Title: Liberty Mutual Ins. Co. v. Ditillo
Citation: 348 N.C. 247
Docket Number: 220A97
State: north-carolina
Issuer: north-carolina Supreme Court
Date: May 8, 1998

IN THE SUPREME COURT OF NORTH CAROLINA
No. 220A97
FILED: 8 MAY 1998
LIBERTY MUTUAL INSURANCE COMPANY and STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY
v.
PATRICIA E. DITILLO, Executrix of the Estate of JOHN JOSEPH
DITILLO; PAULA C. BURGOON, Administratrix of the Estate of RALPH
JEAN CLARK; DONNA T. STILWELL, Administratrix of the Estate of
CHARLES BRUCE STILWELL; RELIANCE INSURANCE COMPANY; and DAY &
ZIMMERMAN, INC.
Appeal pursuant to N.C.G.S. § 7A-30(2) from the
decision of a divided panel of the Court of Appeals, 125 N.C.
App. 701, 482 S.E.2d 743 (1997), affirming in part and reversing
in part a judgment entered 1 February 1996 by Helms (William H.),
J., in Superior Court, Union County.  On 5 June 1997, the Supreme
Court granted discretionary review of additional issues.  Heard
in the Supreme Court 19 November 1997.
Dean & Gibson, L.L.P., by Rodney Dean and
D. Christopher Osborn, for plaintiff-appellant and
-appellee Liberty Mutual Ins. Co.
Golding Meekins Holden Cosper & Stiles, L.L.P., by
Harvey L. Cosper, Jr. and Scott A. Beckey, for
plaintiff-appellant and -appellee State Farm Mutual
Automobile Ins. Co.
Ronald H. Cox for defendant-appellant and -appellee
Paula Burgoon, administratrix of the estate of Ralph
Clark.
John E. Hodge, Jr., for defendant-appellant and
-appellee Donna Stilwell, administratrix of the estate
of Charles Stilwell.
Kennedy Covington Lobdell & Hickman, L.L.P., by Wayne
Huckel, for defendant-appellees Reliance Ins. Co. and
Day & Zimmerman, Inc.
FRYE, Justice.
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This case arises out of an automobile accident on
31 January 1991 in which Charles Bruce Stilwell (Stilwell), Ralph
Jean Clark (Clark), and John Joseph Ditillo (Ditillo) were
killed.  The issue to be decided is whether the uninsured
motorist (UM) coverage in personal automobile policies owned by
Stilwell and Clark is available to their estates where the amount
of workers’ compensation benefits exceeds the UM coverage limit
of each policy.  Based on N.C.G.S. § 20-279.21(e) and our recent
decision in McMillian v. N.C. Farm Bureau Mut. Ins. Co., 347 N.C.
560, 495 S.E.2d 352 (1998), the answer is no.
All facts pertinent to this case were stipulated to by
the parties and, thus, are not in dispute.  At the time of the
accident, Stilwell, Clark, and Ditillo were employees of Day &
Zimmerman, Inc. (D&Z) and were acting in the course and scope of
their employment.  At the time of the accident, Stilwell was the
operator of a 1991 Dodge automobile that was leased for his use
by D&Z, and Clark and Ditillo were passengers.  D&Z was insured
by its workers’ compensation carrier, Reliance Insurance Company
(Reliance).  Pursuant to the Workers’ Compensation Act, N.C.G.S.
ch. 97 (1991 & Supp. 1997), D&Z and Reliance filed with the North
Carolina Industrial Commission written admissions of liability
for the deaths of Stilwell, Clark, and Ditillo.  D&Z and Reliance
are liable under the Workers’ Compensation Act to Donna T.
Stilwell, widow of Stilwell, and Patricia E. Ditillo, widow of
Ditillo, for compensation in the sum of $162,400 each and are
liable to the three daughters of Clark for compensation in the
total sum of $130,997.62.
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Donna T. Stilwell, Paula C. Burgoon, and Patricia E.
Ditillo, as personal representatives of the estates of Stilwell,
Clark, and Ditillo, respectively, each commenced a wrongful death
action against the operators and owners of the other vehicles
involved in the accident.  The wrongful death cases were
consolidated for trial, and the liability issues were tried at
the 28 November 1994 Special Civil Jury Session of Superior
Court, Union County.  A jury determined that the negligence of
Francisco Landaverde Covarrubias (Covarrubias) was the sole
proximate cause of the collision that resulted in the deaths of
Stilwell, Clark, and Ditillo.  At the time of the accident,
Covarrubias was operating an uninsured motor vehicle and was an
uninsured motorist as defined by N.C.G.S. § 20-279.21.
Prior to 31 January 1991, Liberty Mutual Insurance
Company (Liberty Mutual) had issued and delivered to Donna T. and
Charles Bruce Stilwell, named insureds, a policy of personal
automobile insurance that was in full force and effect at the
time of the accident.  The Liberty Mutual policy has UM coverage
limits for bodily injury in the amount of $100,000 per person and
$300,000 per accident.  State Farm Mutual Automobile Insurance
Company (State Farm) had issued and delivered to Ralph Jean
Clark, named insured, a personal automobile policy that was also
in full force and effect at the time of the accident.  The State
Farm policy also has UM coverage limits of $100,000/$300,000. 
There was no UM coverage under any policy of insurance listing as
an insured vehicle the 1991 Dodge leased to D&Z and operated by
Stilwell at the time of the accident.
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    Ditillo’s estate did not participate in the appeal to this
1
Court.  Patricia E. and John Joseph Ditillo were named insureds
under a personal automobile policy issued by Nationwide Mutual
Insurance Company, of which the UM coverage limits of $50,000
have been paid in full and are not the subject of any further
claims. 
Subsequent to the filing of the wrongful death actions,
Liberty Mutual and State Farm filed the declaratory judgment
action which is the subject of this case.  Various cross-claims
followed, filed by and against the personal representatives of
Stilwell and Ditillo,  D&Z, and Reliance.
1
The ultimate question in this case is whether the
Liberty Mutual and State Farm policies owned by Stilwell and
Clark provide any UM coverage to their estates because the amount
of workers’ compensation benefits to their survivors exceeds the
UM coverage limits in each policy.  Both the Liberty Mutual and
the State Farm policies contain identical limitation of liability
and exclusionary provisions in the UM coverage section.  The
limitation of liability provision in the UM coverage section of
each policy provides, in part:
Any amount otherwise payable for damages
under this coverage shall be reduced by all
sums:
. . . .
2.
Paid or payable because of the bodily
injury under any of the following or
similar law:
a.  workers’ compensation law . . . .
The exclusion (exclusion “C”) in the insuring agreement of the UM
coverage section of each policy provides:
C.
This coverage shall not apply directly
or indirectly to benefit any insurer or
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self-insurer under any of the following
or similar law:
1.  workers’ compensation law . . . .
For purposes of the declaratory judgment action, the
parties stipulated, inter alia, to the following:
In determining the extent of insurance
coverage liability, the court may treat each
case as though a judgment was entered against
the uninsured driver in an amount in excess
of the combination of all applicable
insurance coverages under these policies plus
the amount of any applicable workers’
compensation benefits.
The parties also stipulated that “Covarrubias is judgment-proof.”
On 1 February 1996, the trial court entered a judgment
in the declaratory judgment action on the stipulated facts.  The
trial court first determined that the Ditillo and Clark estates
were precluded from any recovery under the Liberty Mutual policy
issued to Stilwell because:  (1) Ditillo and Clark were not
persons for whom the Motor Vehicle Safety and Financial
Responsibility Act (Financial Responsibility Act) required
coverage beyond the terms of the policy; (2) the terms of the
Liberty Mutual policy both reduced the amount of UM coverage that
would otherwise be available by the amount of any workers’
compensation benefits and excluded any coverage that would
benefit a workers’ compensation carrier; and (3) in this case,
the amount of the workers’ compensation benefits exceeded any
coverage available to Clark or Ditillo.  Next, the trial court
determined that, as to the estate of Stilwell, the limiting and
exclusionary language in the Liberty Mutual policy’s UM coverage
would preclude recovery beyond the mandatory $25,000 coverage set
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forth in the Financial Responsibility Act.  Therefore, the trial
court ordered that the Stilwell estate recover $25,000 from
Liberty Mutual, subject to a workers’ compensation lien by
Reliance.  Using the same reasoning, the court ordered that the
Clark estate recover $25,000 from State Farm under its policy,
subject to a workers’ compensation lien by Reliance.  Finally,
the trial court found that, pursuant to the parties’ stipulation,
there was no judgment “insufficient to compensate the subrogation
claim of the workers’ compensation carrier.”  The court thus
concluded that it had no jurisdiction to apportion the insurance
proceeds between the estates and the workers’ compensation
carrier under N.C.G.S. § 97-10.2(j) and ordered disbursement of
the monies subject to Reliance’s liens in accordance with
N.C.G.S. § 97-10.2(f).
All parties appealed to the Court of Appeals, which
subsequently reversed that portion of the trial court’s order
reducing the UM coverage available to the Stilwell and Clark
estates to $25,000 each.  The Court of Appeals concluded that
exclusion “C” in the Liberty Mutual and State Farm policies had
“the same practical effect” as the limitation of liability
provision and that both were unenforceable because they
conflicted with the Financial Responsibility Act.  Liberty Mut.
Ins. Co. v. Ditillo, 125 N.C. App. 701, 705-06, 482 S.E.2d 743,
745-46 (1997).  The Court of Appeals opinion in this case was
filed prior to McMillian v. N.C. Farm Bureau Mut. Ins. Co., 347
N.C. 560, 495 S.E.2d 352.
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Plaintiffs, Liberty Mutual and State Farm, appealed on
the basis of Judge Greene’s dissent, which agreed with the trial
court that the limitation of liability and exclusionary
provisions were enforceable as to amounts in excess of the
mandatory UM coverage of $25,000.  Plaintiffs focus primarily on
distinguishing the limitation of liability provision, which had
been held by previous decisions of the Court of Appeals to be
unenforceable, from exclusion “C,” which had not previously been
ruled upon.  Plaintiffs also attempt to distinguish Bray v. N.C.
Farm Bureau Mut. Ins. Co., 341 N.C. 678, 462 S.E.2d 650 (1995),
arguing that the majority decision of the Court of Appeals
incorrectly concluded that UM coverage above $25,000 was
mandatory under the Financial Responsibility Act.  We conclude,
however, that this Court’s decision in McMillian, permitting
enforcement of the limit of liability provision and overruling in 
part Ohio Casualty Group v. Owens, 99 N.C. App. 131, 392 S.E.2d
647, disc. rev. denied, 327 N.C. 484, 396 S.E.2d 614 (1990), and
its progeny, is determinative of plaintiffs’ obligations in this
case.  It is therefore unnecessary to address either the validity
of exclusion “C” or the extent to which UM coverage under the
Liberty Mutual and State Farm policies was mandatory.  Because
there is no recovery under the UM coverage of either the Liberty
Mutual or the State Farm policy, we also do not address the issue
of apportionment of insurance proceeds under N.C.G.S. §
97-10.2(j) brought forward on appeal by defendants Stilwell and
Burgoon.  Furthermore, we conclude that a decision as to 
additional issues raised by the parties is unnecessary in this
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case and that discretionary review as to those issues was
improvidently allowed.
In McMillian, this Court examined the validity of a UM 
limit of liability provision identical to the one contained in
the Liberty Mutual and State Farm policies.  Key to our analysis
was the language of N.C.G.S. § 20-279.21(e), which provides in
pertinent part:
Such motor vehicle liability policy need not
insure against loss from any liability for
which benefits are in whole or in part either
payable or required to be provided under any
workers’ compensation law . . . .
N.C.G.S. § 20-279.21(e) (Supp. 1997).  We held that
under the clear wording of N.C.G.S. §
20-279.21(e), the limit of liability
provision in defendants’ policies at issue in
this action is authorized and defendant UM
carriers are entitled to reduce coverage to
Mr. McMillian by the amount of workers’
compensation he has already received.
McMillian, 347 N.C. at 565, 495 S.E.2d at 354-55.
As in McMillian, the UM coverage at issue in the
instant case is contained in the insureds’ own personal
automobile policies.  In McMillian, we found no statutory basis
for the distinction between personal and business policies
reached by the Court of Appeals, and we concluded that N.C.G.S. §
20-279.21(e) authorized a reduction of UM coverage by the amount
paid to the insured as workers’ compensation benefits.  Id. at
565, 495 S.E.2d at 354.  Likewise, the UM limit of liability
provision in the Liberty Mutual and State Farm policies at issue
in this case is authorized by N.C.G.S. § 20-279.21(e), and
plaintiff UM carriers are permitted to reduce coverage for
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Stilwell and Clark by the amount of workers’ compensation
benefits paid or payable.  In this case, the workers’
compensation benefits paid or payable to the survivors of
Stilwell and Clark, $162,400 and $130,997.62 respectively, exceed
the $100,000 per person UM coverage in the Liberty Mutual and
State Farm policies.  Because the limit of liability provision 
reducing UM coverage for amounts paid or payable under workers’
compensation law is authorized by the Financial Responsibility
Act, coverage may be reduced without regard to its
characterization as “mandatory” or “voluntary” under the Act. 
Cf. Bray, 341 N.C. 678, 462 S.E.2d 650 (holding that the family
member/household-owned exclusion contained in automobile
insurance policy was contrary to the Financial Responsibility Act
and therefore unenforceable as to the mandatory UM coverage
contained in the policy).
For the foregoing reasons, we conclude that the Court
of Appeals erred in holding that the limitation of liability
provision, and by extension exclusion “C,” in the Liberty Mutual
and State Farm policies is unenforceable as conflicting with the
Financial Responsibility Act.  We hold that the limitation of
liability provision in the UM coverage section of the Liberty
Mutual and State Farm policies is authorized by N.C.G.S. §
20-279.21(e) and that, to the extent workers’ compensation
benefits were paid or are payable, Liberty Mutual and State Farm
are entitled to reduce the UM coverage available under the
respective automobile insurance policies.  Moreover, because the
decision in this case results in no UM coverage for Stilwell and
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Clark, there are no insurance proceeds available upon which
Reliance, the workers’ compensation carrier, could assert a
claim.  We therefore specifically decline to decide whether a
workers’ compensation carrier has a right under N.C.G.S. §
97-10.2 to a lien on UM benefits paid to an employee in a case
where the UM coverage limits exceed the amount of workers’
compensation benefits.
DISCRETIONARY REVIEW IMPROVIDENTLY ALLOWED IN PART; 
REVERSED IN PART.