IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA16-620

Filed: 3 October 2017

Wake County, No. 15 CVS 4738

NORTH CAROLINA FARM BUREAU MUTUAL INSURANCE COMPANY, INC., 

Plaintiff,

v.

BEVERLY LEE PHILLIPS, VICTORIA PHILLIPS, and JOHN DOE 236, 

Defendants.

Appeal by plaintiff from judgment entered 12 April 2016 by Judge G. Bryan 

Collins, Jr. in Superior Court, Wake County. Heard in the Court of Appeals 16 

November 2016.

Young Moore and Henderson P.A., by Walter E. Brock, Jr. and Andrew P. Flynt, 

for plaintiff-appellant.

Batch, Poore & Williams, PC, by J. Patrick Williams, for defendant-appellee

Beverly Lee Phillips and Victoria Phillips.

Jeff Anderson & Associates, P.A., by Gregg Meyers, pro hac vice, and Copeley 

Johnson & Groninger PLLC, by Leto Copeley, for defendant-appellee John Doe 

236.

STROUD, Judge.

Plaintiff North Carolina Farm Bureau Mutual Insurance Company, Inc. 

appeals a judgment ordering it to defend and indemnify defendants Beverly Lee 

Phillips and Victoria Phillips under the insurance policy plaintiff issued to them. We 

reverse and remand.
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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I. Background

The background of this case is provided by the trial court’s judgment and is not 

at issue on appeal:

1. Farm Bureau issued policy FO 1051463 to 

Beverly Lee Phillips and Vicki O. Phillips as named 

insureds effective January 11, 2008. The policy has been 

renewed annually and amended from time to time through 

January 11, 2016.

. . . .

5. Beverly Lee Phillips was charged with 

various sexual offenses which occurred over a period of

time against the minor child of John Doe 236, referred to 

in this order as KGK.

6. From those various charges, Beverly Lee 

Phillips agreed to plead guilty to two counts of taking 

indecent liberties with KGK (a violation of N.C.G.S. 14-

202.1) and two counts of sexual activity by a substitute 

parent (a violation of N.C.G.S. 14-27.7[a]). 

7. The date of the offenses pertinent to the plea 

were within the 2008 policy year: May 1, 2008 and August 

7, 2008. The date on which the cause of action for John Doe 

236 arose was in the 2012 policy year, when he learned of 

the abuse of KGK.

8. John Doe 236 is a pseudonym for the father of 

KGK. John Doe 236 filed a civil action in Chatham County 

Superior Court against Beverly Lee Phillips and Victoria 

Phillips: John Doe 236 v. Beverly Lee Phillips and Victoria 

Phillips, 14 CVS 885, Chatham County Superior Court (the 

Chatham County Action). That complaint alleges one cause 

of action for negligence and one cause of action for loss of 

services. 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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9. The Chatham County Action alleges in its 

statement of the “Nature of the Wrongdoing” that “Beverly 

Phillips was convicted of indecent liberty with [John Doe 

236’s] minor child;” that “Beverly Lee Phillips was charged 

and convicted for the sexual battery of the [John Doe 236’s] 

minor child;” and that “[t]his case is about sexual battery 

made against [John Doe 236’s] child by Beverly Lee 

Phillips, and the negligence of Victoria Phillips to entrust 

that minor with Beverly Lee Phillips.”

10. The First Cause of Action of the Chatham 

County Action alleges in pertinent part that “Defendant 

Victoria Phillips was negligent in failing to properly 

supervise Beverly Lee Phillips, or warn [John Doe 236] 

about the assailant;” that “as a result of the conduct of the 

Defendants, [John Doe 236’s] child suffered damage, and 

that damage also impeded the relationship between [John 

Doe 236] and his child and caused independent injury to 

[John Doe 236].”

11. The Second Cause of Action of the Chatham 

County Action alleges in pertinent part that “[a]s a direct 

and proximate result of the assault and battery by Beverly 

Lee Phillips, and the negligence of Victoria Phillips, [John 

Doe 236’s] child was affected” and that “Defendants’

actions and inactions which resulted in the damage to 

[John Doe 236’s] child created difficulty between, parent 

and child, and loss of services of the child to the father.”

12. The First Cause of Action and Second Cause 

of Action conclude that “Defendants’ conduct was willful, 

wanton, and committed with knowledge that it was likely 

to cause damage to [John Doe 236] and his minor child. 

Therefore, [John Doe 236] is entitled to an award of 

punitive damages.” As noted above, the parties agree that 

punitive damages is not at issue under the policy, and in 

oral argument counsel for Farm Bureau agreed that 

viewing the pleading as a whole, that Victoria Phillips is 

entitled to this allegation being read as a recklessness 

standard.
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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13. Beverly Lee Phillips admits that the 

Transcript of Plea is a true and accurate copy of that plea 

entered in State v. Beverly Lee Phillips, 09 CRS 315, 

Chatham County Superior Court; that he initialed the plea 

arrangement in the Transcript of Plea; and that he signed 

the Transcript of Plea. By way of explanation, Beverly Lee 

Phillips asserts in his answers to interrogatories that “I

entered a plea in this matter because I was facing 

significant time if convicted and the plea was in my best 

interest. However, I maintain now as I did at the time of 

the plea that I did not sexually assault or harm in any way 

KGK.”

14. Victoria Phillips admits the Transcript of 

Plea, her husband’s initials on the plea arrangement and 

her husband’s signature on the Transcript of Plea. By way 

of explanation, Victoria Phillips asserts in her answers to 

interrogatories that “we do not believe a sexual assault 

occurred and my husband entered into plea because it was 

in his best interests at the time.”

15. Due to his ex-wife abducting his child at age 

one, and she and her family separating her from him, John 

Doe 236 learned only in 2012 that his child had been 

sexually assaulted.

In April of 2015, plaintiff North Carolina Farm Bureau Mutual Insurance 

Company, Inc. (“Farm Bureau”) filed a complaint for declaratory relief “declaring that 

the Farm Bureau policies do not apply to any claims in the Chatham County Action, 

and that Farm Bureau does not have a duty to defend or indemnify Beverly Lee 

Phillips or Victoria Phillips in the Chatham County Action[.]” The defendants 

answered and requested that the complaint be dismissed. On 12 April 2016, the trial 

court entered judgment and ordered that plaintiff “Farm Bureau has a duty to defend 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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and an obligation to indemnify each of Beverly Lee Phillips or Victoria O. Phillips in 

the Chatham County Action.” Plaintiff Farm Bureau appeals.

II. Policy Coverage

Plaintiff Farm Bureau’s brief argues several reasons why it should not have 

an obligation to defend in the Chatham County lawsuit, all based upon the policy 

language. The parties have presented arguments regarding the meanings of several 

defined terms and phrases under the policy and exclusions. But we will begin with 

plaintiff Farm Bureau’s last argument first, since it addresses the first relevant 

definition in the policy and is dispositive. Plaintiff Farm Bureau argues that “the 

Chatham County claims do not seek damages for ‘bodily injury’ as defined by the 

policies.” (Original in all caps.) We agree. 

A. Standard of Review

Generally, 

[t]he standard of review in declaratory judgment actions 

where the trial court decides questions of fact is whether 

the trial court’s findings are supported by any competent 

evidence. Where the findings are supported by competent 

evidence, the trial court’s findings of fact are conclusive on 

appeal. Findings of fact not challenged on appeal are 

binding on this Court. However, the trial court’s 

conclusions of law are reviewable de novo.

Basmas v. Wells Fargo Bank Nat.’l Ass’n, 236 N.C. App. 508, 511, 763 S.E.2d 536, 

538–39 (2014) (citations and quotation marks omitted). Because no issues are raised 

as to the findings of fact in the judgment on appeal, the only question before this 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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Court is the legal issue of whether plaintiff Farm Bureau has a contractual obligation 

to defend defendants Beverly and Victoria Phillips for the claims in the Chatham 

County lawsuit.

1

B. Comparison Test

In our Supreme Court’s most recent decision on the 

duty to defend, the Court explained that in order to answer 

the question whether an insurer has a duty to defend, we 

apply the comparison test, reading the policies and the 

complaint side-by-side to determine whether the events as 

alleged are covered or excluded. In performing this test, 

the facts as alleged in the complaint are to be taken as true 

and compared to the language of the insurance policy. If 

the insurance policy provides coverage for the facts as 

alleged, then the insurer has a duty to defend.

Kubit v. MAG Mut. Ins. Co., 210 N.C. App. 273, 278, 708 S.E.2d 138, 144 (2011) 

(citations, quotation marks, and ellipses omitted). Our Supreme Court has also noted 

that the duty to defend exists unless the facts as alleged in the complaint “are not 

even arguably covered by the policy.” Id. at 278, 708 S.E.2d at 144 (citation and 

quotation marks omitted).

Our Supreme Court has observed that the insurer’s 

duty to defend the insured is broader than its obligation to 

pay damages incurred by events covered by a particular 

policy. This duty to defend is ordinarily measured by the 

facts as alleged in the pleadings. When the pleadings state 

facts demonstrating that the alleged injury is covered by 

the policy, then the insurer has a duty to defend, whether 

or not the insured is ultimately liable. An insurer is 

excused from its duty to defend only if the facts are not even 

 

1 We take no position on the merits, if any, of the underlying Chatham County lawsuit, which 

is not at issue in this case. 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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arguably covered by the policy.

. . . .

In addressing the duty to defend, the question 

is not whether some interpretation of the facts 

as alleged could possibly bring the injury 

within the coverage provided by the insurance 

policy; the question is, assuming the facts as 

alleged to be true, whether the insurance 

policy covers that injury. The manner in 

which the duty to defend is broader than the 

duty to indemnify is that the statements of 

fact upon which the duty to defend is based 

may not, in reality, be true. As we observed 

in Waste Management, when the pleadings 

state facts demonstrating that the alleged 

injury is covered by the policy, then the 

insurer has a duty to defend, whether or not 

the insured is ultimately liable.

Under Harleysville, the duty to defend is broader than the 

duty to indemnify only in the sense that an 

unsubstantiated allegation requires an insurer to defend 

against it so long as the allegation is of a covered injury; 

however, even a meritorious allegation cannot obligate an 

insurer to defend if the alleged injury is not within, or is 

excluded from, the coverage provided by the insurance 

policy. 

Harleysville does not specifically address and 

nothing in its language appears to revisit the following 

caveat to the comparison test set out in Waste Management 

imposing a duty on the insurance carrier to investigate:

Conversely, when the pleadings allege facts 

indicating that the event in question is not 

covered, and the insurer has no knowledge 

that the facts are otherwise, then it is not 

bound to defend.

Where the insurer knows or could 

reasonably ascertain facts that, if proven, 

would be covered by its policy, the duty to 

defend is not dismissed because the facts 

alleged in a third-party complaint appear to 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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be outside coverage, or within a policy 

exception to coverage. In this event, the

insurer’s refusal to defend is at his own peril: 

if the evidence subsequently presented at 

trial reveals that the events are covered, the 

insurer will be responsible for the cost of the 

defense. This is not to free the carrier from its 

covenant to defend, but rather to translate its 

obligation into one to reimburse the insured if 

it is later adjudged that the claim was one 

within the policy covenant to pay. In addition, 

many jurisdictions have recognized that the 

modern acceptance of notice pleading and of 

the plasticity of pleadings in general imposes

upon the insurer a duty to investigate and 

evaluate facts expressed or implied in the 

third-party complaint as well as facts learned 

from the insured and from other sources. 

Even though the insurer is bound by the 

policy to defend groundless, false or 

fraudulent lawsuits filed against the insured, 

if the facts are not even arguably covered by 

the policy, then the insurer has no duty to 

defend. 

Id. at 277–79, 708 S.E.2d at 144-45 (emphasis added) (citations, quotation marks, 

and brackets omitted). We now turn to the comparison of the complaint to the 

insurance policy. See id. Because the duty to defend may be broader than the duty 

to indemnify we address the duty to defend because if it fails, so too does the duty to 

indemnify. See id. at 277–79, 708 S.E.2d at 144-45. 

C. Analysis 

The insurance policy contains coverage both for property and liability coverage, 

but no property claims are at issue here. The liability coverage includes personal
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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liability coverage labeled as “Coverage L” and medical payments to others labeled as 

“Coverage M[.]” Defendant John Doe’s complaint does not seek to recover for any 

medical expenses incurred by KGK or himself, so the issue here arises under

Coverage L, regarding personal liability:

Coverage L – Personal Liability – We pay up to our limit, 

all sums for which an insured is liable by law because of 

bodily injury2 or property damage caused by an 

occurrence to which this coverage applies. We will defend 

a suit seeking damages if the suit resulted from 

bodily injury or property damage not excluded 

under this coverage. We may make investigations and 

settle claims or suits that we decide are appropriate. We 

do not have to provide a defense after we have paid an 

amount equal to our limit as a result of a judgment or 

written settlement.

Bodily injury is defined by the policy as 

bodily harm to a person and includes sickness, disease or 

death. This also includes required care and loss of 

services. 

Bodily injury does not mean bodily harm, sickness, 

disease or death that arises out of:

a. a communicable disease; or

b. the actual, alleged or threatened sexual 

molestation of a person.

Defendant John Doe set forth two claims in his complaint. In both claims, the 

negligence and loss of services, defendant John Doe is not suing for injuries to KGK 

but for alleged injuries he sustained as a result of the crimes committed against KGK. 

 

2 All emphasis in bold to the policy language has been added by this Court throughout this 

opinion.
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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The negligence claim alleges defendant Victoria Phillips was negligent in caring for 

KGK because she knew or should have known of defendant Beverly Phillips’s “sexual 

interest” in KGK and her lack of supervision allowed him to sexually abuse her. 

Defendant John Doe’s negligence claim implicates no property damage but rather 

addresses the damage to “the relationship” with his daughter, and taking the 

allegations in his complaint as true, id. at 278, 708 S.E.2d at 144, it could potentially 

fall within the definition of a “bodily injury” claim under Coverage L within the policy. 

The second claim is entitled “Loss of Services[;]” here, defendant John Doe

alleges damages from “loss of services of the child to the father[.]” Defendant John 

Doe explains in his brief that “loss of services is an ancient Common Law cause of 

action . . . [u]nder [which] the overt fiction of . . . the injured child’s lost ‘service’ is 

presumed.” See generally Tillotson v. Currin, 176 N.C. 479, 480-81, 97 S.E. 395, 396 

(1918) (“This is an action brought by the father to recover damages for the seduction 

of his daughter. . . . The right of the father to recover for debauching his daughter is 

based upon the loss of services growing out of the relation of master and servant, 

which, as said by Nash, J., in Briggs v. Evans, 27 N.C. 20, is a figment of the law, to 

open to him the door for the redress of his injury, but is, however, the substratum on 

which the action is built. If the daughter is under twenty-one years of age, the loss 

of service is presumed, and no evidence of the fact need be offered; and, if over twentyone, the slightest service, such as handling a cup of tea, milking a cow, is sufficient 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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at common law to support the action; but, while the father comes into court as a 

master, he goes before the jury as a father, and may recover damages for his 

humiliation, loss of the society of his daughter and mental suffering and anguish, 

destruction of his household, sense of dishonor, as well as expenses incurred and for 

loss of services, and the jury may also award exemplary damages as a punishment.” 

(citations and quotation marks omitted)). The claim of seduction can be maintained 

only by a father, since at common law, the father was master, and the daughter was 

the servant; it required that the father show that the defendant had sexual 

intercourse with his daughter, either with or without the daughter’s consent. See 

generally id. We will generously assume that the claim for “loss of services” stemming 

from the claim of “seduction” -- which is based upon a master-servant relationship of 

father to daughter – still exists, see id., and “loss of services” is thus also potentially 

a “bodily injury” under the policy definitions. 

But we must continue with the remainder of the definition of “bodily injury.” 

Defendant John Doe’s claims also “arise[] out of” “the actual . . . sexual molestation 

of a person.” No prior North Carolina case has directly addressed the meaning of the 

words “arising out of” in this context, perhaps because the meaning is apparent, 

though courts in other states have addressed similar provisions. See, e.g., Supreme 

Servs. & Specialty Co. v. Sonny Greer, Inc., 958 So. 2d 634, 645 (La. 2007) (“The key 

words in this provision are ‘arising out of,’ which could mean ‘but for’ the damaged 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

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property the resulting incident would not have occurred.”). Defendant John Doe’s 

claims are entirely based upon the sexual molestation of his daughter and would not 

exist “but for” the “molestation of a person[,]” his daughter. Id. Whatever name, title,

or label defendant John Doe seeks to assign to his claims, they arise out of the sexual 

molestation of his daughter and are not included under the definition of a “bodily 

injury” as defined under the policy. 

The policy provides that plaintiff Farm Bureau “will defend a suit seeking 

damages if the suit resulted from bodily injury or property damage not excluded 

under this coverage.” The Chatham County suit did not result from a “bodily injury” 

as defined by the policy, so we need not consider potential exclusions. The claims 

raised by defendant John Doe did not result from “bodily injury” as defined by the 

policy because that definition explicitly does not include bodily harm that “arises out 

of” “sexual molestation[.]” Because defendant John Doe’s entire action hinges 

on the sexual molestation of his daughter, it is not “a suit seeking damages” resulting 

“from bodily injury[.]” Therefore, plaintiff Farm Bureau has no duty to defend or 

indemnify defendants. 

III. Conclusion

We reverse the judgment of the trial court concluding there was coverage under 

the policy and remand for entry of a declaratory judgment that plaintiff Farm Bureau 

has no duty to defend or indemnify defendants Beverly and Victoria Phillips in John 
NC FARM BUREAU MUT. INS. CO., INC. V. PHILLIPS

Opinion of the Court

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Doe’s Chatham County lawsuit.

REVERSED and REMANDED.

Judges BRYANT and HUNTER concur.