Haney v. USAA Casualty Insurance Company

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1941
CHRISTOPHER A. HANEY, on behalf of himself, individually,
and as a class representative of all holders of North
Carolina automobile insurance policies issued by USAA
Casualty Insurance Company, United Services Automobile
Association, USAA General Indemnity Company, USAA County
Mutual Insurance Company, and USAA, and in effect at any
time from and after December 1, 2002,
Plaintiff - Appellant,
v.
USAA CASUALTY INSURANCE COMPANY, a Texas Insurance Company;
UNITED SERVICES AUTOMOBILE ASSOCIATION, a Texas Reciprocal
Interinsurance Exchange; USAA GENERAL INDEMNITY COMPANY, a
Texas Insurance Company,
Defendants – Appellees,
and
USAA COUNTY MUTUAL INSURANCE COMPANY, a Texas Insurance
Company; USAA, a Texas Association of Insurance and
Financial Companies,
Defendants.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. James C. Fox, Senior
District Judge. (5:06-cv-00006-F)
Argued: January 27, 2009 Decided: May 15, 2009
Before MICHAEL, GREGORY, and AGEE, Circuit Judges.
Affirmed by unpublished opinion. Judge Agee wrote the majority
opinion, in which Judge Michael joined. Judge Gregory wrote a
separate opinion concurring in part and dissenting in part.
ARGUED: John Crudup Rogers, III, ALLEN, MOORE & ROGERS, L.L.P.,
Raleigh, North Carolina, for Appellant. David A. Jones, AKIN,
GUMP, STRAUSS, HAUER & FELD, San Antonio, Texas, for Appellees.
ON BRIEF: Josiah Stockton Murray, III, HEDRICK, MURRAY, BRYSON,
KENNETT, MAUCH & ROGERS, P.L.L.C., Durham, North Carolina, for
Appellant. Reid L. Phillips, BROOKS, PIERCE, MCLENDON, HUMPHREY
& LEONARD, L.L.P., Greensboro, North Carolina; Nada L. Ismail,
AKIN, GUMP, STRAUSS, HAUER & FELD, San Antonio, Texas, for
Appellees.
2
AGEE, Circuit Judge:
I.
Christopher A. Haney, individually and as a proposed class
representative, filed suit in North Carolina state court against
USAA Casualty Insurance Company (“USAA Casualty”), USAA General
Indemnity Company (“USAA General”), and United Services
Automobile Association (“USAA”) (collectively, “the
Defendants”). 1 USAA is the parent company of USAA Casualty and
USAA General. All three market and sell auto insurance policies
to members of the armed services and their families and use the
same “form” policies. At all times relevant to this suit, Haney
was the named insured on an automobile insurance policy issued
by USAA Casualty and only that company’s name appeared on the
declarations page of his policy. 2
Haney asserted a breach of contract claim, among others,
against the Defendants. He argued that although the Defendants
routinely pay auto dividends to their policyholders in other
states, they refused to make dividend payments to policyholders
1
Haney also sued, as separate party defendants, USAA County
Mutual Insurance Company and USAA, a trade name. Both parties
were subsequently dismissed from this action.
2
Reference to Haney’s “policy” includes renewals of that
policy that occurred during the relevant timeframe. The record
does not reveal any variation among the terms or conditions of
the renewed policies that would affect the issues on appeal.
3
in North Carolina, including Haney, beginning in 2002.
According to Haney, the Defendants blamed this disparate
treatment on North Carolina’s “unique procedures for setting
automobile insurance rates”. 3
The Defendants timely removed the case to the United States
District Court for the Eastern District of North Carolina. USAA
Casualty filed an answer while the remaining defendants filed
motions to dismiss under Rule 12(b)(1). USAA and USAA General
asserted that, as an insured under a policy issued only by USAA
Casualty, Haney lacked standing to pursue his claims against
them.
Haney filed a motion for class certification and the
appointment of class counsel. The Defendants filed motions for
3
The record reflects that USAA and its subsidiaries
consider the regulatory process for the approval of insurance
rates in North Carolina uniquely burdensome among the states.
We only note that the record reflects North Carolina’s
regulatory scheme allows insurers, like USAA, to charge higher
proposed rates before a proposed rate increase has been approved
by the North Carolina Insurance Commissioner so long as any
increased revenue above an existing approved rate is set aside
in an escrow account until such time as the Insurance
Commissioner approves or disallows the proposed increase.
Should the Insurance Commissioner not approve some part of the
proposed increase, all monies in escrow, plus interest,
reflecting the disallowed part of the increase, must be refunded
to policyholders. This would be so even if USAA had already
issued dividends to the policyholders based on the collected
premiums. This system routinely leads to protracted disputes
(and often litigation) between insurers such as USAA and the
Insurance Commissioner.
4
summary judgment and successfully sought to stay briefing on
Haney’s motions regarding class certification pending resolution
of the dispositive motions.
On August 17, 2007, the district court issued an extensive
order simultaneously disposing of the motions to dismiss and
motions for summary judgment. The district court first
determined that Haney lacked standing to sue USAA General
because, as an insured of USAA Casualty, he could not establish
“any action by USAA [General] that has caused him injury.”
Haney v. USAA Casualty Ins. Co., et al., No. 5:06-CV-6-F, slip
op. at 16 (E.D.N.C. Aug. 17, 2007). Even though Haney could
also not show he was an insured of USAA, the district court
found that he had pled sufficient allegations to establish
individual standing to pursue a claim against USAA because he
alleged that the USAA Board of Directors made the actual
decision regarding the payment (or nonpayment) of dividends for
USAA Casualty policyholders. Accordingly, the district court
granted USAA General’s motion to dismiss, but denied the motion
as to USAA. The district court addressed, and granted, the
summary judgment motions by USAA and USAA Casualty.
On appeal, Haney contends the district court erroneously
concluded there were no issues of material fact with respect to
the Defendants’ duty to pay auto dividends and thus erred in
granting summary judgment on his claims for breach of contract,
5
violation of North Carolina’s Unfair and Deceptive Trade
Practices Act, N.C. Gen. Stat. § 75.1.1 et seq. (“UDTPA”), and
declaratory judgment. 4 He also contends the district court erred
in finding that he lacked standing to sue USAA General. For the
reasons that follow, we affirm the judgment of the district
court.
II.
Haney contends the district court erred in holding that he
lacked standing to sue USAA General. To have standing vis-à-vis
USAA General, Haney “must have suffered an ‘injury in fact’-an
invasion of a legally protected interest which is (a) concrete
and particularized, and (b) ‘actual or imminent, not
‘conjectural’ or ‘hypothetical’” Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992) (quoting Whitmore v.
Arkansas, 495 U.S. 149, 155 (1990)) (internal citations
omitted). Not only must Haney demonstrate injury, he must also
show that the injury sustained is "fairly . . . traced to the
challenged action of [USAA General], and not injury that results
from the independent action of some third party not before the
4
Haney also asserted a claim for breach of fiduciary duty
against USAA and USAA-Casualty. Although the district court
also granted summary judgment on this claim, Haney has not
sought review of this decision on appeal and we do not consider
it.
6
court.” Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 41–42
(1976); see also Friends for Ferrell Parkway v. Stasko, 282 F.3d
315, 320 (4th Cir. 2002) (“The traceability requirement ensures
that it is likely the plaintiff's injury was caused by the
challenged conduct of the defendant, and not by the independent
actions of third parties not before the court.”).
Haney predicates his standing argument on the contention
that purchasing an auto policy from USAA Casualty makes him a
member of USAA and it is that company’s board of directors that
decides whether to pay a dividend to USAA Casualty and USAA
General policyholders. Even if this is so, Haney fails to show
any causal relation to a decision by USAA’s board of directors
to withhold the payment of dividends to USAA General
policyholders that causes damage to him as a USAA Casualty
policyholder. Haney thus concedes that any damages he incurs
from loss of the dividend is traceable to USAA and has no nexus
to USAA General. In short, Haney has not shown a “case or
controversy” exists between himself and USAA General sufficient
7
to confer Article III standing. 5 Without Article III standing as
a beginning point, Haney cannot claim standing for Rule 23
purposes. See Fallick, 162 F.3d at 423. Thus, the district
court did not err in granting USAA General’s motion to dismiss. 6
5
Haney’s reliance on Fallick v. Nationwide Mut. Ins. Co.,
162 F.3d 410 (6th Cir. 1998) is misplaced. That court affirmed
the principle that “[a] potential class representative must
demonstrate individual standing vis-a-vis the defendant; he
cannot acquire such standing merely by virtue of bringing a
class action.” Id. at 423 (emphasis added). It is only after
“‘an individual has alleged a distinct and palpable injury to
himself [that] he has standing to challenge a practice even if
the injury is of a sort shared by a large class of possible
litigants.’” Id. (quoting Senter v. General Motors Corp., 532
F.2d 511, 517 (6th Cir. 1976)). Haney confuses standing to
challenge USAA’s practice of not paying dividends to North
Carolina policyholders with standing to sue a particular
corporate defendant, USAA General, with whom he has no legal
relationship. Moreover, as at least one court has noted,
“circuit precedent interpreting ERISA, a statute that is not at
issue in the present case, was an important factor in the
[Fallick] court's decision regarding Article III standing.” In
re Eaton Vance Corp. Sec. Litig., 220 F.R.D. 162, 168 (D. Mass.
2004).
6
As a practical matter, even if Haney had standing as to
USAA General, his claims would fail for the same reasons they
fail against the other defendants. We also note our agreement
with the district court’s determination that Haney possessed
standing to sue USAA. Haney’s allegation that USAA’s board of
directors made the decision not to issue refunds for USAA
Casualty policyholders made his alleged injury “fairly
traceable” to USAA’s conduct. See Lujan, 504 U.S. at 561 (“At
the pleading stage, general factual allegations of injury
resulting from the defendant's conduct may suffice, for on a
motion to dismiss we ‘presum[e] that general allegations embrace
those specific facts that are necessary to support the
claim.’”).
8
III.
We review the grant of summary judgment de novo. Long v.
Dunlop Sports Group Ams., Inc., 506 F.3d 299, 301 (4th Cir.
2007)). A party is entitled to summary judgment “if the
pleadings, the discovery and disclosure materials on file, and
affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c).
[T]he plain language of Rule 56(c) mandates the entry
of summary judgment, after adequate time for discovery
and upon motion, against a party who fails to make a
showing sufficient to establish the existence of an
element essential to that party's case, and on which
that party will bear the burden of proof at trial. In
such a situation, there can be ‘no genuine issue as to
any material fact,’ since a complete failure of proof
concerning an essential element of the nonmoving
party's case necessarily renders all other facts
immaterial.
Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). “[T]he
burden on the moving party may be discharged by ‘showing’ – that
is, pointing out to the district court - that there is an
absence of evidence to support the nonmoving party's case.” Id.
at 325. “If the evidence is merely colorable, or is not
significantly probative, summary judgment may be granted.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)
(internal citations omitted).
9
A. Breach of Contract
Under North Carolina law, “an insurance policy is a
contract and its provisions govern the rights and duties of the
parties thereto.” Fidelity Bankers Life Ins. Co. v. Dortch, 348
S.E.2d 794, 796 (N.C. 1986). Therefore, we have a “duty to
construe and enforce insurance policies as written, without
rewriting the contract or disregarding the express language
used.” Id.The first page of Haney’s policy contains, opposite the
table of contents entitled “Your Personal Auto Policy Quick
Reference”, the following text:
RECIPROCAL PROVISIONS . . .
apply when United Services Automobile Association, or
USAA, is named on the Declarations as the Company.
A non-assessable policy
Reciprocals
Special definitions and provisions
Plan of operation
In your policy these sets of words have the same
meaning: Policy means Contract; You, Your or Insured
means Subscriber; We, us, our, USAA or Company means
Reciprocal or Interinsurance Exchange; Premium means
Deposit; Chairman means Attorney-in-Fact.
Your policy is issued as part of an
Interinsurance Exchange by the Chairman of USAA as
Attorney-in-Fact under the authority given him by the
subscribers.
No Contingent Liability: You are liable only for
the amount of your premium since USAA has a free
surplus in excess of the amount required by Article
19.03 of the Texas Insurance Code of 1951, as amended.
Participation: By purchasing this policy, you are
a member of USAA and subject to its bylaws. You are
entitled to dividends as they may be declared by us,
10
after approval as required by the Texas Insurance Code
of 1951, as amended.
J.A. 89 (emphasis added). Haney asserts on appeal, as he argued
to the district court, that the above “participation” provision
entitles him to dividends as part of his contract with USAA
Casualty and the failure to pay those dividends constitutes a
breach of contract. However, Haney does not dispute that USAA
Casualty, and not USAA, appears on the declarations page of his
policy.
Under North Carolina law, when “the terms of the policy are
plain, unambiguous, and susceptible of only one reasonable
interpretation, a court will enforce the contract according to
its terms.” ABT Bldg. Prods. Corp. v. Nat'l Union Fire Ins. Co.
Of Pittsburgh, 472 F.3d 99, 115–16 (4th Cir. 2006) (citing
Register v. White, 599 S.E.2d 549, 553 (N.C. 2004)). As the
district court correctly concluded, “[a] plain reading of the
policy shows that all of the ‘reciprocal provisions,’ that is,
the provisions that are only applicable to United Services
Automobile Association, the reciprocal insurance exchange, are
11
grouped together.” 7 Haney, No. 5:06-CV-6-F, slip op. at 20.
Thus, according to the plain language of the “reciprocal
provisions”, there is no contractual obligation on the part of
USAA Casualty to pay Haney dividends.
To avoid this result Haney makes several arguments on
appeal: that the language regarding dividends is ambiguous and
thus should be construed against the Defendants, that their
historical custom and practice of paying dividends creates an
entitlement to the payment of dividends, and that the nonpayment
of dividends violates N.C. Gen. Stat. § 58-8-25. For the
reasons that follow, we reject each argument.
The “reciprocal provisions” are “plain, unambiguous, and
susceptible of only one reasonable interpretation.” ABT Bldg.
Prods., 472 F.3d at 115–16. The very first sentence clearly
establishes that the provisions, including that about dividend
payment, only “apply when United Services Automobile
Association, or USAA, is named on the Declarations as the
Company.” As noted above, USAA is not so named and no contract
7
The “reciprocal provisions” are necessary because while
all three defendants, USAA, USAA Casualty, and USAA General use
the same “form” policies for their North Carolina policyholders,
USAA is a reciprocal insurance exchange. See N.C. Gen. Stat.
Ann. § 58-15-5(5) (West 2008) (“Reciprocal insurance” means
insurance resulting from the mutual exchange of insurance
contracts among persons in an unincorporated association under a
common name through an attorney-in-fact having authority to
obligate each person both as insured and insurer.”).
12
provision for dividends exists as to USAA Casualty. Thus, it
would be a manufactured and false reading to consider the
“participation” provision about dividends as somehow separately
applicable to USAA Casualty policyholders such as Haney. In
short, there is nothing ambiguous about the reciprocal
provisions.
With no ambiguity, evidence of historical practice or
custom is not admissible to create a contractual obligation on
the part of the Defendants.
[E]vidence of a usage or custom is never admitted to
make a new contract or to add a new element to one
previously made. It may explain what is ambiguous but
it cannot vary or contradict what is manifest and
plain, or be received to give to plain and unambiguous
words or phrases a meaning different from their
natural import.
Lester Bros. v. J. M. Thompson Co., 134 S.E.2d 372, 378 (N.C.
1964) (citing 55 Am. Jur., Usages and Customs § 31; 25 C.J.S.
Customs and Usages § 30); see also E.L. Scott Roofing Co. v.
North Carolina, 346 S.E.2d 515, 520 (N.C. Ct. App. 1986).
Having determined that the “reciprocal provisions,” including
the obligation to pay dividends, are not ambiguous and do not
apply to USAA Casualty policyholders such as Haney, evidence of
custom or usage is simply not admissible to alter the terms of
the parties’ contract.
Finally, Haney avers that regardless of the contractual
provisions in his policy, when USAA Casualty is authorized to
13
pay dividends to its policyholders in other states, the failure
to pay dividends to its North Carolina policyholders violates
N.C. Gen. Stat. § 58-8-25. Haney argues that the statute “is
part of Haney’s policy ‘. . .to the same extent as if therein
written . . .’”. Appellant Br. at 24 (quoting Nationwide Mut.
Ins. Co. v. Aetna Life and Cas. Co., 194 S.E.2d 834, 837 (N.C.
1973)). Consequently, Haney contends an insurer in North
Carolina, such as USAA Casualty, may only differentiate the
payment of dividends on “the basis of each general kind of
insurance” and “by territorial divisions of the location of
risks by states.” N.C. Gen. Stat. Ann. § 58-8-25(a). We do not
address the applicability of this statute, if any, because the
record establishes that Haney never made this argument to the
district court. It is therefore waived on appeal. 8 United
States v. Benton, 523 F.3d 424, 428 (4th Cir. 2008) (“Failure to
raise an argument before the district court typically results in
the waiver of that argument on appeal.”); Holland v. Big River
Minerals Corp., 181 F.3d 597, 605 (4th Cir. 1999).
8
While the Defendants did reference N.C. Gen. Stat. § 58-8-
25, they did so only once in the course of a discovery dispute
over the admission of an affidavit from one of Haney’s proposed
expert witnesses. That affidavit never mentioned in any way the
statutory argument Haney makes here for the first time on
appeal. Haney obliquely mentions the statute in his response
seeking admission of the affidavit, but he can identify no
document in the record, and we find none, where he makes the
argument he now makes on appeal.
14
Therefore, Haney is unable to prove as a matter of law that
either USAA or USAA Casualty is contractually obligated to pay
him dividends. Accordingly, the district court did not err in
its grant of summary judgment in that regard.
B. Unfair and Deceptive Trade Practices
Haney also asserted in the district court that various
actions by the Defendants constituted violations of North
Carolina’s UDTPA. Specifically, he averred that the following
actions constituted violations of the statute: (1) the
Defendants’ failure to pay auto dividends they were
contractually obligated to pay, (2) sending false and misleading
communications to North Carolina policyholders regarding the
ability to pay the dividend, and (3) sending communications to
North Carolina policyholders that constitute per se violations
of the UDTPA under N.C. Gen. Stat. § 58-63-15(1). The district
court held that Haney’s UDTPA claims lacked merit because he had
no contractual right to dividends and he failed to present any
evidence showing he was injured by the allegedly misleading
communications.
As we have already explained, the district court was
clearly correct on the first point as Haney had no contractual
right to dividends from either USAA or USAA Casualty. As to the
second point, to establish a prima facie claim for unfair trade
15
practices, Haney was required to show that: “(1) [the
defendants] committed an unfair or deceptive act or practice,
(2) the action in question was in or affecting commerce, and (3)
the act proximately caused injury to the plaintiff.” Dalton v.
Camp, 548 S.E.2d 704, 711 (N.C. 2001) (emphasis added). Haney
did not produce evidence that any unfair or deceptive trade
practice, even if committed by the Defendants, caused him harm. 9
Thus, the district court did not err in granting summary
judgment on this claim.
C. Declaratory Judgment
In addition to the claims addressed above, Haney requested
that the district court declare the Defendants: (1) had no
authority to withhold dividends from North Carolina
policyholders while paying dividends to policyholders in other
states, (2) breached contractual and fiduciary duties by
refusing to pay dividends, (3) were obligated to pay auto
dividends for the years 2002, 2003, and 2004, with interest, and
9
Specifically, Haney contends that letters from USAA
notifying North Carolina policyholders that North Carolina’s
system for setting automobile insurance rates prevented them
from paying an auto dividend in certain years was deceptive and
misleading. As the district court noted, even if this were
true, Haney suffered no harm because he had no enforceable right
to the dividends in the first place.
16
(4) were prohibited from refusing to pay dividends to North
Carolina policyholders in the future.
The district court determined that Haney was not entitled
to declaratory judgment because he had no contractual right to
dividends from the Defendants. Accordingly, the district court
entered summary judgment for the Defendants and denied Haney’s
request. Our determination that Haney is not contractually
entitled to the payment of dividends likewise supports the entry
of summary judgment for the Defendants on this issue.
IV.
For all the foregoing reasons, we affirm the district
court’s judgment in all respects.
AFFIRMED
17
GREGORY, Circuit Judge, concurring in part and dissenting in
part:
I agree with the majority that the “Reciprocal Provisions”
section of Haney’s policy creates no contractual obligation for
USAA Casualty to pay Haney dividends. However, when USAA
Casualty chooses to pay a dividend to its policyholders, it is
obligated under North Carolina law to ensure that such payments
are “fair and equitable” and made according to “reasonable
classifications of policies . . . upon the basis of each general
kind of insurance covered by those policies and by territorial
divisions of the location of risks by states.” N.C. Gen. Stat.
§ 58-8-25(a) (2007). Defendants’ decision to exclude only North
Carolina policyholders from the payment of dividends was not
based on any reasonable classification of this category of
policyholders and thus violates North Carolina law and the
statutory terms of Haney’s policy.
I.
The majority avoids reaching the merits of Haney’s argument
under North Carolina General Statutes Section 58-8-25 by finding
that the argument was waived. According to the majority, “the
record establishes that Haney never made this argument to the
district court.” (Maj. Op. 14.) In fact, Haney did argue the
18
issue before the district court in a memorandum opposing the
defendant’s motion to strike an affidavit:
[Under North Carolina General Statute Section 58-8-25
(2007),] the only basis on which an insurance company
can differentiate in the payment of dividends to
policyholders is on (i) “the basis of each general
kind of insurance covered” (i.e., automobile insurance
vs. homeowners insurance), and (ii) “by territorial
divisions of the location of risks by states . . .”
. . . As readily appears from the materials before
the Court, Defendants have discriminated against their
North Carolina policyholders not on the basis of
different kinds of insurance . . . and not on the
basis of some “risk” unique to North Carolina . . .
but rather on the basis that Defendants disagree with,
and do not like, North Carolina’s rate setting system.
(Pl.’s Mem. in Opp’n to Defs.’ Mot. to Strike Thomas Keller’s
Aff. 5.)
Of course, on appeal, Haney has restyled this argument as a
statutory breach of contract claim. Generally speaking, I am
inclined to take the view that we should not allow a party to
raise an argument tangentially in the context of a battle over
the admissibility of an affidavit and then suddenly transform
that argument into the heart of his theory of liability on
appeal. But I find this situation unique in two respects.
First, our invocation of waiver principles is often motivated by
an interest in protecting parties from “unfair surprise.”
Korangy v. U.S. Food and Drug Admin., 498 F.3d 272, 276 (4th
Cir. 2007) (internal quotation omitted). Here, the Defendants
cannot plausibly argue that they were unfairly surprised by
19
Haney’s arguments regarding the North Carolina statute since it
was the Defendants themselves who made the statute an issue in
this case. The first mention of the statute in the record is
found in the Defendants’ motion to strike the Keller Affidavit
where they argue that North Carolina General Statute Section
58-8-25 actually gives them “discretion to pay different
dividends to policyholders in different states.” 1 (Defs. Mem. in
Supp. of Mot. to Strike Aff. of Thomas Keller 8.) I find
nothing surprising or unfair in the fact that Haney has now
turned the Defendants’ own argument against them.
Second, even where an issue has not been raised at the
district court level, this Court may nonetheless consider it in
“exceptional circumstances.” Korangy, 498 F.3d at 276. In this
case, we must be mindful of the significant public policy
concerns at issue. The state of North Carolina has endeavored
to afford insurance policyholders a strong measure of protection
in these kinds of cases. North Carolina considers all statutory
provisions applicable to insurance policies to be part of a
policyholder’s policy “to the same extent as if therein
written.” Nationwide Mut. Ins. Co. v. Aetna Life & Cas. Co.,
1
For most of this appeal, Defendants continued to argue
that the statute supports their position, and it was not until
oral argument that Defendants decided to take the position that
the issue had been waived.
20
194 S.E.2d 834, 837 (N.C. 1973). Section 58-8-25 concerns the
payment of dividends by insurance companies to policyholders,
and its language is incorporated by operation of law into all
North Carolina insurance policies. Where the state has evinced
such an explicit interest in providing contractual protection to
its citizens, the justifications for strictly enforcing our
non-jurisdictional waiver rules become less compelling. Under
these circumstances, and given that Defendants have been on
notice of potential contractual liability since the time Haney
filed his complaint, I disagree with the majority’s conclusion
that Haney has waived his statutory breach of contract claim on
appeal.
II.
As Haney notes, an insurance company operating in North
Carolina is permitted to discriminate in the payment of
dividends, but only by using “reasonable classifications of
policies . . . upon the basis of each general kind of insurance
covered by those policies and by territorial divisions of the
location of risks by states.” N.C. Gen. Stat. § 58-8-25(a)
(2007). Defendants have argued before this Court that the
decision not to pay a dividend to USAA Casualty’s North Carolina
policyholders was based on a “reasonable classification” of the
“‘territorial divisions of the location of risks by states.’”
21
(Resp. Br. 33 (quoting N.C. Gen. Stat. § 58-8-25(a) (2007)).)
However, the Defendants have been far from clear, both in their
briefs and in oral argument, as to how they define the risk
attributable to North Carolina policyholders. On this record,
it appears that they have two possible ways for defining the
risk, and neither would constitute a “reasonable
classification[]” for purposes of discriminating in the payment
of dividends.
First, Defendants could -- as they seemed to in oral
argument -- define the risk they are insuring in North Carolina
as “the cars and the human bodies that travel in them.” The
difficulty with this assertion is that Defendants have offered
no explanation as to why automobiles and drivers in North
Carolina present a greater insurance risk than automobiles and
drivers in the other forty-nine states. Without such
explanation, we have no way of discerning whether the decision
to exclude North Carolina policyholders from the payment of
dividends was in fact reasonable.
Alternatively, Defendants could define the risk as North
Carolina’s rate-setting system. As the majority notes, this
system “routinely leads to protracted disputes (and often
litigation) between insurers such as USAA and the [North
Carolina] Insurance Commissioner.” (Maj. Op. 4 n.3.) The
problem for the Defendants here is that North Carolina’s rate-
22
setting system cannot properly be classified as a “risk” for
insurance purposes. The “risk” covered by an insurance policy
is “the category of loss the insurer agreed to provide cover
under the terms of the policy.” 7 Lee R. Russ & Thomas F.
Segalla, Couch on Insurance § 101:3 (3d ed. 2005). In the
automobile insurance context, this means the risk of harm caused
by or to the insured automobile. Thus, to the extent that the
Defendants make the unsupported argument that the gamble they
take in charging rates higher than those approved by North
Carolina’s Insurance Commissioner should be classified as a
“risk” chargeable to North Carolina policyholders, the argument
must fail. 2
III.
Because I find that Haney’s argument regarding North
Carolina General Statutes Section 58-8-25 has not been waived
and has merit, I would reverse the district court’s entry of
2
North Carolina’s rate-setting system guarantees that
insurers will receive at least the rate approved by the North
Carolina Insurance Commissioner. When insurers charge a higher
rate they are taking a risk that, if the Insurance Commissioner
prevails in litigation, they will have to return the difference
between the charged rate and the approved rate to the
policyholders. This “risk,” however, has nothing to do with the
conduct of policyholders, and it is clearly not the type of risk
that the statute contemplates when it talks about “the location
of risks by states,” N.C. Gen. Stat. § 58-8-25(a) (2007).
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summary judgment in favor of Defendants on Haney’s breach of
contract claim. However, I join the majority in affirming the
district court’s entry of summary judgment on Haney’s UDTPA
claim and his request for declaratory relief.
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