Holmes v. Sheppard , 255 N.C. App. 739 ( 2017 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-125
Filed: 3 October 2017
Guilford County, No. 15CVS9960
CURTIS R. HOLMES, Plaintiff,
v.
DAVID G. SHEPPARD AND FARM BUREAU INSURANCE OF NORTH
CAROLINA, INC., Defendants.
Appeal by Plaintiff from an order granting summary judgment in favor of
Defendants entered 13 September 2016 by Judge Stanley L. Allen in Guilford County
Superior Court. Heard in the Court of Appeals 23 August 2017.
The Law Offices of Wade Byrd, P.A., by Wade E. Byrd, for Plaintiff-Appellant.
Teague Rotenstreich Stanaland Fox & Holt, P.L.L.C., by Stephen G. Teague,
for Defendants-Appellees.
MURPHY, Judge.
Curtis R. Holmes appeals from the trial court’s order granting David G.
Sheppard and Farm Bureau Insurance of North Carolina, Inc.’s (“Farm Bureau”)
(collectively “Defendants”) motion for summary judgment as to Holmes’s causes of
action for: (1) negligence and (2) negligent misrepresentation. 1 On appeal, Holmes
1 The trial court also granted summary judgment in favor of Defendants on Holmes’s
constructive fraud claim. However, Holmes raises no arguments appealing summary judgment on the
constructive fraud claim in his opening brief. Nonetheless, Defendants address constructive fraud in
HOLMES V. SHEPPARD
Opinion of the Court
argues that the grounds argued for granting the motion are either precluded by
precedent, disputed by issues of material fact, or both. Specifically, he maintains: (1)
the record shows Sheppard owed Holmes a duty of care, which he breached; (2)
evidence of misstatements was not needed to establish negligence by an insurance
agent, and, nonetheless, the record shows Sheppard misstated the policy’s coverage;
(3) Holmes’s failure to read the policy was not contributory negligence as a matter of
law; and (4) Defendants’ theory that Holmes accepted the policy by not reading it
cannot support summary judgment in this case. Defendants raise an alternative
basis in law through North Carolina Rule of Appellate Procedure 10(c), arguing that
the claims herein appealed could have been appropriately dismissed on the
alternative basis of failure to state claims upon which relief can be granted.
We hold the trial court did not err in granting summary judgment in favor of
Defendants on the negligent misrepresentation claim. However, we agree with
Holmes that the trial court erred in granting summary judgment on his negligence
claim because there is a genuine issue of material fact as to whether Sheppard owed
Holmes a duty of care to obtain coverage for the property at issue while it remained
their appellee brief, and Holmes then raises the issue in his reply brief. We do not allow Holmes to
use his reply brief to raise an issue on appeal that was not raised in his principal brief. See Larsen v.
Black Diamond French Truffles, Inc., 241 N.C. App. 74, 78, 772 S.E.2d 93, 96 (2015) (“[T]his Court has
noted that [a] reply brief does not serve as a way to correct deficiencies in the principal brief.”)
(quotation omitted); see e.g. State v. Dinan, 233 N.C. App. 694, 698-99, 757 S.E.2d 481, 485 (2014)
(holding that where a defendant did not ask the Court of Appeals to review an unpreserved issue under
the plain error standard in his principal brief, he could not cure the error by asking the Court to use
the plain error standard in his reply brief).
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Opinion of the Court
vacant. We reverse for Holmes to proceed with the negligence claim, and we reject
Defendants’ North Carolina Rule of Appellate Procedure 10(c) argument.
Background
Holmes owns various real estate holdings, including both residential and office
buildings. Beginning in approximately 2010, Holmes purchased several insurance
policies for his properties through Sheppard, an insurance broker and agent of Farm
Bureau.
Holmes filed a claim under one of these Farm Bureau policies in November
2011, when eight heat pumps were stolen from an office building that Holmes owned.
Farm Bureau denied the claim because there was a vacancy clause on the property
(“the 2011 denial”). Nevertheless, Holmes continued to use Sheppard to purchase
Farm Bureau insurance policies.
In August 2012, Holmes contacted Sheppard about a newly constructed home
he owned on Thom Road in Mebane (“the Property”). Farm Bureau insured the
Property until 19 August 2012, when it cancelled the policy due to the Property being
vacant. Sheppard claimed that, although Holmes confirmed the Property was vacant,
Holmes stated he would lease or rent the Property within thirty days. Holmes
disputes that he told Sheppard he would lease the Property.
Sheppard told Holmes that Farm Bureau was unable to insure the Property,
and that he would have to insure it through the North Carolina Joint Underwriters
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Opinion of the Court
Association (“NCJUA”). Holmes testified that he did not know why he had to
purchase the policy through NCJUA instead of through Farm Bureau, but thought
“it was because the property was vacant.” Holmes further claims that he chose to
purchase a policy through Sheppard because he felt Sheppard would “be the best man
to -- to guide [him] in the right way” in purchasing a policy for the Property because
Sheppard knew about the 2011 denial based on vacancy. Holmes testified that
although he did not remember the application process for a NCJUA policy, he told
Sheppard that he “didn’t want to ever have this vacancy problem again because of
what [he] had been through.”
Following Holmes’s application for coverage, NCJUA issued a policy (“the
Policy”) insuring the Property, which became effective on 24 August 2012. NCJUA
mailed a copy of the Policy to Holmes, who received it, but admittedly did not read it.
The Policy remained active in January 2015, when water damage occurred at the
Property. Holmes contacted Sheppard to submit a claim for the damage, which
Sheppard initially thought would be paid. Sheppard claims he thought the Policy
covered the damage because he was “under the impression that [Holmes] had fulfilled
his commitment to lease the property[.]” Holmes denies ever making a commitment
to lease the Property. NCJUA denied the claim due to coverage exclusions and
limitations for “ ‘Accidental Discharge or Overflow of Water or Steam’ of a dwelling
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Opinion of the Court
that had been vacant for more than 60 consecutive days immediately prior to the
loss.”
On 7 December 2015, Holmes filed a complaint seeking compensatory
damages, alleging claims against Defendants for: (1) negligence; (2) negligent
misrepresentation; and (3) constructive fraud in connection with the Policy.
Defendants denied these allegations in their Answer, asserting various defenses,
including a Rule 12(b)(6) motion to dismiss. On 16 August 2016, Defendants filed a
motion for summary judgment, and served notice of a motions hearing for both the
motion for summary judgment and the motion to dismiss. The hearing took place on
6-7 September 2016. The trial court granted Defendants’ motion for summary
judgment as to all claims in open court. The trial court filed its written order on 13
September 2016. The trial court declined to reach the motion to dismiss because the
grant of the summary judgment motion rendered the motion to dismiss moot.
Plaintiff timely appealed.
Analysis
Holmes argues the trial court erred in granting summary judgment in favor of
Defendants on his claims of negligence and negligent misrepresentation because none
of the grounds asserted as a basis for summary judgment support the grant of the
motion. Specifically, he maintains: (1) the record shows Sheppard owed Holmes a
duty of care, which he breached; (2) evidence of misstatements was not needed to
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Opinion of the Court
establish negligence by an insurance agent, and, nonetheless, the record shows
Sheppard misstated the policy’s coverage; (3) Holmes’s failure to read the policy was
not contributory negligence as a matter of law; and (4) Defendants’ theory that
Holmes accepted the policy by not reading it cannot support summary judgment in
this case.
We reverse the trial court’s grant of summary judgment on the negligence
claim and affirm the trial court’s grant of summary judgment as to negligent
misrepresentation. We note Defendants invoke North Carolina Rule of Appellate
Procedure 10(c) to raise an alternative basis in law supporting the dismissal of
Holmes’s claims. We find their argument deficient.
We review an order granting summary judgment de novo. Forbis v. Neal, 361
N.C. 519, 524, 649 S.E.2d 382, 385 (2007) (citation omitted). Summary judgment is
only appropriate when the record shows “there is no genuine issue as to any material
fact and that any party is entitled to a judgment as a matter of law.” Id. at 523-24,
649 S.E.2d at 385 (quotation omitted).
I. Negligence by an Insurance Agent
Holmes argues the trial court erred in granting summary judgment on his
negligence claim. We agree, because whether Defendants owed a duty of care to
obtain insurance that would cover the Property while it remained vacant is a genuine
issue of material fact to be decided by a jury.
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A. Duty of Care
To establish a prima facie case for an insurance agent’s negligent failure to
procure requested coverage, a plaintiff must “prove the existence of a legal duty owed
to the plaintiff by the defendant, breach of that duty, and a causal relationship
between the breach and plaintiff’s injury or loss.” White v. Consol. Planning, Inc.,
166 N.C. App. 283, 301, 603 S.E.2d 147, 160 (2004) (citation omitted).
It is well established that a duty “to use reasonable skill, care and diligence to
procure” contemplated insurance arises, and is breached, “if an insurance agent or
broker undertakes to procure for another insurance against a designated risk[.]”
Kaperonis v. Underwriters at Lloyd’s, London, 25 N.C. App. 119, 128, 212 S.E.2d 532,
538 (1975). Thus, the agent or broker will be “liable to the proposed insured for loss
proximately caused by” a “negligent failure to” procure such insurance. Id. at 128,
212 S.E.2d at 538. “Conversely, if the agent or broker . . . procured the contemplated
insurance coverage from a competent, solvent insurer, so that it was in effect at the
time of the casualty . . . he has performed his undertaking and is not
liable . . . thereon.” Mayo v. Am. Fire & Cas. Co., 282 N.C. 346, 353, 192 S.E.2d 828,
832-33 (1972) (citations omitted). If a promise or some affirmative assurance that
the broker or agent “will procure or renew a policy of insurance” is given “under
circumstances which lull the insured into the belief that such insurance has been
effected,” then the broker or agent is obligated “to perform the duty which he has thus
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assumed.” Barnett v. Sec. Ins. Co. of Hartford, 84 N.C. App. 376, 378, 352 S.E.2d 855,
857 (1987) (quotation omitted).
Here, Holmes claims he requested a policy without a vacancy exclusion. In
support of this argument, he points to his deposition testimony, where he repeatedly
claimed he told Sheppard he did not want to have another issue because of vacancy,
as he did with the 2011 denial. Further, Holmes points to the following exchange
that took place at deposition, which he argues demonstrates that he requested
coverage without a vacancy exclusion, and that Sheppard undertook to procure such
coverage:
Q. What did [Sheppard] say as to why he had to get
insurance with a different company?
[Holmes]: I think it was because the property was vacant.
In contrast, Defendants argue that Holmes never requested a policy without a
vacancy limitation. By affidavit, Sheppard testified that Holmes did not request a
vacancy exclusion for the Property, but, rather, in August 2012, Holmes confirmed he
planned to lease the Property within thirty days. Although, in his deposition, Holmes
claimed that Sheppard’s statement that Holmes planned to lease the Property was
false, Holmes did indicate in his application for the Policy that the Property would be
occupied. Sheppard claimed he initially thought the claim at issue would be paid
when it was initially presented because he was under the impression that Holmes
had fulfilled the commitment to lease the Property.
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Opinion of the Court
If a trier of fact were to believe the evidence that Holmes requested a vacancy
exclusion and Sheppard sought to secure a policy based on the request, then Sheppard
undertook a duty to procure such a policy. See Kaperonis, 25 N.C. App. at 128, 212
S.E.2d at 538 (explaining that the duty “to use reasonable skill, care and diligence to
procure” contemplated insurance arises, and is breached, “if an insurance agent or
broker undertakes to procure for another insurance against a designated risk”).
Thus, as there is a genuine issue as to whether a legal duty arose for Sheppard to
procure insurance without a vacancy exclusion, summary judgment was not
appropriate on Holmes’s negligence claim.
B. Contributory Negligence
Holmes next argues that Defendants’ argument in their motion for summary
judgment that Holmes was contributorily negligent did not create sufficient grounds
for the trial court to grant summary judgment on his negligence claim. We agree.
Generally, if “a person of mature years of sound mind who can read or write
signs or accepts a deed or formal contract affecting his pecuniary interest, it is his
duty to read it, and knowledge of the contents will be imputed to him in case he has
negligently failed to” so read. Elam v. Smithdeal Realty & Ins. Co., 182 N.C. 599,
603, 109 S.E. 632, 634 (1921). However, this duty “is subject to the qualification that
nothing has been said or done to mislead him or to put a man of reasonable business
prudence off his guard[.]” Id. at 603, 109 S.E. at 634. Thus, where an agent or broker
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Opinion of the Court
says or does something to mislead an individual or to put a person of reasonable
business prudence off guard, “the cause should be submitted to the jury on the
question whether the failure to hold an adequate policy is due to plaintiff’s own
negligence in not reading his policy and taking out one sufficient to protect him.” Id.
at 603-04, 109 S.E. at 634.
Whether Holmes read the Policy is not at issue, as Holmes admits he did not
read it. Further, he admits that he could have done so. He also testified that he
would have done something about the Policy’s lack of vacancy exclusion, had he read
the policy. Nonetheless, Holmes argues that the cause should be submitted to the
jury on the question of whether this failure was contributorily negligent so as to bar
his claim under the qualification described in Elam because Sheppard made
representations regarding the coverage that misled him, or put him off his guard.
Defendants argue that Sheppard made no such representations, and, therefore,
Holmes was contributorily negligent, barring relief.
Contrary to Defendants’ assertions, there are some facts in evidence, through
Holmes’s deposition testimony, that suggest Holmes may have been misled, or put off
his guard, by Sheppard. Holmes denied he told Sheppard he was going to lease the
residence, and repeatedly emphasized that he told Sheppard he did not want another
issue to be caused by vacancy. From this testimony, a jury could determine that
Sheppard misled Holmes, or put him off his guard, and, thus, Holmes’s failure to read
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Opinion of the Court
the policy does not necessitate as a matter of law that summary judgment be granted
on his claim that Defendants were negligent.
Thus, we reverse the trial court’s grant of summary judgment for Defendants
on Holmes’s negligence claim.
II. Negligent Misrepresentation
Holmes argues the trial court erred in granting summary judgment on his
negligent misrepresentation claim. We disagree.
“[N]egligent misrepresentation occurs when in the course of a business or other
transaction in which an individual has a pecuniary interest, he or she supplies false
information for the guidance of others in a business transaction, without exercising
reasonable care in obtaining or communicating the information.” Pinney v. State
Farm Mut. Ins. Co., 146 N.C. App. 248, 256, 552 S.E.2d 186, 191 (2001) (quotation
omitted). However, “when a party relying on a misleading representation could have
discovered the truth upon inquiry, the complaint must allege that he was denied the
opportunity to investigate or that he could not have learned the true facts by exercise
of reasonable diligence.” Id. at 256, 552 S.E.2d at 192 (quotation omitted).
Here, Holmes argues that Sheppard supplied false information by informing
Holmes that the Policy would meet his needs. While whether this is “false
information” is in dispute, Holmes could have discovered the truth that there was not
a vacancy exclusion upon simple inquiry by reading the Policy. Holmes repeatedly
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testified that he never read the Policy insuring the Property, despite receiving it in
the mail. Had he read the Policy, he would have learned that it did not include a
vacancy exclusion. Thus, because he could have discovered the truth upon inquiry,
the complaint had to allege Holmes was denied the opportunity to investigate or that
he could not have learned the true facts by exercise of reasonable diligence. It did
not, so the trial court appropriately granted summary judgment as to Holmes’s claim
for negligent misrepresentation.
III. Merger and Acceptance of the Policy
Holmes argues summary judgment could not be granted based on Defendants’
argument that summary judgment was appropriate because Holmes received,
retained, and, thus, accepted as written the Policy. We agree.
Defendants support their argument with an insurance contract case, State
Distributing Corp. v. Travelers Indemnity Co., 224 N.C. 370, 30 S.E. 377 (1944). In
State Distributing Corp., the plaintiff requested both robbery and burglary insurance.
Id. at 375-76, 30 S.E. at 380. The insurance agent sent the plaintiff a letter that
constituted a temporary binder pending issuance of the formal policy, which stated
that while the application was being processed, the insurer would put coverage into
effect immediately. Id. at 376, 30 S.E. at 380. When the formal policy arrived, it only
covered robbery. Id. at 376, 30 S.E. at 380. Our Supreme Court held that in the
context of the continued efficacy of an insurance binder after delivery of an actual
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policy, the formal policy merged all prior or contemporaneous parole agreements, and
upon accepting the policy, thereby assented to the terms. Id. at 376, 30 S.E. at 380-
81. Thus, State Distributing Corp. did not concern whether the agent was subject to
negligence for failure to procure requested coverage. Instead, here, as in Elam, “the
action is not one . . . in which plaintiff is seeking to hold [the insurance company]
liable for an obligation not contained in the written policy[;]” instead, the plaintiff is
suing “the agent and broker for negligent failure to perform a duty he had undertaken
and assumed as agent, by which plaintiff has suffered the loss complained of[.]”
Elam, 182 N.C. at 602, 109 S.E. at 633. Therefore, summary judgment cannot be
granted based on Defendants’ argument that summary judgment was appropriate
because, allegedly, Holmes received, retained, and accepted the Policy as written.
IV. Defendants’ Cross-Assignment of Error
Defendants contend their motion to dismiss Holmes’s claims for failure to state
a claim upon which relief can be granted provides an alternative basis in the law upon
which relief can be granted. We disagree, because this cross-assignment of error is
not properly before our Court.
North Carolina Rule of Appellate Procedure 10(c) provides, in pertinent part:
Without taking an appeal, an appellee may list proposed
issues on appeal in the record on appeal based on any
action or omission of the trial court that was properly
preserved for appellate review and that deprived the
appellee of an alternative basis in law for supporting the
judgment, order, or other determination from which appeal
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has been taken. An appellee’s list of proposed issues on
appeal shall not preclude an appellee from presenting
arguments on other issues in its brief.
N.C.R. App. P. 10(c) (2017).
Our Supreme Court has explained that this rule is a mechanism to provide
“protection for appellees who have been deprived in the trial court of an alternative
basis in law on which their favorable judgment could be supported, and who face the
possibility that on appeal prejudicial error will be found in the ground on which their
judgment was actually based.” Carawan v. Tate, 304 N.C. 696, 701, 286 S.E.2d 99,
102 (1982) (discussing the rule for cross-assignments of error).
In the present case, the trial court determined the granting of the motion for
summary judgment rendered the motion to dismiss moot. During the hearing,
Defendants agreed with the trial court that its ruling on summary judgment rendered
the motion to dismiss moot:
[Trial court]: After careful consideration of the court file
and everything handed up by counsel and arguments of
counsel, Court is of the opinion that the motions for
summary judgment as to each count of the complaint
should be allowed. And does that make moot then the
motion to dismiss?
[Defendants]: It does, Your Honor.
[Trial Court]: Okay. I’ll ask you to draw that, [Defense
counsel].
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By not objecting, Defendants failed to properly preserve any action or omission
of the trial court for appellate review as required by North Carolina Rule of Appellate
Procedure 10(c). See N.C.R. App. P. 10(a)(1) (2017) (“In order to preserve an issue for
appellate review, a party must have presented to the trial court a timely request,
objection, or motion, stating the specific grounds for the ruling the party desired the
court to make if the specific grounds were not apparent from the context.”).
Conclusion
For the reasons stated above, we affirm the trial court granting summary
judgment in favor of Defendants on the negligent misrepresentation and constructive
fraud claims. However, the trial court erred in granting summary judgment on
Holmes’s negligence claim. We reverse for Holmes to proceed with the negligence
claim.
REVERSED IN PART; AFFIRMED IN PART.
Judges CALABRIA and ZACHARY concur.
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