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NO. COA04-1059
NORTH CAROLINA COURT OF APPEALS
Filed: 2 August 2005
TERRY BOWLES,
Employee,
Plaintiff,
v. North
Carolina Industrial Commission
I.C.
File No. 821763
BCJ TRUCKING SERVICES, INC.,
Employer,
N.C. SELECTIVE FUND, RELIANCE
NATIONAL INSURANCE COMPANY
(DENNIS INSURANCE GROUP,
Servicing Agent), and N.C. INSURANCE
GUARANTY ASSOCIATION, N.C. SELF
INSURANCE GUARANTY ASSOCIATION,
Carriers,
Defendants,
and
NORTH CAROLINA DEPARTMENT OF
INSURANCE,
Intervenor.
Appeal by defendant N.C. Insurance Guaranty Association from
opinion and award entered 16 April 2004 and order entered 21 April 2004 by
Commissioner Dianne C. Sellers for the North Carolina Industrial
Commission. Heard in the Court of
Appeals 9 May 2005.
Janet
H. Downing, PA, by Janet H. Downing, for plaintiff-appellee.
Charlot
F. Wood, for defendant-appellee BCJ Trucking Services, Inc.
Johnston,
Allison & Hord, P.A., by Patrick E. Kelly, for defendant-appellee N.C.
Selective Fund.
Nelson
Mullins Riley & Scarborough, LLP, by Christopher J. Blake and Joseph W.
Eason, for defendant-appellant N.C. Insurance Guaranty Association.
Stuart
Law Firm, PLLC, by Catherine R. Stuart and Charles C. Kyles, for
defendant-appellee N.C. Self Insurance Guaranty Association.
Attorney
General Roy Cooper, by Assistant Attorney General E. Clementine Peterson, for
intervenor-appellee.
TYSON, Judge.
N.C. Insurance Guaranty Association (“IGA”) appeals from the
opinion and award entered by the full North Carolina Industrial Commission
(“Commission”) awarding Terry Bowles (“plaintiff”) benefits for an injury he
sustained at work. We affirm.
I. Background
Plaintiff was injured on 3 March 1998 in the course of his
employment with BCJ Trucking Services (“BCJ”).
On 11 April 2001, plaintiff was awarded ongoing temporary total
disability benefits beginning 6 December 1999 from BCJ’s workers’ compensation
insurance company, North Carolina Selective (“Selective”). Selective was comprised of various employers
who pool their workers’ compensation liabilities to create a licensed
self-insured group.
Selective began experiencing financial trouble in early 1997. On 29 April 1997, the North Carolina
Department of Insurance (“NCDOI”) informed Selective of its financial concerns
and by letter dated 21 January 1998 informed Selective of its need to obtain
additional capital or a commitment from a commercial insurance company to
reinsure them. Shortly thereafter,
NCDOI informed Selective it would be in the “best interest” of the public and
Selective’s members to transfer its obligations and liabilities to a commercial
insurer.
Selective entered into a NCDOI approved assumption
reinsurance agreement with Reliance National Insurance Company (“Reliance”)
effective 31 December 1998. Selective
transferred and Reliance assumed 100 percent of Selective’s workers’
compensation liability claims and obligations.
Reliance began and continued to pay plaintiff’s benefits per the
assumption agreement.
Reliance was an active member of IGA, which is a statutorily
created reinsurance association which covers claims of insolvent insurance
companies pursuant to N.C. Gen. Stat. §58-48-1 et seq. On 3 October 2001, Reliance became insolvent
and was ordered into liquidation by the Pennsylvania Commonwealth Court. After Reliance was liquidated, IGA assumed
payments of plaintiff’s benefits.
IGA commenced this action by filing a Form 33 request with
the Commission to determine its responsibility for paying plaintiff’s
claim. The Commission issued an opinion
and award holding IGA responsible for paying plaintiff’s workers’ compensation
claim. The Commission held: (1) the claim arose when Selective was the
insurance carrier for BCJ; and (2) Reliance had assumed the insurance contract
through novation and IGA was liable for the claim due to Reliance’s
insolvency. IGA appeals.
II.
Issues
IGA argues the Commission erred by: (1) finding plaintiff’s claim met the
definition of a “covered claim” under N.C. Gen. Stat. §58-48-20; and (2)
finding plaintiff’s claim was within IGA’s obligations by N.C. Gen. Stat.
§58-48 et seq.
III.
Abandoned Assignments of Error
IGA’s assignments of error asserting the Commission erred in
its finding of fact number seven and its order assessing costs to IGA were not
argued and are deemed abandoned. Brown
v. Kroger Co., ___ N.C. App. ___, ___, 610 S.E.2d 447, 450 (2005)
(“Pursuant to N.C.R. App. P. 28(b)(6) (2004), the omitted assignments of error
are deemed abandoned”).
IV. Standard of Review
“Opinions and awards of the Commission are reviewed to
determine whether competent evidence exists to support the Commission’s
findings of fact, and whether the findings of fact support the Commission’s
conclusions of law.” Bondurant v.
Estes Express Lines, Inc., ___ N.C. App. ___, ___, 606 S.E.2d 345, 348
(2004) (citing Deese v. Champion Int’l Corp., 352 N.C. 109, 114, 530
S.E.2d 549, 552 (2000)). As IGA failed
to take exception to the Commission’s findings of fact, they are binding on
appeal. Creel v. Town of Dover,
126 N.C. App. 547, 552, 486 S.E.2d 478, 480-81 (1997) (citing Mabe v. Granite
Corp., 15 N.C. App. 253, 255, 189 S.E.2d 804, 806 (1972)). Our review is limited to a de novo
review of the Commission’s conclusions of law.
Allen v. Roberts Elec. Contr’rs, 143 N.C. App. 55, 63, 546 S.E.2d
133, 139 (2001) (quoting Lewis v. Sonoco Prods. Co., 137
N.C. App. 61, 68, 526 S.E.2d 671, 675 (2000)).
V.
Covered Claim
IGA argues the Commission erred in finding plaintiff’s claim
met the definition of a “covered claim” as defined by N.C. Gen. Stat.
§58-48-20.
N.C. Gen. Stat. §58-48-20(4) (2003) defines a “covered
claim” as
an unpaid
claim, including one of unearned premiums, which is in excess of fifty dollars
($50.00) and arises out of and is within the coverage and not in excess of the
applicable limits of an insurance policy to which this Article applies as
issued by an insurer, if such insurer becomes an insolvent insurer . . . .
An
insolvent insurer is:
(i) an insurer
licensed and authorized to transact insurance in this State either at the time
the policy was issued or when the insured event occurred and (ii) against whom
an order of liquidation with a finding of insolvency has been entered after the
effective date of this Article by a court of competent jurisdiction in the
insurer’s state of domicile or of this State under the provisions of Article 30
of this Chapter, and which order of liquidation has not been stayed or been the
subject of a writ of supersedeas or other comparable order.
N.C. Gen. Stat.
§58-48-20(5) (2003).
The Commission concluded IGA’s liability for plaintiff’s
claim arose when Reliance assumed Selective’s obligations and rested its
conclusion on applying the law of novation.
It is well established that
“[t]he
essential requisites of a novation are a previous valid obligation, the
agreement of all the parties to the new contract, the extinguishment of the old
contract, and the validity of the new contract” . . . . “Ordinarily . . . in
order to constitute a novation the transaction must have been so intended by
the parties.”
Anthony
Marano Co. v. Jones, 165 N.C. App. 266, 269, 598 S.E.2d 393, 395
(2004) (quoting Tomberlin v. Long, 250 N.C. 640, 644, 109 S.E.2d 365,
368 (1959) (citations omitted)).
Novation may be
defined as a substitution of a new contract or obligation for an old one which
is thereby extinguished . . . [n]ovation implies the extinguishment of one
obligation by the substitution of another.
Where the question of whether a second contract dealing with the
same subject matter rescinds or abrogates a prior contract between the parties
depends solely upon the legal effect of the latter instrument, the question is
one of law for the courts . . . .
Tomberlin, 250 N.C. at
644, 109 S.E.2d at 367-68 (quotations omitted).
Here, the Commission found as fact:
[t]he
Assumption Reinsurance Agreement approved by the Commissioner of Insurance that
became effective on December 31, 1998 resulted in a novation of the original
contract for insurance entered into by the Selective Fund and BCJ Trucking
Services, Inc. Reliance National
Indemnity Company substituted for the Selective Fund as a party to the original
contract for insurance between the Selective Fund and BCJ Trucking Services,
Inc. No new contract of insurance was
formed as a result of this novation. No
separate negotiations between Reliance National Indemnity Company and BCJ
Trucking Services, Inc. took place resulting in a new and separate contract for
insurance between the parties.
The
Commission concluded as a matter of law the novation resulted only in a change
of the parties to the original contract, while the terms and obligations of the
original insurance contract remained unchanged.
As noted above, IGA failed to make exceptions to the
Commission’s findings of fact and they are binding on appeal. Creel, 126 N.C. App. at 552, 486
S.E.2d at 480-81 (citation omitted).
The Commission found as fact the assumption reinsurance agreement was a
novation. It held the novation
extinguished the contract between Selective and BCJ and that Reliance expressly
assumed 100 percent of Selective’s obligations. Tomberlin, 250 N.C. at 644, 109 S.E.2d at 367-68. The agreement did not create a new contract
for insurance coverage but solely substituted a new party, Reliance for
Selective, to the contract. Through
novation, Reliance is deemed to have replaced Selective as if Reliance had
issued the original contract of insurance to BCJ. Id. The novation
replaced the parties to the contract, did not change the obligations under the
contract for insurance itself, and the agreement did not operate retroactively
to cover known or unknown losses.
Plaintiff’s claim for injury occurred after the original
contract for insurance was entered into by BCJ and Selective, now BCJ and
Reliance. Reliance, through novation,
became BCJ’s insurance company beginning 1 November 1994 to the time of
plaintiff’s claim. Plaintiff’s claim is
a “covered claim” within the coverage of the insurance policy issued by
Reliance, a direct insurer as defined by N.C. Gen. Stat. §58-48-20. After Reliance became insolvent and was
ordered into liquidation by the Pennsylvania Commonwealth Court, IGA became liable
for all covered claims issued by an insolvent direct insurer. N.C. Gen. Stat.§58-48-20; N.C. Gen. Stat.
§58-48-35(a)(1) (2003). The Commission
correctly concluded plaintiff’s claim met the definition of a “covered claim”
under N.C. Gen. Stat. §58-48-20 and holding IGA to be liable for plaintiff’s
claim. This assignment of error is
overruled.
VI.
Statutory Obligation of IGA
IGA argues the Commission erred in finding plaintiff’s claim
rests within the statutory obligations of IGA under the North Carolina
Insurance Guaranty Association Act. N.C. Gen. Stat. §58-48 et seq.
Under N.C. Gen. Stat. §58-48-20(4), a “‘Covered claim’ means
an unpaid claim, . . . arises out of and is within the coverage . . . [of] an insurance policy to which this
Article applies as issued by an insurer, if such insurer becomes an insolvent
insurer . . . .” Under N.C. Gen. Stat.
§58-48-20(5), an “‘Insolvent insurer’ means (i) an insurer licensed and
authorized to transact insurance in this State either at the time the policy was
issued or when the insured event occurred and (ii) against whom an order of
liquidation with a finding of insolvency has been entered . . . .”
Under N.C. Gen. Stat. §58-48-35(a)(2), IGA stepped into the
shoes of the insurance company found to be insolvent and is deemed the insurer
having “all rights, duties, and obligations of the insolvent insurer as
if the insurer had not become insolvent.”
(Emphasis supplied).
Under N.C. Gen. Stat. §58-48-35, IGA is liable for all
claims on policies of direct insurance companies which have been found insolvent. Reliance is a direct insurance company who
is deemed to have issued an insurance policy to BCJ and is an active
member of IGA. Plaintiff’s claim is a
“covered claim” in that it arose out of Reliance’s coverage of BCJ. The Pennsylvania Commonwealth Court found
Reliance insolvent and ordered it liquidated.
After Reliance was found to be insolvent, IGA stepped into the shoes of
Reliance and must pay its claims. The
Commission properly concluded plaintiff’s claim is within the statutory
obligations of IGA. This assignment of
error is overruled.
VII.
Conclusion
The original insurance policy between BCJ and Selective
became a direct insurance obligation when Reliance expressly assumed
Selective’s book of business. Through
novation, Reliance is deemed to have issued the insurance policy. Reliance is a “direct insurer” placing it
within the obligations of IGA by N.C. Gen. Stat. §58-48-35. Reliance became insolvent triggering the
application of N.C. Gen. Stat. §58-48-1 et seq. to IGA. Plaintiff’s claim is a “covered claim”
issued by an “insolvent insurer” and became IGA’s obligation. The Commission properly concluded
plaintiff’s claim is within the statutory obligations of IGA. The Commission’s opinion and award is
affirmed.
Affirmed.
Chief Judge MARTIN and Judge Levinson concur.