Cinoman v. Univ. of N.C.

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in
accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of
A p p e l l a t e P r o c e d u r e .

NO. COA13-902
NORTH CAROLINA COURT OF APPEALS

Filed: 4 March 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
 -2-
Judge Carl R. Fox in Wake County Superior Court. Heard in the

Court of Appeals 6 January 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 defendants1 motion to stay this declaratory

action pending a final resolution of the underlying malpractice

action. For the reasons stated herein, we reverse.

In February 1999, Dr. Cinoman served as a temporary

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,
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.
 -3-
initiated a medical malpractice action against Dr. Cinoman and

others for damages allegedly incurred by Wakefall as a result of

negligent medical treatment at the UNC-PICU in February 1999

(“underlying malpractice action”).

Dr. Cinoman is insured under a medical malpractice

insurance policy issued by MMIC, which has treated its coverage

as broad enough to cover the claims against Dr. Cinoman in the

underlying malpractice action. The University of North Carolina

Liability Insurance Trust Fund (“UNC-LITF”), which provides

coverage for claims against employees and agents of UNC

defendants, maintained that Dr. Cinoman is not entitled to

coverage under the UNC-LITF because he was not a full-time

employee of UNC defendants at the time of the alleged

negligence. In the absence of coverage by the UNC-LITF, the

damages demanded in the underlying malpractice action allegedly

exceed Dr. Cinoman’s medical malpractice insurance coverage.

On 17 February 2009, plaintiffs filed this declaratory

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 policies’ relative order of priority.

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
 -4-
summary judgment order, concluding that there were questions of

material fact which made summary judgment for either party

inappropriate, and remanded the case for trial. Cinoman v.

Univ. of N.C., __ N.C. App. __, __, 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 this

action pending the final resolution of the underlying

malpractice action. In an order entered on 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 move to dismiss the appeal

as interlocutory.

_________________________

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
 -5-
(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

on 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 abuse of discretion.

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) (concluding

that order staying proceedings in North Carolina 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
 -6-
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) (quoting Koon v.

United States, 518 U.S. 81, 100, 135 L. Ed. 2d 392, 414 (1996)).

On appeal, plaintiffs contend that the trial court erred in

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 when an insurer seeks

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 seeking to

establish coverage provided under an excess insurance policy
 -7-
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

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.

(Fidelity), 16 N.C. App. 194, 203–04, 192 S.E.2d 113, 120–21,

cert. denied, 282 N.C. 425, 192 S.E.2d 840 (1972) (“The terms
 -8-
‘prorate’ and ‘excess’ do not have, and were not meant by the

insurers to have identical meanings.”). In Fidelity, 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.

As a general rule, 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 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

insurance policy competes with a pro rata clause in another

policy, each insurer has primary but concurrent liability for a

proportionate amount of the loss. See 44A Am. Jur. 2d Insurance
 -9-
§ 1752 (2013). Accordingly, an actual controversy exists in an

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.

A study of the “other insurance” clause in the UNC-LITF

policy leads us to conclude that the trial court erred in

determining that no actual controversy exists as to the UNC-

LITF’s duty to indemnify until the underlying malpractice action

is finally resolved. No actual controversy would exist as to

the UNC-LITF’s duty to indemnify if the coverage provided under

the UNC-LITF policy is excess or triggered only after exhaustion

of the MMIC policy limits. See Warren, 89 N.C. App. at 150,

365 S.E.2d at 217–18. The “other insurance” clause in the UNC-

LITF policy, however, provides:

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
 -10-
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 have been exhausted. Rather, the provision provides

that the UNC-LITF shares liability with other collectible

policies according to their respective policy limits.

Therefore, by its terms, the UNC-LITF “other insurance” clause

is a pro rata clause, not an excess clause. See Fidelity,

16 N.C. App. at 203, 192 S.E.2d at 120–21.

Regardless of the terms of the MMIC policy,2 the UNC-LITF

policy provides primary coverage because the UNC-LITF policy

2
Although the MMIC policy is not included in the record on
appeal, a review of that policy is not necessary because the
UNC-LITF policy contains a pro rata “other insurance” clause.
That is, regardless of whether the MMIC policy contains an
excess clause or a pro rata clause, the UNC-LITF policy provides
primary coverage.
 -11-
contains a pro rata “other insurance” clause. Assuming,

arguendo, that the MMIC policy contains an excess clause, then

the UNC-LITF policy 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

policy limits and, for that reason, each policy provides primary

but concurrent coverage. See 44A Am. Jur. 2d Insurance § 1752.

Therefore, because the UNC-LITF policy provides primary

coverage, an actual controversy exists as to the UNC-LITF’s duty

to indemnify, and the trial court erred in granting the stay

based on its determination that no such controversy exists

pending a final resolution in the underlying malpractice action.

Reversed.

Judges ERVIN and McCULLOUGH concur.

Report per Rule 30(e).