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UNPUBLISHED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Affirmed by unpublished opinion.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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