Hackett v. Bonta , 113 N.C. App. 89 ( 1993 )

437 S.E.2d 687 (1993) 113 N.C. App. 89

Laura HACKETT, Plaintiff,
v.
Theresa J. BONTA, Defendant.

No. 924SC1147.

Court of Appeals of North Carolina.

December 21, 1993.

Brumbaugh & Mu by Richard A. Mu, Jacksonville, for plaintiff-appellant.

Marshall, Williams & Gorham by William Robert Cherry, Jr., Wilmington, for defendant-appellee State Farm Mut. Auto. Ins. Co.

Hamilton, Bailey, Way & Brothers by Glenn S. Bailey, Morehead City, for defendant-appellee Theresa J. Bonta.

EAGLES, Judge.

Plaintiff appeals from the trial court's 27 July 1992 and 26 August 1992 orders. After careful review, we reverse and remand for entry of an order compelling arbitration.

I.

In her first two assignments of error, plaintiff contends that the trial court committed reversible error in denying plaintiff's motion to compel arbitration and in granting defendant's motion to stay arbitration "on the grounds that plaintiff's insurance contract with defendant State Farm Mutual Insurance Company grants plaintiff a contractual right to arbitrate." We agree.

This is an interlocutory appeal arising from the denial of plaintiff's motion to stay the proceedings and compel arbitration. Initially, we note that a trial court's "``order denying arbitration, although interlocutory, is immediately appealable because it involves a substantial right which might be lost if appeal is delayed.'" Bennish v. N.C. Dance Theater, 108 N.C.App. 42, 44, 422 S.E.2d 335, 336-37 (1992) (quoting Prime South Homes v. Byrd, 102 N.C.App. 255, 258, 401 S.E.2d 822, 825 (1991)); Sims v. Ritter Constr., Inc., 62 N.C.App. 52, 302 S.E.2d 293 (1983); G.S. 1-277(a); G.S. 7A-27(d)(1).

Our Supreme Court has held that:

Waiver of a contractual right to arbitration is a question of fact. E.g., Davis v. Blue Cross of Northern California, 25 Cal. 3d 418, 158 Cal. Rptr. 828, 600 P.2d 1060 (1979); Doers v. Golden Gate Bridge Etc. Dist., 23 Cal. 3d 180, 151 Cal. Rptr. 837, 588 P.2d 1261 (1979). Because of the strong public policy in North Carolina favoring arbitration, see N.C.Gen.Stat. § 1-567.3 (1983); Thomas v. Howard, 51 N.C.App. 350, 355-56, 276 S.E.2d 743, 747 (1981), courts must closely scrutinize any allegation of waiver of such a favored right. See Keating v. Superior Court, 31 Cal. 3d 584, 183 Cal. Rptr. 360, 645 P.2d 1192 (1982), dismissed in part and rev'd in part on other issues sub nom. Southland Corp. v. Keating, 465 U.S. 1 [104 S. Ct. 852] 79 L. Ed. 2d 1 (1984); Doers v. Golden Gate Bridge Etc. Dist., 23 Cal. 3d 180, 151 Cal. Rptr. 837, 588 P.2d 1261. See also Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 [103 S. Ct. 927, 941], 74 L. Ed. 2d 765, 785 (1983) ("[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."). Because of the reluctance to find waiver, we hold that a party has impliedly waived its contractual right to arbitration if by its delay or by actions it takes which are inconsistent with arbitration, another party to the contract is prejudiced by the order compelling arbitration. See, e.g., Carolina Throwing Co. v. S & E Novelty Corp., 442 F.2d 329, 331 (4th Cir.1971) ("``waiver ... may not rest mechanically on some act such as the filing of a complaint or answer but must find a basis in prejudice to the objecting party'") (quoting Batson Y. & F.M. Gr., Inc. v. Saurer-Allma GmbH-Allgauer M., 311 F. Supp. 68, 73 (D.S.C.1970)).

Cyclone Roofing Co. v. LaFave Co., 312 N.C. 224, 229, 321 S.E.2d 872, 876 (1984) (footnote omitted). See also Servomation Corp. v. Hickory Constr. Co., 316 N.C. 543, 544, 342 S.E.2d 853, 854 (1986); Bennish, 108 N.C.App. 42, 422 S.E.2d 335. Here, our close scrutiny leads us to conclude that given the terms of plaintiff's policy with State Farm and given State Farm's actions, plaintiff's demand for arbitration of her UIM claim was timely made.

State Farm contends that because plaintiff filed suit against defendant Bonta (another State Farm insured) several months prior to her (plaintiff's) written demand for arbitration, she thus nullified the effect of her demand to arbitrate under the terms of her own UIM policy. We disagree.

We note that plaintiff has two potential claims under two separate State Farm policies: the first is a claim against defendant Bonta's personal automobile liability policy with State Farm, while the second is a claim arising under the UIM coverage of her (plaintiff's) own personal automobile policy with State Farm. We further note that despite the existence of these separate claims brought forward by its own named insured, State Farm initially refused to assign two different adjusters and subsequently refused to assign two different attorneys to handle the respective claims against each policy. The North Carolina State Bar has issued an ethics opinion ruling that "an attorney may not represent the insured, her liability insurer, and the same insurer relative to underinsured motorist coverage carried by the plaintiff." See N.C. R.P.C. 154 (proposed 21 October 1992; approved 15 January 1993). State Farm contends that "[i]t should be noted that by letter dated July 27, 1990, the defendant-appellee State Farm had clearly stated to counsel for the plaintiff-appellant that the company did not subrogate against their own insureds when payment was made under the underinsured motorist coverage for another State Farm insured." Nevertheless, we do not find this argument persuasive as to the issue of plaintiff's right to arbitration under the express terms of her UIM policy.

Plaintiff argues that by the express terms of her UIM policy she "did not have a right to seek payment from her State Farm UIM coverage (and thus arbitrate) until State Farm, as the liability carrier, offered to pay the limits of the Bonta liability policy. State Farm refused to tender the liability limits until 18 months after suit was filed, in spite of demands by plaintiff which provided an objective basis for State Farm to conclude that the value of plaintiff's claim exceeded those liability limits." We agree.

A provision under Coverage U1 of plaintiff's UIM policy, supra, specifically stated that "We [State Farm] will pay under this coverage only after the limits of liability under any applicable liability bonds or policies have been exhausted by payments of judgments or settlements...." Prior to the time plaintiff filed suit against defendant, State Farm had refused plaintiff's demands for settlement in the amount of $25,000.00 under defendant's liability policy. Plaintiff filed suit against only defendant Bonta on 29 August 1990. Thereafter, plaintiff made repeated demands for payment under defendant's liability policy, all of which were declined by State Farm. Because State Farm assigned one attorney to handle both claims, until the 17 February 1992 offer (of $75,000.00) plaintiff could not reasonably assume that the limits of defendant's policy ($25,000.00) had been exhausted. Accordingly, we conclude that the arbitration rights under plaintiff's UIM policy were not triggered prior to State Farm's 17 February 1992 offer. We further note that Part C of plaintiff's UIM policy specifically states that if State Farm and "an insured do not agree: 1. Whether that person is legally entitled to recover damages under this Part; or 2. As to the amount of damages" then the insured is entitled to make a written demand for arbitration. Nothing in plaintiff's UIM policy states that plaintiff's filing of a complaint against another State Farm insured for liability arising from the same insured event results in a waiver of plaintiff's right to arbitrate under her own UIM policy. By the terms of plaintiff's UIM policy, plaintiff's action against defendant was not inconsistent with, and did not prejudice, her right to seek arbitration under the terms of her (plaintiff's) own policy. In sum, we conclude that plaintiff's demand for arbitration was not untimely or unreasonably delayed by plaintiff. Because of our disposition of this issue, we need not address the remaining issues raised by plaintiff.

We hold that the trial court erred and that the cause must be submitted to arbitration pursuant to plaintiff's timely demand under the terms of the insurance contract. Accordingly, the trial court's 27 July 1992 and 26 August 1992 orders are reversed and the cause is remanded for proceedings not inconsistent with this opinion.

Reversed and remanded.

ORR and GREENE, JJ., concur.