{
  "id": 8526851,
  "name": "W & J RIVES, INC., Plaintiff v. KEMPER INSURANCE GROUP d/b/a LUMBERMENS MUTUAL CASUALTY COMPANY, and AETNA CASUALTY AND SURETY COMPANY, Defendants",
  "name_abbreviation": "W & J Rives, Inc. v. Kemper Insurance Group",
  "decision_date": "1988-12-20",
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    "judges": [
      "Judges Wells and Cozort concur."
    ],
    "parties": [
      "W & J RIVES, INC., Plaintiff v. KEMPER INSURANCE GROUP d/b/a LUMBERMENS MUTUAL CASUALTY COMPANY, and AETNA CASUALTY AND SURETY COMPANY, Defendants"
    ],
    "opinions": [
      {
        "text": "ARNOLD, Judge.\nAetna first assigns as error the entering of summary judgment by the trial court because Polo\u2019s claim falls within an exclusion to the coverage provided by the Aetna policy.\n\u201cCoverage\u201d under the policy issued by Aetna to Rives reads as follows:\n2.1 COVERAGE. The company will pay on behalf of the insured the ultimate net loss in excess of the applicable underlying limit which the insured shall become legally obligated to pay as damages because of\nA. Personal Injury.\nB. Property Damage, or\nC. Advertising Offense\nto which this policy applies, caused by an occurrence anywhere in the world.\nThis coverage section is broad and Aetna narrows it with several exclusions.\nThe exclusion claimed by Aetna to be applicable to Polo\u2019s claim is\n2.2 EXCLUSIONS. This policy does not apply:\n* * * *\n(e) to property damage\n(1) to any property rented to, used or occupied by or in the care, custody or control of the insured.\n(i) to the extent that the insured has agreed to provide insurance therefor; ....\nAetna argues that the language \u201cthat the insured has agreed to provide insurance therefor\u201d means that if Rives has agreed with Kemper to contract for insurance, then the Aetna policy does not apply. Rives claims, inter alia, that this same language means that for the exclusion to apply, Rives must have agreed with Polo to provide insurance which Rives never did.\nThe basic principle of insurance law is that policies are to be given a reasonable interpretation. Akzona Inc. v. Am. Credit Indem. Co. of New York, 71 N.C. App. 498, 322 S.E. 2d 623 (1984). Further, an insurance contract should be construed as a reasonable person in the position of the insured would have understood it. If the language used in the policy is reasonably susceptible to different constructions, it must be given the construction most favorable to the insured. Grant v. Emmco Ins. Co., 295 N.C. 39, 243 S.E. 2d 894 (1978).\nRives originally negotiated with Jones & Peacock to obtain insurance for the items Rives was transporting for Polo. On 1 September 1984, as a part of the renewal of the insurance package, Rives purchased the excess policy from Aetna. It would be difficult to maintain that Rives did not intend for the excess coverage to apply to the goods for which the insurance was purchased. Aetna claims, however, that the Polo goods are excluded focusing on the \u201cagrees to insure\u201d language of \u00a7 2.2(e)(l)(i).\nThe purpose of an exclusionary clause in an insurance contract is to limit the liability of the insurance company. South Carolina Ins. Co. v. Smith, 67 N.C. App. 632, 313 S.E. 2d 856, rev. denied, 311 N.C. 306, 317 S.E. 2d 682 (1984). Such clauses are not favored by the courts and will be construed against the insurance carrier and in favor of coverage for the insured. Stanback v. Westchester Fire Ins. Co., 68 N.C. App. 107, 314 S.E. 2d 775 (1984).\nThe record here shows that Rives began transporting Polo\u2019s materials and goods as an ancillary undertaking to its primary business of processing garments. Like any prudent business, Rives sought insurance for these items it was hauling; this was not to protect Polo, although that was the effect, but to protect itself from liability. Rives contacted Jones & Peacock about purchasing insurance for the Polo materials and was sold a package of insurance. In September of 1984, as part of the renewal of that package insurance, Rives purchased the Aetna policy.\nRives had not agreed with Polo, at the time of the theft, to provide insurance for the Polo materials and goods. Thus it would seem that a reasonable person in the position of Rives would have understood that the Polo goods were covered by Aetna\u2019s policy. The exclusion clause, therefore, does not apply to the Polo claim.\nAetna next contends that even if the damages sought by Polo are not excluded under the policy, coverage cannot be determined until an adjudication or settlement of Polo\u2019s claims against Rives, and issues of fact regarding coverage by Kemper\u2019s policy, are resolved.\nCoverage under an insurance policy and liability to pay are not synonymous terms. The trial court did not order that Aetna had any liability to pay excess damages. The court simply stated that the Aetna policy covered the claim filed by Polo against Rives.\nCoverage is defined as \u201cprotection by an insurance policy; an inclusion within the scope of a protective or beneficial plan.\u201d Webster\u2019s Third New International Dictionary (1968). Although Aetna may ultimately have no liability to pay any excess damages, its policy does include within its scope the type of potential damages claimed by Polo. Aetna\u2019s argument, carried to its logical conclusion, would have coverage under its policy determined only after a final adjudication of the insured\u2019s liability.\nAetna claims that even if the damages sought by Polo are not excluded by the policy, Aetna has no duty to defend until Kemper actually pays the amount it is adjudged or settled that Kemper must pay.\nSection 2.3 of Aetna policy reads as follows:\n(a) The company shall defend any suit seeking damages which are not payable on behalf of the insured under the terms of the policies of Underlying Insurance described in Section 1 or any other available insurance\n(1) because such damages are not covered thereunder, or\n(2) because of exhaustion of an underlying limit of liability by payment of claims.\nAetna argues that this section clearly states that the duty to defend arises only after the exhaustion of the underlying limit of liability \u201cby payment of claims.\u201d It contends that this is the only logical interpretation when read with \u00a7 6.3 of the contract, which states:\n(b) Claim or Suit. When in the judgment of the company an occurrence may involve damages in excess of the applicable underlying limit, the company may elect at any time to participate with the insured and the underlying insurers in the investigation, settlement and defense of all claims and suits in connection therewith. In such event the insured and the company shall cooperate fully.\nWe read \u00a7 6.3(b) as giving Aetna the right to enter into a defense of Rives before it is apparent that there may be excess liability.\nIf this Court were to accept Aetna\u2019s argument, then the duty to defend under this contract would arise only after Rives\u2019 need for defense was past.\nUnder a liability type contract, an insurance company contracts to do two things: first, it contracts to pay, and secondly it contracts to defend. Insurance Co. v. Insurance Co., 269 N.C. 358, 152 S.E. 2d 513 (1966).\nIt will be observed that the first of these undertakings requires the [insurance] company to step into the shoes of [its insured] and pay a sum for the payment of which he became liable. The second undertaking is not of that nature. In the performance of it the company does not step into the shoes of the policyholder. Its liability under that undertaking is not contingent upon the existence of a liability on his part, and its performance of that undertaking does not impose any liability upon him. That undertaking is absolute.\nId. at 361, 152 S.E. 2d at 516.\nConcerning the duty to defend, the Supreme Court has stated:\nWhen the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable. . . .\nWhere the insurer knows or could reasonably ascertain facts that, if proven, would be covered by its policy, the duty to defend is not dismissed because the facts alleged in a third-party complaint appear to be outside coverage, or within a policy exception to coverage.\nWaste Management of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 340 S.E. 2d 374, 377, reh. denied, 316 N.C. 386, 346 S.E. 2d 134 (1986) (citations omitted).\nThe duty to defend is an important part of any insurance contract. To claim that the duty arises only after final adjudication of liability does not comport with the law of defense duty. See Insurance Co., 269 N.C. 358, 152 S.E. 2d 513. Therefore, we conclude that Aetna does have a duty to defend against Polo\u2019s claims.\nFinally, Aetna\u2019s argument that Rives\u2019 action is premature under the terms of the policy is also unacceptable.\nSection 6.6 of the Aetna policy reads in part:\nAction Against Company. No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured\u2019s obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured the claimant and the company.\nUnder \u00a7 1-254 of the North Carolina Declaratory Judgments Act, any person under a contract may have determined any question of construction or validity arising under the instrument and may obtain a declaration of rights, status or other legal relations. N.C.G.S. \u00a7 1-254.\nPlaintiff brought a declaratory judgment action to have the rights and relations between the insured and insurers clarified. This is quite proper under \u00a7 1-254. Greensboro v. Reserve Ins. Co., 70 N.C. App. 651, 321 S.E. 2d 232 (1984).\nAffirmed.\nJudges Wells and Cozort concur.",
        "type": "majority",
        "author": "ARNOLD, Judge."
      }
    ],
    "attorneys": [
      "Wyatt, Early, Harris, Wheeler & Hauser, by William E. Wheeler and Frederick G. Sawyer, for plaintiff appellee.",
      "Smith, Helms, Mulliss & Moore, by J. Donald Cowan, Jr. and Diane P. Bishop, for defendant appellant."
    ],
    "corrections": "",
    "head_matter": "W & J RIVES, INC., Plaintiff v. KEMPER INSURANCE GROUP d/b/a LUMBERMENS MUTUAL CASUALTY COMPANY, and AETNA CASUALTY AND SURETY COMPANY, Defendants\nNo. 8818SC464\n(Filed 20 December 1988)\n1. Insurance \u00a7\u00a7 143, 6.1\u2014 property insurance \u2014excess coverage exclusion \u2014 meaning of exclusionary clause\nAn exclusionary clause in an insurance policy for property damage did not apply where plaintiff Rives provided transportation of unfinished materials and finished garments for one of its largest customers, Polo Fashion, Inc.; Rives purchased from an insurance agency a package of insurance to insure the Polo goods while in Rives\u2019 possession; Kemper was the underwriter for the coverage; Aetna issued an excess umbrella policy to Rives as part of a renewed insurance package; Rives\u2019 trailer and an entire load of Polo shirts were stolen; Kemper paid only part of the claim; and Aetna refused the claim under an exclusionary clause for property \u201cto the extent that the insured has agreed to provide insurance therefor,\u201d claiming that the policy did not apply if Rives had contracted with Kemper to provide coverage. Rives had not agreed with Polo at the time of the theft to provide insurance for the Polo materials and goods; thus, it would seem that a reasonable person in Rives\u2019 position would have understood that the Polo goods were covered by Aetna\u2019s policy.\n2. Insurance \u00a7 143\u2014 property insurance \u2014 coverage distinguished from liability\nThe trial court did not err in an action for a declaratory judgment against two insurance companies by granting summary judgment against Aetna on a claim that Aetna was to provide excess coverage and a defense. Coverage under an insurance policy and liability to pay are not synonymous terms; although Aetna may ultimately have no liability to pay any excess damages, its policy does include within its scope the type of potential damages claimed by Polo.\n3. Insurance \u00a7 143\u2014 excess insurance \u2014 duty to defend \u2014 exhaustion of underlying liability\nAn excess insurer had a duty to defend, despite its contention that a section of the policy clearly stated that the duty to defend arose only after the exhaustion of the underlying limit of liability by \u201cpayment of claims,\u201d because the duty to defend would otherwise arise only after the need for defense was past.\n4. Declaratory Judgment Act \u00a7 4.3\u2014 insurance \u2014 clarification of rights of parties \u2014 action proper\nA declaratory judgment action by an insured to have the rights and relations between the insured and insurers clarified was proper under N.C.G.S. \u00a7 1-264, despite the insurer\u2019s argument that a provision of the policy made the action premature.\nAppeal by defendant from Collier, Judge. Order entered 3 December 1987 in Superior Court, GUILFORD County. Heard in the Court of Appeals 30 November 1988.\nPlaintiff (Rives) is a company primarily engaged in cutting, sewing and processing garments to the specifications of its customers using the customers\u2019 materials, patterns and labels. Polo Fashion, Inc. (Polo) is one of Rives\u2019 largest customers.\nIn 1982, because of problems associated with Polo\u2019s use of common carriers, Rives agreed to undertake the transportation of the unfinished materials from, and the finished garments to Polo. Rives purchased from Jones & Peacock, Inc. (Jones & Peacock), an insurance agency, a package of insurance to insure the Polo goods while in Rives\u2019 possession. Kemper Insurance Group (Kemper) was the underwriter for the policy coverage and Kemper was advised, according to Jones & Peacock, that the insured materials and goods were not owned by Rives. However, the initial coverage was for \u201cowned goods\u201d in the amount of $140,000. According to Jones & Peacock, Kemper decided this was the best way to insure the items, even though they were not owned by Rives.\nIn 1984, because of the purchase of a larger trailer and rig, Rives contacted Jones & Peacock about increasing the amount of policy coverage. Kemper increased the coverage to $300,000, again, with the alleged knowledge that the items insured were bailed, not owned.\nRives decided to \u201cback haul\u201d unrelated items after depositing the finished goods with Polo. Kemper added to the existing policy, coverage for these \u201cnon-owned\u201d goods in the amount of $140,000.\nOn 12 April 1985, the Rives rig and a whole load of finished Polo shirts were stolen. Rives made a claim upon Kemper for the initial estimate of value of the shirts which was $250,000. Kemper honored the claim, but only paid $140,000 asserting that the shirts were \u201cnon-owned\u201d goods.\nOn 3 November 1986, Polo filed an action against Rives in New Jersey for the balance of the damages for the stolen shirts. Polo sued for $184,250 above the $140,000 paid by Kemper.\nAetna Casualty and Surety Company (Aetna), through Jones & Peacock, and as part of the renewed insurance package sold to Rives in September of 1984, issued an excess umbrella policy to Rives. This policy was in effect when the Polo shirts were stolen. Aetna notified Rives that its excess policy did not cover the loss of the Polo shirts because they were bailed goods and excluded under the policy. Aetna further refused to defend Polo\u2019s action against Rives.\nRives filed a complaint against Kemper and Aetna seeking, inter alia, a declaratory judgment that Kemper is liable to provide coverage to the extent of $300,000 and a defense to the Polo action. Rives also claimed that Aetna is to provide excess coverage to the extent of $5,000,000 and also provide a defense.\nRives included in its complaint a motion for partial summary judgment upon its declaratory judgment claims. On 1 December 1987, the trial court granted Rives\u2019 motion against Aetna, but denied its motion against Kemper. From that order granting Rives\u2019 motion, Aetna appeals.\nWyatt, Early, Harris, Wheeler & Hauser, by William E. Wheeler and Frederick G. Sawyer, for plaintiff appellee.\nSmith, Helms, Mulliss & Moore, by J. Donald Cowan, Jr. and Diane P. Bishop, for defendant appellant."
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