Allstate Insurance Co. v. Old Republic Insurance Co. , 49 N.C. App. 32 ( 1980 )

270 S.E.2d 510 (1980)

ALLSTATE INSURANCE COMPANY
v.
OLD REPUBLIC INSURANCE COMPANY.

No. 8026SC235.

Court of Appeals of North Carolina.

October 7, 1980.

Walker, Palmer & Miller by James E. Walker and Robert P. Johnston, Charlotte, for plaintiff-appellant.

Golding, Crews, Meekins, Gordon & Gray by John G. Golding, Charlotte, for defendant-appellee.

VAUGHN, Judge.

The substantive issue is whether an insurance company may invalidate its binder coverage because the insured procured other insurance, as prohibited by the company's standard insurance policy, when no actual policy was ever issued. Plaintiff argues that termination of binder coverage in this manner violates G.S. 58-176, and therefore defendant's motion for summary judgment was erroneously granted. We do not agree.

First, it is necessary to understand the position plaintiff is taking here. Plaintiff does not deny its own coverage of the Watkins' house on the date of the fire, 26 August 1975. Rather, it contends that certain statutory provisions prevented defendant's imposition of an "other insurance" clause upon its binder, and thus defendant is liable for its prorata share of the fire loss. In sum (and we quote), "[a]t the root of Plaintiff's theory of the case is its view that both Plaintiff and Defendant had bound coverage on the same Watkins' dwelling, and that, consequently, both parties to the lawsuit were bound by the terms of the policy provided by statute, as neither had issued policies." On the other hand, defendant denies that its coverage was in effect beyond 20 August 1975, the date plaintiff bound coverage on the property and relies exclusively on its standard policy provision:

Unless otherwise provided in writing added hereto, other insurance covering on any item of this policy is prohibited. If, during the term of this policy, the Insured shall have any such other insurance, whether collectible or not, and unless permitted by written endorsement added hereto, the insurance under this policy, insofar as it applies to such item(s) on which other insurance exists, shall be suspended and of no effect.

Plaintiff does not dispute that this "other insurance" clause is included in all of defendant's fire insurance policies or that defendant did not allow other insurance on the house by its written endorsement. It also admits that if defendant had issued its standard policy with an endorsement prohibiting other insurance before 20 August 1975, defendant's coverage would have been invalidated.

Second, it is necessary to consider insurance binders generally. A binder is a temporary contract of insurance, consisting of the insurer's bare acknowledgment of its contract to protect the insured against a specified casualty until a formal policy can be issued. A binder does not have to be in a specific form or set forth all the terms of the contemplated policy. Sloan v. Wells, 296 N.C. 570, 251 S.E.2d 449 (1979); Wiles v. Mullinax, 270 N.C. 661, 155 S.E.2d 246 (1967). The statutory fire insurance provisions, however, are read into all binders whether oral or written. G.S. 58-177(4); Mayo v. Casualty Co., 282 N.C. 346, 192 S.E.2d 828 (1972). The provisions of G.S. 58-176 at lines 25-27 and 86-89, respectively are pertinent to the instant case:

Other Insurance. Other insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto.

Pro-rata liability. This Company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not.

At the outset, we must note that G.S. 58-176 does not prohibit the inclusion of other insurance clauses in policies written in this State. The statute clearly permits such a clause to be included in a policy by endorsement. It merely declines to make the clause a standard policy provision as it was formerly. See Johnson v. Insurance Co., 201 N.C. 362, 160 S.E. 454 (1931); Black v. Insurance Co., 148 N.C. 169, 61 S.E. 672 (1908). Thus, G.S. 58-176 does not change prior law that if a valid other insurance clause is breached, the insurer may void the entire policy. Hiatt v. Insurance Co., 250 N.C. 553, 109 S.E.2d 185 (1959); Insurance Co. v. Indemnity Corp., 24 N.C.App. 538, 211 S.E.2d 463 (1975).

What we have before us then is not a case like Insurance Co. v. Casualty Co., 283 N.C. 87, 194 S.E.2d 834 (1973), where the terms of an insurance policy conflicted with the statutory provisions deemed to be included therein. The question here is whether the clause in defendant's standard policy may be given effect in a binder when no policy was ever issued, and even though the binder is deemed to include all of the provisions of G.S. 58-176. We conclude that it may.

A binder is subject to the conditions of the policy contemplated, and generally when one accepts a binder, he accepts all the terms of the underlying insurance contract. 12 Appleman, Insurance Law and Practice § 7225 (1943 & Supp. 1980). This is true even though the policy is never issued.

By intendment, it is subject to all the conditions in the policy to be issued. These informal writings are but incomplete and temporary contracts-memoranda given in aid of parol agreements. Such memoranda usually fix all the essential provisions that are available, but they are not ordinarily intended to include all the terms of the agreement, and always look to the formal policy that is expected subsequently to issue for a complete statement of the contract made. Hence, as heretofore stated, the contract evidenced by the binding slip is subject to all the conditions of the contemplated policy, even though it may never issue, and the same is true of other informal written contracts.

Gardner v. Insurance Co., 163 N.C. 367, 371-72, 79 S.E. 806, 808 (1913) (citations omitted). There can be no question in the present case that the binder was expressly controlled by the policy. The Federal Land Bank notified Mr. Watkins by letter that it had obtained the binder from defendant on his behalf because of a lapse in insurance coverage. That letter dated 22 August 1975 included the following attached announcement:

IMPORTANT

(1) Your rights, duties and responsibilities under the insurance contract which the bank has procured are controlled generally by the standard policy provisions and the provisions of standard forms attached thereto. It is suggested that you acquaint yourself with these provisions.....

Since defendant included a provision against additional insurance in all of its policies, its binders were also governed by the provision. Watkins breached this condition when he obtained insurance with plaintiff, and the breach prevents any recovery from defendant under G.S. 58-176 (lines 86-89). Sugg v. Ins. Co., 98 N.C. 143, 3 S.E. 732 (1887); Burgess v. Insurance Co., 44 N.C.App. 441, 261 S.E.2d 234 (1980).

It would be incongruous to say that G.S. 58-176 compelled a different conclusion. Otherwise, an insurance company would be exposed to a higher and different risk by its temporary coverage than its formal policy coverage. Sound public policy dictates that insurance companies be encouraged to provide temporary coverage through the use of binders.

This preliminary contract is of the greatest importance, for if the applicant could not be made secure until all the formal documents were executed and delivered, the beneficial effect of the insurance system would be greatly impaired; and a clause in the State insurance law or in the charter of an insurance company providing that policies shall be executed in a certain manner does not affect the power of the insurer to make these preliminary arrangements.

Lea v. Insurance Co., 168 N.C. 478, 484, 84 S.E. 813, 816 (1915) (citations omitted).

In addition, plaintiff's cause of action against defendant is based on a right of subrogation derived from its full payment to the insured. It is axiomatic that an insurance company may not be subrogated to greater rights than the insured had. The case at bar is similar to Insurance Co. v. Insurance Association where the Court stated: "[t]he insured can assert no right thereunder [the policy] for the reason that he abandoned the policy and procured other insurance contrary to a valid clause therein contained. It follows, therefore, that the plaintiff cannot acquire by assignment or subrogation a right from a party who had no enforceable right." 206 N.C. 95, 97, 172 S.E. 875, 877 (1934). In his deposition, Mr. Watkins makes it clear that he repudiated defendant's policy almost immediately upon learning that the bank had obtained it for him.

I did not wish to have insurance with Old Republic and did not intend to have insurance with Old Republic. I called my Allstate agent and he came to my house. We completed the application for the policy at my house. At that time I paid him a premium or a portion of a premium. I applied for the insurance because I wanted to be insured by Allstate and not Old Republic.

He further testified that his policy with plaintiff was reinstated on 20 August 1975 and that while plaintiff's agent was still at his house, he called the bank to notify them of his substitute coverage. Because Watkins repudiated defendant's policy and breached the prohibition against other insurance, plaintiff simply had no right to be subrogated to which could be asserted against defendant. Therefore, defendant may not be held liable for any part of the loss occurring on 26 August 1975.

Summary judgment is a proper procedure for deciding matters of law when no material issue of fact exists. G.S. 1A-1, Rule 56. There was no genuine dispute concerning the material facts in this case. Defendant bound coverage on the Watkins' house on 15 August 1975. Defendant's standard policy prohibited other insurance on the dwelling. Watkins immediately took the necessary steps to reinstate his lapsed coverage with plaintiff on 20 August 1975. The bank was notified in some manner on the same day that he had obtained his own insurance. Defendant had no reason to issue a policy thereafter since it was clear to all parties that coverage by defendant had been intended as a temporary measure to protect the bank's interest in the house. Defendant would have issued a policy only if Watkins failed to provide acceptable insurance within 20 days. As defendant explained to plaintiff in its letter of 4 November 1975: "a policy was not issued in this case because it is usual practice to schedule insurance coverage only when it is apparent that the borrower is not going to provide insurance through his own insurance agent." In light of our ruling on the legal effect of a policy's other insurance provision upon its preliminary binder, supra, it was not error to grant defendant summary judgment. The judgment appealed from is

Affirmed.

ROBERT M. MARTIN and WEBB, JJ., concur.