Eastern Appraisal Services, Inc. v. State of North Carolina

457 S.E.2d 312 (1995) 118 N.C. App. 692

EASTERN APPRAISAL SERVICES, INC., Plaintiff,
v.
The STATE of North Carolina; James E. Long as Commissioner of Insurance of North Carolina; and the North Carolina Insurance Guaranty Association, Defendants.

No. 9410SC501.

Court of Appeals of North Carolina.

May 16, 1995.

Yeargan, Thompson & Mitchiner by W. Hugh Thompson, Raleigh, for plaintiff-appellant.

Atty. Gen. Michael F. Easley by Sp. Deputy Atty. Gen. Thomas D. Zweigart and Asst. Atty. Gen. Sue Y. Little, for the State of N.C. and defendant-appellee James E. Long as Com'r of Ins. of North Carolina.

Moore & Van Allen, PLLC by Joseph W. Eason and Christopher J. Blake, Raleigh, for defendant-appellee North Carolina Ins. Guar. Ass'n.

JOHN C. MARTIN, Judge.

Summary judgment is appropriate when no genuine issues of material fact exist and a party is entitled to judgment as a matter of law. N.C.Gen.Stat. 1A-1, Rule 56; Long v. Vertical Technologies, Inc., 113 N.C.App. 598, 439 S.E.2d 797 (1994). There are no genuine issues of material fact present in the case before us. The sole question for our determination is whether defendants' actions constituted a taking of plaintiff's property, entitling plaintiff to just compensation under the constitutions of the United States and North Carolina. We hold that no compensable taking occurred and affirm the judgment of the trial court.

Plaintiff argues that the 1,638 claim files in question are its personal property, created by plaintiff's employees at plaintiff's own expense of approximately $275 per file. Plaintiff claims that defendants obtained custody of and used the claim files, enabling defendant Association to avoid the time and expense of gathering for itself the information contained therein, and that the claim files had no further value after defendants' use.

The Fifth Amendment to the United States Constitution, made applicable to the states by the Fourteenth Amendment, provides, inter alia, "private property [shall not] be taken for public use without just compensation". Chicago, B. & Q.R. Co. v. Chicago, 166 U.S. 226, 17 S. Ct. 581, 41 L. Ed. 979 (1897). Similarly, the "law of the land" clause in Article I, § 19 of the North Carolina Constitution has been interpreted by our Supreme Court as providing a fundamental right to just compensation for the taking of private property for a public purpose. Finch v. City of Durham, 325 N.C. 352, 384 S.E.2d 8, reh'g denied, 325 N.C. 714, 388 S.E.2d 452 (1989).

A "taking" has been defined as "entering upon private property for more than a momentary period, and under warrant or color of legal authority, devoting it to a public use, or otherwise informally appropriating or injuriously affecting it in such a way as substantially to oust the owner and deprive him of all beneficial enjoyment thereof." Stillings v. City of Winston-Salem, 311 N.C. 689, 692, 319 S.E.2d 233, 236 (1984). If, however, the injury is determined to have arisen from the exercise of police power, the owner is not entitled to compensation because "it is either damnum absque injuria, or, in the theory of the law, he is compensated for it by sharing in the general benefits which the regulations are intended and calculated to secure." Orange County v. Heath, 14 N.C.App. 44, 47, 187 S.E.2d 345, 347, aff'd, 282 N.C. 292, 192 S.E.2d 308 (1972).

The question of what constitutes a taking is often interwoven with the question of whether a particular act is an exercise of the police power or of the power of eminent domain. If the act is a proper exercise of the police power, the constitutional provision that private property shall not be taken for public use, unless compensation is made, is not applicable. The state must compensate for property rights taken by eminent domain; damages resulting from the exercise of police power are noncompensable.

Department of Transportation v. Harkey, 308 N.C. 148, 153, 301 S.E.2d 64, 67 (1983). (Citation omitted.) The question of whether a particular governmental action is a legitimate exercise of the police power is resolved through an "ends-means" analysis, in which the court must first look to the goal of the governmental action to determine whether the ends sought are within the scope of the police power, and then must determine whether the "means", i.e., the extent to which the exercise of the power interferes with the owners property rights, is reasonable. Responsible Citizens v. City of Asheville, 308 N.C. 255, 302 S.E.2d 204 (1983). A failure in either step results in a compensable taking. Weeks v. N.C. Dept. of Nat. Resources & Comm. Dev., 97 N.C.App. 215, 388 S.E.2d 228, disc. review denied, 326 N.C. 601, 393 S.E.2d 890 (1990). The cases applying the "ends-means" analysis have involved review of legislative action, primarily zoning regulation, however we believe the analysis to be equally applicable and helpful to a resolution of the issue before us here.

Protection of the public health, safety, morals and general welfare are the goals or "ends" usually recognized as being within the legitimate scope of police power activity "exercised without payment of compensation to the owner, even though the property is thereby rendered substantially worthless." Orange County, 14 N.C.App. at 48, 187 S.E.2d at 348. The "means", however, are not reasonable where 1) the owner has been deprived of all practical use of the property and 2) the property has been stripped of all reasonable value. Weeks, 97 N.C.App. at 225, 388 S.E.2d at 234. But, "mere restriction of `practical uses' or diminishment of `reasonable value' does not result in a `taking.'" Id. The United States Supreme Court has applied a similar analysis under the Fifth Amendment, and "has often upheld substantial regulation of an owner's use of his own property where deemed necessary to promote the public interest." Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426, 102 S. Ct. 3164, 3171, 73 L. Ed. 2d 868, 876 (1982); see Penn Central Transp. Co. v. New York City, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978).

"It has long been established that the insurance business is charged with a public interest, and that its regulation is constitutional." State ex rel Hunt v. Reinsurance Facility, 302 N.C. 274, 297, 275 S.E.2d 399, 410 (1981). In order to protect the public welfare, the General Assembly has granted the Commissioner of Insurance the power to rehabilitate and liquidate insurance companies which are dangerously close to being, or have become, insolvent. N.C.Gen.Stat. § 58-30-1. The Association was established to provide a mechanism for the payment of covered claims for an insolvent insurer to avoid excessive delay and financial loss as a result of the insolvency. N.C.Gen.Stat. § 58-48-5.

As Interstate's liquidator, the Commissioner is charged with prosecuting and defending appropriate claims against the insolvent insurance company, as well as abandoning the prosecution of claims deemed unprofitable to pursue. N.C.Gen.Stat. § 58-30-120(12). Similarly, the Association is charged with a duty to

(4) Investigate claims brought against the Association and adjust, compromise, settle, and pay covered claims to the extent of the Association's obligation and deny all other claims and may review settlements, releases and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which such settlements, releases and judgments may be properly contested.

N.C.Gen.Stat. § 58-48-35(a)(4). In order to determine which claims to pursue and which to abandon it was necessary for the Commissioner and the Association to review plaintiff's claim files, just as the insolvent insurer would have done in making its determinations regarding the settlement and prosecution of claims. Thus, we conclude that the Commissioner's seeking custody of the files was well within the usual scope of police power activity conducted to protect the general welfare.

The interference with plaintiff's ownership interest in the claim files was also reasonable. "The reasonableness of an exercise of the police power is to be determined by the court and is based on human judgment, natural justice and common sense in view of all the facts and circumstances." Butler v. Peters, Comr. of Motor Vehicles, 52 N.C.App. 357, 359-60, 278 S.E.2d 283, 285, appeal dismissed, 303 N.C. 543, 281 S.E.2d 391 (1981). Defendants' possession and use of the claim files was temporary, at the conclusion of which all of the file materials were returned to plaintiff. Upon Interstate's insolvency, the Association became liable to Interstate's covered claimants, and following satisfaction of the claim, the claimant's rights under the insolvent insurance company's policy are assigned to the Association. N.C.Gen.Stat. § 58-48-50. In essence, the Association is substituted for the insolvent insurer vis-à-vis its obligations to claimants and insureds. As such, the Association should have received from plaintiff the same treatment accorded Interstate. Affidavits of two of plaintiff's former employees admit that Interstate was routinely given access to the claim files, which contained information both provided by Interstate and generated by plaintiff's efforts. The Commissioner as liquidator of Interstate is entitled by statute to seek an injunction when necessary to prevent the withholding of all documents and records related to the business of the insurer, N.C.Gen.Stat. § 58-30-20(a)(10), and as an agent of Interstate, plaintiff is required by statute to cooperate with the Commissioner and make available "any books, accounts, documents, or other records or information or property of or pertaining to the insurer and in his possession, custody, or control." N.C.Gen.Stat. § 58-30-25(a).

Finally, we note that after the order of liquidation was entered as to Interstate, the claim files had essentially no value except as proof of the validity of any claim for its accounts receivable which plaintiff may have elected to file as a general creditor of Interstate pursuant to N.C.Gen.Stat. § 58-30-190. The diminution in the value of the claim files was the direct result of Interstate's insolvency, rather than the order granting their custody to the Commissioner or their subsequent use by the Association to expedite processing of the remaining claims against Interstate.

The trial court's order granting summary judgment in favor of defendants is affirmed.

Affirmed.

COZORT and JOHN, JJ., concur.