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NO. COA03-229
NORTH CAROLINA COURT OF APPEALS
Filed: 6 January 2004
JOHN
ALDEN LIFE INSURANCE
COMPANY,
Plaintiff,
v. North
Carolina Industrial Commission
I.C.
File No. 851223
NORTH
CAROLINA INSURANCE
GUARANTY
ASSOCIATION,
Defendant.
Appeal by Plaintiff from judgment entered 22 November 2002 by Judge Stafford G. Bullock in Superior Court, Wake County. Heard in the Court of Appeals 18 November 2003.
Allen
Mills of Frederic E. Toms & Associates, P.L.L.C., for the Plaintiff.
Christopher
J. Blake and Betsy Cooke of Moore & Van Allen, P.L.L.C., for the Defendant.
WYNN,
Judge.
By
this appeal, John Alden Life Insurance Company (“John Alden Insurance”) seeks
reversal of the trial court’s summary judgment order dismissing all of its
claims against North Carolina Insurance Guaranty Association (“Guaranty
Association”). After careful review, we reverse and remand.
The
facts giving rise to this case are not disputed. On 28 July 1997, David Nugent
suffered a severe heart attack during the course of his employment at Republic
Industries. To cover the cost of his extensive medical treatment, which
included a heart transplant, Mr. Nugent submitted claims to his health
insurance carrier, John Alden Insurance, and his employer’s worker’s
compensation insurance carrier, Credit General Insurance Company(“Credit
General”). Although the policy issued by John Alden Insurance specifically
excluded from coverage compensable workers’ compensation injuries, John Alden
Insurance began paying for Mr. Nugent’s medical care because it was unaware
that Mr. Nugent’s injury was work-related.
In
the meantime, Credit General denied worker’s compensation insurance coverage
for Mr. Nugent’s injuries. Mr. Nugent appealed to the North Carolina Industrial
Commission and while the matter was pending, Credit General was declared
insolvent. As a result, Guaranty Association became a party to Mr. Nugent’s
worker’s compensation action. See N.C. Gen. Stat. §58-48-5 (stating that
the Guaranty Association was created to ensure North Carolina citizens “avoid
financial loss. . .[as] policy holders because of the insolvency of an insurer.”).
On
18 September 2001, the Industrial Commission issued an Order and Award,
requiring that Guaranty Association “pay for all medical treatment as a result
of the plaintiff’s heart attack.” Guaranty Association did not appeal from that
decision; accordingly, it began paying for Mr. Nugent’s medical care expenses.
However, Guaranty Association refused to reimburse John Alden Insurance for the
$722,335.62 expended on Mr. Nugent’s care prior to the Industrial Commission’s
Order. In response, John Alden Insurance brought the subject action against
Guaranty Association to recover payments made for Mr. Nugent’s medical care.
From
the trial court’s grant of summary judgment in favor of Guaranty Association,
John Alden Insurance argues on appeal that the trial court erred because its
claim for reimbursement arises from an entitlement for equitable subrogation.
We agree.
Under
N.C. Gen. Stat. §58-48-35, the Guaranty Association “shall be obligated to the
extent of the covered claims existing prior to the determination of
insolvency.” The statute defines covered claims as follows:
‘Covered
claim’ means an unpaid claim . . . which . . .arises out of and
is within the policy . . . as issued by an insurer, if such insurer becomes an
insolvent insurer . . . ‘Covered claim’ shall not include any
amount . . . due any reinsurer, insurer, insurance pool, or
underwriting association, as subrogation or contribution recoveries or
otherwise.
N.C. Gen. Stat. §58-48-20. Thus, under
the plain language of the statute, Guaranty Association is not obligated to pay
subrogation claims.
However,
this Court has distinguished conventional subrogation claims from equitable
subrogation claims:
An
insurer asserting a [conventional] subrogation claim rightfully paid
damages for its insured, in the first instance, under its policy, but contends
that another party is primarily liable for the damages. By contrast, an
insurer asserting an equitable subrogation claim did not owe the claim,
in the first instance; it was owed by another insurer who wrongfully
refused to pay the claim.
North Carolina Ins. Guar. Ass’n v.
Century Indem. Co., 115
N.C. App. 175, 190, 444 S.E.2d 464, 473 (1994) (citations omitted) (emphasis in
original), cert. denied, 337 N.C. 696, 448 S.E.2d 532 (1994). In Century,
this Court held Guaranty Association liable for Plaintiff’s equitable
subrogation claim and explained:
This
Court has stated that while conventional subrogation “arises from an express
agreement of the parties,” equitable subrogation “rests not on contract but on
principles equity.” Furthermore, this Court has held that equitable subrogation
is a “remedy [which] is highly favored and liberally applied.” We
conclude that our General Assembly did not intend for the term “subrogation” to
encompass equitable subrogation....
Id. (Internal Citations omitted, emphasis in original.)
In
this case, John Alden Insurance paid for Mr. Nugent’s medical expenses in good
faith, lacking knowledge that Mr. Nugent’s heart attack was a compensable
workers’ compensation injury. Not until the Industrial Commission issued its
Opinion and Award on 18 September 2001 did John Alden Insurance know Mr.
Nugent’s claim arose out of and as a result of his work at Republic Industries,
and was thus specifically excluded from coverage under the explicit language of
the policy’s “Charges Not Covered” provision, which states:
For
treatment of any Injury or Illness that arises out of, or as the result of, any
work for wage or profit, paid or payable under the Workers’ Compensation Act;
except that, this exclusion will not apply to:
a. the
sole proprietor, if the Employer is a proprietorship;
b. a
partner of the Employer, if the Employer is a partnership;
c. an
executive officer of the Employer, if the Employer is a corporation;
for
any treatment that results from Injury or Illness that arises out of or as a
result of any work for the Employer and then only if he or she is not
required to have coverage under any Workers Compensation Act or similar law
and does not have such coverage.
[Appendix A, Health Insurance Policy,
Rider p. 7, Policy p. 19]
Notwithstanding
this exclusion under John Alden Insurance’s policy, Guaranty Association
asserts that “[d]uring those three and a half years that the worker’s
compensation claim was either not filed or denied, John Alden remained
contractually and primarily obligated to pay the medical expenses of Mr.
Nugent.” We disagree. To the contrary, as in Century, John Alden
Insurance presented an equitable subrogation claim based upon payments made for
injuries that arose from an uncovered event-_a work-related injury payable
under the Workers Compensation Act. Since Mr. Nugent suffered from an injury
compensable under the Workers Compensation Act, under the policy provided by
John Alden Insurance, he was not entitled to coverage.
Accordingly,
the trial court erred in granting Guaranty Association’s motion for summary
judgment. Indeed, under the facts of this case, we remand this matter to the
trial court for entry of summary judgment in favor of John Alden Insurance.
Reversed
and remanded.
Judges
TIMMONS-GOODSON and McCULLOUGH concur.