Court Opinion

ID: 2728098
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:29:02.191749+00
Date Added: 2024-06-11T15:43:32.989006
License: Public Domain

NO. COA13-902-2

                 NORTH CAROLINA COURT OF APPEALS

                       Filed:     1 July 2014

MICHAEL I. CINOMAN, M.D., AND
MEDICAL MUTUAL INSURANCE
COMPANY OF NORTH CAROLINA,
     Plaintiffs,

    v.                              Wake County
                                    No. 09 CVS 3164
THE UNIVERSITY OF NORTH
CAROLINA; THE UNIVERSITY OF
NORTH CAROLINA HEALTHCARE
SYSTEM, D/B/A THE UNIVERSITY OF
NORTH CAROLINA HOSPITALS AT
CHAPEL HILL; THE UNIVERSITY OF
NORTH CAROLINA, D/B/A THE
SCHOOL OF MEDICINE OF THE
UNIVERSITY OF NORTH CAROLINA AT
CHAPEL HILL; THE UNIVERSITY OF
NORTH CAROLINA, D/B/A THE
UNIVERSITY OF NORTH CAROLINA
LIABILITY INSURANCE TRUST FUND;
WILLIAM L. ROPER, IN HIS
CAPACITY AS DEAN OF THE SCHOOL
OF MEDICINE OF THE UNIVERSITY
OF NORTH CAROLINA AT CHAPEL
HILL; BRIAN GOLDSTEIN IN HIS
CAPACITY AS CHAIRMAN OF THE
UNIVERSITY OF NORTH CAROLINA
LIABILITY INSURANCE TRUST FUND
COUNCIL; THOMAS M. STERN, AS
GUARDIAN AD LITEM FOR ARMANI
WAKEFALL; AND WAKEMED,
     Defendants.

    Appeal by plaintiffs from order entered 19 April 2013 by

Judge Carl R. Fox in Wake County Superior Court.      Heard in the

Court of Appeals 6 January 2014 and opinion filed 4 March 2014.
                                       -2-
Petition for Rehearing allowed 17 April 2014.

      Manning, Fulton & Skinner, P.A., by Michael T. Medford and
      J. Whitfield Gibson, for plaintiffs-appellants.

      Hedrick Gardner Kincheloe & Garofalo, LLP, by David N.
      Allen, J. Douglas Grimes, and M. Duane Jones, for the
      University of North Carolina defendants-appellees.

      Tin, Fulton, Walker & Owen, by William Simpson, and
      Ferguson, Chambers & Sumter, P.A., by James E. Ferguson II,
      for defendant-appellee Thomas M. Stern, as Guardian ad
      Litem for Armani Wakefall.

      MARTIN, Chief Judge.

      Plaintiffs   Michael     I.     Cinoman,   M.D.   and    Medical    Mutual

Insurance    Company    of   North    Carolina   (“MMIC”)     appeal     from   an

order granting UNC defendants’1 motion to stay this declaratory

action pending a final resolution of the underlying malpractice

action.     On 4 March 2014, this Court filed an opinion reversing

the stay order.        UNC defendants filed a Petition for Rehearing

on   8 April 2014, which we           allowed    on 17 April 2014.          Upon

reconsideration, we reach the same disposition but modify the

originally filed opinion.           This opinion supersedes the previous

opinion filed 4 March 2014.

      In    February   1999,    Dr.    Cinoman    served      as   a   temporary

1
  UNC defendants are all defendants except for Thomas M. Stern,
who is a nominal defendant due to his interest in the insurance
coverage, and WakeMed, which is not a party to this appeal.
                                               -3-
attending physician for full-time rotations in the University of

North Carolina Hospitals at Chapel Hill Pediatric Intensive Care

Unit     (“UNC-PICU”)        as      part     of     an   agreement         to   assist      UNC

defendants with a staffing shortage in the UNC-PICU.                               On 21 June

2007, Thomas M. Stern, as guardian ad litem for Armani Wakefall,

initiated a medical malpractice action against Dr. Cinoman and

others for damages allegedly incurred by Wakefall as a result of

negligent treatment she received at the UNC-PICU in February

1999 (“underlying malpractice action”).

       Dr.     Cinoman      is      insured    under      a    professional          liability

insurance policy issued by MMIC, which has treated its coverage

as broad enough to cover the claims asserted against Dr. Cinoman

in the underlying malpractice action.                      UNC defendants maintained

that     Dr.      Cinoman      is    not      entitled        to    coverage       under    the

University        of   North      Carolina      Liability          Insurance     Trust      Fund

(“UNC-LITF”),          which        provides       coverage        for      claims    against

employees and agents of UNC defendants, because he was not a

full-time employee of UNC defendants at the time of the events

giving      rise    to   the      underlying         malpractice         action.       In    the

absence of coverage by the UNC-LITF, the damages demanded in the

underlying        malpractice        action        allegedly       exceed    Dr.     Cinoman’s

professional liability insurance coverage.

       On    17    February       2009,     plaintiffs        filed      this    declaratory
                                     -4-
judgment action to determine whether Dr. Cinoman is entitled to

coverage under the UNC-LITF, in addition to his coverage under

the MMIC policy, and the relative liabilities of MMIC and the

UNC-LITF.     Plaintiffs    and   UNC      defendants   moved    for   summary

judgment, and the trial court granted summary judgment in favor

of UNC defendants on 15 April 2010.               On appeal, this Court

reversed the summary judgment order, concluding that there were

questions of material fact that rendered summary judgment for

either party inappropriate, and remanded the case for trial.

Cinoman v. Univ.     of N.C., 216 N.C. App. 585,            718 S.E.2d 424

(2011)   (unpublished),      disc.      review   denied,    365 N.C.      573,

724 S.E.2d 527 (2012).

    On 28 February 2013, UNC defendants moved to stay further

proceedings in this action pending the final resolution of the

underlying malpractice action.             In an order entered 19 April

2013, the trial court granted the motion to stay, finding that

while an actual controversy exists as to the UNC-LITF’s duty to

defend, no such controversy exists as to the UNC-LITF’s duty to

indemnify   until   the   underlying     malpractice    action    is   finally

resolved.   Plaintiffs appeal from the order pursuant to N.C.G.S.

§§ 1-277 and 7A-27.       UNC defendants moved to dismiss the appeal

as interlocutory.

                      _________________________
                                          -5-
    We      must     first      determine        whether       the    trial        court’s

interlocutory order granting the stay is immediately appealable.

Although    interlocutory        orders     are    not        generally     appealable,

immediate appeal is available under N.C.G.S. §§ 1-277 and 7A-27

from an interlocutory order which affects a substantial right.

Sharpe v. Worland, 351 N.C. 159, 161–62, 522 S.E.2d 577, 578–79

(1999),    on     remand,    137 N.C.     App.     82,    527 S.E.2d        75     (2000).

Where there is a pending suit or claim, an interlocutory order

concerning the issue of whether an insurer has a duty to defend

in the underlying action “affects a substantial right that might

be lost absent immediate appeal.”                  Lambe Realty Inv., Inc. v.

Allstate    Ins.     Co.,    137 N.C.     App.    1,     4,    527 S.E.2d        328,     331

(2000).      We     therefore    conclude       that     the    appeal      is    properly

before us.

    A survey of the relevant case law indicates that our review

on appeal of an order granting a stay is an abuse of discretion

standard.        See Watters v. Parrish, 252 N.C. 787, 791, 115 S.E.2d

1, 4 (1960) (“Whether one lawsuit will be held in abeyance to

abide the outcome of another rests in the sound discretion of

the trial judge, and his action will not be disturbed on appeal,

unless     the     discretion    has    been      abused . . . .”);              see     also

Lawyers Mut. Liab. Ins. Co. of N.C. v. Nexsen Pruet Jacobs &

Pollard,    112 N.C.     App.    353,   356,      435 S.E.2d         571,    573       (1993)
                                          -6-
(concluding that order staying declaratory judgment action to

permit trial of parallel action in another state is reviewed for

abuse of discretion and declining to adopt a de novo standard of

review); Home Indem. Co. v. Hoechst-Celanese Corp., 99 N.C. App.

322,    325,    393 S.E.2d      118,    120     (holding     that      order    staying

litigation      pending     final      disposition      of     similar       action    in

federal court “is a matter within the sound discretion of the

trial judge and will not be disturbed on appeal absent an abuse

of that discretion”), appeal dismissed and disc. review denied,

327 N.C.      428,    396 S.E.2d    611    (1990).       “‘A    [trial]        court   by

definition      abuses    its   discretion       when   it     makes    an     error   of

law.’”       In re A.F., __ N.C. App. __, __, 752 S.E.2d 245, 248

(2013) (alteration in original) (quoting Koon v. United States,

518 U.S. 81, 100, 135 L. Ed. 2d 392, 414 (1996)).

       On    appeal,    plaintiffs     contend    the    trial      court      erred   by

granting the         stay based on its determination that no actual

controversy exists as to the UNC-LITF’s duty to indemnify until

the    underlying       malpractice     action    is    finally     resolved.          We

agree.

       “An     actual    controversy      between       adverse     parties       is   a

jurisdictional prerequisite for a declaratory judgment.”                         Newton

v. Ohio Cas. Ins. Co., 91 N.C. App. 421, 422, 371 S.E.2d 782,

783 (1988).       An actual controversy exists where an insurer seeks
                                             -7-
a determination that primary coverage is not provided under its

policy and is instead provided under policies issued by other

insurers.      See Gov’t Emps. Ins. Co. v. New S. Ins. Co., 119 N.C.

App.    700,     704,    459 S.E.2d      817,      819,   disc.    review    denied,

341 N.C.     648,      462 S.E.2d      510    (1995).      No     such   controversy

exists, however, in a declaratory judgment action to determine

whether coverage is provided under an excess insurance policy

where the underlying liability action has not yet been resolved.

See N.C. Farm Bureau Mut. Ins. Co. v. Warren, 89 N.C. App. 148,

150, 365 S.E.2d 216, 217–18, disc. review denied, 322 N.C. 481,

370 S.E.2d 226 (1988), appeal after remand, 94 N.C. App. 591,

380 S.E.2d 790 (1989).

       When more than one insurance policy affords coverage for a

loss, the “other insurance” clauses in the competing policies

must   be    examined     to    determine      which    policy    provides   primary

coverage and which policy provides excess coverage.                      Hlasnick v.

Federated Mut. Ins. Co., 136 N.C. App. 320, 328, 524 S.E.2d 386,

391, aff’d in part and disc. review improvidently allowed in

part, 353 N.C. 240, 539 S.E.2d 274 (2000).                  An excess clause is

a type of “other insurance” clause which “generally provides

that    if     other    valid    and    collectible       insurance      covers   the

occurrence       in     question,      the     ‘excess’   policy     will    provide

coverage only for liability above the maximum coverage of the
                                  -8-
primary policy or policies.”        Horace Mann Ins. Co. v. Cont’l

Cas. Co., 54 N.C. App. 551, 555, 284 S.E.2d 211, 213 (1981)

(internal    quotation   marks   omitted).   An   excess   clause   is

distinguishable from a pro rata “other insurance” clause.           See

Fid. & Cas. Co. of N.Y. v. N.C. Farm Bureau Mut. Ins. Co.,

16 N.C. App. 194, 203–04, 192 S.E.2d 113, 120–21 (“The terms

‘prorate’ and ‘excess’ do not have, and were not meant by the

insurers to have identical meanings.”), cert. denied, 282 N.C.

425, 192 S.E.2d 840 (1972).       In Fidelity & Casualty Co., this

Court differentiated a pro rata clause in one policy from an

excess clause in another policy:

            The Farm Bureau policy provides that if the
            injury or damage is covered by other
            applicable and collectible insurance, then
            Farm Bureau shall not be liable for a
            greater proportion of the loss than its
            limit of liability bears to the total
            applicable limits of liability of all valid
            and collectible insurance.     The F and C
            policy, however, provides that its insurance
            coverage shall be excess to any other valid
            and collectible insurance with respect to
            loss arising out of the use of any non-owned
            automobile.   The Farm Bureau provision is
            known as a “pro rata” clause; the F and C
            provision, an “excess” clause.

Id. at 203, 192 S.E.2d at 120–21.

    Where a pro rata clause in one policy competes with an

excess clause in another policy, the policy with the pro rata

clause provides primary coverage, and the policy with the excess
                                           -9-
clause provides secondary coverage which will only be triggered

if the limits of the policy containing the pro rata clause are

first     exhausted.         See     id.     at        204,       192 S.E.2d       at     121.

Furthermore, where a pro rata clause in one policy competes with

a pro rata clause in another policy, each insurer has primary

concurrent liability for a proportionate amount of the loss.

See 44A Am. Jur. 2d Insurance § 1752 (2013).                                 Accordingly, an

actual controversy exists in a declaratory judgment action to

determine the liability of an insurer under its policy where the

policy    contains     a   pro   rata      clause      and    the        other    applicable

policy contains either an excess clause or a pro rata clause.

      In general, there is no primary versus excess insurance

policy relationship where a self-insurance program is at issue

because     self-insurance       does     not     constitute            other    collectible

insurance within the meaning of an insurance policy’s “other

insurance”    clause.        Cone    Mills       Corp.       v.    Allstate       Ins.   Co.,

114 N.C. App. 684, 688–89, 443 S.E.2d 357, 360–61 (1994), disc.

review      improvidently        allowed         per     curiam,             340 N.C.    353,

457 S.E.2d     300   (1995).         Self-insurance               is    equivalent       to   a

primary     insurance      policy,      however,        “when          the    self-insurance

expressly provides that it is primary to other insurance.”                                Id.

at   689,   443 S.E.2d      at     361.      That       is,       while       self-insurance

generally is not a primary insurance policy, an exception exists
                                          -10-
where       the     self-insurance       states       that    it     affords     primary

coverage.         Cf. id. (concluding that insured’s self-insurance was

not the primary insurance policy where there was no evidence

that    the       self-insurance      stated     it   would    be    primary     to   the

insured’s other insurance).

       In their Petition, UNC defendants rely on Cone Mills Corp.

for the contention that the UNC-LITF is self-insurance and thus

cannot be deemed a primary insurance policy.                        We note that this

is the first time that UNC defendants have claimed that the

UNC-LITF is self-insurance.               On appeal, UNC defendants made no

assertion that the UNC-LITF is self-insurance and failed to cite

to a single case in which self-insurance was at issue; rather,

UNC    defendants      likened     the    UNC-LITF      to    an    excess     insurance

policy and relied on cases finding no actual controversy exists

in a declaratory judgment action to determine coverage provided

by an excess insurance policy.

       The UNC-LITF is a self-insurance program for professional

liability,         authorized    by    N.C.G.S.       § 116-219.         However,     the

UNC-LITF, by its terms set forth in the UNC-LITF Memorandum of

Coverage, falls under the exception carved out in Cone Mills

Corp. and affords primary coverage.                   We find the plain language

of    the     following    “other      insurance”       clause      in   the   UNC-LITF

Memorandum of Coverage to be controlling:
                                      -11-
            ARTICLE VII.      OTHER INSURANCE

                 When    this   agreement    and    other
            collectible insurance both apply to a loss
            on the same basis, whether primary, excess
            or contingent, the Trust Fund shall not be
            liable under this agreement for a greater
            proportion of the loss than that stated in
            the applicable contribution provision below:

                 A.    Contribution by Equal Shares.   If
            all   such    other   valid and   collectible
            insurance provides for contribution by equal
            shares, the Trust Fund shall not be liable
            for a greater proportion of such loss than
            would be payable if each insurance company
            contributes an equal share until the share
            of each company equals the lowest applicable
            limit of liability under any one policy or
            the full amount of the loss is paid.     With
            respect to any amount of loss not so paid,
            the remaining companies shall continue to
            contribute equal shares of the remaining
            amount of the loss until each such company
            has paid its limit in full or the full
            amount of the loss is paid.

                 B.   Contribution by Limits. If any of
            such other insurance does not provide for
            contribution by equal shares, the Trust Fund
            shall not be liable for a greater proportion
            of such loss than the applicable limit of
            liability under this agreement for such loss
            bears to the total applicable limit of
            liability of all valid and collectible
            insurance against such loss.

    Nothing    in    this    provision    indicates      that   the    UNC-LITF’s

liability   arises    only    after     the   limits    of   other    collectible

insurance policies have been exhausted.                 Rather, the provision

provides    that     the     UNC-LITF     shares       liability      with   other
                                             -12-
collectible         insurance     according         to    their       respective        limits.

Thus,   the     UNC-LITF       “other       insurance”         clause    is    a   pro     rata

clause.       See Fid. & Cas. Co., 16 N.C. App. at 203–04, 192 S.E.2d

at 120–21.

       While    the     UNC-LITF       “other          insurance”       clause     does     not

expressly       provide       that     the    UNC-LITF         is     primary      to     other

insurance,      the     pro     rata    clause         nonetheless       means     that     the

UNC-LITF provides primary coverage regardless of the terms of

the   MMIC     policy.2       Assuming,       arguendo,         that     the   MMIC      policy

contains an excess clause, then the UNC-LITF provides primary

coverage.       See id. at 204, 192 S.E.2d at 121.                      If, on the other

hand,   the     MMIC    policy       contains      a     pro   rata     clause,    then     the

UNC-LITF and MMIC share liability on a pro rata basis according

to    their    respective       limits       and,      for     that    reason,     both     the

UNC-LITF and MMIC provide primary concurrent coverage.                                  See 44A

Am. Jur. 2d Insurance § 1752.                   Therefore, because the UNC-LITF

affords primary coverage, an actual controversy exists as to the

UNC-LITF’s      duty    to    indemnify,        and      the    trial    court     erred     by

granting      the    stay     based    on    its       determination       that     no     such

2
  Although the MMIC policy is not included in the record on
appeal, a review of the policy is not necessary because the
UNC-LITF “other insurance” clause is a pro rata clause. That
is, regardless of whether the MMIC policy contains an excess
clause or a pro rata clause, the UNC-LITF provides primary
coverage.
                                    -13-
controversy exists pending a final resolution in the underlying

malpractice action.        The remaining arguments in UNC defendants’

Petition   are   without    merit   and    we   decline   to   consider   them

further.

    Reversed.

    Judges ERVIN and McCULLOUGH concur.