CRAIGE v. GOVERNMENT EMPLOYEES INSURANCE COMPANY

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

TAMIKA CRAIGE and JEREMIAH )

THOMAS, )

)

Plaintiffs, )

)

v. ) 1:19-cv-408

)

GOVERNMENT EMPLOYEES INSURANCE )

COMPANY and NATIOWNIDE )

AFFINITY INSURANCE COMPANY OF )

AMERICA, )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

THOMAS D. SCHROEDER, Chief District Judge.

Before the court are cross-motions for summary judgment filed

by Plaintiffs Tamika Craige and Jeremiah Thomas (Doc. 31) and

Defendants Government Employees Insurance Company (“GEICO”) (Doc.

42) and Nationwide Affinity Insurance Company of America

(“Nationwide”) (Doc. 44). Also before the court is Plaintiffs’

motion to stay discovery pending ruling on Plaintiffs’ motion for

summary judgment. (Doc. 33.) The motions have been fully briefed,

and the court heard argument on them on November 19, 2020. For

the reasons set forth below, the court will deny Defendants’

motions for summary judgment and grant Plaintiffs’ motion for

summary judgment. Plaintiffs’ motion to stay discovery will be

denied as moot.

I. BACKGROUND

The facts, either not in dispute or viewed in the light most

favorable to the non-moving parties in the cross-motions for

summary judgment, establish the following:1

On September 21, 2013, James Rigsbee (“Rigsbee”), age 45, was

operating a vehicle in Durham, North Carolina, when he was stopped

and issued a citation for having an expired registration and

driving with his license revoked. (Doc. 23-3 at 1; Doc. 32-3 at

12.) The citation listed Rigsbee’s address as 108 East Edgewood

Drive, Durham, North Carolina. (Id.)

Later that day, Rigsbee was involved in a vehicular accident

with Craige and Thomas, as well as others. (Doc. 32 at 2–3; Doc.

37 at 4; Doc. 38 at 2.) The vehicle Rigsbee drove at the time of

the accident, a commercial vehicle owned by Shelby Wilson, was

insured by Peak Property and Casualty Insurance Corporation

(“Peak”). (Doc. 37 at 5; Doc. 38 at 2; Doc. 40 at 4.) The accident

report listed Rigsbee’s address as 2734 Weldon Terrace, Durham,

NC. (Doc. 32-5 at 14.) As a result of the collision, Plaintiffs

suffered bodily and mental injuries. (Doc. 14-3.)

At the time of the accident, Rigsbee’s brother, Matthew

1 GEICO argues that Plaintiffs’ response to GEICO’s request for admission

of fact was untimely and should therefore be deemed admitted. (Doc. 43

at 7.) This appears to be of no matter, as the facts as alleged in

GEICO’s request for admission do not differ in any significant manner

from the facts as described here. (See Doc. 37-3.) Any difference is

based on record evidence that is not controverted.

Rigsbee (“M. Rigsbee”), was the named insured on Nationwide Auto

Policy 6132C 642258 (“the Nationwide policy”). (Doc. 32 at 2;

Doc. 38 at 2.) Rigsbee’s mother, Mary Overby (“M. Overby”) and

stepfather, Asa Overby (“A. Overby”), were the named insureds on

GEICO Auto Policy 4259-30-93-85 (“the GEICO policy”). (Doc. 32 at

2; Doc. 37 at 2.) Under both the Nationwide and GEICO policies,

M. Rigsbee, M. Overby, and A. Overby (collectively “the named

insureds”) were listed as residing at 108 East Edgewood Drive in

Durham, NC. (Doc. 32 at 2; Doc. 37 at 2; Doc. 38 at 2.)

As a result of the accident, Rigsbee was charged with multiple

offenses, including driving left of center, driving while license

revoked, expired registration, and driving while subject to an

impairing substance. (Doc. 14-3 ¶ 9.) On October 29, 2013,

Rigsbee completed an affidavit of indigency and listed his address

as 108 East Edgewood Drive, Durham, North Carolina. (Doc. 23-3 at

3.) On November 22, 2013, Rigsbee was issued an identification

card from the North Carolina Division of Motor Vehicles that listed

his address as 108 East Edgewood Drive, Durham, North Carolina.

(Doc. 32-3 at 3.)

As early as December 2, 2014, Plaintiffs’ counsel informed

Nationwide that they were seeking coverage under the Nationwide

policy for the injuries stemming from Rigsbee’s accident. (Doc.

38-7 ¶ 4.) Sometime before March 2, 2015, Plaintiffs’ counsel

also contacted GEICO and informed it of the claim against Rigsbee.

(Doc. 32-2; see also Doc. 32-3.) After that time, Defendants each

undertook independent investigations of the claim and determined

Rigsbee was not a covered insured under their respective policies.

(See Docs. 37-2, 38-7.)

On June 2, 2016, Plaintiffs filed a complaint in North

Carolina state court against Rigsbee, Wilson, and Wilson’s

company, Tasty Haven, LLC, seeking damages arising out of the

accident. (Doc. 32-5.) On November 14, 2016, Peak filed a motion

to intervene in the lawsuit “to defend th[e] action in the name of

its insured, Defendant James Arthur Rigsbee.” (Doc. 38-2.) On

March 31, 2017, Nationwide and GEICO were served with copies of

the underlying complaint and summonses. (Doc. 32-10.) Both

Nationwide and GEICO denied coverage and did not defend Rigsbee in

the underlying suit. (Doc. 32 at 4; Doc. 37 at 7; Doc. 38 at 6.)

A trial was held in Durham County Superior Court during the week

of June 11, 2018. (Doc. 14-3.) That same week, the court granted

Peak’s motion to be relieved from Rigsbee’s defense based on Peak

having paid its per-accident limit to the relevant claimants, thus

fulfilling its obligation to Rigsbee. (Docs. 40-2, 40-3.) As

such, Peak did not defend Rigsbee in the trial and ultimately

Rigsbee did not appear at the trial. (Doc. 14-3.) On June 13,

2018, after trial, the court found in favor of Plaintiffs and

awarded Craige $206,750 and Thomas $61,500 in compensatory and

punitive damages against Rigsbee. (Id. at 4.)

On March 14, 2019, Plaintiffs filed the present declaratory

judgment action in North Carolina state court. (Doc. 1-1.) On

April 16, 2019, Defendants removed the matter to this court. (Doc.

1.) On March 26, 2020, Plaintiffs moved for summary judgment (Doc.

31) and to stay discovery pending ruling on that motion (Doc. 33).

Defendants timely responded in opposition (Docs. 37, 38), and

Plaintiffs filed replies (Docs. 40, 41). On May 20 and 21, 2020,

GEICO and Nationwide moved for summary judgment, respectively.

(Docs. 42, 44.) Those motions are fully briefed. (Docs. 47, 48,

49, 50.) All motions are ready for resolution.

II. ANALYSIS

A. Standard of Review

This court has subject matter jurisdiction pursuant to 28

U.S.C. § 1332(a)(1). In a diversity case, a district court will

apply the conflict of laws rules of the forum state. Klaxon v.

Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97 (1941). North

Carolina statutory law specifies that any policy insuring

interests in North Carolina “shall be deemed” to have been made in

and subject to the laws of North Carolina. N.C. Gen. Stat. § 58–

3–1; see also Fortune Ins. Co. v. Owens, 512 S.E.2d 487, 489 (N.C.

Ct. App. 1999). Therefore, North Carolina insurance law and

contract interpretation principles will be applied to the present

matter.

A court must grant a motion for summary judgment if the

pleadings, depositions, and affidavits submitted show that there

is no genuine dispute as to any material fact and the moving party

is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

A fact is considered “material” if it “might affect the outcome of

the suit under the governing law.” Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986). Under this standard, a genuine

dispute of material fact exists “if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.”

Id. As a result, the court will only enter summary judgment in

favor of the moving party when the record “shows a right to

judgment with such clarity as to leave no room for controversy”

and clearly demonstrates that the non-moving party “cannot prevail

under any circumstances.” Campbell v. Hewitt, Coleman & Assocs.,

Inc., 21 F.3d 52, 55 (4th Cir. 1994) (internal quotation marks

omitted). While the movant bears the initial burden of

demonstrating that there are no genuine disputes of material fact,

once that burden has been met, the non-moving party must

demonstrate that a genuine dispute of material fact actually

exists. Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d

514, 521 (4th Cir. 2003); Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 586–87 (1986). A mere scintilla of

evidence is insufficient to circumvent summary judgment.

Anderson, 477 U.S. at 252. Instead, the nonmoving party must

convince the court that, upon the record taken as a whole, a

rational trier of fact could find for the nonmoving party. Id. at

248–49. Trial is unnecessary if “the facts are undisputed, or if

disputed, the dispute is of no consequence to the dispositive

question.” Mitchell v. Data Gen. Corp., 12 F.3d 1310, 1315–16

(4th Cir. 1993).

In this case, the parties have filed cross-motions for summary

judgment. Therefore, the court must review each motion separately

to determine whether either party deserves judgment as a matter of

law. Fed. R. Civ. P. 56(c); Rossignol v. Voorhaar, 316 F.3d 516,

523 (4th Cir. 2003) (quoting Philip Morris, Inc. v. Harshbarger,

122 F.3d 58, 62 n.4 (1st Cir. 1997)). When considering each

individual motion, the court must take care to “resolve all factual

disputes and any competing, rational inferences in the light most

favorable” to the party opposing the motion. Rossignol, 316 F.3d

at 523 (quoting Wightman v. Springfield Terminal Ry. Co., 100 F.3d

228, 230 (1st Cir. 1996)).

As a federal court sitting in diversity and applying North

Carolina law, this court is obliged to apply the jurisprudence of

North Carolina's highest court, the Supreme Court of North

Carolina. See Private Mortg. Inv. Servs., Inc. v. Hotel & Club

Assocs., Inc., 296 F.3d 308, 312 (4th Cir. 2002). When that court

has not spoken directly on an issue, this court must “predict how

that court would rule if presented with the issue.” Id. The

decisions of the North Carolina Court of Appeals are the “next

best indicia” of what North Carolina's law is, though its decisions

“may be disregarded if the federal court is convinced by other

persuasive data that the highest court of the state would decide

otherwise.” Id. (quoting Liberty Mut. Ins. Co. v. Triangle Indus.,

Inc., 957 F.2d 1153, 1156 (4th Cir. 1992)). In predicting how the

highest court of a state would address an issue, this court “should

not create or expand a [s]tate's public policy.” Time Warner

Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership

Corp., 506 F.3d 304, 314 (4th Cir. 2007) (alteration and quotation

omitted).

B. Duty to Defend

Plaintiffs contend that Defendants had a duty to defend

Rigsbee in the underlying lawsuit, Defendants unjustifiably

refused to do so, and as a result, Defendants should be held liable

for the judgment against Rigsbee up to their policy limits. As

such, the threshold issue is whether Defendants had a duty to

defend Rigsbee.

Under North Carolina law, interpretation of an insurance

policy, including the extent of the insurer's duty to defend, is

a question of law. See Waste Mgmt. of Carolinas, Inc. v. Peerless

Ins. Co., 340 S.E.2d 374, 377 (N.C. 1986) (“[The duty to defend]

is an appropriate subject for summary judgment.”). “The duty to

defend is generally determined by analyzing the pleadings in the

underlying lawsuit.” Westfield Ins. Co. v. Nautilus Ins. Co., 154

F. Supp. 3d 259, 264 (M.D.N.C. 2016) (citing Waste Mgmt. of

Carolinas, 340 S.E.2d at 377). As such, the courts employ the

comparison test, where “the pleadings are read side–by–side with

the policy to determine whether the events as alleged are covered

or excluded.” Waste Mgmt. of Carolinas, 340 S.E.2d at 378. “[T]he

facts alleged [in the pleadings] are to be taken as true and

compared to the language of the insurance policy.” Kubit v. MAG

Mut. Ins. Co., 708 S.E.2d 138, 144 (N.C. Ct. App. 2011) (quoting

Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 692

S.E.2d 605, 610 (N.C. 2010)). “When the pleadings state facts

demonstrating that the alleged injury is covered by the policy,

then the insurer has a duty to defend, whether or not the insured

is ultimately liable.” Waste Mgmt. of Carolinas, 340 S.E.2d at

377.

The duty to defend is broad. Where the allegations of a

complaint bring a claim within the coverage of the policy, an

insurer’s duty to defend is absolute. Indiana Lumbermen’s Mut.

Ins. Co. v. Champion, 343 S.E.2d 15 (N.C. Ct. App. 1986) (citing

Insurance Co. v. Insurance Co., 152 S.E.2d 513 (N.C. 1967)). An

insurer has a duty to defend against even groundless, false, or

fraudulent accusations. Waste Mgmt. of Carolinas, 340 S.E.2d at

378. Only “if the facts are not even arguably covered by the

policy” can an insurer be excused from its duty to defend. Kubit,

708 S.E.2d at 144 (citing Waste Mgmt. of Carolinas, 340 S.E.2d at

378). Even where the complaint fails to assert claims falling

within the coverage provided, an insurer's duty to defend may still

be found where the insurer “knows or could reasonably ascertain

facts, that if proven, would be covered by [the] policy.” Waste

Mgmt. of Carolinas, 340 S.E.2d at 377. However, “the inverse of

this inquiry has not been recognized by North Carolina courts and

has been explicitly rejected by the Middle District of North

Carolina in a decision affirmed by the Fourth Circuit Court of

Appeals.” New NGC, Inc. v. Ace Am. Ins. Co., 105 F. Supp. 3d 552,

568 (W.D.N.C. 2015) (citing St. Paul Fire & Marine Ins. Co. v.

Vigilant Ins. Co., 724 F. Supp. 1173, 1179 (M.D.N.C. 1989), aff'd,

919 F.2d 235 (4th Cir. 1990)). “Once a complaint implicates the

possibility of coverage, an insurer may not exonerate itself by

preliminarily determining that no coverage actually exists despite

the allegations of the complaint.” St. Paul Fire, 724 F. Supp. at

1179; see also Peace Coll. of Raleigh, Inc. v. Am. Int'l Specialty

Lines Ins. Co., 5:09–CV–479–FL, 2010 WL 3743539 (E.D.N.C. Sept.

16, 2010). “Permitting evidence outside the pleadings to negate

allegations in the complaint is akin to a perfunctory review of

the merits of the underlying claims against the insured . . . [and]

is not consistent with the duty to defend as explained by North

Carolina law.” New NGC, 105 F. Supp. 3d at 568. Any doubt as to

coverage must be resolved in favor of the insured. Waste Mgmt. of

Carolinas, 340 S.E.2d at 378.

Here, the essential facts surrounding the collision are not

in dispute. As the Superior Court concluded in the underlying

lawsuit, Rigsbee was responsible for Plaintiffs’ injuries arising

from the collision as a result of his negligence. The issue

remains whether Defendants had a duty to defend Rigsbee in that

action. The determinative question is whether there existed the

“mere possibility,” either based in the underlying complaint or in

facts discoverable by Defendants, to indicate that Rigsbee may

have been covered under the named insureds’ policies. See Naddeo

v. Allstate Ins. Co., 533 S.E.2d 501, 506 (N.C. Ct. App. 2000),

overruled in part on other grounds as stated in Kubit, 708 S.E.2d

at 145.

When construing an insurance contract, “the intention of the

parties controls any interpretation or construction of the

[insurance] contract, and intention must be derived from the

language employed.” Fidelity Bankers Life Ins. Co. v. Dortch, 348

S.E.2d 794, 796 (N.C. 1986). North Carolina courts have “long

recognized [a] duty to construe and enforce insurance policies as

written, without rewriting the contract or disregarding the

express language used.” Id. However, “any ambiguity in the words

of an insurance policy [is resolved] against the insurance

company.” Harleysville Mut., 692 S.E.2d at 612. “To be ambiguous,

the language of the insurance policy must, in the opinion of the

court, be fairly and reasonably susceptible to either of the

constructions for which the parties contend.” Id. (internal

quotation marks omitted).

The GEICO policy provides the following pertinent provisions:

[GEICO] will pay damages for bodily injury or property

damage for which any insured becomes legally responsible

because of an auto accident. . . . We will settle or

defend, as we consider appropriate, any claim or suit

asking for these damages . . .

“Insured” as used in this Part means:

1. You or any family member for the . . . use of

any auto . . .

“Family member” means a person related to you by blood,

marriage, or adoption who is resident of your household.

(Doc. 37-11 at 3-4.) The Nationwide policy provides the same

pertinent provisions in identical language:

[Nationwide] will pay damages for bodily injury or

property damage for which any insured becomes legally

responsible because of an auto accident. . . . We will

settle or defend, as we consider appropriate, any claim

or suit asking for these damages . . .

“Insured” as used in this Part means:

1. You or any family member for the . . . use of

any auto . . .

“Family member” means a person related to you by blood,

marriage, or adoption who is a resident of your

household.

(Doc. 38-3 at 12, 19.) While the parties agree that Rigsbee is

related by blood to the named insureds, they disagree as to whether

Rigsbee was a “resident” of the named insureds’ household at the

time of the accident.2

As the words “resident,” “residence,” and “residing” have “no

precise, technical and fixed meaning applicable to all cases,” see

Jamestown Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 146 S.E.2d

410, 414 (N.C. 1966), North Carolina courts have held that the

terms “resident of your household” or “resident of the same

household” can be subject to multiple different meanings. Great

Am. Ins. Co. v. Allstate Ins. Co., 338 S.E.2d 145, 147 (N.C. Ct.

App. 1986); Jamestown Mut., 146 S.E.2d at 416 (“It is . . .

difficult to give an exact, or even satisfactory, definition, for

the term [‘resident’] is flexible, elastic, slippery, and somewhat

ambiguous.”). Applicable definitions range from “a place of abode

for more than a temporary period of time” to “a permanent and

established home.” Great. Am. Ins. Co., 338 S.E.2d at 147 (citing

Jamestown Mut., 146 S.E.2d 410). As such, where the term

“resident” is used in an insurance policy and is not defined by

that policy, although it does not automatically result in coverage,

courts should interpret the term in line with its “most inclusive

definition.” N.C. Farm Bureau Mut. Ins. Co., Inc. v. Martin by &

through Martin, 833 S.E.2d 183, 187 (N.C. Ct. App. 2019) (quoting

Monin v. Peerless Ins. Co., 583 S.E.2d 393, 398 (N.C. Ct. App.

2 Neither Defendant contends that their policy did not provide coverage

because Rigsbee was driving a company vehicle in the course of his

employment at the time of the accident.

2003)); see also Great Am Ins. Co., 338 S.E.2d at 147 (“[O]ur

courts have held that such terms should be given the broadest

construction and that all who may be included, by any reasonable

construction of such terms, within the coverage of an insurance

policy using such terms, should be given its protection.”). North

Carolina courts have recognized that a person may be a resident of

more than one household for insurance purposes. Davis by Davis v.

Md. Cas. Co., 331 S.E.2d 744, 746 (N.C. Ct. App. 1985). Ultimately

“‘[d]eterminations of whether a particular person is a resident of

the household of a named insured are individualized and fact-

specific.’” Martin by & through Martin, 833 S.E.2d at 187 (quoting

N.C. Farm Bureau Mut. Ins. Co. v. Paschal, 752 S.E.2d 775, 780

(N.C. Ct. App. 2019)).

Here, the plain language of the relevant policies restricts

and limits coverage to the named insureds and their “family

member[s],” which are unambiguously defined by the policy as

someone who is “related to [the named insureds] by blood, marriage,

or adoption who is a resident of [the named insureds’] household.”

Comparing this language to the facts alleged in the underlying

complaint and facts reasonably discoverable outside the complaint,

Defendants were put on notice of the possibility that Rigsbee was

a resident of the named insureds’ household, and therefore a

“family member” for insurance purposes. Although Defendants are

correct that Plaintiffs’ complaint did not specifically allege

that Rigsbee resided at the Edgewood address, attached to the

complaint and incorporated therein were documents which indicated

that Rigsbee and Plaintiffs may have considered the Edgewood

address to be his residence. (See Doc. 32-5 at 13 (traffic

citation for expired registration, listing the Edgewood address

and given to Rigsbee on the date of the accident), 1 (civil summons

filed against Rigsbee listing the Edgewood address).) Further, by

March 2015, Plaintiffs provided Defendants with additional

documents from the same period indicating the possibility that

Rigsbee was a resident of the Edgewood address in the time around

the accident. (See Doc. 32-3 at 13 (affidavit of indigency filed

by Rigsbee on October 29, 2013, listing 108 Edgewood as his

address), 3 (showing Rigsbee received a North Carolina state

identification card on November 22, 2013, listing 108 Edgewood as

his address).) Defendants were demonstrably aware of the

possibility of Rigsbee’s resident status as early as 2015, as

evidenced by their decisions to independently investigate that

possibility. (See Docs. 37-2, 38-7.) See also Lozada v. Phoenix

Ins. Co., 237 F. Supp. 2d 664, 671 (M.D.N.C. 2003) (“It is also

important to note that Defendant responded to this information by

undertaking its own investigation . . . . Certainly, Defendant's

undertaking such an investigation was generated by a concern of

the possibility of coverage under [named insured’s] policy because

of the information provided by Plaintiff that [the potential

insured] was a resident of the insured's household.”). Defendants

were provided additional notice of this possibility on March 31,

2017 – almost 15 months before the underlying trial – when

Plaintiffs sent them a copy of the underlying complaint, indicating

that they believed Rigsbee to be covered under Defendants’

respective policies. (Doc. 32-10.)

Defendants have replied with multiple affidavits indicating

that Rigsbee was not a resident of the Edgewood address at the

time of the accident. Defendants initially reached this

determination in their preliminary 2015 investigations, which

ultimately led them to deny coverage and refuse to provide a

defense to Rigsbee in the underlying suit. However, as clearly

established by St. Paul Fire, “[o]nce a complaint implicates the

possibility of coverage, an insurer may not exonerate itself by

preliminarily determining that no coverage actually exists despite

the allegations of the complaint.” 724 F. Supp. at 1179. Although

Defendants have failed to address St. Paul Fire and its related

caselaw, the court finds no reason to deviate from this precedent

and, as such, Defendants’ evidence of non-coverage is of no

consequence. The facts here created the possibility of coverage,

Defendants were aware that Rigsbee was potentially an “insured”

under the relevant policies, and even though Defendants may have

been convinced that their evidence was far more persuasive,

Defendants retained a duty to defend Rigsbee in the underlying

suit.

C. Excess insurers

Defendants argue that their duty to defend Rigsbee did not

activate because under the terms of their policies, they were

acting as excess insurers. Defendants maintain that as excess

insurers, their duty to defend would only have come into existence

if the damages exceeded the limits of the primary carrier, Peak.

See W & J Rives, Inc. v. Kemper Ins. Grp., 374 S.E.2d 430, 434

(N.C. Ct. App. 1988).

The relevant portion of GEICO’s policy states under “Other

Insurance”:

If there is other applicable liability insurance we will

pay only our share of the loss. Our share is the

proportion that our limit of liability bears to the total

of all applicable limits. However, any insurance we

provide for a vehicle you do not own shall be excess

over any other collectible insurance.

(Doc. 37-11 at 6.) The relevant portion of Nationwide’s

policy provides identical language under “Limit of Liability” in

a subsection entitled “Other Insurance”:

If there is other applicable liability insurance we will

pay only our share of the loss. Our share is the

proportion that our limit of liability bears to the total

of all applicable limits. However, any insurance we

provide for a vehicle you do not own shall be excess

over any other collectible insurance.

(Doc. 38-3 at 21.) Under North Carolina law, exclusionary clauses

in insurance contacts “are not favored by the courts and will be

construed against the insurance carrier and in favor of coverage

for the insured.” WJ Rives, 374 S.E.2d at 435. Further, even

where an excess insurance policy is in effect, “[t]wo insurers can

possess concurrent defense duties to a common insured.” See Abt

Bldg. Prods. v. Nat’l Union Fire, 472 F.3d 99, 117 n.27 (4th Cir.

2006).

Here, a fair reading of the relevant exclusionary clauses

indicates that Defendants’ duties as excess insurers influence

only their duty to indemnify. Each clause states that Defendants

“will pay only” their share of the loss should there be other

applicable liability insurance and such insurance is only

“collectible” in excess of other applicable liability insurance.

Neither contract indicates that Defendants’ respective duties to

defend are modified by this exclusion. As the court must construe

the contract as written and any ambiguity must be resolved in favor

of the insured, the court does not find this exclusionary provision

to modify Defendants’ duty to defend.

Further, despite the exclusionary provision, Defendants do

not appear to be excess insurers to whom a lesser duty to defend

would attach as a matter of course. “[E]xcess insurance has a

very particular function, which is to provide coverage for

extremely rare events at an affordable premium.” ABT Bldg. Prods.,

472 F.3d at 143–44 (Niemeyer, J. dissenting). In exchange for

lower premiums, excess insurers have a more limited role than

primary insurers. Id. Excess insurers “ha[ve] not signed up to

be in the trenches with the insured, litigating claims . . . .

Because excess insurance is so inexpensive, insureds should not

expect the kind of comprehensive defense” they receive from a

primary policy. Id. In this case, Defendants provided and charged

their named insureds for primary policies that included duties to

defend and indemnify. The fact that other primary insurance was

available through Peak does not serve to transform Defendants’

policies into excess insurance with a lesser duty to defend. As

such, and without specific contractual language indicating

otherwise, the court finds no basis upon which to limit Defendants’

respective duties to defend based on these exclusionary

provisions.

D. Timely notice

Finally, Defendants suggest that their duties to defend did

not attach because they were not given timely notice that Peak was

no longer defending Rigsbee. (See Doc. 37 at 20; Doc. 38 at 12.)

This argument encounters two hurdles. First, as primary liability

insurers, Defendants’ duties to defend attached when they received

actual notice of the underlying action. New NGC, 105 F. Supp. 3d

at 569 (citing Kubit, 708 S.E.2d at 154). Therefore, Defendants’

duty to defend attached, at the latest, by March 31, 2017,

irrespective of Peak’s defense of Rigsbee. Although this

represents a delay of over nine months between the filing of the

underlying lawsuit and the provision of notice to Defendants, “an

unexcused delay . . . in giving notice to the insurer . . . does

not relieve the insurer of its obligation to defend . . . unless

the delay operates materially to prejudice the insurer's ability

to investigate and defend.” Great Am. Ins. Co. v. C.G. Tate Const.

Co., 279 S.E.2d 769, 771 (N.C. 1981); see also St. Paul Fire &

Marine Ins. Co. v. Hanover Ins. Co., No. 5:99CV164BR-3, 2000 WL

34594777, at *8 (E.D.N.C. Sept. 19, 2000). Here, Defendants have

not argued, nor have they provided any evidence, that this late

notice — which was given almost fifteen months before trial —

materially prejudiced their ability to investigate and defend the

action such that their duties to defend should be excused.

Second, even if Plaintiffs’ late notice may have otherwise

excused the duty to defend, “[t]he rule in North Carolina is that

the denial of liability on another ground operates as a waiver of

the notice requirements, being regarded as a statement that payment

would not be made even though policy provisions had been complied

with.” Taylor v. Royal Globe Ins. Co., 240 S.E.2d 497, 499 (N.C.

Ct. App.), disc. rev. denied, 244 S.E.2d 146 (N.C. 1978) (citing

Davenport v. Travelers Indem. Co., 195 S.E.2d 529 (N.C. 1973)).

“Consistent with this rule is the rule . . . that the unjustified

refusal of the insurer to defend an action against the insured on

the ground that the claim on which the action is based is outside

the policy coverage deprives the insurer of its right to insist

upon compliance with a policy provision.” Davenport, 195 S.E.2d

at 532–33. Here, Defendants do not allege that they would have

defended Rigsbee had notice been given, either upon the filing of

the underlying lawsuit or upon Peak’s payment of its limits and

withdrawal. Rather, as shown by their respective denials of

coverage as early as 2015, Defendants have indicated all along

they had no duty to defend whatsoever based on their determination

that Rigsbee was not covered under their respective policies. (See

Doc. 37 at 7; Doc. 38 at 4-5 (denying claim for excess liability

coverage based on non-coverage).) As such, any claim that

Defendants’ respective duties to defend were excused due to lack

of timely notice are considered waived.

E. Unjustified breach of the duty to defend

As the evidence was sufficient to put Defendants on notice

that there was a possibility of coverage for Rigsbee’s accident

under their respective policies, Defendants breached their duty to

defend and their refusal to defend was unjustified. Lozada, 237

F. Supp. 2d at 672.3 Because Defendants’ refusal to defend was

3 This interpretation derives from a long line of decisions by the North

Carolina Court of Appeals. See, e.g., Ames v. Cont'l Cas. Co., 340

S.E.2d 479 (N.C. Ct. App.), disc. rev. denied, 345. S.E.2d 385 (N.C.

1986); Duke Univ. v. St. Paul Fire & Marine Ins. Co., 386 S.E.2d 762

(N.C. Ct. App.), disc. rev. denied, 393 S.E.2d 876 (N.C. 1990); Naddeo

v. Allstate Ins. Co., 533 S.E.2d 501 (N.C. Ct. App. 2000), overruled in

part on other grounds as stated in Kubit, 708 S.E.2d at 145; Pulte Home

Corp. v. Am. S. Ins. Co., 647 S.E.2d 614 (N.C. Ct. App. 2007), disc.

rev. denied, 666 S.E.2d 485 (N.C. 2008); Erie Ins. Exch. v. Builders

Mut. Ins. Co., 742 S.E.2d 803 (N.C. Ct. App.), disc. rev. denied in part,

747 S.E.2d 545 (N.C. 2013). This court and the Fourth Circuit have also

unjustified as a matter of law, the court need not reach the issue

of whether Rigsbee would have qualified as an insured under

Defendants’ respective policies had they elected to defend him in

the underlying suit.4 As this court explained in St. Paul Fire,

an insurer has three options under North Carolina law when faced

relied on this case law. See St. Paul Fire & Marine Ins. Co. v. Vigilant

Ins. Co., 724 F. Supp. 1173, 1179 (M.D.N.C. 1989), aff'd, 919 F.2d 235

(4th Cir. 1990). North Carolina’s view reflects a minority position

among states. See Stanley C. Mardoni, Estoppel for Insurers Who Breach

Their Duty to Defend, 50 J. Marshall L. Rev. 53 (2016). The North

Carolina Court of Appeals’ interpretation appears to be in tension with

certain earlier decisions of the North Carolina Supreme Court regarding

this issue. See, e.g., Squires v. Textile Ins. Co., 108 S.E.2d 908, 912

(N.C. 1959) (“The judgment is, therefore, conclusive as to the insurer

on the question of agency and damage. The only defense available to the

defendant is that its policy does not cover the insured's liability.”);

Nixon v. Liberty Mut. Ins. Co., 120 S.E.2d 430, 435 (N.C. 1961) (“If the

policy here was in force at the time plaintiff was injured, . . . then

defendant's refusal to defend the action . . . was a breach of its

contract with its insured, and was an unjustified refusal.” (emphasis

added)). However, in light of the significant number of decisions from

the North Carolina Court of Appeals on this matter, coupled with the

North Carolina Supreme Court’s consistent denial of discretionary review

of those cases, the court declines to second guess this line of

authority. See Town of Nags Head v. Toloczko, 728 F.3d 391, 398 (4th

Cir. 2013) (“[T]he district court[] must follow the decision of an

intermediate state appellate court unless there is persuasive data that

the highest court would decide differently.” (internal quotation marks

omitted)). Moreover, Defendants’ contention that Lozada is

distinguishable because that case involved a default judgment against

the insured, rather than a jury verdict, is unpersuasive to alter the

state’s general rule that an unjustified failure to defend renders the

insurer responsible whether the determination was by default, verdict,

or settlement. See Duke Univ., 386 S.E.2d at 763 (“By refusing to

defend[,] . . . defendant obligated itself to pay the amount and costs

of a reasonable settlement if its refusal was unjustified.”).

4 It is not lost on the court that had Defendants provided a defense,

they likely would not have been required to indemnify Rigsbee.

Defendants’ evidence indicates that at the time of the accident, Rigsbee

was a 45-year-old drug addict without a stable residence. He had not

been welcome at the household of the named insureds, his parents and

brother, since 2009 and appears to have used the named insureds’

residence solely as an occasional mailing address.

with a request to defend an insured against claims which the

insurer believes exceed the policy coverage. An insurer may: “(1)

seek a declaratory judgment regarding its obligations before or

pending trial of the underlying action, (2) defend the insured

under a reservation of rights, or (3) refuse either to defend or

to seek a declaratory judgment at the insurer's peril that it might

later be found to have breached its duty to defend.” St. Paul

Fire, 724 F. Supp. at 1180 (quoting Maneikis v. St. Paul Ins. Co.

of Illinois, 655 F.2d 818, 821 (7th Cir. 1981)). Here, Defendants

chose the third option, and that decision was certainly at their

peril, as the court has found that Defendants unjustifiably

breached their duty to defend Rigsbee.

The court must now consider what obligation Defendants have

with regard to the judgment entered against Rigsbee. As

established by Lozada, “where Defendant had a duty to defend which

arose from the possibility that a claim was covered and, when

Defendant declined its opportunity to defend, the judgment

rendered in favor of Plaintiff became binding on Defendant . . .

to the extent of its policy limits.” 237 F. Supp. 2d at 674

(citing Wilson v. State Farm Mut. Auto. Ins. Co., 394 S.E.2d 807

(N.C. 1990)). Here, Defendants GEICO and Nationwide’s policy

limits are $60,000 and $100,000, respectively. Plaintiffs seek no

more, and Defendants do not contend they would not be liable for

those amounts should the court find a breach of the duty to defend.

Defendants are therefore liable to Plaintiffs up to those limits.5

III. CONCLUSION

For the reasons stated, Defendant GEICO’s motion for summary

judgment (Doc. 42) is DENIED; Defendant Nationwide’s motion for

summary judgment (Doc. 44) is DENIED; Plaintiffs’ motion for

summary judgment (Doc. 31) is GRANTED; and Plaintiffs’ motion to

stay discovery pending ruling on Plaintiffs’ motion for summary

judgment (Doc. 33) is DENIED AS MOOT.

IT IS THEREFORE ORDERED that Plaintiffs shall have and recover

of Defendants GEICO and Nationwide $60,000 and $100,000,

respectively, with respect to payment of the judgment Plaintiffs

recovered in the underlying lawsuit against James Rigsbee.

/s/ Thomas D. Schroeder

United States District Judge

November 25, 2020

5 Defendants do not address whether their respective liabilities should

be shared pro-rata. As the judgment against Rigsbee exceeds Defendants’

combined policy limits, this is of no consequence.