GASTON-LINCOLN TRANSIT, INCORPORATED
v.
MARYLAND CASUALTY COMPANY.
No. 59.
Supreme Court of North Carolina.
July 1, 1974.*158 Basil L. Whitener and Anne M. Lamm, Gastonia, for plaintiff appellee.
Harry C. Hewson of Jones, Hewson & Woolard, Charlotte, for defendant appellant.
HUSKINS, Justice:
Defendant contends that when equitable reformation of an insurance policy "expands" the coverage, equity requires the insured to pay the proper premium for the additional coverage. Two policies were reformed in this case by eliminating endorsement "Auto 1145" which restricted territorial coverage on plaintiff's buses to a 50-mile radius of Gastonia for some buses and a 150-mile radius for others. Defendant claims additional premiums of $816.00 on policy No. 2-3895407 (1969-70) and $4007.00 on policy No. 2-3953208 (1970-71). We allowed certiorari for the limited purpose of reviewing the decision of the Court of Appeals on the premium question only.
The trial court found, inter alia, (1) that plaintiff is entitled to reformation of the renewal policies by deletion of the endorsement without any further assessment of premiums, and (2) that by its conduct defendant has waived the right, if any it had, to demand additional premiums and is estopped to claim any further payment of premiums.
Defendant asserts in its petition for certiorari that the Court of Appeals, in upholding the trial court's denial of additional premiums, ignored the equitable maxim that "he who seeks equity must do equity." Of course, this maxim is part of the rules and procedures applicable to equitable actions in this State. "One of the best known and most often reiterated maxims of equity is: `He who seeks equity must do equity'. It is a mandatory application of the `Golden Rule' in the field of law administration, and has been said to express *159 the fundamental principle of equity jurisprudence." Hairston v. Keswick Corp., 214 N.C. 678, 200 S.E. 384 (1939); accord, Pinnix v. Casualty Co., 214 N.C. 760, 200 S.E. 874 (1939); Bank v. McEwen, 160 N.C. 414, 76 S.E. 222 (1912). See generally, 1 Story's Equity Jurisprudence §§ 69-75 (14th ed. 1918) and 2 Pomeroy on Equity §§ 385-396 (5th ed. 1941).
Generally, when an insurance contract is reformed, equity requires the insured, as a condition to the equitable relief granted, to pay the insurer any additional premium lawfully due under the policy as reformed. See Modica v. Hartford Accident and Indemnity Co., 236 Cal. App. 2d 588, 46 Cal. Rptr. 158 (1965); Maier Brewing Co. v. Pacific National Fire Insurance Co., 218 Cal. App. 2d 869, 33 Cal. Rptr. 67 (1963); Fireman's Fund Indemnity Co. v. Boyle General Tire Co., 392 S.W.2d 352 (Tex.1965). This equitable requirement simply applies the maxim "he who seeks equity must do equity" to the reformation of insurance contracts. With this principle in mind, we turn to the question whether, under the facts of this case, this maxim should be applied and plaintiff required to pay additional premiums.
In the case before us, there are specific findings, supported by competent evidence, of inequitable conduct by defendant. The trial judge, sitting as judge and jury, found that defendant by its conduct "has waived any right, if any it had, to demand additional or further payments by plaintiff and is estopped to claim or demand any further payment of premiums," and held that "defendant is not entitled to any recomputation of premiums for any period that it has insured the plaintiff . . . ."
Where jury trial is waived, as here, findings of fact supported by competent evidence are conclusive on appeal. Cogdill v. Highway Commission, 279 N.C. 313, 182 S.E.2d 373 (1971); Huski-Bilt, Inc. v. Trust Co., 271 N.C. 662, 157 S.E.2d 352 (1967). There is competent evidence in the record (and no evidence to the contrary) that defendant intentionally inserted endorsement "Auto 1145" in the renewal policies at its home office in Baltimore, Maryland, and did not disclose this change to plaintiff. From the moment it learned of the accident, defendant has contended it was not liable, taking the position that plaintiff had been given notice. At trial, however, the only evidence presented by defendant even remotely pertaining to notice was a copy of plaintiff's 1968 policy (X-XXXXXXX) with endorsement "Auto 1145" attached, which was taken from the files of Maryland Casualty Company's Charlotte office. All the evidence presented by plaintiff showed that the George A. Jenkins Agency had no knowledge of the endorsement and that plaintiff had never been given notice of the endorsement and had no knowledge of it.
After hearing all the evidence, Judge McLean determined that as a result of its conduct, defendant was estopped, or had waived the right, to demand further payment of premiums. Although the terms waiver and estoppel are not synonymous, they are often used interchangeably with reference to insurance contracts, especially in cases of waiver implied from conduct. Hospital v. Stancil, 263 N.C. 630, 139 S.E.2d 901 (1965); 28 Am.Jur.2d, Estoppel and Waiver § 30 (1966). Thus the trial judge applied the doctrine of equitable estoppel, or estoppel in pais, in this case.
"Estoppel by misrepresentation, or equitable estoppel (which is estoppel in pais), grows out of such conduct of a party as absolutely precludes him, both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person who in good faith relied upon such conduct, and has been led thereby to change his position for the worse, and who on his part acquires some corresponding right either by contract or of remedy. This estoppel arises when anyone, by his acts, representations, or admissions, or by his silence when he ought *160 to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist, and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts." Boddie v. Bond, 154 N.C. 359, 70 S.E. 824 (1911) (emphasis added).
The essential elements of equitable estoppel in this jurisdiction are enumerated most precisely in Hawkins v. Finance Corp., 238 N.C. 174, 77 S.E.2d 669 (1953). We there said:
"The doctrine of estoppel by conduct estoppel in paisrests upon principles of equity. It is designed to aid the law in the administration of justice when without its aid injustice would result, the theory being that it would be against the principles of equity and good conscience to permit a party against whom the estoppel is asserted to avail himself of what must otherwise be his undisputed legal rights. Long v. Trantham, 226 N. C. 510, 39 S.E.2d 384; McNeely v. Walters, 211 N.C. 112, 189 S.E. 114; Scott v. Bryan, 210 N.C. 478, 187 S.E. 756; Stone v. Bank of Commerce, 174 U.S. 412, 19 S. Ct. 747, 43 L. Ed. 1028.
"Therefore, in determining whether the doctrine of estoppel applies in any given situation, the conduct of both parties must be weighed in the balances of equity and the party claiming the estoppel no less than the party sought to be estopped must conform to fixed standards of equity. As to these, the essential elements of an equitable estoppel as related to the party estopped are: (1) Conduct which amounts to a false representation or concealment of material facts, or at least, which is reasonably calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party afterwards attempts to assert; (2) intention or expectation that such conduct shall be acted upon by the other party, or conduct which at least is calculated to induce a reasonably prudent person to believe such conduct was intended or expected to be relied and acted upon; (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, they are: (1) lack of knowledge and the means of knowledge of the truth as to the facts in question; (2) reliance upon the conduct of the party sought to be estopped; and (3) action based thereon of such a character as to change his position prejudicially. Self-Help Corp. v. Brinkley, 215 N.C. 615, 2 S.E.2d 889; Bank v. Winder, 198 N.C. 18, 150 S.E. 489; Boddie v. Bond, 154 N.C. 359, 70 S.E. 824; 19 Am.Jur., Estoppel, Sections 42 and 46."
In applying the law to the facts of this case, we first focus on defendant to determine whether its conduct is that of a party against whom the doctrine of equitable estoppel applies. It appears from the record that (1) defendant failed to notify plaintiff of the endorsement to the renewal policies conduct reasonably calculated to convey the impression that the renewal policy imposed no territorial restriction on the coverage; (2) this is conduct which would lead a reasonably prudent person to believe that defendant intended for plaintiff to rely on its renewal policies to contain coverage as previously provided; and (3) defendant had actual knowledge that the endorsement had been attached and that plaintiff was never informed of the change.
With respect to plaintiff, it is equally clear that its conduct is that of a party entitled to seek the equitable protection of the doctrine. The evidence shows: (1) Plaintiff lacked knowledge that the endorsement had been attached, and as held by the Court of Appeals in this case, 20 N.C.App. 215, 201 S.E.2d 216 (1973), plaintiff had the right to rely upon the assumption that the renewal policy would contain the same terms as the original policy, and was thus legally and equitably excused from examining the renewal policy; (2) *161 plaintiff relied upon the conduct of defendant in that it renewed the policy and paid all premiums requested by defendant, assuming that the renewal policy covered all the business activities covered by the original policy; and (3) plaintiff thus acted to its prejudice, retaining and paying premiums upon an insurance contract inadequate to cover its business activities, and has suffered much trouble and expense in prosecuting this action to reform the renewal policy and to recover for its losses under the policy as reformed.
We conclude therefore that all the essential elements of equitable estoppel are satisfied by the evidence and that the trial court correctly applied this doctrine when it held that defendant is not entitled to collect additional premiums. Defendant's conduct is such that it would be against the principles of equity and good conscience to permit it to assert its otherwise undisputed right to receive additional premiums allegedly occasioned by reformation of the policy.
Defendant is in no position to assert that plaintiff must do equity in order to seek equity. "It is not every defendant who asserts this equitable defence, who is really entitled to it. He must not have conducted himself in such a manner, or placed conditions and circumstances about the plaintiff that would make it inequitable for him to avail himself of this defence. It may be, and frequently is the case, that but for the illegal or wrongful act of the defendant, no damage would have occurred, and hence, no cause of action would have arisen; and to permit him to set up this defence would be to give him an unjust advantage by reason of his own wrong." 1 Story's Equity Jurisprudence § 74 (14th ed. 1918).
Plaintiff was not bound by the endorsement "Auto 1145." "Generally, an insured in renewing his policy may rely upon the assumption that the renewal will be upon the same terms and conditions as the earlier policy, and therefore he is not bound by a reduction in the renewal policy where the change was not called to his attention at the time of renewal." Annot., Renewal PolicyReduction in Coverage, 91 A.L.R. 2d 546, § 2 (1963). Plaintiff was not negligent in failing to examine the renewal policy because it was entitled to assume that the terms of the new policy were the same as those of the expiring policy. Setzer v. Insurance Co., 257 N.C. 396, 126 S.E.2d 135 (1962); Annot., 81 A.L.R. 2d 7, § 16 at 71 (1962).
Here, defendant either intentionally, neglectfully or indifferently reduced the coverage without giving the notice that plaintiff was entitled to receive. Then, notwithstanding the fact that the rights of the parties were controlled by the terms of the original contract, defendant resisted plaintiff's claim through the trial court and two appellate courts in consequence of which plaintiff has been forced to devote much time to this matter and to expend large sums for legal fees. Under those circumstances, no equitable principle with which we are familiar requires plaintiff to pay additional premiums (alleged to be $816.00 on one policy and $4,007.00 on the other) in order to obtain the $10,000.00 coverage which, but for defendant's conduct, would have been received with no added expense.
We hold that the doctrine of equitable estoppel, which is based on an application of the Golden Rule to the everyday affairs of men, is applicable in this case and precludes defendant, both at law and in equity, from asserting its right to recover additional premiums. McNeely v. Walters, 211 N.C. 112, 189 S.E. 114 (1937). Otherwise, either bad faith or careless business practices would be encouraged because the party at fault, made whole each time his mistake or neglect or intentional act is discovered, would have nothing to lose.
For the reasons stated, the decision of the Court of Appeals is
Affirmed.