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Recent Dean & Gibson, PLLC , Appellate Decisions

Jeremy Foster and Mike Gibson recently had two favorable trial court rulings affirmed by the North Carolina Court of Appeals. Both are published decisions.

One Beacon Ins. Co. and Wire Bond v. United Mechanical Corp., 700 S.E.2d 121, N.C.App. (Oct. 19, 2010). (Topics - Contractual Indemnity, Vicarious Liability, Workers' Compensation Exclusivity.)

This case was a subrogation action in which the insurer for a local manufacturer sought indemnity from a subcontractor whose employee was injured on the manufacturer's premises. The manufacturer had hired a general contractor to fabricate and install a ventilation system for the plant. The general contractor then hired a subcontractor to perform part of the work, with the contract requiring the subcontractor to indemnify both the general contractor and the manufacturer for any damages caused by the subcontractor's acts. Moments after the subcontractor's employees arrived on the manufacturer's premises, one of the workers stepped in an uncovered vat of molten zinc and sustained severe injuries to his leg.

The injured worker was able to recover Worker's Compensation benefits from his employer, the subcontractor, and was also able to pursue a personal injury action against the manufacturer. The manufacturer demanded that the subcontractor indemnify it for all damages incurred as a result of the accident. The subcontractor denied that it had any duty to indemnify the manufacturer and did not participate in the settlement of their injured worker's personal injury claim. The insurer for the manufacturer ultimately settled the claim for $1.48 million. The insurer then brought a subrogation action to collect this amount from the subcontractor. Mike Gibson and Jeb Foster prevailed in the defense of the subcontractor, obtaining summary judgment against the Plaintiffs.

At summary judgment and on appeal, Mike and Jeb raised a number of defenses including that 1) the indemnity provision of the contract between the general contractor and subcontractor was unenforceable under N.C.G.S. §22B-1, which bars clauses in construction contracts that require one party to indemnify another for its own negligent acts, 2) that the subcontractor's payment of Worker's Compensation benefits to the injured employee precluded any additional contribution from the subcontractor, and 3) that the manufacturer failed to allege facts showing that the manufacturer could be vicariously liable for the acts of the subcontractor.

The Court of Appeals affirmed summary judgment in the subcontractor's favor and agreed that the insurer failed to advance any theory upon which the manufacturer could have been vicariously liable for the negligent acts of the subcontractor. The Court declined to offer an opinion as to the enforceability of the contract under N.C.G.S. §22B-1 or whether the Worker's Compensation Act would have prevented any further payment from the subcontractor. These remain open issues under North Carolina law.

Robert L. Gore, Jr. and Village Development v. Assurance Company of America, et al., N.C.App. (Dec. 7, 2010). (Topics - Insurance Coverage, Non-Compliance with Terms, Waiver & Estoppel)

In a case of first impression, the North Carolina Court of Appeals affirmed summary judgment in favor of an insurer who issued a Builder's Risk policy to a homebuilder who failed to comply with the reporting requirements of that policy. The homebuilder had purchased a policy to insure his fluctuating inventory of real property. The policy required that each property must be reported to the insurer at the time the property is first acquired, that the property must be continuously reported each month until the property is sold, that the appropriate monthly premiums must be paid and that any failure to comply with these requirements would result in a loss of coverage for the properties that had not been properly reported.

The builder first began construction on a property in 2005 but did not report the property to the insurer as a "new start" until 2006. The builder then failed to file any reports or pay any premiums for nearly a year. In 2007 he again reported the same property as a "new start." After the builder filed several reports in late 2007, the property was destroyed by fire. The builder sought to recover for the loss and the insurer, represented by Mike and Jeb, denied coverage based on the failure to report the property when construction first began, the failure to continuously report the property and the failure to pay past premiums.

The home builder sued and argued that by accepting the reports and premiums in 2007, after not receiving any reports for nearly a year, that the insurer had waived any requirement that the property be continuously reported to the insurer. The home builder also argued that because the insurer had in its own records that this particular property was previously reported as a "new start" in 2006, that it cannot argue that it was deceived by the builder's misrepresentation that the property was a "new start" in 2007. The Court of Appeals disagreed with both arguments.

While other states had previously addressed this precise issue, there was no controlling North Carolina law. The Court of Appeals did consider case law from several other states, and ultimately held that while doctrine of waiver may be appropriate to prevent cancellation of a policy, "it is not available to broaden the coverage of a policy so as to protect the insured against risks not included therein or expressly excluded from coverage." The Court held that the reporting provisions were conditions of coverage, and not cancellation, and that the doctrines of waiver and estoppel therefore could not apply.

Mike Gibson is a Partner with Dean & Gibson, PLLC , and has been with the firm since 1989. Mike practices in the areas of general civil litigation, insurance coverage, construction litigation, trucking accidents and regulation, professional liability, and catastrophic injury and death.

Jeremy Foster is an associate with Dean & Gibson, PLLC , and has been with the firm since 2008. Jeb practices primarily in the areas of general civil litigation, personal injury and wrongful death claims, insurance coverage and construction defect claims.

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