Title: Hlasnick v. Federated Mut. Ins. Co

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

DANIEL M. HLASNICK and DARLENE HLASNICK v. FEDERATED MUTUAL
INSURANCE COMPANY and STATE FARM MUTUAL AUTOMOBILE INSURANCE
COMPANY
No. 78PA00
Filed 21 December 2000
Insurance--automobile--UIM--fleet policy--two-tiered coverage
The Court of Appeals correctly concluded that a two-tiered
UIM coverage endorsement was valid and enforceable where the
purchaser of a fleet policy paid additional premiums to provide
higher limits of UIM coverage to certain persons insured in
excess of the statutory floor.  The Financial Responsibility Act
nowhere mandates that UIM coverage be equivalent for all persons
insured under an automobile policy and the Act expressly permits
the insured to select a higher limit of UIM coverage than the
minimal floor required by the statute.  
On discretionary review pursuant to N.C.G.S. § 7A-31 of a
unanimous decision of the Court of Appeals, 136 N.C. App. 320,
524 S.E.2d 386 (2000), affirming in part and reversing and
remanding in part a judgment entered 3 November 1998 by Ellis 
(B. Craig), J., in Superior Court, Wake County.  Heard in the
Supreme Court 12 September 2000.
Thompson, Smyth & Cioffi, L.L.P., by Theodore B. Smyth,  for
plaintiff-appellants.
Teague, Campbell, Dennis & Gorham, L.L.P., by Mallory T.
Underwood, for defendant-appellee Federated Mutual Insurance
Company.
DeBank & Honeycutt, by Douglas F. DeBank, for defendant-
appellant State Farm Mutual Automobile Insurance Company.
MARTIN, Justice.
On 18 August 1996 Daniel Hlasnick and his wife,  Darlene
Hlasnick (collectively the Hlasnicks), were injured in an
automobile accident in Granville County.  Mr. Hlasnick was
driving a 1994 Dodge pickup truck carrying Mrs. Hlasnick as a
passenger.  The accident occurred when a vehicle owned and
operated by Norman Smith (Smith) rear-ended the pickup truck. 
The pickup truck carrying Mr. and Mrs. Hlasnick was owned by
Mr. Hlasnick’s employer, RPM Lincoln Mercury, Inc. (RPM). 
Mr. Hlasnick worked for RPM as a general manager and was allowed
to use RPM vehicles for personal errands without permission. 
Mr. and Mrs. Hlasnick were on a personal errand at the time of
the accident.
Smith tendered the $25,000 limit of his liability insurance
policy.  Additionally, the Hlasnicks were covered by two personal
auto policies issued by State Farm Mutual Automobile Insurance
Company (State Farm).  The State Farm policies provided $100,000
per person and $300,000 per accident of underinsured  motorist
(UIM) coverage.  Federated Mutual Insurance Company (Federated)
insured RPM as an additional insured on a commercial package or
fleet policy issued to Glen Burnie Nissan, LLC (Glen Burnie). 
The policy contained an endorsement provision establishing two
levels of UIM coverage:  $500,000 to any RPM director, officer,
partner, or owner, and his or her family member; and $50,000 to
other persons insured.
On 25 July 1997 the Hlasnicks brought a declaratory judgment
action to determine the amount of UIM coverage under the
Federated policy.  On 3 November 1998 the trial court granted
Federated’s motion for summary judgment.  The trial court 
concluded the Hlasnicks were entitled to $50,000 in UIM coverage
from Federated and $200,000 in UIM coverage under each of the two
State Farm policies.  The trial court further concluded State
Farm’s coverage was primary and Federated’s coverage was excess.  
The Court of Appeals affirmed the trial court’s conclusion
that the Hlasnicks were entitled to $50,000 in UIM coverage under
the fleet policy.  Hlasnick v. Federated Mut. Ins. Co., 136 N.C.
App. 320, 322, 524 S.E.2d 386, 388 (2000).  The Court of Appeals
determined there was “no reason either in the Act or in public
policy to prevent an insured from obtaining underinsured motorist
coverage in excess of the statutory minimum for employees it
consider[ed] particularly valuable.”  Id. at 326, 524 S.E.2d at
390.  Additionally, the Court of Appeals reversed the trial
court’s determination that State Farm’s coverage was primary.
This Court allowed discretionary review to consider (1)
whether Federated’s two-tiered UIM coverage is valid under the
North Carolina Motor Vehicle Financial Responsibility Act;  (2)
whether Federated met the minimum requirements of the North
Carolina Motor Vehicle Financial Responsibility Act in gaining
Glen Burnie’s selection of UIM coverage; and (3) whether Daniel
Hlasnick was an RPM officer as defined within the Federated
policy.  
The Hlasnicks contend the Court of Appeals erroneously
determined that Federated’s UIM coverage endorsement provision
was valid under the North Carolina Motor Vehicle Safety and
Financial Responsibility Act.  See N.C.G.S. §§ 20-279.1 to .39
(1993) (the Financial Responsibility Act).  More particularly,
the Hlasnicks argue the policy violates the Financial
Responsibility Act because, although the UIM provision provides
the statutorily mandated “floor” of UIM coverage to all persons
insured, it impermissibly grants $500,000 in UIM coverage to RPM
directors, officers, partners, and owners.  We disagree and
affirm the Court of Appeals on this issue. 
At the outset we note that the parties to a contract of
insurance generally “have the right to limit or expand their
liability by writing policies with narrow or broad coverage.” 
4 Eric Mills Holmes, Holmes’ Appleman on Insurance 2d § 22.1, at
352 (1998) [hereinafter Holmes].  Indeed, our state’s legal
landscape recognizes that, unless contrary to public policy or
prohibited by statute, freedom of contract is a fundamental
constitutional right.  American Tours, Inc. v. Liberty Mut. Ins.
Co., 315 N.C. 341, 350, 338 S.E.2d 92, 98 (1986);  Nationwide
Mut. Ins. Co. v. Aetna Life & Cas. Co., 283 N.C. 87, 93, 194
S.E.2d 834, 838 (1973); Stephens v. Hicks, 156 N.C. 239, 244, 72
S.E. 313, 316 (1911).
Within the context of automobile insurance, however, the
Financial Responsibility Act prohibits the issuance of UIM
coverage in limits “less than the financial responsibility
amounts for bodily injury liability as set forth in G.S.
20-279.5.”  N.C.G.S. § 20-279.21(b)(4) (1993) (amended 1997). 
Section 20-279.5 sets forth the minimal limits for liability
insurance coverage as follows:
if the accident has resulted in bodily injury or death,
to a limit, exclusive of interest and cost, of not less
than twenty-five thousand dollars ($25,000) because of
bodily injury to or death of one person in any one
accident and, subject to said limit for one person, to
a limit of not less than fifty thousand dollars
($50,000) because of bodily injury to or death of two
or more persons in any one accident . . . .
N.C.G.S. § 20-279.5(c) (1993) (amended 1999).
Thus, automobile insurance policies subject to the Financial
Responsibility Act must provide a minimal “floor” of UIM
coverage.  The issue in the present case is therefore whether,
once Glen Burnie provided the statutorily required floor of UIM
coverage to all persons insured, it was entitled, upon payment of
additional premiums, to provide additional UIM coverage for RPM
directors, officers, partners, and owners.
The Financial Responsibility Act expressly permits the
insured to select a higher limit of UIM coverage than the minimal
floor of coverage required by the statute.  See N.C.G.S. §
20-279.21(b)(4).  Indeed, the insured is permitted under the
statute to categorically reject any UIM coverage.  Id.  Moreover,
it is generally accepted that the insured should be able to
negotiate for a “policy provision which is more favorable than
that prescribed by statute.”  4 Holmes § 22.1, at 363.  This
Court has held that the purchase of insurance coverage in excess
of the minimal requirements of the Financial Responsibility Act
is voluntary and allowed under the Act.  See Nationwide Mut. Ins.
Co. v. Aetna Life & Cas. Co., 283 N.C. at 93, 194 S.E.2d at 838;
Nationwide Mut. Ins. Co. v. Roberts, 261 N.C. 285, 289, 134
S.E.2d 654, 658 (1964).  See also Nationwide Mut. Ins. Co. v.
Massey, 82 N.C. App. 448, 450, 346 S.E.2d 268, 270 (1986);
Government Employees Ins. Co. v. Herndon, 79 N.C. App. 365, 367,
339 S.E.2d 472, 473 (1986).
The Financial Responsibility Act nowhere mandates that UIM
coverage be equivalent for all persons insured under an
automobile insurance policy.  Appellants suggest the absence of
authorizing language means the legislature did not intend to
allow multiple levels of UIM coverage in the same policy.  We
disagree.  In the absence of statutory proscription or public
policy violation, it is beyond question that parties are free to
contract as they deem appropriate -- enabling legislation is not
required.  Cf. Nationwide Mut. Ins. Co. v. Aetna Life & Cas. Co.,
283 N.C. at 93, 194 S.E.2d at 838.  As we have stated, “‘[w]here
the language of a statute is clear and unambiguous, there is no
room for judicial construction and the courts must give it its
plain and definite meaning, and are without power to interpolate,
or superimpose, provisions and limitations not contained
therein.’”  State v. Camp, 286 N.C. 148, 152, 209 S.E.2d 754, 756
(1974) (quoting 7 Strong’s North Carolina Index 2d Statutes § 5
(1968)) (emphasis added).  Put simply, it is within the province
of the legislature, not this Court, to place any new or
additional restrictions on the issuance of UIM coverage not
mandated by the Financial Responsibility Act.
Appellants nonetheless argue that section 20-279.21(b)(4)’s
definition of “underinsured highway vehicle”  prohibits the
issuance of multi-tier UIM coverage.  N.C.G.S. § 20-279.21(b)(4)
provides:
An “uninsured motor vehicle” as described in
subdivision (3) of this subsection, includes an
“underinsured highway vehicle” which means 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 underinsured motorist
coverage for the vehicle involved in the accident and
insured under the owner’s policy.
N.C.G.S. § 20-279.21(b)(4) (emphasis added).
Appellants assert this statutory language shows the
legislature contemplated UIM coverage for “vehicles” rather than
“persons.”  Although the statutory scheme for liability insurance
is vehicle-oriented, UIM insurance is person-oriented under the
Financial Responsibility Act.  Harrington v. Stevens, 334 N.C.
586, 590, 434 S.E.2d 212, 214 (1993); Smith v. Nationwide Mut.
Ins. Co., 328 N.C. 139, 148, 400 S.E.2d 44, 50 (1991).  In Smith
we stated that the liability provisions of N.C.G.S. §
20-279.21(b)(2) require a policy to insure people “‘using any
such motor vehicle or motor vehicles . . . against loss from the
liability imposed by law for damages arising out of the
ownership, maintenance or use of such motor vehicle or motor
vehicles.’”  Smith, 328 N.C. at 148, 400 S.E.2d at 50 (quoting
N.C.G.S. § 20-279.21(b)(2) (1993) (amended 1997)) (alterations in
original).  In contrast, “the [uninsured motorist] (and by
incorporation, the UIM) coverage is offered ‘for the protection
of persons insured who are legally entitled to recover damages
from owners or operators of uninsured motor vehicles.’”  Id.
(quoting N.C.G.S. § 20-279.21(b)(3) (1993) (amended 1997))
(alteration in original).
The validity of multi-tier UIM coverage is an issue of first
impression in North Carolina.  Although there is a paucity of
decisions generally addressing this question, our research has
located appellate decisions affirming the principle of multi-tier
coverage.  See, e.g., Preferred Risk Mut. Ins. Co. v. Federated
Mut. Ins. Co., 611 N.W.2d 283 (Iowa 2000);  Allstate Ins. Co. v.
United Farm Bur. Mut. Ins. Co., 618 N.E.2d 31 (Ind. Ct. App.
1993); Auto-Owners Ins. Co. v. United Farm Bur. Mut. Ins. Co.,
560 N.E.2d 549 (Ind. Ct. App. 1990); Cullum v. Farmers Ins.
Exch., 857 P.2d 922 (Utah 1993).
In Preferred Risk Mut. Ins. Co. v. Federated Mut. Ins. Co.,
Thomas and Holly Peterson were injured in an automobile accident
with an uninsured motorist.  611 N.W.2d at 283.  The Petersons
were operating an automobile insured by Thomas’ corporate
employer through Federated Mutual Insurance Company.  Id. at 284. 
The policy provided uninsured motorist (UM) coverage of $100,000
to corporate directors, officers, partners or owners but no UM
coverage to all other insureds.  Id.  The Iowa Supreme Court
affirmed “the practice of providing different limits of uninsured
motorist coverage for different categories of insureds.”  Id. at
285.  The Court further held that, because the named insured did
not decline coverage, UM coverage was required at the minimum
level established by Iowa statute.  Id.  Consequently, the Court
concluded the Petersons were entitled to UM coverage equal to the
statutory minimum.  Id. at 284.
Similarly, courts in other jurisdictions have upheld multi-
tier liability coverage.  For example, in Allstate Ins. Co. v.
United Farm Bur. Mut. Ins. Co., Joseph Lubovich insured his car
with United Farm Bureau Mutual Insurance Company.  618 N.E.2d at
32.  Although the policy provided liability coverage to the
insured, his employees, and members of his household, among
others, of $100,000 per person and $300,000 per accident, the
policy contained a clause that reduced the amount of liability
coverage for permissive users to the minimum level mandated by
Indiana’s financial responsibility law, $25,000.  Id. at 32-33. 
The Indiana Court of Appeals held, among other things, that the
policy’s multi-tier coverage did not violate public policy and
was otherwise valid.  Id. at 33-36.
In the present case, the Federated policy provided UIM
coverage meeting the minimum statutory requirements.  Glen
Burnie, the purchaser of the fleet policy, paid additional
premiums to provide higher limits of UIM coverage to certain
persons insured in excess of the statutory floor.  Because the
provision of additional or supplemental UIM coverage in excess of
the statutory floor is permissible under North Carolina law, we
affirm the Court of Appeals’ conclusion that Federated’s two-
tiered UIM coverage endorsement provision is valid and
enforceable.  As to the remaining issues briefed by the parties
before this Court, we conclude discretionary review was
improvidently allowed.
AFFIRMED IN PART; DISCRETIONARY REVIEW IMPROVIDENTLY ALLOWED
IN PART.