Nationwide Mutual Insurance v. Edwards

*11 Judge Phillips

dissenting.

I dissent for two reasons. First and foremost, I am of the opinion that Judge Rouse’s conclusion that, under the evidence recorded, plaintiff company is obligated for the full limits of the policy it sold defendant Edwards was proper. But even if that was not the case, the exclusionary provisions of the policy that plaintiff relies on to escape its obligation are contrary to public policy, in my opinion, and therefore unenforceable by law. To sooner put in focus the indefensible character of the exclusionary provisions involved, I discuss the public policy ground first.

Though insurance policies are contractual in nature, they are not to be confused with ordinary bargain and sale contracts, from which the law of contracts mostly developed. Insurance policies are “contracts of adhesion” between parties of grossly unequal bargaining power. 43 Am. Jur. 2d Insurance § 159 (1982). The terms of insurance policies, except the policy limits, are seldom negotiated for. Insurance companies usually fix the conditions under which they will pay and, as with other exercises of arbitrary power, the conditions fixed occasionally defeat the purposes that such policies are supposed to serve. Yet, motor vehicle owners in this state are required by statute to insure their vehicles against legal liability to the minimum limits specified; and coverage in larger limits is a practical, if not statutory, necessity for most owners, particularly those engaged in business. The two central purposes of liability insurance in this state are to protect the public by compensating innocent tort victims and to indemnify those who negligently injure others against financial detriment, up to the limits paid for. The “trailer exclusion” and “like insurance” provisions are inimical to the achievement of either purpose, with no counterbalancing benefits. These provisions arbitrarily reduce the insurer’s exposure, without the risk insured against having been enhanced in any way; and they arbitrarily deprive both insureds and the public of needed protection that has been fully paid for. That such effects can arbitrarily result from a trailer not insured by that company being towed by an insured tractor, not operated by the registered owner or “named insured,” is an absurdity that good and sound law cannot tolerate. Nor can it tolerate insurance policies that are largely counterfeit. It is a matter of common knowledge that highway traveling tractors are built, bought, maintained and operated for one main *12 purpose — to pull trailers, loaded with merchandise. They have virtually no commercial utility otherwise; the more trailers they pull the greater utility they have, and one doesn’t have to be either a trucker or an insurer of trucks to know that the common practice of tractor operators is to pull all trailers that they can be legitimately and profitably paid for, and that the risk is not affected one whit because the trailer is insured by another company, or not insured at all. All of this means to me that no liability insurers of tractors in this state should be permitted to rely on policy provisions that limit its exposure on a tractor so insured to times when it is pulling no trailer at all or one insured by it.

But however contracts are arrived at, provisions therein contrary to public policy will not be enforced in this state. In re Port Publishing Co., 231 N.C. 395 , 57 S.E. 2d 366 (1950). Contract provisions are against public policy “when they tend clearly among other things to injure ‘the public confidence in the purity of the administration of the law,’ ” Cauble v. Trexler, 227 N.C. 307, 311 , 42 S.E. 2d 77, 80 (1947), and when “the enforcement of them by the courts would have a direct tendency to injure the public good.” Electrova Co. v. Spring Garden Insurance Co., 156 N.C. 232, 235 , 72 S.E. 306, 307 (1911). Also, “[agreements which are unconscionable as a result of inequality of bargaining or sharp practices are clearly recognized as offensive to public policy and subject to equitable adjustment or rescission.” Williston On Contracts Third Edition § 1628, p. 6 (1972). The “trailer exclusion” and “like insurance” provisions in the policy involved are clearly contrary to these principles. In Mount Vernon Fire Insurance Co. v. Travelers Indemnity Co., 407 N.Y.S. 23 , 63 A.D. 2d 254 (1978), the New York Supreme Court declared similar provisions to be void as against public policy. In Great American Insurance Co. v. C. G. Tate Construction Co., 303 N.C. 387 , 279 S.E. 2d 769 (1981), though not mentioning public policy, our Supreme Court correctly ruled that arbitrary policy cancellation provisions requiring timely notice of loss would no longer be automatically enforced to the ruination of insureds and members of the public, but would be enforced thereafter only when the failure to give notice harmed insurers. In doing so, the Court recognized that the provision requiring notice is a proper one, which serves the necessary purpose of enabling the companies to investigate and defend claims made against their insureds. Even so, the court irresistibly con- *13 eluded that when that necessary purpose has not been adversely affected by any delay that occurs, the law will not enforce the provision terminating the coverage. There is much more reason for not enforcing the “like insurance” and “trailer exclusion” provisions of this policy, because they serve no legitimate purpose whatever. In all events, however, in my opinion, the evidence of record supports the judgment appealed from and should be affirmed.

But the majority opinion’s main failing is not the central holding that Edwards failed to prove that Nationwide had waived the exclusionary provisions that Nationwide relies on. Its main failing is the faulty premise that it starts from — that the insurance policy involved was really, rather than nominally, that of Brafford, in whose name it was issued. By starting there and treating the policy as written as though that was what the parties really agreed to, and moving thence to Edwards’ technical status thereunder, which is essentially that of an uninterested stranger, and moving thence to the waiver question, the majority bypassed the undisputed import and thrust of the evidence; which was that the policy was really Edwards’ and Brafford was but a straw or paper man, whose name was inserted as “named insured” only because the agent did not realize that the policy could properly be issued in Edwards’ name or in both their names, and that in all events it was the purpose and agreement of both Nationwide and Edwards that his activities, rather than Brafford’s inactivity, would be covered by the policy. This evidence, to my mind, not only shows that Nationwide waived, and is estopped from relying upon, the exclusionary provisions in the policy; it also shows that Nationwide agreed through its agent to cover Edwards’ use of the tractor to the same full extent that it would have if he, Edwards, was designated “named insured,” rather than Brafford. Had Brafford, as the “named insured,” been operating the tractor when the accident involved in this case occurred, he would have been fully indemnified under the policy, regardless of whose trailer was being pulled. Edwards, who stands in Brafford’s shoes, is entitled to no less.

The evidence, though brief, is without contradiction from Nationwide and shows that: The old tractor involved, which Bill Brafford owned, had been idle for several months, was not in condition to operate on the highway, had neither a license tag nor insurance, and Brafford had no desire to operate it. When Robert *14 Edwards, who owned and operated an auto supply business in Snow Hill, contracted to buy the tractor, his plan was to use it in operating a sideline hauling business and pay for it on time out of the proceeds, with Brafford retaining title until payment was completed. Nobody but Edwards was to be involved in this sideline business. After fixing, cleaning up, and painting the tractor, Edwards desired to insure his impending hauling operation against legal liability in the amount of $100,000 per person and $300,000 per occurrence. For the purpose of obtaining the insurance, Edwards went to Nationwide’s Snow Hill agent, who was also a friend and neighbor. He told the agent how the tractor was acquired and what he was going to do with it and asked her what needed to be done to obtain the insurance. She told him the policy would have to be in Brafford’s name because the title was in his name. She knew, and thus Nationwide knew, that the tractor was going to be operated by Edwards and that the insurance was being bought so that he could operate his hauling business and be insured while so doing. The agent and Nationwide knew that Brafford had no interest whatever in either operating the tractor or obtaining insurance on it; that Edwards was not asking it to insure Brafford’s inactivity, but his own hauling operation with the tractor. In issuing the policy Brafford’s name was inserted only because he still had title to the tractor and Nationwide and the agent (being presumably an honest person) intended to provide Edwards the full coverage sought and paid for, rather than meaningless and worthless coverage of only theoretical and technical benefit to Brafford. Edwards paid for the policy, which was mailed in an envelope addressed to Brafford, but in care of Edwards’ place of business; and Edwards, of course, rather than Brafford, received the policy. The accident, which Nationwide now claims was not insured against, occurred when the tractor operated by Edwards was pulling a flatbed trailer loaded with corn, which is mostly what Edwards expected to haul when he got the tractor.

Though, as the majority recognizes, the agent was misinformed about it being necessary to issue the policy in Brafford’s name, that is not important. What is important is that after being asked what to do to insure Edwards’ operation the agent did not tell Edwards that if the policy was enforced as written, it would not provide the coverage that he came there to get and paid for. *15 Yet, under the majority’s theory, Edwards and Nationwide contracted for insurance that would protect him only (1) when Braf-ford was using the tractor, which both knew would be never; or (2) when Edwards operated the tractor by itself, which both knew would be very seldom and never for profit, since they knew he did not get the tractor for the purpose of bob-tailing down the highway, but for the purpose of pulling loaded trailers; or (3) when the tractor was pulling a trailer insured by Nationwide, which both again knew would probably be never, since he had no trailer insured by Nationwide. No principle of law that I am aware of requires judges to conclude that people contracted to a vain and pointless thing when the circumstances also support the idea that they contracted for a sensible and useful purpose. That the company eventually admitted it was responsible for the statutory minimum limits of $15,000 per person and $30,000 per occurrence is not due to either the wording of the policy or the company’s magnanimity; all liability was denied at the outset and this concession was not made until it was clear that Edwards was in lawful possession of the tractor when the accident occurred, and that the company was obligated for the minimum limits by operation of law.

Nor do I attach any significance to the fact, as the majority does, that the agent did not know Edwards was going to purchase the trailer that was involved in the collision. Under the circumstances, it was enough that she knew that the tractor would be pulling trailers of any kind, and that if Edwards did not receive the same coverage Brafford would have that the policy would be a pointless waste of time and money for Edwards. “If an insurer, notwithstanding knowledge of facts then existing which by the language of the policy defeats the contract of insurance, nevertheless insures property, it will be held to have waived the policy provisions so far as they relate to the then existing conditions.” (Citations omitted.) Winston-Salem Fire Fighters Club, Inc. v. State Farm Fire and Casualty Co., 259 N.C. 582, 585 , 131 S.E. 2d 430, 432 (1963).

I vote to affirm the decision of the trial judge.