NORTHWESTERN MUTUAL INSURANCE COMPANY
v.
J. W. HYLTON, Individually and trading as Hylton Insurance Agency.
No. 7017SC4.
Court of Appeals of North Carolina.
February 25, 1970. Certiorari Denied April 15, 1970.*227 Deal, Hutchins & Minor by Fred S. Hutchins and William K. Davis, Winston-Salem, for plaintiff appellant.
Hudson, Petree, Stockton, Stockton & Robinson by J. Robert Elster, Winston-Salem, for defendant appellee.
BRITT, Judge.
It is well settled in this jurisdiction that a plaintiff has the burden of proof on all allegations, negative as well as affirmative, which are essential to his claim or cause of action. 3 Strong, N.C. Index 2d, Evidence, § 5, pp. 603-604. Defendant contends that judgment of involuntary nonsuit was proper in the instant case for the reason that plaintiff failed to carry the burden of proving its legal obligation to pay the money for which it seeks indemnity from the defendant. We agree with this contention.
In testing the sufficiency of the evidence in the instant case to survive motion for nonsuit, we start with the assumption that the evidence does raise a reasonable inference that the wrong rider was attached to the original policy by Hylton's employee by error and mistake; defendant so stipulated. But, plaintiff had the burden of going further and proving that it incurred a legal liability because of the mistake. In its "Answer to Reply" filed in the Ayers case, Northwestern alleged that if a printed rider on form No. 252 was attached to the original policy issued to Ayers, it was by mistake and inadvertence and Northwestern asked that the policy be reformed to speak the true agreement between the parties. *228 The question now arises, did Northwestern plead a valid defense in the Ayers action.
The mistake or clerical error upon which one seeks to base a cause of action may be approached as a "scrivener's error" or as a "mutual mistake." A scrivener is one "whose occupation is to draw contracts, write deeds and mortgages, and prepare other species of written instruments." (Emphasis added.) Black's Law Dictionary, 4th Ed. The defense of mutual mistake is applicable to the facts of the Ayers case because "where the insurer's clerk has erroneously recorded the agreement, the mistake common to both parties * * * rests in the supposition of both that their writing states their agreement correctly." 17 Couch on Insurance 2d, § 66:51, p. 286.
Whether the clerical error here is considered to be a "scrivener's error" or "mutual mistake", the defense of reformation of the policyso as to be enforceable only to the extent of the coverage within the actual intent of the partieswas available to Northwestern when it chose to settle the Ayers claim. The rationale of allowing reformation is concisely set out in 17 Couch on Insurance 2d, § 66:51, p. 286: "Reformation has been allowed because of the insurer's clerical mistake, since in such instances it is apparent that the policy which was issued in fact does not set forth what had been agreed to and what was intended by all parties."
Again in 17 Couch, § 66:42, p. 278, it is observed: "Where the insurer's agent is authorized to act in the premises, and through his mistake or fraud the policy fails to express the real contract between the parties, or if, by inadvertence or mistake of the agent, provisions other than those intended are inserted, or stipulated provisions are omitted, there is no doubt as to the power of a court of equity to grant relief by a reformation of the contract * * *." (Emphasis added.)
In Williams v. Greensboro Fire Insurance Co., 209 N.C. 765, 185 S.E. 21, the court said of reformation: "The principle, as we have seen, applies to policies of insurance." In Williams the names of the plaintiffs as owners of certain insured buildings and as beneficiaries of the policy were omitted due to the inadvertence of the agent. The court allowed reformation as the policy of insurance did not represent the intention of the parties. The court in Williams said: "It is well settled that in equity a written instrument, including insurance policies, can be reformed by parol evidence, for mutual mistake, inadvertence, or the mistake of one superinduced by the fraud of the other or inequitable conduct of the other."
It is also well settled that to reform or correct a written instrument on the ground of mutual mistake of the parties, the evidence must be clear, strong and convincing, and that "[w]hether or not the evidence is clear, strong and convincing in a particular case is for the jury to determine." Textile Insurance Co. v. Lambeth, 250 N.C. 1, 108 S.E.2d 36, and authorities therein cited. Thus, we do not hold here that on the record before us Northwestern, in the Ayers case, was entitled as a matter of law to have its policy of insurance corrected to include endorsement 256 rather than 252; what we do hold is that in the Ayers case Northwestern pled a valid defensethat of inadvertence or mutual mistakeand was in position to present sufficient evidence for the jury to determine under proper instructions if endorsement 252 rather than 256 was attached to the original policy by inadvertence or mutual mistake, and in the absence of agreement actual or impliedto the contrary, defendant Hylton, before being liable to Northwestern for indemnity, was entitled to the benefit of such determination. We are not required here to say if Hylton was a necessary or proper party to the Ayers suit. (See Hildreth v. United States Casualty Co., 265 N.C. 565, 144 S.E.2d 641).
Plaintiff's arguments in asserting a cause of action against Hylton refer to negligence, mistake and indemnity. Indemnification *229 is essentially a right ex contractu. Here, there is neither allegation nor proof of an express contract of indemnification. Common-law indemnity is said to rest upon a contract implied by law from the circumstance that a "passively negligent [or derivatively liable] tort-feasor had discharged an obligation for which the actively negligent tort-feasor was primarily liable." Hunsucker v. High Point Bending & Chair Co., 237 N.C. 559, 75 S.E.2d 768.
In Hildreth v. United States Casualty Co., supra, an injured party who had obtained judgment against the alleged insured brought an action against the insurer and its underwriter agent on an automobile liability policy, and the insurer pleaded a cross-action against its agent in which it asserted a right of common-law indemnity from the agent. The court allowed the cross-action. In Hildreth the plaintiff, an injured party standing in the shoes of the insured, asserted alternative rights of recovery: he sought to recover from the company on the theory the policy was effective and from the agent in the event the policy was found not to be effective. In Hildreth then, the insurance agent might subsequently be found liable to the claimant, and the insurer, as a secondarily liable party, would have the right of common-law indemnity against the agent.
The right of one compelled to pay money to "A" to obtain common-law indemnity from "B" is based on the principle of primary-secondary liability. See numerous cases in 10A N.C. Digest, Indemnity, § 13(1). The court in Edwards v. Hamill, 262 N.C. 528, 138 S.E.2d 151, said:
"Primary and secondary liability between defendants exists only when: (1) they are jointly and severally liable to the plaintiff [citations]; and (2) either (a) one has been passively negligent but is exposed to liability through the active negligence of the other or (b) one alone has done the act which produced the injury but the other is derivatively liable for the negligence of the former. [citations]"
In the instant case, there is neither allegation nor proof that the agent is in any fashion primarily liable to the insured or even that the insured could have made any case of actionable negligence against him. There is no suggestion of misrepresentation or reliance or that the insured has suffered any injury at the hands of the agent. The court in Edwards held that the liability of both the indemnitee and the indemnitor to the third party (in the instant case, the insured) was essential: "The doctrine of primary-secondary liability cannot arise where an original defendant alleges that the one whom he would implead as a third-party defendant is solely liable to plaintiff." (Emphasis added.) In the instant case, if anyone is liable to the insured, it would be the insurer who would be solely liable.
Defendant's argument puts the indemnity issue to rest by pointing out that, even if indemnity applied, the plaintiff cannot recover because it has failed to carry the burden of proof of showing, in response to defendant's denials, that it was liable to the insured. A concise summary of the applicable law is found in 41 Am.Jur.2d, Indemnity, § 33, p. 723: "Indemnity against losses does not cover losses for which the indemnity is not liable to a third person, and which he improperly pays." The plaintiff rested its case on this issue, conceding "it must be shown that the insurer has properly made payment to the insured." Plaintiff has made no such showing.
Defendant argues that the judgment of nonsuit was justified on other grounds including the applicability of the three-year statute of limitations, but we do not deem it necessary to discuss the other points raised.
The judgment of the superior court is
Affirmed.
BROCK and GRAHAM, JJ., concur.