Court Opinion

ID: 9571795
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:35:16.369581+00
Date Added: 2024-06-11T12:30:56.904843
License: Public Domain

Justice MEYER
dissenting.
Contrary to the majority, I conclude that N.C.G.S. § 58-3-1 does not control the choice of law question here. Rather, I believe that- the traditional rule of lex loci contractus applies, and thus, California law is the correct law to be applied in this case. Assuming arguendo, however, that North Carolina law is the correct choice, I conclude that the language of the policy does not cover awards of punitive damages, as the policy was limited to damages “because *98of bodily injury” and excludes “fines and penalties” from recovery. I therefore dissent.
As the majority notes, Wickes Companies, Inc. (“Wickes”), a Delaware Corporation with its primary place of business and headquarters in Santa Monica, California, is the parent company of Collins and Aikman Corporation (“C&A”). C&A is a Delaware Corporation, which at all times pertinent to the case before us was headquartered in New York City, with sixteen subsidiaries doing business in twenty-eight states, the Virgin Islands, and several foreign countries. It has administrative offices, sales offices, and warehouses throughout the United States. It operates thirty-four manufacturing plants that are located in New York, Indiana, North Carolina, Georgia, Oklahoma, Rhode Island, Texas, Quebec, and Ontario.
Wickes recommended that its subsidiary, C&A, use Marsh & McLennan, an independent insurance broker in Los Angeles, California, to negotiate an excess liability insurance policy. C&A had attempted to get a policy through Marsh & McLennan’s office in North Carolina but had been unsuccessful. Marsh & McLennan began negotiations with Hartford Accident and Indemnity Company (“Hartford”) to create an excess liability insurance policy for C&A. Hartford dealt almost exclusively with Marsh & McLennan’s California office in creating the excess liability policy for C&A. In preparing the quotation, Hartford used information that indicated C&A was headquartered in New York City. The policy identified the named insured as Collins and Aikman, located at 210 Madison Avenue, New York, NY 10016. Hartford received the premium payment from Marsh & McLennan.
During the policy period, Hartford was potentially liable for the excess on actual claims filed against C&A for motor vehicle accidents in Louisiana, Georgia, Pennsylvania, Ohio, North Carolina, New Jersey, and New York.
The majority says that N.C.G.S. § 58-3-1 controls this case. The statute covers “all contracts of insurance on property, lives, or interests in this State . . . and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State.” N.C.G.S. § 58-3-1 (1991). N.C.G.S. § 58-3-1 has been construed to apply when a policy of insurance covers lives, property, or tangible assets physically located in the state. However, I believe that N.C.G.S. § 58-3-1 does not *99apply here, where a contract is formed in either Connecticut or California and the application for the insurance came from California, C&A being unsuccessful in its attempt to get insurance through Marsh & McLennan’s North Carolina office. The United States Supreme Court has noted that
[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 & Indemnity Co. v. Delta & Pine Land Co., 292 U.S. 143, 150, 78 L. Ed. 1178, 1181-82, reh’g denied, 292 U.S. 607, 78 L. Ed. 1468 (1934).
Based on the fact that Hartford’s policy is a nationwide policy that was created in Connecticut for a business headquartered in New York City, which covers claims in many states all over the nation and even in Canada and the Virgin Islands, I believe that the correct rule to apply in determining what law is applicable is the longstanding rule in North Carolina: lex loci contractus, that the substantive law of the state where the last act to make a binding contract takes place controls all aspects of the interpretation of contracts. Land Co. v. Byrd, 299 N.C. 260, 262, 261 S.E.2d 655, 656 (1980); Bundy v. Commercial Credit Co., 200 N.C. 511, 516, 157 S.E. 860, 863 (1931).
On many occasions, this Court has applied this rule in determining what law should be applied in disputes over insurance contracts. In Roomy v. Allstate Ins. Co., 256 N.C. 318, 123 S.E.2d 817 (1962), this Court adopted the rule that the interpretation of an insurance contract depends upon the law of the place where the policy is delivered. See also Connor v. State Farm Mut. Auto. Ins. Co., 265 N.C. 188, 143 S.E.2d 98 (1965); Keesler v. Mutual Benefit Life Ins. Co. of New York, 177 N.C. 394, 99 S.E. 97 (1919).
The majority attempts to distinguish Roomy, Keesler, and Connor by arguing that the policy at issue here has a much greater causal connection to North Carolina than the cases in which this Court and the United States Supreme Court applied lex loci contractus. While I agree that in this case there are more connections *100with North Carolina because a majority of the trucks are registered in North Carolina and C&A has manufacturing plants in North Carolina, I disagree that these connections, when looking at the policy as a whole, are enough to justify applying North Carolina law to this contract. As noted above, this policy covered not only trucks, but every other type of imaginable risk involving the business operations and products of C&A that could result in the injuries noted in the policy. C&A had thirty-four plants in seven states and two Canadian provinces. In addition, C&A had listed its headquarters as New York City at the time the policy was issued. During the policy term, there were nineteen accidents that potentially could have involved the Hartford excess policy; nine of these accidents were not in North Carolina. Finally, in neither Roomy, Keesler, nor- Connor did we rely upon or even discuss that the number of contacts with North Carolina was determinative of the choice of law.
When reviewing the circumstances of the issuance of this policy and the contents of the policy itself, I fail to find enough connections with North Carolina to justify the application of N.C.G.S. § 58-3-1. I believe that lex loci contractus should apply and that the applicable law should be determined based upon the substantive law of the state where the last act creating a binding contract took place. In regard to insurance contracts, it is usually held that the delivery of the contract is the last act to make a binding contract. Mutual Life Ins. Co. v. Johnson, 293 U.S. 335, 339, 79 L. Ed. 398, 401 (1934). Here, the policy was mailed from Hartford, Connecticut, to Marsh & McLennan in Los Angeles, California, sometime in March of 1987. Marsh & McLennan had possession of the policy until 8 March 1988, by which time the accident in question had already occurred and the policy had expired. Because the contract was negotiated by, paid by, and delivered to Marsh & McLennan in Los Angeles and because the policy covers so many different interests around the United States and the world, I believe that the proper choice of law is California, which is the state where the last act to make a binding contract (the delivery of the policy) took place. In California, punitive damages are uninsurable as a matter of public policy; thus, the plaintiff here would not be able to recover punitive damages from Hartford under its policy of insurance. State Farm Fire & Cas. Co. v. Superior Court, 191 Cal. App. 3d 74, 77-78, 236 Cal. Rptr. 216, 219 (1987). In addition, here the policy itself states that “damages” do not include damages *101for which insurance is prohibited by the law applicable to the construction of the policy.
Assuming arguendo, however, that North Carolina law applies, Hartford’s policy still affords no coverage for punitive damages. Punitive damages, quite simply, are not awarded “because of bodily injury.” Punitive damages are awarded solely to punish the wrongdoer for his outrageous conduct. Oestreicher v. Stores, 290 N.C. 118, 134, 225 S.E.2d 797, 807 (1976). In Cavin’s Inc. v. Atlantic Mut. Ins. Co., 27 N.C. App. 698, 220 S.E.2d 403 (1975), the Court of Appeals held that the liability insurance policy in question did not afford coverage for punitive damages. In Cavin’s, the policy defined “damages” to mean only those payable “because of a personal injury.” The Court of Appeals explained that punitive damages were not payable because of personal injury, stating:
Punitive damages are never awarded merely because of a personal injury inflicted nor are they measured by the extent of the injury; they are awarded because of the outrageous nature of the wrongdoer’s conduct. Being awarded solely as punishment to be inflicted on the wrongdoer and as a deterrent to prevent others from engaging in similar wrongful conduct, punitive damages can in no proper sense be considered as being awarded “only with respect to personal injury” or as damages “which are payable because of personal injury.” Compensatory damages, which are awarded to compensate and make whole the injured party and which are therefore to be measured by the extent of the injury, are the only damages which are payable “because of personal injury.”
Id. at 702, 220 S.E.2d at 406.
In addition, this Court has interpreted the phrase “damages sustained” to not include punitive damages. In Transportation Co. v. Brotherhood, 257 N.C. 18, 125 S.E.2d 277, cert. denied, 371 U.S. 862, 9 L. Ed. 2d 100, reh’g denied, 371 U.S. 899, 9 L. Ed. 2d 131 (1962), we held that
[d]amages sustained are limited to actual damages suffered as a result of the wrong inflicted. Punitive damages are never awarded as compensation. They are awarded above and beyond actual damages, as a punishment for the defendant’s intentional wrong. They are given to the plaintiff in a proper case, not because they are due, but because of the opportunity the case *102affords the Court to inflict punishment for conduct intentionally wrongful.
Id. at 30, 125 S.E.2d at 286 (citation omitted).
The Court of Appeals, relying on Transportation Co. v. Brotherhood, determined that the phrase “damages because of bodily injuries” did not include punitive damages. Nationwide Mut. Ins. Co. v. Knight, 34 N.C. App. 96, 100-01, 237 S.E.2d 341, 345, disc. rev. denied, 293 N.C. 589, 239 S.E.2d 263 (1977) (emphasis added). In addition, numerous courts in other jurisdictions support the view that punitive damages are not damages “because of bodily injury.” See Union Ins. Co. v. Kjeldgaard, 775 P.2d 55, 56 (Colo. Ct. App. 1988); Brown v. Western Cas. & Surety Co., 484 P.2d 1252, 1253 (Colo. Ct. App. 1971); Braley v. Berkshire Mut. Ins. Co., 440 A.2d 359, 361 (Me. 1982); Caspersen v. Webber, 298 Minn. 93, 100, 213 N.W.2d 327, 331 (1973); Schnuck Markets, Inc. v. Transamerica Ins. Co., 652 S.W.2d 206, 209-10 (Mo. Ct. App. 1983); Crull v. Gleb, 382 S.W.2d 17, 23 (Mo. Ct. App. 1964); Creed v. Allstate Ins. Co., 365 Pa. Super. 136, 141, 529 A.2d 10, 12 (1987), appeal denied, 517 Pa. 616, 538 A.2d 499 (1988); Laird v. Nationwide Ins. Co., 243 S.C. 388, 397, 134 S.E.2d 206, 210 (1964). The policy here was for damages “because of bodily injury”; thus, the policy does not cover punitive damages.
It is true that this Court has concluded that when a policy is written to cover “all damages, including damages for death, which are payable because of injury to which this insurance applies,” punitive damages may be included in the recovery. Mazza v. Medical Mut. Ins. Co., 311 N.C. 621, 629, 631, 319 S.E.2d 217, 222, 223 (1984). In Mazza, the policy provided medical malpractice coverage for “[a]ny claim . . . arising out of the performance of professional services rendered.” Id. at 623, 319 S.E.2d at 219. Thus, in Mazza, the insurer chose to define damage coverage by the cause of the damage (professional services) not by the effect on the injured party (bodily injury). Thus, Mazza can be distinguished from the case at hand because here, the damages that may be recovered have been limited to damages incurred “because of bodily injury.” '
In determining that the policy in Mazza provided for punitive damages awarded on account of medical malpractice, this Court carefully and expressly distinguished the Court of Appeals cases *103that held that policies do not cover punitive damages. This Court noted:
A careful examination of the insurance contracts, factual situations, and holdings in Cavin’s and Knight convinces us that these two cases are clearly distinguishable from the case sub judice, and are not any legal precedent upon which to base a decision favorable to the defendant Medical Mutual. In other words, neither Cavin’s nor Knight control in this situation.
Mazza, 311 N.C. at 631, 319 S.E.2d at 223.
The policy at issue here contains language identical to that found in Knight and similar to that in Cavin’s-, thus, it seems that Mazza, which held Cavin’s and Knight distinguishable, should not apply to this case. The policy at issue here is simply not as broad as that found in Mazza because Hartford included the limiting phrase “because of bodily injury” in its definition of damages covered. Thus, Hartford should not be required to pay the punitive damages awarded in this case.
The majority relies on Hawkins v. Hawkins, 331 N.C. 743, 417 S.E.2d 447 (1992), for the proposition that if the plaintiff is entitled to recover compensatory damages for bodily injury, the plaintiff can also recover punitive damages. I do not find Hawkins apposite here. In Hawkins, we did not condition the recovery of punitive damages on the recovery of compensatory damages; in fact, we allowed punitive damages when no compensatory damages were awarded. Hawkins, which incidentally was an assault and battery case and had nothing whatsoever to do with an insurance contract, merely establishes that the recovery of punitive damages is not dependent on the recovery of compensatory damages, whether for bodily injury or any other injury or damage.
Furthermore, Hartford should not be liable for punitive damages here because Hartford’s policy defines “damages” not to include fines or penalties. This Court has held that “ambiguity in the terms of an insurance policy is not established by the mere fact that the plaintiff makes a claim based upon a construction of its language which the company asserts is not its meaning.” Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970). Where a nontechnical term such as “penalty” is not defined in the policy, the court should give the term its ordinary meaning. Grant v. Emmco Ins. Co., 295 N.C. 39, 42, 243 S.E.2d 894, 897 (1978). “Penalty” is defined as “[a] punishment *104established by law or authority for a crime or an offense,” The American Heritage Dictionary of the English Language 1337 (3d ed. 1992); “punitive damages” are “[d]amages awarded by a court against a defendant as a deterrent or punishment to redress an egregious wrong perpetrated by the defendant,” id. at 1469. Thus, punitive damages come within this definition of the term “penalty.”
In America Home Assurance Co. v. Fish, 122 N.H. 711, 715, 451 A.2d 358, 360 (1982), the court found that where losses that include “fines and penalties imposed by law” are excluded from coverage, punitive damages are not covered within the policy. See also Northwestern Nat’l Cas. Co. v. McNulty, 307 F.2d 432, 436 (5th Cir. 1962) (Florida characterization of punitive damages as a “penalty” conforms with the most widely accepted basis for punitive damages in other American jurisdictions).
The interpretation of punitive damages as a fine or penalty is supported by the United States Supreme Court, which has found that a jury may inflict what are called exemplary, punitive, or vindictive damages “ ‘by means of a civil action, and the damages, inflicted by way of penalty or punishment, [are] given to the party injured.’ ” Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 16, 113 L. Ed. 2d 1, 18 (1991) (quoting Day v. Woodworth, 54 U.S. (13 How.) 363, 371, 14 L. Ed. 181, 185 (1851)). The United States Supreme Court has also held that punitive damages are not compensation for injury but, rather, are “ ‘private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence.’ ” International Broth. of Elec. Workers v. Foust, 442 U.S. 42, 48, 60 L. Ed. 2d 698, 704 (1979) (quoting Gertz v. Robert Welch, Inc., 418 U.S. 323, 350, 41 L. Ed. 2d 789, 811 (1974)).
I conclude that giving the terms “penalty” and “fine” their ordinary meanings, they include punitive damages. As such, it is clear that the exclusion of fines and penalties would exclude punitive damages.
The majority errs in determining that the policy should be interpreted under North Carolina law, and even assuming arguendo that the majority was correct in its choice of law, the language of the policy does not cover awards of punitive damages. I vote to reverse the decision of the Court of Appeals.
Chief Justice Exum and Justice Parker join in this dissenting opinion.