  at 807. The court below seems to equate an "issue of law" to an "error in law." For purposes of a Rule 59(a)(8) motion, the two phrases are not interchangeable. Clearly, defendant's motion and the trial judge's order were not premised upon Rule 59(a)(8).
The order in In re Will of Herring is illustrative of how a Rule 59(a)(8) motion differs significantly from a Rule 59(a)(7) motion. The trial judge in that case granted the Rule 59(a)(8) motion and stated explicitly in his order "that errors of law were committed by the Court during the trial which were materially prejudicial to the caveators." Id. 19 N.C.App. at 359, 198 S.E.2d  at 739. In that case the Court of Appeals, after noting that the motion was made pursuant to Rule 59(a)(8), stated that such order was defective because it failed to "specif[y] the errors of law committed during the trial which were prejudicial to the caveators." Id. at 360, 198 S.E.2d  at 740.
Specificity in the trial judge's order pursuant to Rule 59(a)(8) is mandatory if the trial judge's decision is to be completely reviewable. W. Shuford, North Carolina Civil Practice and Procedure § 59.12 (1981). Without the trial judge making *345 precise reference to the errors of law committed during the trial and objected to by the party making the motion, an appellate court "would be forced to embark on a voyage of discovery through an unchartered record to find the errors of law referred to in the order." (citations omitted). In re Herring, 19 N.C.App. at 360, 198 S.E.2d  at 740.
In the case sub judice, the trial judge in his order made no intimation that he was granting a new trial for an error of law. Furthermore, there was no specific error identified in the record or in the judge's order. Neither did the defendant, the party making the motion for a new trial, object to or specify any error of law that was made, as required by Rule 59(a)(8). Absent a valid motion pursuant to Rule 59(a)(8) and an order granting such motion for errors of law specifically identified, the Court of Appeals erred in reversing the trial judge's conditional grant of a new trial absent a manifest abuse of discretion. "... [A]n appellate court should not disturb a discretionary Rule 59 order unless it is reasonably convinced by the cold record that the trial judge's ruling probably amounted to a substantial miscarriage of justice." Worthington, 305 N.C. at 487, 290 S.E.2d  at 605. In the present case the trial judge did not abuse his discretion.
The Court of Appeals, after finding the trial judge's ruling fully reviewable because it "involved an issue of law," proceeded to formulate a legal definition of the term "material" as used in G.S. 58-176(c). Because the judge's order in the trial court was not premised upon an error of law, it was unnecessary for the Court of Appeals to define such term and consider the question of whether plaintiffs misrepresentations were "material." The Court of Appeals failed to examine the trial judge's definition of materiality contained in his instructions to the jury and decide if such an instruction was erroneous in the first instance. It is evident from the transcript that both parties agreed to the following definition:
Furthermore, this definition seems to be a correct statement of the law and compatible with definitions developed by other jurisdictions when materiality and false swearing is an issue. See, Long v. Insurance Company of North America, 670 F.2d 930 (10th Cir.1982); accord Fine v. Bellefonte Underwriters Insurance Company, 725 F.2d 179 (2d Cir.1984); Claflin v. Commonwealth Insurance Company, 110 U.S. 81, 3 S. Ct. 507, 28 L. Ed. 76 (1884); but cf., A. Windt, Insurance Claims and Disputes § 306 (1982) (the author observes that there is "no rule of thumb" for determining whether a fact concealed or misrepresented is material); Watkins v. Continental Insurance Companies, 690 F.2d 449 (5th Cir.1982) (in the context of false swearing statutes, this court admitted that "an explicit and workable definition of `materiality' useful in the present case ... has not emerged from the Mississippi courts," despite a wealth of case law addressing this issue. Id. at 452.)
Accordingly, the portion of the Court of Appeals' opinion reversing the trial court's ruling in favor of defendant on the Rule 50 motion is affirmed because there was sufficient evidence to go to the jury on the second issue of whether plaintiffs' statements were material and willful misrepresentations of fact. However, since the Court of Appeals erroneously reversed the trial court's discretionary ruling in favor of defendant pursuant to Rule 59(7), that portion of the Court of Appeals' decision is reversed and the case is remanded to the Court of Appeals for further remand to the trial court for a new trial on the second and third issues.
AFFIRMED IN PART; REVERSED IN PART and REMANDED.
VAUGHN, J., did not participate in the consideration or decision of this case.
[1]  The amount owed ranged from this undisputed low to a high of approximately $50,000, a figure that included certain amounts allegedly owed by Mr. Bryant but subject to dispute and uncertainty. The largest amount in dispute, approximately $19,500, was the subject of a pending breach of contract action against Mr. Bryant. There was testimony tending to show that Mr. Bryant had leased a car wash from the J.A. Eads Company on 10 October 1980, and thereafter defaulted by failing to pay the monthly rent. Defendant stipulated that at the time of the fire he owed $1,660 to the company for past rental payments. Defendant argues that the remaining rental payments due under the lease constituted a "possible total liability" owed by defendant of over $19,000. However, plaintiff denied liability for future rental payments, contending that the J.A. Eads Co. had "misled me on the car wash completely," thus breaching the provisions of the lease. The total amount due under this lease is speculative in nature and has not been reduced to judgment. Therefore, such sum should not be considered a current debt owed by Mr. Bryant at the time of the fire, since Mr. Bryant's liability, if any, for this sum had not been legally determined.