{
  "id": 8549129,
  "name": "NORTHWESTERN MUTUAL INSURANCE COMPANY v. J. W. HYLTON, Individually and Trading as HYLTON INSURANCE AGENCY",
  "name_abbreviation": "Northwestern Mutual Insurance v. Hylton",
  "decision_date": "1970-02-25",
  "docket_number": "No. 7017SC4",
  "first_page": "244",
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  "last_updated": "2023-07-14T21:45:53.911218+00:00",
  "provenance": {
    "date_added": "2019-08-29",
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  "casebody": {
    "judges": [
      "BROCK and Graham, JJ., concur."
    ],
    "parties": [
      "NORTHWESTERN MUTUAL INSURANCE COMPANY v. J. W. HYLTON, Individually and Trading as HYLTON INSURANCE AGENCY"
    ],
    "opinions": [
      {
        "text": "BRITT, J.\nIt is well settled in this jurisdiction that a plaintiff has the burden of proof on all allegations, negative as well as affirmative, which are essential to his claim or cause of action. 3 Strong, N.C. Index 2d, Evidence, \u00a7 5, pp. 603-604. Defendant contends that judgment of involuntary nonsuit was proper in the instant case for the reason that plaintiff failed to carry the burden of proving its legal obligation to pay the money for-which it seeks indemnity from the defendant. We agree with this contention.\nIn testing the sufficiency of the evidence in the instant case to survive motion for nonsuit, we start with the assumption that the evidence does raise a reasonable inference that the wrong rider was attached to the original policy by Hylton\u2019s employee by error and mistake; defendant so stipulated. But, plaintiff had the burden of going further and proving that it incurred a legal liability because of the mistake. In its \u201cAnswer to Reply\u201d filed in the Ayers case, Northwestern alleged that if a printed rider on form No. 252 was attached to the original policy issued to Ayers, it was by mistake and inadvertence and Northwestern asked that the policy be reformed to speak the true agreement between the parties. The question now arises, did Northwestern plead a valid defense in the Ayers action.\nThe mistake or clerical error upon which one seeks to base a cause of action may be approached as a \u201cscrivener\u2019s error\u201d or as a \u201cmutual mistake.\u201d A scrivener is one \u201cwhose occupation is to draw contracts, write deeds and mortgages, and prepare other species of written instruments.\u201d (Emphasis added.) Black\u2019s Law Dictionary, 4th Ed. The defense of mutual mistake is applicable to the facts of the Ayers case because \u201cwhere the insurer\u2019s clerk has erroneously recorded the agreement, the mistake common to both parties * * * rests in the supposition of both that their writing states their agreement correctly.\u201d 17 Couch on Insurance 2d, \u00a7 66:51, p. 286.\nWhether the clerical error here is considered to be a \u201cscrivener\u2019s error\u201d or \u201cmutual mistake\u201d, the defense of reformation of the policy \u2014 so as to be enforceable only to the extent of the coverage within the actual intent of the parties \u2014 was available to Northwestern when it chose to settle the Ayers claim. The rationale of allowing reformation is concisely set out in 17 Couch on Insurance 2d, \u00a7 66:51, p. 286: \u201cReformation has been allowed because of the insurer\u2019s clerical mistake, since in such instances it is apparent that the policy which was issued in fact does not set forth what had been agreed to and what was intended by all parties.\u201d\nAgain in 17 Couch, \u00a7 66:42, p. 278, it is observed: \u201cWhere the insurer\u2019s agent is authorized to act in the premises, and through his mistake or fraud the policy fails to express the real contract between the parties, or if, by inadvertence or mistake of the agent, -provisions other than those intended are inserted, or stipulated provisions are omitted, there is no doubt as to the power of a court of equity to grant relief by a reformation of the contract * * (Emphasis added.)\nIn Williams v. Insurance Co., 209 N.C. 765, 185 S.E. 21, the court said of reformation: \u201cThe principle, as we have seen, applies to policies of insurance.\u201d In Williams the names of the plaintiffs as owners of certain insured buildings and as beneficiaries of the policy were omitted due to the inadvertence of the agent. The court allowed reformation as the policy of insurance did not represent the intention of the parties. The court in Williams said: \u201cIt is well settled that in equity a written instrument, including insurance policies, can be reformed by parol evidence, for mutual mistake, inadvertence, or the mistake of one superinduced by the fraud of the other or inequitable conduct of the other.\u201d\nIt is also well settled that to reform or correct a written instrument on the ground of mutual mistake of the parties, the evidence must be clear, strong and convincing, and that \u201c[wjhether or not the evidence is clear, strong and convincing in a particular case is for the jury to determine.\u201d Insurance Co. v. Lambeth, 250 N.C. 1, 108 S.E. 2d 36, and authorities therein cited. Thus, we do not hold here that on the record before us Northwestern, in the Ayers case, was entitled as a matter of law to have its policy of insurance corrected to include endorsement 256 rather than 252; what we do hold is that in the Ayers case Northwestern pled a valid defense- \u2014 that of inadvertence or mutual mistake- \u2014 and was in position to present sufficient evidence for the jury to determine under proper instructions if endorsement 252 rather than 256 was attached to the original policy by inadvertence or mutual mistake, and in the absence of agreement \u2014 actual or implied \u2014 to the contrary, defendant Hylton, before being liable to Northwestern for indemnity, was entitled to the benefit of such determination. We are not required here to say if Hylton was a necessary or proper party to the Ayers suit. (See Hildreth v. Casualty Co., 265 N.C. 565, 144 S.E. 2d 641).\nPlaintiff\u2019s arguments in asserting a cause of action against Hylton refer to negligence, mistake and indemnity. Indemnification is essentially a right ex contractu. Here, there is neither allegation nor proof of an express contract of indemnification. Common-law indemnity is said to rest upon a contract implied by law from the circumstance that a passively negligent [or derivatively liable] tort-feasor had discharged an obligation for which the actively negligent tort-feasor was primarily liable.\u201d Hunsucker v. Chair Co., 237 N.C. 559, 75 S.E. 2d 768.\nIn Hildreth v. Casualty Co., supra, an injured party who had obtained judgment against the alleged insured brought an action against the insurer and its underwriter agent on an automobile liability policy, and the insurer pleaded a cross-action against its agent in which it asserted a right of common-law indemnity from the agent. The court allowed'the cross-action. In Hildreth the plaintiff, an injured party standing in the shoes of the insured, asserted alternative rights of recovery: he sought to recover from the company on the theory the policy was effective and from .the agent in the event the policy was found not to be effective. In Hildreth then, the insurance agent might subsequently be found liable to the claimant, and the insurer, as a secondarily liable party, would have the right of common-law indemnity against the agent.\nThe right of one compelled to pay money to \u201cA\u201d to obtain common-law indemnity from \u201cB\u201d is based on the principle of primary-secondary liability. See numerous -cases in 10A N.C. Digest, Indemnity, \u00a7 13(1). The court in Edwards v. Hamill, 262 N.C. 528, 138 S.E. 2d 151, said:\n\u201cPrimary and secondary liability between defendants exists only when: (1) they are jointly and severally liable to the plaintiff [citations]; and (2) either (a) one has been passively negligent but is exposed to liability through the active negligence of the other or (b) one alone has done the act which produced the injury but the other is derivatively liable for the negligence of the former, [citations]\u201d\nIn the instant case, there is neither allegation nor proof that the agent is in any fashion primarily liable to the insured or even that the insured could have made any case of actionable negligence against him. There is no suggestion of misrepresentation or reliance or that the insured has suffered any injury at the hands of the agent. The court in Edwards held that the liability of both the in-demnitee and the indemnitor to the third party (in the instant case, the insured) was essential: \u201cThe doctrine of primary-secondary liability cannot arise where an original defendant alleges that the one whom he would implead as a third-party defendant is solely liable to plaintiff.\u201d (Emphasis added.) In the instant case, if anyone is liable to the insured, it would be the insurer who would be solely liable.\nDefendant's argument puts the indemnity issue to rest by pointing out that, even if indemnity applied, the plaintiff cannot recover because it has failed to carry the burden of proof of showing, in response to defendant\u2019s denials, that it was liable to the insured. A concise summary of the applicable law is found in 41 Am. Jur. 2d, Indemnity, \u00a7 33, p. 723: \u201cIndemnity against losses does not cover losses for which the indemnitee is not liable to a third person, and which he improperly pays.\u201d The plaintiff rested its case on this issue, conceding \u201cit must be shown that the insurer has properly made payment to the insured.\u201d Plaintiff has made no such showing.\nDefendant argues that the judgment of nonsuit was justified on other grounds including the applicability of the three-year statute of limitations, but we do not deem it necessary to discuss the other points raised.\nThe judgment of the superior court is\nAffirmed.\nBROCK and Graham, JJ., concur.",
        "type": "majority",
        "author": "BRITT, J."
      }
    ],
    "attorneys": [
      "Deal, Hutchins & Minor by Fred S. Hutchins and William K. Davis for plaintiff appellant.",
      "Hudson, Petree, Stockton, Stockton & Robinson by J. Robert Bister for defendant appellee."
    ],
    "corrections": "",
    "head_matter": "NORTHWESTERN MUTUAL INSURANCE COMPANY v. J. W. HYLTON, Individually and Trading as HYLTON INSURANCE AGENCY\nNo. 7017SC4\n(Filed 25 February 1970)\n1. Evidence \u00a7 5; Pleadings \u00a7 36\u2014 allegations \u2014 burden of proof\nA plaintiff has the burden of proof on all allegations, negative as well as affirmative, which are essential to his claim or cause of action.\n2. Insurance \u00a7\u00a7 2, 10\u2014 insurer\u2019s action against agent \u2014 clerical mistake \u2014 reformation of policy \u2014 defense \u2014 liability of insurer\nWhere an employee of an insurance agent erroneously attached to a fire insurance policy a rider providing for the unlimited occupancy of the insured\u2019s premises, rather than the standard policy rider providing that the insured\u2019s premises could not be unoccupied for more than 90 days, the insurance company issuing the policy could validly raise the defense of reformation of the policy to show the true intent of the parties in an action by the insured to recover for losses incurred by fire to premises unoccupied for 128 days; consequently, the trial court properly entered a judgment of involuntary nonsuit in the insurance company\u2019s action against the agent for recovery of a compromise payment made by the company to the insured in settlement of the claim arising out of the fire, since the insurer was not legally obligated to make the compromise payment to the insured.\n3. Insurance \u00a7 10\u2014 reformation of policy \u2014 clerical mistake\nReformation of an insurance policy is allowed because of the insurer\u2019s clerical mistake, since in such instance it is apparent that the policy which was issued in fact does not set forth what had been agreed to and what was intended by all parties.\n4. Insurance- \u00a7 10\u2014 reformation of policy \u2014 mistake of agent\nWhere the insurer\u2019s agent is authorized to act in the premises and through his mistake or fraud the policy fails to- express the real contract between the parties, or if by inadvertence or mistake of the agent provisions other than those intended are inserted, or stipulated premises are omitted, a court of equity has the power to grant relief by a reformation of the contract.\n5. Reformation of Instruments \u00a7 7\u2014 sufficiency of evidence \u2014 jury determination\nTo reform or correct a written instrument on the ground of mutual mistake of the parties, the evidence must be clear, strong and convincing; whether or not the evidence is clear, strong and convincing in a particular case is for the jury to determine.\n6. Negligence \u00a7 11\u2014 indemnity \u2014 right ex contractu\nIndemnification is essentially a right eat contractu.\n7. Negligence \u00a7 11\u2014 common-law indemnity \u2014 active and passive negligence\nCommon-law indemnity rests upon a contract implied by law from the circumstance that a passively negligent or derivatively liable tort-feasor had discharged an obligation for which the actively negligent tort-feasor was primarily liable.\n8. Negligence \u00a7 11\u2014 common-law indemnity \u2014 primary and secondary liability\nThe right of one compelled to pay money to \u201cA\u201d to obtain common-law indemnity from \u201cB\u201d is based on the principle of primary-secondary liability.\n9. Insurance \u00a7 2; Negligence \u00a7 11\u2014 insurer\u2019s action against agent \u2014 clerical error \u2014 indemnity \u2014 primary-secondary liability\nAn insurance company is not entitled to recover from an insurance agent, on the theory of common-law indemnity, for the company\u2019s compromise payment to an insured under a policy of fire insurance to which a rider was erroneously attached by an employee of the agent, where (1) there was neither allegation nor proof that the agent was primarily liable to the insured, (2) there was no suggestion of misrepresentation or reliance or that the insured suffered any injury at the hands of the agent, and (3) even if indemnity were applicable, the insurer failed to show that it was legally liable to the insured.\n10. Negligence \u00a7 11 \u2014 indemnity \u2014 legal liability of indemnitee\nIndemnity against losses does not cover losses for which the indemnitee is not liable to a third person, and which he improperly pays.\nAppeal by plaintiff from Collier, J., 9 June 1969 Session of SuRRY Superior Court.\nIn this action the parties waived jury trial and agreed that the trial judge would hear the evidence, find the facts, make his conclusions of law, and render judgment.\nAdmissions in the pleadings, stipulations, and other evidence \u2014 fully supported by the pleadings \u2014 tended to show the following:\nIn 1961 and 1962 defendant (Hylton) was operating an insurance agency and had an agency agreement with plaintiff (Northwestern). In March 1961 Hylton, as agent of Northwestern, issued a new standard fire insurance policy to Clarence and Robert Ayers (Ayers) covering a certain tenant dwelling in the amount of $10,000, the policy to be effective from 10 May 1961 to 10 May 1962. Work in connection with assembling and issuing the policy was done by Margaret Nichols (Nichols), an agent or employee of Hylton. The policy included a provision for rider form No. 256 to be attached thereto, said rider providing that the insured premises could not be unoccupied for more than 90 days. In assembling the policy, Nichols erroneously attached to the original policy rider form No. 252 which provided for unlimited unoccupancy of the insured premises. The face sheet of the policy showed that it was subject to endorsement No. 256. The original policy and endorsements were forwarded to Workmen\u2019s Federal Savings and Loan Association, holder of lien on the insured premises, and carbon copies of the face sheet only were forwarded to Ayers, Northwestern, and the Fire Insurance Rating Bureau of Raleigh; a fifth copy of the face sheet only was kept by Hylton for his record. Standard endorsement No. 256 extended non-occupancy of the dwelling to 90 days in lieu of the 60-day non-occupancy standard policy.\nOn or about 10 March 1962, Hylton issued a renewal certificate renewing the policy for the period from 10 May 1962 until 10 May 1963. Premiums for both years were charged for the type of coverage subject to endorsement No. 256 and the renewal certificate recited that the policy was subject to endorsement No. 256. The insured dwelling became vacant on or about 7 April 1962 and was continuously vacant from that time until it was destroyed by fire on 14 August 1962, some 128 days later.\nFollowing the fire, Ayers made demand on Northwestern for payment of the loss but Northwestern, laboring under the impression that the policy was subject to rider form No. 256 and knowing nothing of the attachment of rider No. 252 to the original policy, denied liability. In March of 1963, Ayers instituted suit against Northwestern to recover for loss occasioned by the fire. Thereafter, Northwestern discovered the apparent error made by Nichols and in its pleadings denied liability or coverage, contending that if the policy contained a rider No. 252 permitting an unlimited period of nonoc-cupancy, such rider was not according to the contract and Northwestern was entitled to have the contract reformed to speak the true agreement of the parties.\nPrior to an adjudication of the Ayers case on the merits, Northwestern made a compromise payment to Ayers in the amount of $4,500 in settlement of their action. There has been no judicial determination that Northwestern was legally obligated to Ayers for the fire loss and Hylton was not a party to the Ayers action or the settlement agreement reached therein.\nIn this action plaintiff attempts to recover the $4,500 paid Ayers, plus court costs and counsel fees and expenses incurred in defending the Ayers action. Among other defenses, Hylton pleaded laches on the part of Northwestern and also the three-year statute of limitations.\nAfter plaintiff introduced its evidence, defendant introduced into evidence the pleadings and judgment in the case of Ayers v. North western Mutual Insurance Company and renewed its motion for judgment of nonsuit. Thereafter, the trial court entered judgment of involuntary nonsuit from which plaintiff appealed.\nDeal, Hutchins & Minor by Fred S. Hutchins and William K. Davis for plaintiff appellant.\nHudson, Petree, Stockton, Stockton & Robinson by J. Robert Bister for defendant appellee."
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