NO. COA13-902-2
NORTH CAROLINA COURT OF APPEALS
Filed: 1 July 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
Judge Carl R. Fox in Wake County Superior Court. Heard in the
Court of Appeals 6 January 2014 and opinion filed 4 March 2014.
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Petition for Rehearing allowed 17 April 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 defendants’1 motion to stay this declaratory
action pending a final resolution of the underlying malpractice
action. On 4 March 2014, this Court filed an opinion reversing
the stay order. UNC defendants filed a Petition for Rehearing
on 8 April 2014, which we allowed on 17 April 2014. Upon
reconsideration, we reach the same disposition but modify the
originally filed opinion. This opinion supersedes the previous
opinion filed 4 March 2014.
In February 1999, Dr. Cinoman served as a temporary
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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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,
initiated a medical malpractice action against Dr. Cinoman and
others for damages allegedly incurred by Wakefall as a result of
negligent treatment she received at the UNC-PICU in February
1999 (“underlying malpractice action”).
Dr. Cinoman is insured under a professional liability
insurance policy issued by MMIC, which has treated its coverage
as broad enough to cover the claims asserted against Dr. Cinoman
in the underlying malpractice action. UNC defendants maintained
that Dr. Cinoman is not entitled to coverage under the
University of North Carolina Liability Insurance Trust Fund
(“UNC-LITF”), which provides coverage for claims against
employees and agents of UNC defendants, because he was not a
full-time employee of UNC defendants at the time of the events
giving rise to the underlying malpractice action. In the
absence of coverage by the UNC-LITF, the damages demanded in the
underlying malpractice action allegedly exceed Dr. Cinoman’s
professional liability insurance coverage.
On 17 February 2009, plaintiffs filed this declaratory
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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 relative liabilities of MMIC and the
UNC-LITF. 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 summary judgment order, concluding that there were
questions of material fact that rendered summary judgment for
either party inappropriate, and remanded the case for trial.
Cinoman v. Univ. of N.C., 216 N.C. App. 585, 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 further
proceedings in this action pending the final resolution of the
underlying malpractice action. In an order entered 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 moved to dismiss the appeal
as interlocutory.
_________________________
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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
(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
concerning 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 an abuse of discretion
standard. 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)
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(concluding that order staying declaratory judgment action 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 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) (alteration in original) (quoting Koon v. United States,
518 U.S. 81, 100, 135 L. Ed. 2d 392, 414 (1996)).
On appeal, plaintiffs contend the trial court erred by
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 where an insurer seeks
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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 to determine
whether coverage is provided under an excess insurance policy
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
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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.,
16 N.C. App. 194, 203–04, 192 S.E.2d 113, 120–21 (“The terms
‘prorate’ and ‘excess’ do not have, and were not meant by the
insurers to have identical meanings.”), cert. denied, 282 N.C.
425, 192 S.E.2d 840 (1972). In Fidelity & Casualty Co., 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.
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
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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 policy competes with
a pro rata clause in another policy, each insurer has primary
concurrent liability for a proportionate amount of the loss.
See 44A Am. Jur. 2d Insurance § 1752 (2013). Accordingly, an
actual controversy exists in a declaratory judgment 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.
In general, there is no primary versus excess insurance
policy relationship where a self-insurance program is at issue
because self-insurance does not constitute other collectible
insurance within the meaning of an insurance policy’s “other
insurance” clause. Cone Mills Corp. v. Allstate Ins. Co.,
114 N.C. App. 684, 688–89, 443 S.E.2d 357, 360–61 (1994), disc.
review improvidently allowed per curiam, 340 N.C. 353,
457 S.E.2d 300 (1995). Self-insurance is equivalent to a
primary insurance policy, however, “when the self-insurance
expressly provides that it is primary to other insurance.” Id.
at 689, 443 S.E.2d at 361. That is, while self-insurance
generally is not a primary insurance policy, an exception exists
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where the self-insurance states that it affords primary
coverage. Cf. id. (concluding that insured’s self-insurance was
not the primary insurance policy where there was no evidence
that the self-insurance stated it would be primary to the
insured’s other insurance).
In their Petition, UNC defendants rely on Cone Mills Corp.
for the contention that the UNC-LITF is self-insurance and thus
cannot be deemed a primary insurance policy. We note that this
is the first time that UNC defendants have claimed that the
UNC-LITF is self-insurance. On appeal, UNC defendants made no
assertion that the UNC-LITF is self-insurance and failed to cite
to a single case in which self-insurance was at issue; rather,
UNC defendants likened the UNC-LITF to an excess insurance
policy and relied on cases finding no actual controversy exists
in a declaratory judgment action to determine coverage provided
by an excess insurance policy.
The UNC-LITF is a self-insurance program for professional
liability, authorized by N.C.G.S. § 116-219. However, the
UNC-LITF, by its terms set forth in the UNC-LITF Memorandum of
Coverage, falls under the exception carved out in Cone Mills
Corp. and affords primary coverage. We find the plain language
of the following “other insurance” clause in the UNC-LITF
Memorandum of Coverage to be controlling:
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ARTICLE VII. OTHER INSURANCE
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
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 policies have been exhausted. Rather, the provision
provides that the UNC-LITF shares liability with other
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collectible insurance according to their respective limits.
Thus, the UNC-LITF “other insurance” clause is a pro rata
clause. See Fid. & Cas. Co., 16 N.C. App. at 203–04, 192 S.E.2d
at 120–21.
While the UNC-LITF “other insurance” clause does not
expressly provide that the UNC-LITF is primary to other
insurance, the pro rata clause nonetheless means that the
UNC-LITF provides primary coverage regardless of the terms of
the MMIC policy.2 Assuming, arguendo, that the MMIC policy
contains an excess clause, then the UNC-LITF 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 limits and, for that reason, both the
UNC-LITF and MMIC provide primary concurrent coverage. See 44A
Am. Jur. 2d Insurance § 1752. Therefore, because the UNC-LITF
affords primary coverage, an actual controversy exists as to the
UNC-LITF’s duty to indemnify, and the trial court erred by
granting the stay based on its determination that no such
2
Although the MMIC policy is not included in the record on
appeal, a review of the policy is not necessary because the
UNC-LITF “other insurance” clause is a pro rata clause. That
is, regardless of whether the MMIC policy contains an excess
clause or a pro rata clause, the UNC-LITF provides primary
coverage.
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controversy exists pending a final resolution in the underlying
malpractice action. The remaining arguments in UNC defendants’
Petition are without merit and we decline to consider them
further.
Reversed.
Judges ERVIN and McCULLOUGH concur.