COA Penalizes Insurer for Poor Writing in Policy Exclusion

By Susan H. Boyles

Bad grammar can lead to an adverse coverage decision – that’s the lesson one insurer (and its insured) learned the hard way when the NC Court of Appeals held that an incomplete sentence and improper grammar in an insurance policy that purported to exclude coverage for claims involving sovereign immunity was ambiguous. The Court’s decision paves the way for the Plaintiff to proceed with her slip-and-fall case, even though Supreme Court had previously ruled that the Defendant was entitled to assert sovereign immunity.

The Court of Appeals started off the new year by issuing the third appellate decision in Meinck v. City of Gastonia, COA16-892-2 (Jan. 2, 2019). The lengthy proceedings in this case began when plaintiff Joan Meinck (“Plaintiff”) fell while going down the steps of a building owned by the City of Gastonia (“City”) and broke her hip in 2013. The City owned the historic property and was responsible for maintaining the exterior of the building; however, it had leased the property to a private non-profit entity, the Gaston County Art Guild (“Guild’). The Guild, in turn, had subleased the building to artists and used the space for an art gallery and gift shop. In 2015, Plaintiff sued, claiming that the City was negligent in maintaining the building. Plaintiff’s complaint specifically alleged that the City was not entitled to governmental immunity because it was engaged in a proprietary (not governmental) function, and alternatively, if the City had governmental immunity, it had been waived by the purchase of liability insurance.

The trial court granted the City’s motion for summary judgment. It found that the City’s use of the building was a governmental function, such that it was entitled to sovereign immunity. Further, it found that the City had not waived that immunity by purchasing liability insurance because the City’s insurance policy contained an “express non-waiver provision” stating that the insurance did not apply to any claim for which the City had governmental immunity. Plaintiff appealed.

The Court of Appeals reversed. Writing for a unanimous Court, Judge Tyson found that the City was not engaged in a governmental function, but instead, was acting in a proprietary capacity by renting the property to others. Consequently, the City was not entitled to assert governmental immunity. Because governmental immunity was no longer at issue, the Court found it unnecessary to address any insurance coverage issues. Meinck, 798 S.E.2d 417 (N.C. Ct. App. 2017).

The Supreme Court granted the City’s petition for discretionary review and reversed.  The Supreme Court held that the City was engaged in a governmental function. The Supreme Court remanded the case to the Court of Appeals to determine if the City had waived governmental immunity by purchasing liability insurance. Meinck, 819 S.E.2d 353 (N.C. 2018).

The Court of Appeals began its analysis by looking at the language of the liability insurance policy issued to the City. [1] The City contended that it had not waived its immunity by the purchase of insurance because its policy contained an endorsement excluding coverage for claims to which sovereign immunity applied. That endorsement read:

  1. Sovereign Immunity and Damages Cap
    For any amount for which the Insured would not be liable under applicable governmental or sovereign immunity but for the existence of this Policy; the issuance of this insurance shall not be deemed a waiver of any statutory immunities by or on behalf of any insured, nor of any statutory limits on the monetary amount of liability applicable to any Insured were this Policy not in effect; and as respects to any “claim”, we expressly reserve any and all rights to deny liability by reason of such immunity, and to assert the limitations as to the amount of liability as might be provided by law.

If you read that three times and are still trying to figure out what it means, you are not alone.  The Court of Appeals did not know how to interpret it, either.  At first, the Court politely labeled the first clause “ambiguous.” But then, Judge Tyson took on the voice of a high school English teacher and criticized the language more harshly.

It is ungrammatical and does not clearly convey whether governmental immunity is waived under the policy. It is not a complete sentence or clause, and does not convey any clear meaning on its own. Moreover, this provision is one of fourteen separate provision contained in the endorsement entitled “North Carolina Common Policy Conditions.” Each of the other thirteen provision is listed with a similarly numbered heading. Unlike this provision, the others all begin with complete, grammatical sentences.

Stated differently, the insurer knew how to write in complete sentences, but it dropped the ball when it wrote this provision of the policy.

The Court went on to provide a “hypothetical clause” to illustrate how the policy should have been written if the insurer wanted to exclude coverage. To further drive home the point, the Court reviewed prior cases involving exclusions relating to sovereign immunity and contrasted them with the policy before it. In each instance, the Court found those exclusions were distinguishable because they were clear and unambiguous; the exclusion in City’s policy was not.

Applying the traditional rules of insurance policy interpretation, which require that ambiguous exclusions be “strictly construed in favor of coverage,” the Court had no difficulty finding that the City had waived its sovereign immunity by purchasing the policy and that it did provide coverage for Plaintiff’s claim, up to the $1 million coverage limit. The Court reversed summary judgment for the City and remanded the case to the trial court.

I applaud the Court’s approach to this case. As a former newspaper editor and self-proclaimed “grammar geek,” I value good writing. Insurance policies are not always a model of clarity, which is why we insurance lawyers get to argue over the meaning of words and phrases. A dangling participle, misplaced modifier, or an ill-chosen word can potentially cost the insurer millions of dollars. It’s refreshing to see the Court take a back-to-basics approach to policy interpretation and embrace the grammar lessons we all should have learned in high school.

Plaintiff was represented by Thomas D. Bumgardner of the Law Office of Thomas D. Bumgardner, PLLC. Defendant was represented by Martha Raymond Thompson and Ryan L. Bostic of Stott, Hollowell, Palmer & Windham, L.L.P. 

[1] The identity of the insurer that issued this policy is noticeably absent from the opinion.  It is referred to generically as “Defendant’s general liability insurance policy.” However, a review of the Record on Appeal indicates that the applicable policy was written by Argonaut Insurance Company.