{ "id": 8523988, "name": "HORACE MANN INSURANCE COMPANY, J. E. MARTIN, and PAUL G. HEATON v. CONTINENTAL CASUALTY COMPANY", "name_abbreviation": "Horace Mann Insurance v. Continental Casualty Co.", "decision_date": "1981-11-17", "docket_number": "No. 8118SC240", "first_page": "551", "last_page": "558", "citations": [ { "type": "official", "cite": "54 N.C. App. 551" } ], "court": { "name_abbreviation": "N.C. Ct. App.", "id": 14983, "name": "North Carolina Court of Appeals" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "176 S.E. 2d 751", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1970, "pin_cites": [ { "page": "756" }, { "page": "755" } ], "opinion_index": 0 }, { "cite": "277 N.C. 216", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8563799 ], "weight": 3, "year": 1970, "pin_cites": [ { "page": "222" }, { "page": "221" } ], "opinion_index": 0, "case_paths": [ "/nc/277/0216-01" ] }, { "cite": "266 N.E. 2d 822", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1970, "opinion_index": 0 }, { "cite": "318 N.Y.S. 2d 142", "category": "reporters:state", "reporter": "N.Y.S.2d", "year": 1970, "opinion_index": 0 }, { "cite": "27 N.Y. 2d 924", "category": "reporters:state", "reporter": "N.Y.2d", "case_ids": [ 2297167 ], "year": 1970, "opinion_index": 0, "case_paths": [ "/ny-2d/27/0924-01" ] }, { "cite": "306 N.Y.S. 2d 827", "category": "reporters:state", "reporter": "N.Y.S.2d", "year": 1970, "opinion_index": 0 }, { "cite": "33 A.D. 2d 236", "category": "reporters:state", "reporter": "A.D.2d", "case_ids": [ 3228377 ], "year": 1970, "opinion_index": 0, "case_paths": [ "/ad2d/33/0236-01" ] }, { "cite": "159 N.W. 2d 686", "category": "reporters:state_regional", "reporter": "N.W.2d", "case_ids": [ 8671923 ], "year": 1968, "opinion_index": 0, "case_paths": [ "/wis-2d/39/0715-01" ] }, { "cite": "74 So. 2d 367", "category": "reporters:state_regional", "reporter": "So. 2d", "case_ids": [ 10052634 ], "year": 1954, "opinion_index": 0, "case_paths": [ "/so2d/74/0367-01" ] }, { "cite": "46 A.L.R. 2d 1163", "category": "reporters:specialty", "reporter": "A.L.R. 2d", "weight": 2, "year": 1956, "opinion_index": 0 }, { "cite": "152 S.E. 2d 436", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1967, "pin_cites": [ { "page": "443" } ], "opinion_index": 0 }, { "cite": "269 N.C. 341", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8563605 ], "weight": 2, "year": 1967, "pin_cites": [ { "page": "351" } ], "opinion_index": 0, "case_paths": [ "/nc/269/0341-01" ] }, { "cite": "216 N.E. 2d 665", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1966, "opinion_index": 0 }, { "cite": "34 Ill. 2d 424", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 2877607 ], "year": 1966, "opinion_index": 0, "case_paths": [ "/ill-2d/34/0424-01" ] }, { "cite": "124 F. 2d 717", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 1090089 ], "year": 1941, "opinion_index": 0, "case_paths": [ "/f2d/124/0717-01" ] } ], "analysis": { "cardinality": 619, "char_count": 15482, "ocr_confidence": 0.804, "pagerank": { "raw": 3.258043830125187e-07, "percentile": 0.8693526147663435 }, "sha256": "a773139fd65b353bd7c40aa28c7808e9256b909d379d0a624481899ae3eff5cd", "simhash": "1:34f0787a263370ec", "word_count": 2531 }, "last_updated": "2023-07-14T17:12:28.716896+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Chief Judge MORRIS and Judge ARNOLD concur." ], "parties": [ "HORACE MANN INSURANCE COMPANY, J. E. MARTIN, and PAUL G. HEATON v. CONTINENTAL CASUALTY COMPANY" ], "opinions": [ { "text": "BECTON, Judge.\nI\nThe facts are undisputed. In December 1977, the individual plaintiffs, J. E. Martin and Paul G. Heaton, as superintendent and principal, respectively, in the Stanly County School System, wbre sued in federal court by Michael Smith, a teacher, who alleged that his teaching contract had not been renewed because of his exercise of First Amendment rights. At the time the federal court suit was instituted by Smith, CNA had in force and effect its policy number BEL 318 1371, under which the Stanly County Board of Education and the individual plaintiffs, Martin and Heaton, were assureds. Horace Mann had in force and effect its policy number M-3008, insuring Heaton, and its policies Nos. M-3013 and M-4002, insuring Martin.\nUnquestionably, each policy in controversy would have separately covered Smith\u2019s claim against Martin and Heaton were it not for the existence of the policy(ies) of the other insurer. The Horace Mann policies required it to defend any civil suit against Martin and Heaton arising out of their activities in a professional capacity, even if the suit were groundless, false or fraudulent. CNA\u2019s policy is one of indemnity. It does not contain the standard insuring agreement to furnish the assureds with a defense to an action as do liability policies. CNA\u2019s policy, however, does require it to reimburse the assureds for loss covered by the policy for which the assureds should become legally obligated to pay, and the definition of loss includes cost of defense of legal actions.\nHorace Mann contends that its policies contain \u201cexcess insurance\u201d clauses and only provide coverage in excess of the primary coverage provided by CNA. CNA contends that its policy contains an \u201cother insurance\u201d clause and provides no coverage to Martin and Heaton since they had valid policies with Horace Mann. Because CNA denied coverage, Horace Mann undertook the defense of the federal case, and a settlement was eventually negotiated.\nThe plaintiffs filed this action in state court asserting that CNA wrongfully denied coverage to Martin and Heaton and that the plaintiffs were entitled to recover from CNA $52,479.68 \u2014 the amount paid in settlement and defense of the federal court action.\nCNA argues on appeal (1) that since there was no genuine issue as to any material fact, it, as opposed to Horace Mann, was entitled to summary judgment as a matter of law; (2) that if CNA\u2019s other insurance clause is not controlling, the clause at least cancels Horace Mann\u2019s excess clause and the loss should be prorated between the two companies; and (3) if Horace Mann is not liable on its policy, then it defended the action as a \u201cmere volunteer\u201d and is not entitled to maintain this action against CNA.\nII\nWe must first decide which of the two policies is primary and which is excess. The relevant provisions in the CNA policy are contained in paragraph IV(b)(l) and follow:\nIV. Exclusions\n(b) The insurer shall not be liable to make any payment for loss in connection with any claim against the Assureds\n(1) which is insured by another valid policy or policies\nThe relevant provisions in Horace Mann policies M-3008 and M-3013 are identical and are set forth in paragraph 6 in the following language:\nIf at time of loss there is other insurance available to the assured covering such loss or which would have covered such loss except for the existence of this insurance, then the Company shall not be liable for any amount other than the excess over any other valid and collectable insurance applicable to the loss hereunder.\nHorace Mann\u2019s Policy No. M-4002 contains the same provision but states it in slightly different language:\nIn consideration of the nominal premium charged for this policy the Company shall not be liable for any amount other than the excess over any other valid and collectable insurance applicable to the loss hereunder.\nIn insurance parlance, the above quoted provision in the CNA policy is a standard escape or no-liability clause, while the provisions in the Horace Mann policies quoted above are excess insurance clauses. \u201cA basic escape clause provides that there shall be no coverage where there is other valid and collectible insurance.\u201d 8A Appleman, Insurance Law and Practice \u00a7 4910 (1981). Thus, escape clauses do not except certain occurrences from coverage; rather, they provide conditional coverage. Stated differently, \u201cif there is no applicable primary or excess coverage, then protection does exist under the policy containing the escape clause.\u201d Id. at \u00a7 4906. An excess clause, on the other hand, \u201cgenerally provides that if other valid and collectible insurance covers the occurrence in question, the \u2018excess\u2019 policy will provide coverage only for liability above the maximum coverage of the primary policy or policies.\u201d Id. at \u00a7 4909.\nThe majority rule is that when a standard escape clause (no liability clause) competes with an excess insurance clause, the carrier using the escape clause is held to be the primary insurer, and the carrier that uses the excess insurance clause is held to be the excess insurer only. Zurich General Accident Liability Ins. Co. v. Clamor, 124 F. 2d 717 (7th Cir. 1941); New Amsterdam Casualty Co. v. Certain Underwriters at Lloyds of London, 34 Ill. 2d 424, 216 N.E. 2d 665 (1966). Our Supreme Court in Insurance Co. v. Insurance Co., 269 N.C. 341, 152 S.E. 2d 436 (1967) [hereinafter Allstate v. Shelby] cited with approval the majority rule set forth in Zurich and followed in New Amsterdam. The rationale for the rule is that \u201cthe policy constituting excess insurance only [does] not provide other collectible coverage so far as the no-liability clause of the other policy [is] concerned.\u201d 16 Couch on Insurance 2d, \u00a7 62.76 (1966). See also Allstate v. Shelby, Annot. 46 A.L.R. 2d 1163 (1956).\nThe majority rule is not without its exception, however, and when a super escape clause competes with an excess insurance clause, the super escape clause is usually given effect. That is, when the escape clause expressly provides \u201cthat the insurance does not apply to any loss covered by other specified types of insurance, including the excess insurance type, it has been held that the insurer whose policy so provides is absolved from liability.\u201d 16 Couch on Insurance 2d, \u00a7 62.75. Our Supreme Court is one of the courts that have so held, although it did not label the no liability clause a super escape clause. Allstate v. Shelby.\nIn Allstate v. Shelby, a prospective purchaser\u2019s automobile liability policy, which provided that the policy would be excess as to a non-owned automobile, competed with a garage liability policy, issued to a dealer who was permitting the prospective purchaser to test drive the dealer\u2019s car. The dealer\u2019s policy provided that a person operating with the insured\u2019s consent was covered only if no other valid and collectable insurance, \u201ceither primary or excess,\u201d was available. Our Supreme Court held that Allstate (the prospective purchaser\u2019s insurer) was liable because it issued excess coverage insurance and the garage policy \u201cexpressly [made] the existence of such \u2018excess\u2019 policy an event which\u201d prevented the garage policy from operating at all with reference to the purchaser. 269 N.C. at 351, 152 S.E. 2d at 443.\nThe following general principles are set forth in Allstate v. Shelby:\n1. Parties may contract as they please, and their contract will be enforced by the court as written;\n2. Escape clauses and excess insurance clauses are not like provisions that are indistinguishable from each other so as to require the loss to be prorated between the c\u00e1rriers;\n3. When the parties contract that coverage will be precluded by the existence of other insurance, the existence of a policy with an excess insurance clause is not such an event as will set into motion the exclusionary provision in the first policy;.\n4. However, wh\u00e9n the other insurance escape clause is a super escape clause and expressly provides that coverage is precluded by the existence of excess coverage, the existence of a policy with an excess insurance clause is an event that sets in motion the provisions in the first policy.\nAs stated above, our Supreme Court is not alone in upholding super escape clauses. That an insurer can, in anticipation of the possibility that an- insured may have excess coverage with another insurer, expressly contract against liability when the other insurance is either primary or excess has been upheld in other jurisdictions. See, for example, Continental Cas. Co. v. Weekes, 74 So. 2d 367 (Fla. 1954);. Cook v.Strolle, 39 Wisc. 2d 715, 159 N.W. 2d 686 (1968); and Davis v. DeFrank, 33 A.D. 2d 236, 306 N.Y.S. 2d 827, aff\u2019d 27 N.Y. 2d 924, 318 N.Y.S. 2d 142, 266 N.E. 2d 822 (1970). See also Annot. 46 A.L.R. 2d 1163 (1956). Having cited with approval the majority rule announced in Zurich, our Supreme Court in Allstate v. Shelby applied the exception to this rule solely because the Shelby Mutual policy (garage liability policy) expressly stated that the existence of an excess policy was an event which precluded coverage by Shelby Mutual because it contained the phrase, \u201ceither primary or excess.\u201d\nIn the case before us, CNA\u2019s policy contains a standard escape clause (not a super escape clause) while the Horace Mann policies contain standard excess insurance clauses. Based on the reasoning of our Supreme Court in Allstate v. Shelby, we hold that CNA\u2019s policy provides primary coverage.\nIll\nCNA also argues that (1) the duty of Horace Mann to afford the individual plaintiffs with a defense was not conditioned on its coverage being primary or excess; (2) that the individual plaintiffs incurred no cost in this action; and (3) that Horace Mann is not entitled to recover the defense cost from CNA because, if Horace Mann is not liable on its policies, then Horace Mann defended the action as a mere volunteer. On the basis of our Supreme Court\u2019s action in Insurance Co. v. Insurance Co., 277 N.C. 216, 176 S.E. 2d 751 (1970) [hereinafter Jamestown], we summarily reject these arguments.\nIn the Jamestown case, the Court ruled that when the primary insurance carrier denies coverage and refuses to provide a defense to the insured, the excess insurance carrier may provide a defense and effect settlement and thereafter subrogate against the primary carrier to recover its expenses, at least when, as in this case, the injured party has not sued for an amount in excess of the primary coverage. The Court said that in such a situation, the excess carrier is not \u201csuch a pure volunteer as to be deprived of the right of subrogation,\u201d 277 N.C. at 222, 176 S.E. 2d at 756, because the excess carrier might be liable if the coverage question were resolved against it. The Court also observed that the primary carrier \u201cshould not be allowed to shift the burden of defense to its insured ... or to [the excess carrier] simply by denying coverage to [its assured]. To allow [the primary carrier] to do so would allow it to escape its obligations under its policy.\u201d 277 N.C. at 221, 176 S.E. 2d at 755.\nCNA\u2019s policy did not require it to provide the individual plaintiffs with a defense, but rather obligated the individual plaintiffs to retain their own attorney and obligated CNA to reimburse the individual plaintiffs at a later date. The insuring provisions of CNA\u2019s policy (Paragraph 1(a)) provide that if a claim is made against the assureds for a \u201cWrongful Act,\u201d \u201cthe Insurer will pay on behalf of . . . the Assureds, ... all loss which the said Assureds or any of them shall become legally obligated to pay.\u201d The term \u201closs\u201d is defined in the policy to mean\nany amount which the Assureds are legally obligated to pay . . . for a claim or claims made against the Assureds for a Wrongful Act and shall include but not be limited to damages, judgments, settlements and costs, cost of investigation and defense of legal actions, . . . claims or proceedings and appeals therefrom. . . . [Emphasis added.]\nCNA as the primary carrier cannot escape its liability under its policy.\nOn the authorities cited above, we\nAffirm.\nChief Judge MORRIS and Judge ARNOLD concur.\n. Michael Smith also alleged that his rights to due process of law under the Fourteenth Amendment were violated. Specifically, he alleged that his contract was not renewed because he objected to daily prayers, silent prayers and devotionals conducted by the principal, Heaton. He prayed for $750,000.00 as compensatory damages and $250,000.00 as punitive damages.\n. CNA\u2019s \u201cother insurance\u201d clause is also known as an \u201cescape\u201d clause or \u201cno liability\u201d clause.\n. Under the terms of the settlement agreement, $23,850.00 was paid to Smith by or on behalf of Martin and Heaton. In addition, attorneys\u2019 fees for Martin and Heaton in the amount of $26,858.78 were paid, and Horace Mann Insurance Company incurred defense costs in an additional amount of $1,770.90. The payment of the settlement amount was structured in the form of a loan from Horace Mann to Martin and Heaton with Martin and Heaton issuing their personal checks to Smith and to Smith\u2019s attorneys.", "type": "majority", "author": "BECTON, Judge." } ], "attorneys": [ "Smith, Moore, Smith, Schell & Hunter, by Martin N. Erwin, for plaintiff appellees.", "Perry C. Henson, for defendant appellant." ], "corrections": "", "head_matter": "HORACE MANN INSURANCE COMPANY, J. E. MARTIN, and PAUL G. HEATON v. CONTINENTAL CASUALTY COMPANY\nNo. 8118SC240\n(Filed 17 November 1981)\n1. Insurance \u00a7 149\u2014 professional liability insurance \u2014 two policies \u2014excess insurance clause \u2014other insurance clause \u2014 primary insurer\nWhere plaintiff insurer\u2019s professional liability policy insuring a school superintendent and a school principal contained a standard \u201cexcess insurance\u201d clause, defendant insurer\u2019s indemnity policy insuring the superintendent and principal contained the standard \u201cother insurance\u201d or \u201cescape\u201d clause, and each policy would have separately covered the amount paid in settlement and defense of a dismissed teacher\u2019s federal court action against the insureds were it not for the existence of the other policy, the policy issued by defendant which contained the \u201cother insurance\u201d or \u201cescape\u201d clause provided the primary coverage and the policy issued by plaintiff which contained the \u201cexcess insurance\u201d clause provided excess coverage only.\n2. Insurance \u00a7 149\u2014 liability insurance \u2014 denial of coverage by primary insurer\u2014 defense by excess carrier \u2014subrogation against primary carrier\nWhen the primary insurance carrier denies coverage and refuses to provide a defense to the insured, the excess insurance carrier may provide a defense and effect settlement and thereafter subrogate against the primary carrier to recover its expenses, at least when the injured party has not sued for an amount in excess of the primary coverage.\nAPPEAL by defendant from Kivett, Judge. Order entered 25 November 1980 in Superior Court, GUILFORD County. Heard in the Court of Appeals 14 October 1981.\nThis is an appeal from summary judgment in an action between two insurance companies to determine which is responsible for paying a claim. Both the corporate plaintiff, Horace Mann Insurance Company (Horace Mann) and the defendant, Continental Casualty Company (CNA) had issued policies which covered the claim in controversy. On the basis of affidavits and certain admissions by CNA in its Answer and in response to the plaintiffs\u2019 Request For Admissions, summary judgment was entered in favor of the plaintiffs, in the amount of $52,479.68. The issue on appeal is whether summary judgment was properly granted for the plaintiffs.\nSmith, Moore, Smith, Schell & Hunter, by Martin N. Erwin, for plaintiff appellees.\nPerry C. Henson, for defendant appellant." }, "file_name": "0551-01", "first_page_order": 579, "last_page_order": 586 }