Court Opinion

ID: 2729033
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:38:26.327183+00
Date Added: 2024-06-11T15:43:39.614072
License: Public Domain

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in
accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of
A   p   p    e   l   l   a    t   e       P   r    o   c   e   d   u    r   e   .

                              NO. COA13-902
                     NORTH CAROLINA COURT OF APPEALS

                            Filed:    4 March 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
                                        -2-
Judge Carl R. Fox in Wake County Superior Court.                      Heard in the

Court of Appeals 6 January 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 defendants1 motion to stay this declaratory

action pending a final resolution of the underlying malpractice

action.     For the reasons stated herein, we reverse.

       In   February   1999,     Dr.    Cinoman     served      as    a     temporary

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,
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-
initiated a medical malpractice action against Dr. Cinoman and

others for damages allegedly incurred by Wakefall as a result of

negligent medical treatment at the UNC-PICU in February 1999

(“underlying malpractice action”).

      Dr.     Cinoman       is     insured       under     a     medical       malpractice

insurance policy issued by MMIC, which has treated its coverage

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

underlying malpractice action.               The University of North Carolina

Liability        Insurance       Trust    Fund    (“UNC-LITF”),            which    provides

coverage      for    claims       against        employees       and       agents    of   UNC

defendants,        maintained      that    Dr.     Cinoman       is    not    entitled    to

coverage    under     the     UNC-LITF      because       he    was    not    a     full-time

employee      of    UNC      defendants      at     the        time    of     the    alleged

negligence.         In the absence of coverage by the UNC-LITF, the

damages demanded in the underlying malpractice action allegedly

exceed Dr. Cinoman’s medical malpractice insurance coverage.

      On    17     February      2009,    plaintiffs       filed       this    declaratory

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 policies’ relative order of priority.

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
                                          -4-
summary judgment order, concluding that there were questions of

material      fact     which   made   summary      judgment         for    either    party

inappropriate, and remanded the case for trial.                              Cinoman v.

Univ.    of    N.C.,    __ N.C.    App.     __,    __,       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 this

action      pending      the     final     resolution          of     the     underlying

malpractice action.            In an order entered on 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 move to dismiss the appeal

as interlocutory.

                           _________________________

     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
                                         -5-
(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

on 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 abuse of discretion.

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) (concluding

that order staying proceedings in North Carolina 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
                                             -6-
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) (quoting Koon v.

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

       On appeal, plaintiffs contend that the trial court erred in

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 when an insurer seeks

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 seeking to

establish       coverage    provided     under     an    excess     insurance    policy
                                           -7-
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

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.

(Fidelity), 16 N.C. App. 194, 203–04, 192 S.E.2d 113, 120–21,

cert. denied, 282 N.C. 425, 192 S.E.2d 840 (1972) (“The terms
                                     -8-
‘prorate’ and ‘excess’ do not have, and were not meant by the

insurers to have identical meanings.”).             In Fidelity, 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.

      As a general rule, 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 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

insurance policy competes with            a   pro rata   clause in another

policy, each insurer has primary but concurrent liability for a

proportionate amount of the loss.             See 44A Am. Jur. 2d Insurance
                                         -9-
§ 1752 (2013).          Accordingly, an actual controversy exists in an

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.

    A study of the “other insurance” clause in the UNC-LITF

policy    leads    us    to   conclude    that    the   trial    court    erred   in

determining that no actual controversy exists as to the UNC-

LITF’s duty to indemnify until the underlying malpractice action

is finally resolved.           No actual controversy would exist as to

the UNC-LITF’s duty to indemnify if the coverage provided under

the UNC-LITF policy is excess or triggered only after exhaustion

of the MMIC policy limits.               See Warren, 89 N.C. App. at 150,

365 S.E.2d at 217–18.          The “other insurance” clause in the UNC-

LITF policy, however, provides:

                    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
                                          -10-
               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 have been exhausted.                  Rather, the provision provides

that     the    UNC-LITF       shares    liability    with       other     collectible

policies       according        to      their     respective        policy     limits.

Therefore, by its terms, the UNC-LITF “other insurance” clause

is a pro rata clause, not an excess clause.                           See Fidelity,

16 N.C. App. at 203, 192 S.E.2d at 120–21.

       Regardless of the terms of the MMIC policy,2 the UNC-LITF

policy    provides      primary      coverage     because    the    UNC-LITF    policy

2
  Although the MMIC policy is not included in the record on
appeal, a review of that policy is not necessary because the
UNC-LITF policy contains a pro rata “other insurance” clause.
That is, regardless of whether the MMIC policy contains an
excess clause or a pro rata clause, the UNC-LITF policy provides
primary coverage.
                                        -11-
contains     a   pro   rata    “other     insurance”         clause.      Assuming,

arguendo, that the MMIC policy contains an excess clause, then

the UNC-LITF policy 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

policy limits and, for that reason, each policy provides primary

but concurrent coverage.         See 44A Am. Jur. 2d Insurance § 1752.

Therefore,       because   the    UNC-LITF          policy     provides     primary

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

to indemnify, and the trial court erred in granting the stay

based   on   its    determination       that   no    such     controversy    exists

pending a final resolution in the underlying malpractice action.

    Reversed.

    Judges ERVIN and McCULLOUGH concur.

    Report per Rule 30(e).