Title: Fortune Ins. Co. v. Owens
Citation: 351 N.C. 424
Docket Number: 154PA99
State: north-carolina
Issuer: north-carolina Supreme Court
Date: April 7, 2000

IN THE SUPREME COURT OF NORTH CAROLINA
No. 154PA99
FILED: 7 APRIL 2000
FORTUNE INSURANCE COMPANY
v.
GARY EDGAR OWENS, JOHNA R. HART, LOUIS L. GILMORE
On discretionary review pursuant to N.C.G.S. § 7A-31 of a
unanimous decision of the Court of Appeals, 132 N.C. App. 489,
512 S.E.2d 487 (1999), affirming a judgment entered 6 October
1997, as amended 13 October 1997, by Sitton, J., in Superior
Court, Mecklenburg County.  Heard in the Supreme Court 12 October
1999.
Kurdys & Lovejoy, P.A., by Jeffrey S. Bolster, for
plaintiff-appellee.
Price, Smith, Hargett, Petho & Anderson, P.A., by
Wm. Benjamin Smith, for defendant-appellants Johna Hart and
Louis Gilmore.
PARKER, Justice.
This action arose out of a motor vehicle accident that
occurred in Mecklenburg County, North Carolina, on 29 January
1990 when a vehicle, owned and operated by Gary Edgar Owens
(Owens) struck a motor vehicle driven by Louis L. Gilmore and
occupied by Johna R. Hart (defendants).  That vehicle was owned
by a third party and was not insured.  At the time of the
accident, Owens was insured under a policy of insurance issued by
Fortune Insurance Company (Fortune), a Florida corporation.  The
policy provided, in pertinent part:
CONFORMITY WITH LAW
If any provision of this policy is contrary to any law
to which it is subject, such provision is hereby
amended to conform thereto.
COVERAGE:  PERSONAL INJURY PROTECTION
[Fortune] will pay, in accordance with the Florida
Motor Vehicle No Fault Law, as amended, to or for the
benefit of the insured person [enumerated damages]
incurred as a result of bodily injury, caused by an
accident arising out of the ownership, maintenance, or
use of a motor vehicle and sustained by:
1.
the named insured or any relative while
occupying a motor vehicle or, while a
pedestrian, through being struck by a motor
vehicle; or
2.
any other person while occupying the insured
motor vehicle or, while a pedestrian, through
being struck by the insured motor vehicle.
Both defendants instituted actions against Owens in January
1993, each claiming damages for personal injury.   Fortune hired
attorney Rex C. Morgan in Charlotte, North Carolina, to defend
Owens in both actions.  Mr. Morgan filed answers on Owens’ behalf
despite the fact that he was never able to locate Owens.  On
17 July 1995 Mr. Morgan filed a motion to withdraw as counsel of
record wherein he stated that Fortune “advised that it had sent a
reservation of rights letter to Mr. Owens and advised that it
took the position that it had no coverage” and that Fortune had
instructed that he “close his files.”
On 21 July 1995 Fortune instituted this declaratory judgment
action requesting the court to declare that Fortune had no
obligation to defend Owens or to pay any judgment entered against
Owens in the actions by defendants.  Fortune thereafter amended
its petition for declaratory judgment asserting that Fortune is a
corporation existing under the laws of the State of Florida.  In
their answer filed 20 September 1995, defendants asserted that
Fortune should be “estopped to deny coverage.”  On 31 July 1997
Fortune moved for summary judgment.
On 20 January 1997 defendants’ actions against Owens were
consolidated and tried at a nonjury Civil Session of Superior
Court, Mecklenburg County.  In its judgment the trial court
concluded that Owens was liable to both defendants for personal
injuries and ordered Owens to pay each defendant $18,500. 
Defendants subsequently filed a motion to amend their answer in
this action to add a counterclaim incorporating the judgment in
the underlying action and asking for costs, treble damages, and
punitive damages.  The trial court denied the motion to amend on
24 July 1997.
In October 1997 after a hearing on Fortune’s petition for
declaratory judgment, the trial court entered judgment finding
that the Fortune policy was issued to Owens in Florida; that the
address listed for Owens on 27 December 1989 was Destin, Okaloosa
County, Florida; that the only vehicle described in the
application was a 1966 Chevrolet pickup truck with a Florida
identification number; that at the time of the accident, Owens
had a Florida driver’s license; and that Owens was operating the
1966 Chevrolet pickup truck with a Florida license plate and a
Florida identification number.  The trial court also found that
no evidence was adduced to suggest that Fortune was authorized to
transact business and issue policies in North Carolina.  Based on
these and other findings of fact, the trial court concluded that
“Florida law does not require the extension of bodily injury
liability coverage to defendants” and that the Fortune policy
does not provide bodily injury coverage to defendants since “they
are not protected persons under the Personal Injury Protection
section of the policy.”  The trial court further concluded that
the North Carolina Motor Vehicle Safety and Financial
Responsibility Act does not apply to the Fortune policy “given
the insignificant connection between the Fortune Insurance Policy
and the State of North Carolina.”  Accordingly, the trial court
determined that Fortune was not obligated to pay the judgments
obtained by defendants against Owens arising out of the motor
vehicle accident.
Defendants appealed to the Court of Appeals, arguing that
the Fortune policy is subject to North Carolina law and,
alternatively, that Fortune was estopped from denying coverage. 
On 2 March 1999 the Court of Appeals affirmed the trial court,
holding that “the connection between North Carolina and the
interests insured is too slight to allow us to interpret the
Owens Policy in accordance with North Carolina law.”  Fortune
Ins. Co. v. Owens, 132 N.C. App. 489, 493, 512 S.E.2d 487, 189
(1999).  Enforcing the terms of the Fortune policy, the Court of
Appeals held that bodily injury liability coverage did not extend
to defendants.  Id.  The Court of Appeals also held that Fortune
was not estopped from denying coverage.  Id. at 494, 512 S.E.2d
at 494.  On 24 June 1999 this Court allowed defendants’ petition
for discretionary review.
The two issues before this Court are whether the Court of
Appeals correctly concluded (i) that the Fortune insurance policy
was not subject to North Carolina law and did not provide
coverage to defendants and (ii) that Fortune was not estopped
from denying coverage.  With respect to the coverage issue,
defendants make three arguments.
Defendants first argue that the Court of Appeals erred in
holding that a significant connection did not exist between the
insured interests and North Carolina to make the policy subject
to North Carolina law.  We disagree.  As the Court of Appeals
properly noted, the general rule is that an automobile insurance
contract should be interpreted and the rights and liabilities of
the parties thereto determined in accordance with the laws of the
state where the contract was entered even if the liability of the
insured arose out of an accident in North Carolina.  See Roomy v.
Allstate Ins. Co., 256 N.C. 318, 322, 123 S.E.2d 817, 820 (1962). 
With insurance contracts the principle of lex loci contractus
mandates that the substantive law of the state where the last act
to make a binding contract occurred, usually delivery of the
policy, controls the interpretation of the contract.  Id. 
Construing N.C.G.S. § 58-3-1, this Court recognized an exception
to this general rule where a close connection exists between this
State and the interests insured by an insurance policy.  See
Collins & Aikman Corp. v. Hartford Accident & Indem. Co., 335
N.C. 91, 95, 436 S.E.2d 243, 245-46 (1993).  However, the mere
presence of the insured interests in this State at the time of an
accident does not constitute a sufficient connection to warrant
application of North Carolina law.
When an action is tried before the trial court without a
jury, the trial court is the fact finder; and on appeal, the
appellate courts are bound by the trial court’s findings if
competent evidence in the record supports these findings.  See
Williams v. Pilot Life Ins. Co., 288 N.C. 338, 342, 218 S.E.2d
368, 371 (1975).  In this case the trial court found, based on
competent evidence, that the policy was issued by Fortune to
Owens in Florida; that the insured vehicle which Owens was
driving at the time of the accident had a Florida identification
number and a Florida license plate; that from 5 March 1976 until
the date of the accident, Owens had a Florida driver’s license
issued to him; that according to the record at the North Carolina
Division of Motor Vehicles, Owens never had a North Carolina
driver’s license issued to him; and that the only contact between
the Fortune policy and North Carolina is that “the automobile
accident on January 29, 1990, occurred in North Carolina and
following the accident Gary Edgar Owens provided the officer with
a temporary North Carolina address.”  Based on these findings, we
hold that the Court of Appeals did not err in upholding the trial
court’s conclusion that no significant connections existed
between the Fortune policy and this State.  All of the
significant connections occurred in Florida.  The insurance
contract was entered into in Florida, and the parties to the
contract were Florida residents.  Thus, the Fortune policy must
be construed in accordance with Florida law.
Defendants next contend that the conformity clause triggers
the application of the North Carolina Motor Vehicle Safety and
Financial Responsibility Act.  Again we disagree.  The Act
applies only to a “motor vehicle liability policy” that is
“issued, except as otherwise provided in G.S. 20-279.20, by an
insurance carrier duly authorized to transact business in this
State.”  N.C.G.S. § 20-279.21(a) (1999).  The trial court found,
and we agree, that the evidence does not suggest that Fortune was
ever authorized to transact business and issue insurance policies
in North Carolina.  The mere fact that the accident happened in
North Carolina does not make the policy subject to North Carolina
law.  As the United States Supreme Court has noted,
[a] legislative policy which attempts to draw to the
state of the forum control over the obligations of
contracts elsewhere validly consummated and to convert
them for all purposes into contracts of the forum
regardless of the relative importance of the interests
of the forum as contrasted with those created at the
place of the contract, conflicts with the guaranties of
the Fourteenth Amendment.
Hartford Accident & Indem. Co. v. Delta & Pine Land Co., 292 U.S.
143, 150, 78 L. Ed. 1178, 1181-82 (1934).
Defendants’ reliance on Cartner v. Nationwide Mut. Fire Ins.
Co., 123 N.C. App. 251, 472 S.E.2d 389 (1996), is misplaced.  In
Cartner the Court of Appeals held that a Florida insurance policy
with a family-members exclusion and a conformity clause provided
coverage to the estate of the plaintiff’s decedent for an
accident occurring in this state.  Cartner is distinguishable in
that the conformity clause in that case provided for the
adjustment of coverage limits “to comply with the financial
responsibility law of any state or province which requires higher
limits.”  Id. at 252, 472 S.E.2d at 390.  In contrast, the
conformity clause in the policy at issue in the instant case
provided that “[i]f any provision of this policy is contrary to
any law to which it is subject, such provision is hereby amended
to conform thereto.”  Moreover, the defendant insurance company
in Cartner was authorized to and did transact business in North
Carolina.  Under the North Carolina Motor Vehicle Safety and
Financial Responsibility Act, the provisions for
uninsured/underinsured motorists coverage are designed to protect
North Carolina drivers from the perils of a collision with an
uninsured motor vehicle.  We hold that the conformity provision
does not alter our conclusion that the Fortune policy is not
“subject to” North Carolina law.
Defendants finally argue that the policy provides coverage
to them and that plaintiff failed to establish a valid policy
exclusion showing no coverage.  This argument is not persuasive. 
A party seeking benefits under an insurance contract has the
burden of showing coverage.  See Hedgecock v. Jefferson Standard
Life Ins. Co., 212 N.C. 638, 639-40, 194 S.E. 86, 86-87 (1937). 
Until a prima facie case of coverage is shown, the insurer has no
burden to prove a policy exclusion.  See id.; see also Nationwide
Mut. Ins. Co. v. McAbee, 268 N.C. 326, 328, 150 S.E.2d 496,
497-98 (1966); U.S. Liab. Ins. Co. v. Bove, 347 So. 2d 678, 680
(Fla. Dist. Ct. App. 1977).  In this case the clear and
unambiguous language of Fortune’s insurance policy affords no
bodily injury coverage to defendants.  The Fortune policy
provides bodily injury coverage only for the “named insured,”
“any relative while occupying a motor vehicle,” “any other person
while occupying the insured motor vehicle,” or “a pedestrian
. . . struck by the insured motor vehicle.”  This provision is
consistent with Florida’s statutory requirements for a no-fault
insurance policy.  See Fla. Stat. Ann. §§ 627.730-627.7405 (West
1996 & Supp. 1999).  Defendants were not named insureds, were not
relatives, were not occupying the insured vehicle, and were not
pedestrians.  Accordingly, defendants do not fit into any of the
categories of protected individuals; therefore, they are not
covered under the terms of the policy.
Defendants also contend that Fortune was estopped to deny
coverage since Fortune had its counsel withdraw from the case
approximately two years after it instituted action against Owens. 
We disagree.  Generally, an insurer is not barred from later
denying coverage when it defends its insured with a reservation
of its rights to deny coverage.  See Jamestown Mut. Ins. Co. v.
Nationwide Mut. Ins. Co., 266 N.C. 430, 435, 146 S.E.2d 410, 414
(1966).  We have applied the equitable estoppel doctrine to bar
an insurer from later denying coverage where the insurer assumed
the defense of the action without a reservation of rights to deny
coverage and later disclaimed coverage after an adverse judgment
was entered.  Early v. Farm Bureau Mut. Auto. Ins. Co., 224 N.C.
172, 174, 29 S.E.2d 558, 559-60 (1944).
On appeal to this Court, no reservation of rights letter is
contained in the record.  However, Mr. Morgan, in his motion to
withdraw as attorney of record in the underlying actions on
17 July 1995, stated that Fortune “advised that it had sent a
reservation of rights letter to Mr. Owens and advised that it
took the position that it had no coverage.”  Consistent with this
position, Fortune also filed a declaratory judgment action on
21 July 1995 seeking a declaration that the policy did not
provide coverage to defendants.  Therefore, defendants were fully
aware of Fortune’s position regarding coverage eighteen months
before trial of the underlying tort action commenced on
20 January 1997.  On these facts we conclude that defendants were
not misled and were not prejudiced at trial by Fortune’s
withdrawal of counsel from Owens’ defense.
For the foregoing reasons, we affirm the decision of the
Court of Appeals.
AFFIRMED.
======================
Justice MARTIN concurring in the result.
I concur in the result of the majority opinion but write
separately to articulate my disagreement with part of the
reasoning of the majority opinion and to express my concern about
the result we are compelled to reach under the relevant language
of the North Carolina Motor Vehicle Safety and Financial
Responsibility Act (the Act).
I respectfully disagree with the majority’s conclusion that
the general rule of lex loci contractus controls in this case. 
Rather, North Carolina’s contacts with the interests insured by
the Fortune policy are sufficient to make the policy “subject to”
North Carolina law under N.C.G.S. § 58-3-1.  See Collins & Aikman
Corp. v. Hartford Accident & Indem. Co., 335 N.C. 91, 95, 436
S.E.2d 243, 246 (1993); see also Martin v. Continental Ins. Co.,
123 N.C. App. 650, 655-56, 474 S.E.2d 146, 148-49 (1996).
Nevertheless, as determined by the majority, the minimum
limits of coverage set forth in the Act do not apply to the
Fortune policy because of the language of this statute.  In
short, the Act applies only to a “motor vehicle liability policy”
that is “issued . . . by an insurance carrier duly authorized to
transact business in this State.”  N.C.G.S. § 20-279.21(a)
(1999).  Because the Fortune policy was not issued in North
Carolina and Fortune is not authorized to transact business in
this state, the Fortune policy may not be conformed to the
minimum limits of the Act under the express language of the
statute.
It is well settled, however, that legal protection of
innocent victims who are injured by financially irresponsible
motorists is the fundamental purpose of the Act.  See Nationwide
Mut. Ins. Co. v. Aetna Life & Cas. Co., 283 N.C. 87, 90, 194
S.E.2d 834, 837 (1973); Hartford Underwriters Ins. Co. v. Becks,
123 N.C. App. 489, 492, 473 S.E.2d 427, 429 (1996), disc. rev.
denied and cert. denied, 345 N.C. 641, 483 S.E.2d 708 (1997).
In the instant case, a motor vehicle operator who was at
least temporarily residing in North Carolina negligently
inflicted injuries upon two North Carolina residents.
Nevertheless, because the responsible driver’s insurance policy
was issued in a no-fault state and incorporated no-fault
provisions which do not afford liability coverage under these
circumstances, the injured parties, two North Carolina residents,
are left without an adequate legal remedy.
This result is fundamentally at odds with the purpose of the
North Carolina Motor Vehicle Safety and Financial Responsibility
Act.  Under the result permitted in this case, otherwise eligible
drivers may obtain insurance in no-fault jurisdictions and
inflict injuries with practical impunity.  This result is
inconsistent with the increasing interstate mobility of our
society and renders meaningless the protections intended for
innocent motorists under the Act.
Justices LAKE and FREEMAN join in this concurring opinion.