Court Opinion

ID: 1028813
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:47:00.937661+00
Date Added: 2024-06-11T09:19:23.642110
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                               No. 07-1941

CHRISTOPHER A. HANEY, on behalf of himself, individually,
and as a class representative of all holders of North
Carolina automobile insurance policies issued by USAA
Casualty Insurance Company, United Services Automobile
Association, USAA General Indemnity Company, USAA County
Mutual Insurance Company, and USAA, and in effect at any
time from and after December 1, 2002,

                 Plaintiff - Appellant,

           v.

USAA CASUALTY INSURANCE COMPANY, a Texas Insurance Company;
UNITED SERVICES AUTOMOBILE ASSOCIATION, a Texas Reciprocal
Interinsurance Exchange; USAA GENERAL INDEMNITY COMPANY, a
Texas Insurance Company,

                 Defendants – Appellees,

           and

USAA COUNTY MUTUAL INSURANCE COMPANY, a Texas Insurance
Company; USAA, a Texas Association of Insurance and
Financial Companies,

                 Defendants.

Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. James C. Fox, Senior
District Judge. (5:06-cv-00006-F)

Argued:   January 27, 2009                   Decided:   May 15, 2009

Before MICHAEL, GREGORY, and AGEE, Circuit Judges.
Affirmed by unpublished opinion. Judge Agee wrote the majority
opinion, in which Judge Michael joined.    Judge Gregory wrote a
separate opinion concurring in part and dissenting in part.

ARGUED: John Crudup Rogers, III, ALLEN, MOORE & ROGERS, L.L.P.,
Raleigh, North Carolina, for Appellant.   David A. Jones, AKIN,
GUMP, STRAUSS, HAUER & FELD, San Antonio, Texas, for Appellees.
ON BRIEF: Josiah Stockton Murray, III, HEDRICK, MURRAY, BRYSON,
KENNETT, MAUCH & ROGERS, P.L.L.C., Durham, North Carolina, for
Appellant. Reid L. Phillips, BROOKS, PIERCE, MCLENDON, HUMPHREY
& LEONARD, L.L.P., Greensboro, North Carolina; Nada L. Ismail,
AKIN, GUMP, STRAUSS, HAUER & FELD, San Antonio, Texas, for
Appellees.

                               2
AGEE, Circuit Judge:

                                     I.

     Christopher A. Haney, individually and as a proposed class

representative, filed suit in North Carolina state court against

USAA Casualty Insurance Company (“USAA Casualty”), USAA General

Indemnity    Company    (“USAA     General”),   and   United     Services

Automobile        Association      (“USAA”)     (collectively,      “the

Defendants”). 1    USAA is the parent company of USAA Casualty and

USAA General.     All three market and sell auto insurance policies

to members of the armed services and their families and use the

same “form” policies.     At all times relevant to this suit, Haney

was the named insured on an automobile insurance policy issued

by USAA Casualty and only that company’s name appeared on the

declarations page of his policy. 2

     Haney asserted a breach of contract claim, among others,

against the Defendants.         He argued that although the Defendants

routinely pay auto dividends to their policyholders in other

states, they refused to make dividend payments to policyholders

     1
       Haney also sued, as separate party defendants, USAA County
Mutual Insurance Company and USAA, a trade name.     Both parties
were subsequently dismissed from this action.
     2
       Reference to Haney’s “policy” includes renewals of that
policy that occurred during the relevant timeframe. The record
does not reveal any variation among the terms or conditions of
the renewed policies that would affect the issues on appeal.

                                     3
in   North    Carolina,      including     Haney,     beginning     in    2002.

According    to    Haney,    the     Defendants     blamed   this   disparate

treatment    on   North   Carolina’s     “unique    procedures    for    setting

automobile insurance rates”. 3

     The Defendants timely removed the case to the United States

District Court for the Eastern District of North Carolina.                    USAA

Casualty filed an answer while the remaining defendants filed

motions to dismiss under Rule 12(b)(1).              USAA and USAA General

asserted that, as an insured under a policy issued only by USAA

Casualty, Haney lacked standing to pursue his claims against

them.

     Haney    filed   a     motion   for   class    certification       and   the

appointment of class counsel.          The Defendants filed motions for

        3
        The record reflects that USAA and its subsidiaries
consider the regulatory process for the approval of insurance
rates in North Carolina uniquely burdensome among the states.
We only note that the record reflects North Carolina’s
regulatory scheme allows insurers, like USAA, to charge higher
proposed rates before a proposed rate increase has been approved
by the North Carolina Insurance Commissioner so long as any
increased revenue above an existing approved rate is set aside
in an escrow account until such time as the Insurance
Commissioner approves or disallows the proposed increase.
Should the Insurance Commissioner not approve some part of the
proposed increase, all monies in escrow, plus interest,
reflecting the disallowed part of the increase, must be refunded
to policyholders.   This would be so even if USAA had already
issued dividends to the policyholders based on the collected
premiums.   This system routinely leads to protracted disputes
(and often litigation) between insurers such as USAA and the
Insurance Commissioner.

                                       4
summary judgment and successfully sought to stay briefing on

Haney’s motions regarding class certification pending resolution

of the dispositive motions.

        On August 17, 2007, the district court issued an extensive

order simultaneously disposing of the motions to dismiss and

motions     for    summary           judgment.        The    district       court     first

determined       that        Haney    lacked     standing       to   sue    USAA    General

because, as an insured of USAA Casualty, he could not establish

“any    action    by     USAA        [General]     that   has    caused     him    injury.”

Haney v. USAA Casualty Ins. Co., et al., No. 5:06-CV-6-F, slip

op. at 16 (E.D.N.C. Aug. 17, 2007).                         Even though Haney could

also not show he was an insured of USAA, the district court

found    that     he    had     pled     sufficient       allegations       to    establish

individual standing to pursue a claim against USAA because he

alleged    that        the    USAA     Board     of   Directors      made    the     actual

decision regarding the payment (or nonpayment) of dividends for

USAA Casualty policyholders.                     Accordingly, the district court

granted USAA General’s motion to dismiss, but denied the motion

as to USAA.            The district court addressed, and granted, the

summary judgment motions by USAA and USAA Casualty.

       On appeal, Haney contends the district court erroneously

concluded there were no issues of material fact with respect to

the Defendants’ duty to pay auto dividends and thus erred in

granting summary judgment on his claims for breach of contract,

                                               5
violation      of     North    Carolina’s       Unfair     and     Deceptive      Trade

Practices Act, N.C. Gen. Stat. §                75.1.1 et seq. (“UDTPA”), and

declaratory judgment. 4         He also contends the district court erred

in finding that he lacked standing to sue USAA General.                        For the

reasons     that     follow,   we   affirm      the   judgment     of   the    district

court.

                                        II.

      Haney contends the district court erred in holding that he

lacked standing to sue USAA General.                  To have standing vis-à-vis

USAA General, Haney “must have suffered an ‘injury in fact’-an

invasion of a legally protected interest which is (a) concrete

and       particularized,      and    (b)        ‘actual      or      imminent,     not

‘conjectural’         or   ‘hypothetical’”            Lujan      v.     Defenders   of

Wildlife,      504     U.S.    555,   560       (1992)     (quoting      Whitmore   v.

Arkansas,      495     U.S.    149,    155      (1990))      (internal        citations

omitted).      Not only must Haney demonstrate injury, he must also

show that the injury sustained is "fairly . . . traced to the

challenged action of [USAA General], and not injury that results

from the independent action of some third party not before the

      4
       Haney also asserted a claim for breach of fiduciary duty
against USAA and USAA-Casualty.    Although the district court
also granted summary judgment on this claim, Haney has not
sought review of this decision on appeal and we do not consider
it.

                                            6
court.”      Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 41–42

(1976); see also Friends for Ferrell Parkway v. Stasko, 282 F.3d

315, 320 (4th Cir. 2002) (“The traceability requirement ensures

that    it   is   likely   the   plaintiff's       injury    was      caused    by   the

challenged conduct of the defendant, and not by the independent

actions of third parties not before the court.”).

       Haney predicates his standing argument on the contention

that purchasing an auto policy from USAA Casualty makes him a

member of USAA and it is that company’s board of directors that

decides whether to pay a dividend to USAA Casualty and USAA

General policyholders.           Even if this is so, Haney fails to show

any causal relation to a decision by USAA’s board of directors

to     withhold     the    payment     of     dividends          to   USAA      General

policyholders      that    causes    damage   to    him     as    a   USAA     Casualty

policyholder.       Haney thus concedes that any damages he incurs

from loss of the dividend is traceable to USAA and has no nexus

to USAA General.           In short, Haney has not shown a “case or

controversy” exists between himself and USAA General sufficient

                                        7
to confer Article III standing. 5        Without Article III standing as

a   beginning    point,   Haney   cannot   claim   standing   for   Rule   23

purposes.       See Fallick, 162 F.3d at 423.         Thus, the district

court did not err in granting USAA General’s motion to dismiss. 6

      5
       Haney’s reliance on Fallick v. Nationwide Mut. Ins. Co.,
162 F.3d 410 (6th Cir. 1998) is misplaced. That court affirmed
the principle that “[a] potential class representative must
demonstrate individual standing vis-a-vis the defendant; he
cannot acquire such standing merely by virtue of bringing a
class action.”   Id. at 423 (emphasis added).  It is only after
“‘an individual has alleged a distinct and palpable injury to
himself [that] he has standing to challenge a practice even if
the injury is of a sort shared by a large class of possible
litigants.’”   Id. (quoting Senter v. General Motors Corp., 532
F.2d 511, 517 (6th Cir. 1976)).      Haney confuses standing to
challenge USAA’s practice of not paying dividends to North
Carolina policyholders with standing to sue a particular
corporate defendant, USAA General, with whom he has no legal
relationship.    Moreover, as at least one court has noted,
“circuit precedent interpreting ERISA, a statute that is not at
issue in the present case, was an important factor in the
[Fallick] court's decision regarding Article III standing.” In
re Eaton Vance Corp. Sec. Litig., 220 F.R.D. 162, 168 (D. Mass.
2004).
      6
       As a practical matter, even if Haney had standing as to
USAA General, his claims would fail for the same reasons they
fail against the other defendants.    We also note our agreement
with the district court’s determination that Haney possessed
standing to sue USAA.    Haney’s allegation that USAA’s board of
directors made the decision not to issue refunds for USAA
Casualty   policyholders   made   his   alleged  injury  “fairly
traceable” to USAA’s conduct.    See Lujan, 504 U.S. at 561 (“At
the pleading stage, general factual allegations of injury
resulting from the defendant's conduct may suffice, for on a
motion to dismiss we ‘presum[e] that general allegations embrace
those specific facts that are necessary to support the
claim.’”).

                                     8
                                            III.

       We review the grant of summary judgment de novo.                               Long v.

Dunlop Sports Group Ams., Inc., 506 F.3d 299, 301 (4th Cir.

2007)).      A    party       is    entitled       to    summary     judgment         “if    the

pleadings, the discovery and disclosure materials on file, and

affidavits       show    that      there    is     no    genuine     issue       as    to    any

material fact and that the movant is entitled to judgment as a

matter of law.”         Fed. R. Civ. P. 56(c).

       [T]he plain language of Rule 56(c) mandates the entry
       of summary judgment, after adequate time for discovery
       and upon motion, against a party who fails to make a
       showing sufficient to establish the existence of an
       element essential to that party's case, and on which
       that party will bear the burden of proof at trial. In
       such a situation, there can be ‘no genuine issue as to
       any material fact,’ since a complete failure of proof
       concerning an essential element of the nonmoving
       party's case necessarily renders all other facts
       immaterial.

Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).                                 “[T]he

burden on the moving party may be discharged by ‘showing’ – that

is,   pointing     out    to       the   district       court    -   that    there      is    an

absence of evidence to support the nonmoving party's case.”                                  Id.

at    325.   “If        the   evidence      is     merely       colorable,       or    is    not

significantly       probative,           summary        judgment     may    be    granted.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)

(internal citations omitted).

                                             9
                           A.    Breach of Contract

     Under       North   Carolina     law,    “an   insurance        policy    is   a

contract and its provisions govern the rights and duties of the

parties thereto.”        Fidelity Bankers Life Ins. Co. v. Dortch, 348

S.E.2d 794, 796 (N.C. 1986).                Therefore, we have a “duty to

construe      and    enforce    insurance    policies    as    written,       without

rewriting      the   contract    or   disregarding      the    express    language

used.”     Id.

     The first page of Haney’s policy contains, opposite the

table    of   contents    entitled    “Your    Personal       Auto   Policy    Quick

Reference”, the following text:

     RECIPROCAL PROVISIONS . . .
     apply when United Services Automobile Association, or
     USAA, is named on the Declarations as the Company.

     A non-assessable policy
          Reciprocals
          Special definitions and provisions
          Plan of operation

          In your policy these sets of words have the same
     meaning: Policy means Contract; You, Your or Insured
     means Subscriber; We, us, our, USAA or Company means
     Reciprocal or Interinsurance Exchange; Premium means
     Deposit; Chairman means Attorney-in-Fact.
          Your    policy  is   issued    as   part   of   an
     Interinsurance Exchange by the Chairman of USAA as
     Attorney-in-Fact under the authority given him by the
     subscribers.
          No Contingent Liability: You are liable only for
     the amount of your premium since USAA has a free
     surplus in excess of the amount required by Article
     19.03 of the Texas Insurance Code of 1951, as amended.
          Participation: By purchasing this policy, you are
     a member of USAA and subject to its bylaws.     You are
     entitled to dividends as they may be declared by us,

                                        10
       after approval as required by the Texas Insurance Code
       of 1951, as amended.

J.A. 89 (emphasis added).         Haney asserts on appeal, as he argued

to the district court, that the above “participation” provision

entitles him to dividends as part of his contract with USAA

Casualty and the failure to pay those dividends constitutes a

breach of contract.        However, Haney does not dispute that USAA

Casualty, and not USAA, appears on the declarations page of his

policy.

       Under North Carolina law, when “the terms of the policy are

plain,    unambiguous,     and    susceptible     of     only    one   reasonable

interpretation, a court will enforce the contract according to

its terms.”    ABT Bldg. Prods. Corp. v. Nat'l Union Fire Ins. Co.

Of    Pittsburgh,   472    F.3d   99,    115–16   (4th    Cir.    2006)   (citing

Register v. White, 599 S.E.2d 549, 553 (N.C. 2004)).                       As the

district court correctly concluded, “[a] plain reading of the

policy shows that all of the ‘reciprocal provisions,’ that is,

the    provisions   that    are   only    applicable      to    United    Services

Automobile Association, the reciprocal insurance exchange, are

                                         11
grouped together.” 7             Haney, No. 5:06-CV-6-F, slip op. at 20.

Thus,       according       to   the      plain       language        of   the    “reciprocal

provisions”, there is no contractual obligation on the part of

USAA Casualty to pay Haney dividends.

       To     avoid      this    result     Haney      makes      several        arguments    on

appeal: that the language regarding dividends is ambiguous and

thus       should   be     construed      against       the    Defendants,         that   their

historical custom and practice of paying dividends creates an

entitlement to the payment of dividends, and that the nonpayment

of   dividends        violates       N.C.    Gen.      Stat.      §    58-8-25.       For    the

reasons that follow, we reject each argument.

       The    “reciprocal        provisions”          are   “plain,        unambiguous,      and

susceptible of only one reasonable interpretation.”                                 ABT Bldg.

Prods., 472 F.3d at 115–16.                      The very first sentence clearly

establishes that the provisions, including that about dividend

payment,        only        “apply        when        United          Services     Automobile

Association,          or   USAA,     is     named     on    the       Declarations    as     the

Company.”       As noted above, USAA is not so named and no contract

       7
       The “reciprocal provisions” are necessary because while
all three defendants, USAA, USAA Casualty, and USAA General use
the same “form” policies for their North Carolina policyholders,
USAA is a reciprocal insurance exchange.     See N.C. Gen. Stat.
Ann. § 58-15-5(5) (West 2008) (“Reciprocal insurance” means
insurance resulting from the mutual exchange of insurance
contracts among persons in an unincorporated association under a
common name through an attorney-in-fact having authority to
obligate each person both as insured and insurer.”).

                                                 12
provision for dividends exists as to USAA Casualty.                           Thus, it

would    be    a    manufactured      and      false     reading    to    consider    the

“participation” provision about dividends as somehow separately

applicable to USAA Casualty policyholders such as Haney.                              In

short,     there      is     nothing      ambiguous        about     the    reciprocal

provisions.

        With   no    ambiguity,       evidence      of    historical       practice   or

custom is not admissible to create a contractual obligation on

the part of the Defendants.

        [E]vidence of a usage or custom is never admitted to
        make a new contract or to add a new element to one
        previously made. It may explain what is ambiguous but
        it cannot vary or contradict what is manifest and
        plain, or be received to give to plain and unambiguous
        words or phrases a meaning different from their
        natural import.

Lester Bros. v. J. M. Thompson Co., 134 S.E.2d 372, 378 (N.C.

1964) (citing 55 Am. Jur., Usages and Customs § 31; 25 C.J.S.

Customs and Usages § 30); see also E.L. Scott Roofing Co. v.

North    Carolina,      346    S.E.2d       515,   520     (N.C.    Ct.    App.   1986).

Having    determined       that   the    “reciprocal       provisions,”       including

the obligation to pay dividends, are not ambiguous and do not

apply to USAA Casualty policyholders such as Haney, evidence of

custom or usage is simply not admissible to alter the terms of

the parties’ contract.

        Finally,     Haney    avers     that     regardless    of    the    contractual

provisions in his policy, when USAA Casualty is authorized to

                                            13
pay dividends to its policyholders in other states, the failure

to pay dividends to its North Carolina policyholders violates

N.C. Gen. Stat. § 58-8-25.              Haney argues that the statute “is

part of Haney’s policy ‘. . .to the same extent as if therein

written . . .’”.           Appellant Br. at 24 (quoting Nationwide Mut.

Ins. Co. v. Aetna Life and Cas. Co., 194 S.E.2d 834, 837 (N.C.

1973)).        Consequently,        Haney    contends       an     insurer    in    North

Carolina,      such   as    USAA    Casualty,      may     only    differentiate      the

payment   of    dividends      on   “the    basis     of    each    general    kind    of

insurance”      and   “by    territorial         divisions    of    the   location     of

risks by states.”          N.C. Gen. Stat. Ann. § 58-8-25(a).                 We do not

address the applicability of this statute, if any, because the

record establishes that Haney never made this argument to the

district court.            It is therefore waived on appeal. 8                     United

States v. Benton, 523 F.3d 424, 428 (4th Cir. 2008) (“Failure to

raise an argument before the district court typically results in

the waiver of that argument on appeal.”); Holland v. Big River

Minerals Corp., 181 F.3d 597, 605 (4th Cir. 1999).

     8
       While the Defendants did reference N.C. Gen. Stat. § 58-8-
25, they did so only once in the course of a discovery dispute
over the admission of an affidavit from one of Haney’s proposed
expert witnesses. That affidavit never mentioned in any way the
statutory argument Haney makes here for the first time on
appeal.   Haney obliquely mentions the statute in his response
seeking admission of the affidavit, but he can identify no
document in the record, and we find none, where he makes the
argument he now makes on appeal.

                                            14
     Therefore, Haney is unable to prove as a matter of law that

either USAA or USAA Casualty is contractually obligated to pay

him dividends.          Accordingly, the district court did not err in

its grant of summary judgment in that regard.

                B.     Unfair and Deceptive Trade Practices

     Haney      also    asserted       in   the   district      court    that     various

actions    by    the        Defendants      constituted        violations    of       North

Carolina’s UDTPA.            Specifically, he averred that the following

actions    constituted           violations       of     the     statute:       (1)    the

Defendants’       failure         to     pay      auto     dividends        they       were

contractually obligated to pay, (2) sending false and misleading

communications         to    North     Carolina    policyholders        regarding       the

ability to pay the dividend, and (3) sending communications to

North Carolina policyholders that constitute per se violations

of the UDTPA under N.C. Gen. Stat. § 58-63-15(1).                        The district

court held that Haney’s UDTPA claims lacked merit because he had

no contractual right to dividends and he failed to present any

evidence   showing          he   was   injured    by     the   allegedly    misleading

communications.

     As    we    have       already     explained,       the    district    court       was

clearly correct on the first point as Haney had no contractual

right to dividends from either USAA or USAA Casualty.                        As to the

second point, to establish a prima facie claim for unfair trade

                                            15
practices,              Haney     was     required     to     show        that:        “(1)     [the

defendants] committed an unfair or deceptive act or practice,

(2) the action in question was in or affecting commerce, and (3)

the act proximately caused injury to the plaintiff.”                                    Dalton v.

Camp, 548 S.E.2d 704, 711 (N.C. 2001) (emphasis added).                                        Haney

did    not        produce       evidence    that    any    unfair        or    deceptive       trade

practice, even if committed by the Defendants, caused him harm. 9

Thus,        the       district     court     did    not    err     in        granting    summary

judgment on this claim.

                                  C.    Declaratory Judgment

       In addition to the claims addressed above, Haney requested

that        the    district       court     declare   the     Defendants:          (1)     had    no

authority               to      withhold      dividends           from        North      Carolina

policyholders while paying dividends to policyholders in other

states,           (2)        breached   contractual         and     fiduciary          duties     by

refusing          to     pay     dividends,    (3)    were        obligated       to     pay    auto

dividends for the years 2002, 2003, and 2004, with interest, and

        9
        Specifically, Haney contends that letters from USAA
notifying North Carolina policyholders that North Carolina’s
system for setting automobile insurance rates prevented them
from paying an auto dividend in certain years was deceptive and
misleading.   As the district court noted, even if this were
true, Haney suffered no harm because he had no enforceable right
to the dividends in the first place.

                                                16
(4)   were   prohibited     from   refusing   to   pay       dividends    to   North

Carolina policyholders in the future.

      The district court determined that Haney was not entitled

to declaratory judgment because he had no contractual right to

dividends from the Defendants.          Accordingly, the district court

entered summary judgment for the Defendants and denied Haney’s

request.      Our    determination    that    Haney     is    not   contractually

entitled to the payment of dividends likewise supports the entry

of summary judgment for the Defendants on this issue.

                                      IV.

      For    all    the   foregoing   reasons,     we    affirm     the   district

court’s judgment in all respects.

                                                                          AFFIRMED

                                       17
GREGORY, Circuit Judge, concurring in part and dissenting in
part:

       I agree with the majority that the “Reciprocal Provisions”

section of Haney’s policy creates no contractual obligation for

USAA    Casualty      to    pay    Haney   dividends.      However,     when      USAA

Casualty chooses to pay a dividend to its policyholders, it is

obligated under North Carolina law to ensure that such payments

are    “fair    and    equitable”     and    made   according    to    “reasonable

classifications of policies . . . upon the basis of each general

kind of insurance covered by those policies and by territorial

divisions of the location of risks by states.”                   N.C. Gen. Stat.

§ 58-8-25(a) (2007).           Defendants’ decision to exclude only North

Carolina policyholders from the payment of dividends was not

based    on    any    reasonable     classification       of   this   category      of

policyholders         and   thus    violates     North   Carolina     law   and    the

statutory terms of Haney’s policy.

                                            I.

       The majority avoids reaching the merits of Haney’s argument

under North Carolina General Statutes Section 58-8-25 by finding

that the argument was waived.                According to the majority, “the

record establishes that Haney never made this argument to the

district court.”            (Maj. Op. 14.)       In fact, Haney did argue the

                                            18
issue before the district court in a memorandum opposing the

defendant’s motion to strike an affidavit:

       [Under North Carolina General Statute Section 58-8-25
       (2007),] the only basis on which an insurance company
       can differentiate in the payment of dividends to
       policyholders is on (i) “the basis of each general
       kind of insurance covered” (i.e., automobile insurance
       vs. homeowners insurance), and (ii) “by territorial
       divisions of the location of risks by states . . .”
       . . .    As readily appears from the materials before
       the Court, Defendants have discriminated against their
       North Carolina policyholders not on the basis of
       different kinds of insurance . . . and not on the
       basis of some “risk” unique to North Carolina . . .
       but rather on the basis that Defendants disagree with,
       and do not like, North Carolina’s rate setting system.

(Pl.’s Mem. in Opp’n to Defs.’ Mot. to Strike Thomas Keller’s

Aff. 5.)

       Of course, on appeal, Haney has restyled this argument as a

statutory breach of contract claim.                    Generally speaking, I am

inclined to take the view that we should not allow a party to

raise an argument tangentially in the context of a battle over

the admissibility of an affidavit and then suddenly transform

that    argument    into   the    heart    of    his    theory    of   liability     on

appeal.      But   I    find    this   situation       unique    in    two    respects.

First, our invocation of waiver principles is often motivated by

an     interest    in   protecting      parties        from    “unfair       surprise.”

Korangy v. U.S. Food and Drug Admin., 498 F.3d 272, 276 (4th

Cir. 2007) (internal quotation omitted).                      Here, the Defendants

cannot    plausibly     argue    that     they   were    unfairly      surprised     by

                                          19
Haney’s arguments regarding the North Carolina statute since it

was the Defendants themselves who made the statute an issue in

this case.          The first mention of the statute in the record is

found in the Defendants’ motion to strike the Keller Affidavit

where they argue that North Carolina General Statute Section

58-8-25          actually     gives    them     “discretion      to      pay        different

dividends to policyholders in different states.” 1                       (Defs. Mem. in

Supp.       of    Mot.   to   Strike   Aff.     of    Thomas   Keller        8.)      I   find

nothing surprising or unfair in the fact that Haney has now

turned the Defendants’ own argument against them.

        Second, even where an issue has not been raised at the

district court level, this Court may nonetheless consider it in

“exceptional circumstances.”              Korangy, 498 F.3d at 276.                  In this

case,       we    must   be   mindful    of     the    significant       public       policy

concerns at issue.             The state of North Carolina has endeavored

to afford insurance policyholders a strong measure of protection

in these kinds of cases.               North Carolina considers all statutory

provisions         applicable     to   insurance      policies     to    be    part       of   a

policyholder’s           policy    “to    the      same   extent        as     if    therein

written.”          Nationwide Mut. Ins. Co. v. Aetna Life & Cas. Co.,

        1
       For most of this appeal, Defendants continued to argue
that the statute supports their position, and it was not until
oral argument that Defendants decided to take the position that
the issue had been waived.

                                              20
194 S.E.2d 834, 837 (N.C. 1973).                       Section 58-8-25 concerns the

payment of dividends by insurance companies to policyholders,

and its language is incorporated by operation of law into all

North Carolina insurance policies.                      Where the state has evinced

such an explicit interest in providing contractual protection to

its   citizens,       the   justifications             for    strictly    enforcing          our

non-jurisdictional waiver rules become less compelling.                                 Under

these   circumstances,           and    given        that    Defendants       have    been    on

notice of potential contractual liability since the time Haney

filed his complaint, I disagree with the majority’s conclusion

that Haney has waived his statutory breach of contract claim on

appeal.

                                              II.

      As Haney notes, an insurance company operating in North

Carolina     is    permitted           to    discriminate        in     the     payment       of

dividends,      but   only       by     using    “reasonable        classifications           of

policies . . . upon the basis of each general kind of insurance

covered by those policies and by territorial divisions of the

location   of     risks     by    states.”            N.C.   Gen.     Stat.    § 58-8-25(a)

(2007).      Defendants          have       argued    before    this     Court       that    the

decision not to pay a dividend to USAA Casualty’s North Carolina

policyholders was based on a “reasonable classification” of the

“‘territorial divisions of the location of risks by states.’”

                                                21
(Resp. Br. 33 (quoting N.C. Gen. Stat. § 58-8-25(a) (2007)).)

However, the Defendants have been far from clear, both in their

briefs and in oral argument, as to how they define the risk

attributable to North Carolina policyholders.                          On this record,

it appears that they have two possible ways for defining the

risk,     and       neither        would         constitute            a       “reasonable

classification[]” for purposes of discriminating in the payment

of dividends.

      First,     Defendants       could     --   as   they       seemed        to    in    oral

argument -- define the risk they are insuring in North Carolina

as “the cars and the human bodies that travel in them.”                                     The

difficulty with this assertion is that Defendants have offered

no   explanation     as    to     why     automobiles      and    drivers           in    North

Carolina present a greater insurance risk than automobiles and

drivers     in    the     other     forty-nine         states.             Without         such

explanation, we have no way of discerning whether the decision

to   exclude     North    Carolina      policyholders        from      the      payment      of

dividends was in fact reasonable.

      Alternatively, Defendants could define the risk as North

Carolina’s rate-setting system.                  As the majority notes, this

system    “routinely       leads     to     protracted       disputes          (and       often

litigation)      between     insurers       such      as   USAA     and        the       [North

Carolina]      Insurance    Commissioner.”            (Maj.      Op.       4   n.3.)        The

problem for the Defendants here is that North Carolina’s rate-

                                            22
setting system cannot properly be classified as a “risk” for

insurance purposes.            The “risk” covered by an insurance policy

is “the category of loss the insurer agreed to provide cover

under the terms of the policy.”                    7 Lee R. Russ & Thomas F.

Segalla,        Couch   on   Insurance    § 101:3     (3d   ed.    2005).        In   the

automobile insurance context, this means the risk of harm caused

by or to the insured automobile.                Thus, to the extent that the

Defendants make the unsupported argument that the gamble they

take       in   charging     rates   higher    than   those      approved   by    North

Carolina’s        Insurance     Commissioner     should     be    classified      as   a

“risk” chargeable to North Carolina policyholders, the argument

must fail. 2

                                         III.

       Because      I   find     that    Haney’s      argument     regarding      North

Carolina General Statutes Section 58-8-25 has not been waived

and has merit, I would reverse the district court’s entry of

       2
        North Carolina’s rate-setting system guarantees that
insurers will receive at least the rate approved by the North
Carolina Insurance Commissioner.   When insurers charge a higher
rate they are taking a risk that, if the Insurance Commissioner
prevails in litigation, they will have to return the difference
between the charged rate and the approved rate to the
policyholders. This “risk,” however, has nothing to do with the
conduct of policyholders, and it is clearly not the type of risk
that the statute contemplates when it talks about “the location
of risks by states,” N.C. Gen. Stat. § 58-8-25(a) (2007).

                                          23
summary judgment in favor of Defendants on Haney’s breach of

contract claim.      However, I join the majority in affirming the

district   court’s   entry   of   summary   judgment   on   Haney’s   UDTPA

claim and his request for declaratory relief.

                                    24