Cinoman v. Univ. of N.C.

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in
accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of
A p p e l l a t e P r o c e d u r e .
NO. COA13-902
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
MICHAEL I. CINOMAN, M.D., AND
MEDICAL MUTUAL INSURANCE
COMPANY OF NORTH CAROLINA,
Plaintiffs,
v. Wake County
No. 09 CVS 3164
THE UNIVERSITY OF NORTH
CAROLINA; THE UNIVERSITY OF
NORTH CAROLINA HEALTHCARE
SYSTEM, D/B/A THE UNIVERSITY OF
NORTH CAROLINA HOSPITALS AT
CHAPEL HILL; THE UNIVERSITY OF
NORTH CAROLINA, D/B/A THE
SCHOOL OF MEDICINE OF THE
UNIVERSITY OF NORTH CAROLINA AT
CHAPEL HILL; THE UNIVERSITY OF
NORTH CAROLINA, D/B/A THE
UNIVERSITY OF NORTH CAROLINA
LIABILITY INSURANCE TRUST FUND;
WILLIAM L. ROPER, IN HIS
CAPACITY AS DEAN OF THE SCHOOL
OF MEDICINE OF THE UNIVERSITY
OF NORTH CAROLINA AT CHAPEL
HILL; BRIAN GOLDSTEIN IN HIS
CAPACITY AS CHAIRMAN OF THE
UNIVERSITY OF NORTH CAROLINA
LIABILITY INSURANCE TRUST FUND
COUNCIL; THOMAS M. STERN, AS
GUARDIAN AD LITEM FOR ARMANI
WAKEFALL; AND WAKEMED,
Defendants.
Appeal by plaintiffs from order entered 19 April 2013 by
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Judge Carl R. Fox in Wake County Superior Court. Heard in the
Court of Appeals 6 January 2014.
Manning, Fulton & Skinner, P.A., by Michael T. Medford and
J. Whitfield Gibson, for plaintiffs-appellants.
Hedrick Gardner Kincheloe & Garofalo, LLP, by David N.
Allen, J. Douglas Grimes, and M. Duane Jones, for the
University of North Carolina defendants-appellees.
Tin, Fulton, Walker & Owen, by William Simpson, and
Ferguson, Chambers & Sumter, P.A., by James E. Ferguson II,
for defendant-appellee Thomas M. Stern, as Guardian ad
litem for Armani Wakefall.
MARTIN, Chief Judge.
Plaintiffs Michael I. Cinoman, M.D. and Medical Mutual
Insurance Company of North Carolina (“MMIC”) appeal from an
order granting UNC defendants1 motion to stay this declaratory
action pending a final resolution of the underlying malpractice
action. For the reasons stated herein, we reverse.
In February 1999, Dr. Cinoman served as a temporary
attending physician for full-time rotations in the University of
North Carolina Hospitals at Chapel Hill Pediatric Intensive Care
Unit (“UNC-PICU”) as part of an agreement to assist UNC
defendants with a staffing shortage in the UNC-PICU. On 21 June
2007, Thomas M. Stern, as guardian ad litem for Armani Wakefall,
1
UNC defendants are all defendants except for Thomas M. Stern,
who is a nominal defendant due to his interest in the insurance
coverage, and WakeMed, which is not a party to this appeal.
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initiated a medical malpractice action against Dr. Cinoman and
others for damages allegedly incurred by Wakefall as a result of
negligent medical treatment at the UNC-PICU in February 1999
(“underlying malpractice action”).
Dr. Cinoman is insured under a medical malpractice
insurance policy issued by MMIC, which has treated its coverage
as broad enough to cover the claims against Dr. Cinoman in the
underlying malpractice action. The University of North Carolina
Liability Insurance Trust Fund (“UNC-LITF”), which provides
coverage for claims against employees and agents of UNC
defendants, maintained that Dr. Cinoman is not entitled to
coverage under the UNC-LITF because he was not a full-time
employee of UNC defendants at the time of the alleged
negligence. In the absence of coverage by the UNC-LITF, the
damages demanded in the underlying malpractice action allegedly
exceed Dr. Cinoman’s medical malpractice insurance coverage.
On 17 February 2009, plaintiffs filed this declaratory
judgment action to determine whether Dr. Cinoman is entitled to
coverage under the UNC-LITF, in addition to his coverage under
the MMIC policy, and the policies’ relative order of priority.
Plaintiffs and UNC defendants moved for summary judgment, and
the trial court granted summary judgment in favor of UNC
defendants on 15 April 2010. On appeal, this Court reversed the
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summary judgment order, concluding that there were questions of
material fact which made summary judgment for either party
inappropriate, and remanded the case for trial. Cinoman v.
Univ. of N.C., __ N.C. App. __, __, 718 S.E.2d 424 (2011)
(unpublished), disc. review denied, 365 N.C. 573, 724 S.E.2d 527(2012).
On 28 February 2013, UNC defendants moved to stay this
action pending the final resolution of the underlying
malpractice action. In an order entered on 19 April 2013, the
trial court granted the motion to stay, finding that, while an
actual controversy exists as to the UNC-LITF’s duty to defend,
no such controversy exists as to the UNC-LITF’s duty to
indemnify until the underlying malpractice action is finally
resolved. Plaintiffs appeal from the order pursuant to N.C.G.S.
§§ 1-277 and 7A-27. UNC defendants move to dismiss the appeal
as interlocutory.
_________________________
We must first determine whether the trial court’s
interlocutory order granting the stay is immediately appealable.
Although interlocutory orders are not generally appealable,
immediate appeal is available under N.C.G.S. §§ 1-277 and 7A-27
from an interlocutory order which affects a substantial right.
Sharpe v. Worland, 351 N.C. 159, 161–62, 522 S.E.2d 577, 578–79
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(1999), on remand, 137 N.C. App. 82, 527 S.E.2d 75 (2000).
Where there is a pending suit or claim, an interlocutory order
on the issue of whether an insurer has a duty to defend in the
underlying action “affects a substantial right that might be
lost absent immediate appeal.” Lambe Realty Inv., Inc. v.
Allstate Ins. Co., 137 N.C. App. 1, 4, 527 S.E.2d 328, 331
(2000). We therefore conclude that the appeal is properly
before us.
A survey of the relevant case law indicates that our review
on appeal of an order granting a stay is abuse of discretion.
See Watters v. Parrish, 252 N.C. 787, 791, 115 S.E.2d 1, 4
(1960) (“Whether one lawsuit will be held in abeyance to abide
the outcome of another rests in the sound discretion of the
trial judge, and his action will not be disturbed on appeal,
unless the discretion has been abused.”); see also Lawyers Mut.
Liab. Ins. Co. of N.C. v. Nexsen Pruet Jacobs & Pollard,
112 N.C. App. 353, 356, 435 S.E.2d 571, 573 (1993) (concluding
that order staying proceedings in North Carolina to permit trial
of parallel action in another state is reviewed for abuse of
discretion and declining to adopt a de novo standard of review);
Home Indem. Co. v. Hoechst-Celanese Corp., 99 N.C. App. 322,
325, 393 S.E.2d 118, 120 (holding that order staying litigation
pending final disposition of similar action in federal court “is
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a matter within the sound discretion of the trial judge and will
not be disturbed on appeal absent an abuse of that discretion”),
appeal dismissed and disc. review denied, 327 N.C. 428,
396 S.E.2d 611 (1990). “‘A [trial] court by definition abuses
its discretion when it makes an error of law.’” In re A.F.,
__ N.C. App. __, __, 752 S.E.2d 245, 248 (2013) (quoting Koon v.
United States, 518 U.S. 81, 100, 135 L. Ed. 2d 392, 414 (1996)).
On appeal, plaintiffs contend that the trial court erred in
granting the stay based on its determination that no actual
controversy exists as to the UNC-LITF’s duty to indemnify until
the underlying malpractice action is finally resolved. We
agree.
“An actual controversy between adverse parties is a
jurisdictional prerequisite for a declaratory judgment.” Newton
v. Ohio Cas. Ins. Co., 91 N.C. App. 421, 422, 371 S.E.2d 782,
783 (1988). An actual controversy exists when an insurer seeks
a determination that primary coverage is not provided under its
policy and is instead provided under policies issued by other
insurers. See Gov’t Emps. Ins. Co. v. New S. Ins. Co., 119 N.C.
App. 700, 704, 459 S.E.2d 817, 819, disc. review denied,
341 N.C. 648, 462 S.E.2d 510 (1995). No such controversy
exists, however, in a declaratory judgment action seeking to
establish coverage provided under an excess insurance policy
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where the underlying liability action has not yet been resolved.
See N.C. Farm Bureau Mut. Ins. Co. v. Warren, 89 N.C. App. 148,
150, 365 S.E.2d 216, 217–18, disc. review denied, 322 N.C. 481,
370 S.E.2d 226 (1988), appeal after remand, 94 N.C. App. 591,
380 S.E.2d 790 (1989).
When more than one insurance policy affords coverage for a
loss, the “other insurance” clauses in the competing policies
must be examined to determine which policy provides primary
coverage and which policy provides excess coverage. Hlasnick v.
Federated Mut. Ins. Co., 136 N.C. App. 320, 328, 524 S.E.2d 386,
391, aff’d in part and disc. review improvidently allowed in
part, 353 N.C. 240, 539 S.E.2d 274 (2000). An excess clause is
a type of “other insurance” clause which “generally provides
that if other valid and collectible insurance covers the
occurrence in question, the ‘excess’ policy will provide
coverage only for liability above the maximum coverage of the
primary policy or policies.” Horace Mann Ins. Co. v. Cont’l
Cas. Co., 54 N.C. App. 551, 555, 284 S.E.2d 211, 213 (1981)
(internal quotation marks omitted). An excess clause is
distinguishable from a pro rata “other insurance” clause. See
Fid. & Cas. Co. of N.Y. v. N.C. Farm Bureau Mut. Ins. Co.
(Fidelity), 16 N.C. App. 194, 203–04, 192 S.E.2d 113, 120–21,
cert. denied, 282 N.C. 425, 192 S.E.2d 840 (1972) (“The terms
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‘prorate’ and ‘excess’ do not have, and were not meant by the
insurers to have identical meanings.”). In Fidelity, this Court
differentiated a pro rata clause in one policy from an excess
clause in another policy:
The Farm Bureau policy provides that if the
injury or damage is covered by other
applicable and collectible insurance, then
Farm Bureau shall not be liable for a
greater proportion of the loss than its
limit of liability bears to the total
applicable limits of liability of all valid
and collectible insurance. The F and C
policy, however, provides that its insurance
coverage shall be excess to any other valid
and collectible insurance with respect to
loss arising out of the use of any non-owned
automobile. The Farm Bureau provision is
known as a “pro rata” clause; the F and C
provision, an “excess” clause.
Id. at 203, 192 S.E.2d at 120–21.
As a general rule, where a pro rata clause in one policy
competes with an excess clause in another policy, the policy
with the pro rata clause provides primary coverage, and the
policy with the excess clause provides secondary coverage which
will only be triggered if the limits of the policy containing
the pro rata clause are first exhausted. See id. at 204,
192 S.E.2d at 121. Furthermore, where a pro rata clause in one
insurance policy competes with a pro rata clause in another
policy, each insurer has primary but concurrent liability for a
proportionate amount of the loss. See 44A Am. Jur. 2d Insurance
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§ 1752 (2013). Accordingly, an actual controversy exists in an
action to determine the liability of an insurer under its policy
where the policy contains a pro rata clause and the other
applicable policy contains either an excess clause or a pro rata
clause.
A study of the “other insurance” clause in the UNC-LITF
policy leads us to conclude that the trial court erred in
determining that no actual controversy exists as to the UNC-
LITF’s duty to indemnify until the underlying malpractice action
is finally resolved. No actual controversy would exist as to
the UNC-LITF’s duty to indemnify if the coverage provided under
the UNC-LITF policy is excess or triggered only after exhaustion
of the MMIC policy limits. See Warren, 89 N.C. App. at 150,
365 S.E.2d at 217–18. The “other insurance” clause in the UNC-
LITF policy, however, provides:
When this agreement and other
collectible insurance both apply to a loss
on the same basis, whether primary, excess
or contingent, the Trust Fund shall not be
liable under this agreement for a greater
proportion of the loss than that stated in
the applicable contribution provision below:
A. Contribution by Equal Shares. If
all such other valid and collectible
insurance provides for contribution by equal
shares, the Trust Fund shall not be liable
for a greater proportion of such loss than
would be payable if each insurance company
contributes an equal share until the share
of each company equals the lowest applicable
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limit of liability under any one policy or
the full amount of the loss is paid. With
respect to any amount of loss not so paid,
the remaining companies shall continue to
contribute equal shares of the remaining
amount of the loss until each such company
has paid its limit in full or the full
amount of the loss is paid.
B. Contribution by Limits. If any of
such other insurance does not provide for
contribution by equal shares, the Trust Fund
shall not be liable for a greater proportion
of such loss than the applicable limit of
liability under this agreement for such loss
bears to the total applicable limit of
liability of all valid and collectible
insurance against such loss.
Nothing in this provision indicates that the UNC-LITF’s
liability arises only after the limits of other collectible
insurance have been exhausted. Rather, the provision provides
that the UNC-LITF shares liability with other collectible
policies according to their respective policy limits.
Therefore, by its terms, the UNC-LITF “other insurance” clause
is a pro rata clause, not an excess clause. See Fidelity,
16 N.C. App. at 203, 192 S.E.2d at 120–21.
Regardless of the terms of the MMIC policy,2 the UNC-LITF
policy provides primary coverage because the UNC-LITF policy
2
Although the MMIC policy is not included in the record on
appeal, a review of that policy is not necessary because the
UNC-LITF policy contains a pro rata “other insurance” clause.
That is, regardless of whether the MMIC policy contains an
excess clause or a pro rata clause, the UNC-LITF policy provides
primary coverage.
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contains a pro rata “other insurance” clause. Assuming,
arguendo, that the MMIC policy contains an excess clause, then
the UNC-LITF policy provides primary coverage. See id. at 204,
192 S.E.2d at 121. If, on the other hand, the MMIC policy
contains a pro rata clause, then the UNC-LITF and MMIC share
liability on a pro rata basis according to their respective
policy limits and, for that reason, each policy provides primary
but concurrent coverage. See 44A Am. Jur. 2d Insurance § 1752.
Therefore, because the UNC-LITF policy provides primary
coverage, an actual controversy exists as to the UNC-LITF’s duty
to indemnify, and the trial court erred in granting the stay
based on its determination that no such controversy exists
pending a final resolution in the underlying malpractice action.
Reversed.
Judges ERVIN and McCULLOUGH concur.
Report per Rule 30(e).