PENN NATIONAL MUTUAL CASUALTY INSURANCE COMPANY v. PIZZA, INC et al
Filing
90
MEMORANDUM OPINION AND ORDER signed by JUDGE WILLIAM L. OSTEEN, JR on 7/27/2020; that Plaintiff's Motion for Summary Judgment, (Doc. 62 ), is DENIED. FURTHER ORDERED that Defendants Irving andHarrington's Motion for Summary Judgment, (Doc. 54 ), is DENIED. (Hicks, Samantha)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
PENN NATIONAL MUTUAL
CASUALTY INSURANCE COMPANY,
Plaintiff,
v.
VIKING PIZZA, INC., MARCUS
ALFONSO KEARSE, JUWAN
CHRISTOPHER HARRINGTON, and
YOLANA IRVING,
Defendants.
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1:17CV1155
MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Before the court are cross-motions for summary judgment
filed by Plaintiff/Counter-Defendant Penn National Mutual
Casualty Insurance Company (“Penn National”) and
Defendants/Counter-Plaintiffs Yolanda Irving (“Irving”) and
Juwan Christopher Harrington (“Harrington”). (Docs. 54, 62.)
Defendants Viking Pizza, Inc. (“Viking”) and Marcus Alfonso
Kearse (“Kearse”) have not appeared in this action in any way.
Penn National filed this declaratory judgment action seeking
relief from any duty to indemnify Defendant Viking or Kearse due
to Viking’s alleged failure to cooperate or provide notice about
a vehicle accident that occurred on September 14, 2014, while
Kearse was working as a Domino’s delivery driver for Viking;
Case 1:17-cv-01155-WO-JLW Document 90 Filed 07/27/20 Page 1 of 57
Kearse struck Harrington, a minor at the time. (Amended
Complaint (“Am. Compl.”) (Doc. 22).) Irving and Harrington
answered and counterclaimed, seeking their own declaratory
judgment that they, as judgment creditors against Viking, are
entitled to recover under Viking’s insurance policies with Penn
National. (Answer to Am. Compl. and Counterclaim of Defs.
Harrington and Irving (“Answer”) (Doc. 23).) For the reasons
stated herein, the court will deny both motions.
I.
FACTUAL AND PROCEDURAL BACKGROUND
The court addresses the relevant facts here but will
address other facts as necessary throughout this Opinion.
A.
The Parties
Plaintiff Penn National is a multi-line insurance company
that is incorporated under the laws of Pennsylvania, where it
also has its principal place of business. (Am. Compl. (Doc. 22)
¶ 2.) Defendant Viking is a North Carolina Corporation with its
principal place of business there as well. (Id. ¶ 3; Answer
(Doc. 23) ¶ 3.) Viking’s president is Steven Kuone (“Kuone”);
Kuone is not personally a party to this action. (Am. Compl.
(Doc. 22) ¶ 3.) Kuone is the sole officer of Viking. (Deposition
of Steven Kuone (“Kuone Dep.”) (Doc. 56) at 64–65.) Kearse is a
North Carolina resident and a former employee of Viking. (Am.
Compl. (Doc. 22) ¶ 4; Pl.’s Brief in Supp. of Mot. for Summary
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Judgment (“Pl.’s Br.”) (Doc. 63) Ex. D, Deposition of Marcus
Kearse (“Kearse Dep.”) (Doc. 63-4) at 5–6.)1 Harrington is a
North Carolina resident; he was seriously injured when Kearse
struck him with his vehicle on September 14, 2014. (Am. Compl.
(Doc. 22) ¶ 5; Pl.’s Br. (Doc. 63) Ex. F, Raleigh Police
Department Crash Reconstruction Report (“RPD Report”) (Doc.
63-6) at 2.) Irving is a resident of North Carolina and is
Harrington’s mother. (Am. Compl. (Doc. 22) ¶ 6; Ex. C,
Harrington v. Kearse Complaint (Doc. 22-3) ¶ 2.)
B.
Kuone Founded Viking Pizza to Run Domino’s Franchises
Steven Kuone founded Viking in 2012 to become a Domino’s
Pizza franchise owner. (Kuone Dep. (Doc. 56) at 11–12; Pl.’s Br.
(Doc. 63) Ex. B, Viking Pizza Business Registration (“Viking
Info”) (Doc. 63-2).) Kuone has always been the sole owner and
officer of Viking. (Kuone Dep. (Doc. 56) at 65; Viking Info
(Doc. 63-2).) Viking operated four Domino’s franchises in and
around Wake County, North Carolina. (Kuone Dep. (Doc. 56) at
11-12.) Viking purchased insurance coverage through the Upton
Group, an insurance agency in Alabama that worked frequently
with Domino’s franchises and sold Viking two Penn National
All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
1
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policies, both of which contained notice and cooperation
clauses. (Id. at 60–63; Am. Compl. (Doc. 22) Ex. A, Policy AU9
0695624 (“Auto Policy”) (Doc. 22-1) at 5, 24; Am. Compl. (Doc.
22) Ex. B, Policy UL90695624 (“Umbrella Policy”) (Doc. 22-2) at
5, 37–38.)
C.
Kearse Hits Harrington on September 14, 2014
Kearse was an employee at Viking’s Domino location on New
Bern Avenue in Raleigh, North Carolina. (Kearse Dep. (Doc. 63-4)
at 3.) In the early afternoon of September 14, 2014, Kearse was
returning to the New Bern Avenue store after delivering a pizza.
(Id. at 9.) While Kearse was on his way back to the store, he
struck Harrington with his car. (Id.; RPD Report (Doc. 63-6)
at 2.)
No charges were filed against Kearse, and several witnesses
told police that Harrington “darted in front of” Kearse. (RPD
Report (Doc. 63-6) at 7.) Raleigh Police took statements from
several witnesses, some of whom claimed that Kearse was driving
too fast. (Id. at 11, 16.) Other witnesses disagreed. (Id. at
11.) The report included some contact information for all
witnesses interviewed by Raleigh Police. (Id. at 11–13, 16.) One
of the witnesses was Xavier Harrington, Harrington’s brother who
was one of the three crossing the street when Kearse struck; his
contact information was also included in the report. (Id. at
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12.) Some witnesses were not included in the accident report.
(Deposition of Ronald C. Dilthey (“Dilthey Dep.”) (Doc. 58) at
23.)
D.
Viking’s Response to the Accident
Kuone learned about Kearse’s accident on the same day it
occurred, September 14, 2014, when the general manager of the
New Bern Avenue store, Rebecca Dixon, called Kuone to inform
him. (Kuone Dep. (Doc. 56) at 20–21.) The remainder of Kuone’s
recount of that day and the steps he took was based on his
recollection of what were the “typical steps that [Viking] would
take” after an accident. (Id. at 21.) Kuone noted that those
steps included the following:
Q.
And after you found about that, what steps did
you take to investigate it or –
A.
Q.
Uh-huh.
-- find out about it, other than talking to her?
A.
Yeah. Suspended [Kearse] and -- I mean -- and
this is, you know, not speculation, but the typical
steps that we would take. I don’t recall specifically
the steps, but -Q.
Uh-huh.
A.
-- typically the first thing you would do is
suspend the driver pending a motor vehicle report.
Once it’s deemed that the motor vehicle report, that
they’re still eligible to drive for Domino’s, then
they return to work.
Q.
Okay.
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A.
Report, of course, to the insurance agency, as
well, and, of course, get a -- you know, any other
corresponding info that the insurance agency might
need.
Q.
Okay. So you believe in this -- with this
accident you contacted the insurance agency –
A.
Yes.
Q.
-- shortly after the accident?
A.
Yes.
(Id. at 21–22.) Kuone did not recall how he notified the
insurance agency, but, when asked if he remembered doing it,
Kuone responded “yeah, absolutely.” (Id. at 22.) Later during
his deposition, Kuone also stated he did not have a “specific
recollection” of reporting the incident but instead believes he
did because it was “part of the process.” (Id. at 82, 104.) The
parties agree that there is no record of the accident being
reported to Upton or Penn National on or around September 14,
2014. (Defs.’ Brief in Supp. of Mot. for Summ. Judgment (“Defs.’
Br.”) (Doc. 55) at 22; Pl.’s Br. (Doc. 63) at 4 n.2).
Kuone was also asked, “Do you remember specifically making
any decision, ‘I’m not going to talk to [Penn National]’?”
(Kuone Dep. (Doc. 56) at 105.) Kuone responded, “No.” (Id.) At
another point, Kuone testified that he did not “intentionally
decide to not follow [his] standard practice for [reporting the]
accident.” (Id. at 104.)
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E.
The Underlying Lawsuit
Shortly after the accident, Harrington and Irving contacted
Julie L. Bell, an attorney with the law firm Patterson Dilthey,
LLP, to discuss pursuing a negligence action against Kearse and
Viking (the “Underlying Lawsuit”). (Dilthey Dep. (Doc. 58) at
17.) A formal retainer was signed two years later. (Id. at 18.)
Ronald Dilthey, one of Bell’s partners, and Bell began
attempting to reach out to Viking via mail. On December 16,
2015, Bell sent a letter to Viking at Viking’s registered
address, 305 Chastain Court, Jacksonville, North Carolina,
28546. (Pl.’s Br. (Doc. 63) Ex. N, December 16, 2015 Letter from
Julie Bell to Viking (“Bell Letter”) (Doc. 63-14) at 2; Viking
Info (Doc. 63-2).) The letter was sent via regular mail and not
returned as undeliverable. (Dilthey Dep. (Doc. 58) at 48–49.)
Kuone was “sure” he did not recall seeing the letter before his
2019 deposition. (Kuone Dep. (Doc. 56) at 25.) While Viking
owned the Domino’s franchises, Kuone, Viking’s only officer, was
splitting his time between his home in Jacksonville and an
apartment he rented in Raleigh. (Id. at 26–27; Deposition of
Shonda Kuone (“Shonda Kuone Dep.”) (Doc. 59) at 12.) The Bell
Letter did not ever use the words “sue,” “suit,” “lawsuit,” or
“claim,” but it was on law firm letterhead and requested that
Viking have their insurance carrier contact the firm directly.
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(Bell Letter (Doc. 63-14) at 2.) Dilthey and Bell did not
receive any response from Viking. (Dilthey Dep. (Doc. 58) at
50.)
Viking sold its four Domino’s franchises in fall of 2016
for reasons unrelated to the accident. (Kuone Dep. (Doc. 56) at
52.) Viking did not buy any other franchises or engage in any
other business after that sale. (Id. at 52–53.)
Dilthey filed suit against Viking and Kearse in state court
on November 30, 2016. (Pl.’s Br. (Doc. 63) Ex. Q, Process in
Underlying Lawsuit (“Service”) (Doc. 63-17) at 3.) On the same
day, Dilthey mailed the summons, complaint, discovery materials,
and a cover letter to Viking at the 305 Chastain Court address.
(Id. at 2.) The documents were sent via registered mail, return
receipt requested. (Id.) Shonda Kuone, Steven Kuone’s wife,
signed for the documents. (Shonda Kuone Dep. (Doc. 59) at 71.)
Shonda Kuone noted that she would regularly sign for Viking mail
sent to 305 Chastain Court, and that she would place it in one
of two places where Steven Kuone would work. (Id. at 11–12, 16.)
Steven Kuone was in the habit of looking at mail left for him in
those locations. (Kuone Dep. (Doc. 56) at 89–90.) Shonda Kuone
also stated that there was a period of time in 2016 and 2017
where Steven Kuone was not living at 305 Chastain Court and that
there were time frames when the two of them would not speak.
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(Shonda Kuone Dep. (Doc. 59) at 17; Kuone Dep. (Doc. 56) at 27–
29.) Steven Kuone did not recall ever seeing the Underlying
Lawsuit’s process papers. (Kuone Dep. (Doc. 56) at 88.)
After serving process on Viking, Dilthey still received no
response. (Dilthey Dep. (Doc. 58) at 51.) Though Viking was
technically in default, Dilthey did not move for an entry of
default. (Pl.’s Br. (Doc. 63) Ex. W, Penn National Claim Notes
(“Claim Notes”) (Doc. 63-23) at 2.) To elicit a response from
Viking, Dilthey subpoenaed both Kuones for a deposition to take
place on April 11, 2017. (Dilthey Dep. (Doc. 58) at 52.) Dilthey
used a private investigator at a cost of “60 bucks” to
physically hand Kuone his subpoena for the deposition. (Id. at
95–96.)
F.
April 11, 2017 Deposition and Notice to Penn National
On April 10, 2017, the day before the deposition, Kuone
contacted the Upton Insurance Group and sent the summons,
complaint, and discovery documents for the suit against Viking.
(Doc. 63-20.) Upton then forwarded that information to Penn
National, which Penn National received on April 11, 2017, at
11:00 a.m. EST. (Deposition of Gary R. Gibson (“Gibson Dep.”)
(Doc. 57) at 66.) Upton emailed the wrong email address, but
Penn National eventually received all the documents. (Id. at
66-67.)
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Both Kuones were present for Dilthey’s deposition on
April 11, 2017. (Dilthey Dep. (Doc. 58) at 55.) At some point
during the deposition, but off the record, Dilthey asked Steven
Kuone why he was not responding to Dilthey’s letters. As Dilthey
put it,
I said to him, why are you not getting up with me
about this. And he said, because I don’t own the
company. I have sold the company. And his whole
fixation as to why this was happening was, he was
convinced that, since he was not the owner of the
company when the papers were being served, he didn’t
feel that he had any responsibility to do anything.
(Id. at 84.) Dilthey said that was Steven Kuone’s “excuse” for
“not following up on letters or subpoenas.” (Id. at 84–85.)
Dilthey further stated that Steven Kuone was “convinced” that
since Viking had sold the franchises, he was no longer involved.
(Id. at 95.) Kuone does not remember these conversations with
Dilthey. (Kuone Dep. (Doc. 56) at 95.) When Gary Gibson, Penn
National’s Federal Rules of Civil Procedure 30(b) designee, was
asked if the fact that Viking did not own the franchises anymore
was a complicating factor in the Underlying Lawsuit, he
responded “I guess, yes.” (Gibson Dep. (Doc. 57) at 125.)
At the April 11, 2017 deposition, Kuone called and spoke
with Candace Leatherberry with Penn National. (Id. at 81–82.) As
Kuone put it, he called to see if he could get an “assist” with
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the deposition. (Kuone Dep. (Doc. 56) at 51.) As Kuone also
stated,
[Kuone]: I was looking for assistance. I don’t
remember – that’s – might be the origin of why I
called the Upton insurance agency.
Q.
Okay. To get assistance with the lawsuit?
[Kuone]: Yeah, to see if – if there was anything that
could be done, seeing that the transaction had already
taken place and the stores were already sold.
(Id. at 37.)
After the April 11, 2017 deposition, Viking did not respond
to any of Penn National’s communications. (Pl.’s Br. (Doc. 63)
at 7–8.)2 Penn National sent numerous communications to Viking,
to include calling Kuone at the proper phone number, emailing
the email address Kuone used, and mailing letters to 305
Chastain Court. (Doc. 63-1 at 27, 30, 33; see generally Claim
Notes (Doc. 63-23).) Steven Kuone himself signed for one
reservation of rights letter Penn National sent on June 13,
2017. (Pl.’s Br. (Doc. 63) Ex. Y, June 13, 2017 Penn National
Letters (“Penn National Letters”) (Doc. 63-25) at 2; Kuone Dep.
(Doc. 56) at 49.) Penn National sometimes uses investigators to
reach unresponsive persons, but it decided to not use in-person
service to reach Kuone. (Gibson Dep. (Doc. 57) at 8–9, 126.)
2
Defendants do not dispute this assertion.
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G.
Default Judgment in Underlying Lawsuit
In light of its difficulties reaching Viking, Penn National
sent Viking several reservation of rights letters pending
further inquiry about coverage issues. (See generally Penn
National Letters (Doc. 63-25).) After Kuone’s April 11, 2017
deposition, Dilthey made efforts to get Penn National involved
in the Underlying Lawsuit. (Dilthey Dep. (Doc. 58) at 98–99.)
Dilthey sent initial information to Penn National; Dilthey also
stated that he would have “done anything” to get Penn National
involved. (Id. at 98.) Dilthey would have given his additional
witness information to Penn National “without discovery.” (Id.
at 100.) Gibson asserts that Penn National “would have
preferred” to have their own investigators interview witnesses
and examine the accident scene. (Gibson Dep. (Doc. 57) at 157.)
The Claim Notes do not mention this as a factor in why the tort
action might be difficult to defend. (Id. at 155.) Dilthey
continued to try and get Penn National involved throughout
Spring 2017, but in May 2017, the Claim Notes state that “Gary
[Gibson] does not suggest we follow up with the plaintiff atty
at this time.” (Claim Notes (Doc. 63-23) at 5.)
Dilthey gave Penn National until July 4, 2017, to defend
the case, but actually delayed entry of default until August 30,
2017. (Gibson Dep. (Doc. 57) at 144–45.) A bench trial was held
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in December 2017; on December 15, 2017, the trial judge in the
Underlying Lawsuit found Viking liable and entered judgment
against Viking in the amount of $100,000.00 for Irving and
$4,526,607.28 for Harrington. (Pl.’s Br. (Doc. 63) Ex. H,
Default Judgment (Doc. 63-8) at 2.) This amount was derived, in
large part, from a “life care” notebook that Dilthey and Bell
produced for Harrington. (Dilthey Dep. (Doc. 58) at 85–86.)
H.
Procedural History
Penn National filed this declaratory judgment action on
December 28, 2017. (Complaint (Doc. 1).) Penn National filed an
amended complaint on January 15, 2019, (Am. Compl. (Doc. 22)),3
and Defendants Irving and Harrington filed their answer and
counter-claims on January 29, 2019, (Answer (Doc. 23)). Penn
National did not demand a jury, but Irving and Harrington did.
(Am. Compl. (Doc. 22); Answer (Doc. 23) at 19.) Defendants
Kearse and Viking have not entered appearances in this action.
Following discovery, Irving and Harrington filed their present
Motion for Summary Judgment and a supporting brief. (Docs. 54,
55.) Penn National responded, (Doc. 64), and Defendants replied,
Penn National, in its Amended Complaint, also asks for a
declaration that Kearse was not an “insured” under Viking’s
policies. (Am. Compl. (Doc. 22) at 40.) That issue is not
addressed in Penn National’s briefing. (See Pl.’s Br. (Doc. 63)
at 10–11.) Therefore, that issue is not now addressed by the
court.
3
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(Doc. 66). Penn National also filed its own Motion for Summary
Judgment and a supporting brief. (Docs. 62, 63.) Defendants
Irving and Harrington responded, (Doc. 65), and Penn National
replied, (Doc. 67). Both motions for summary judgment are ripe
for ruling. For the reasons stated herein, the court will deny
both motions.4
II.
STANDARD OF REVIEW
Summary judgment is appropriate when “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Celotex
Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). This court’s
summary judgment inquiry is whether the evidence “is so onesided that one party must prevail as a matter of law.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The moving
In its Amended Complaint, Penn National asks for a
declaration that Kearse was not an “insured” under Viking’s
policies. (Am. Compl. (Doc. 22) ¶¶ 106–08.) However, Penn
National did not move for summary judgment on its Fourth Request
for Declaratory Judgment. (See Doc. 62.) Harrington and Irving
do move for summary judgment on the issue of whether Kearse was
an insured, one of their own requested declarations, but they do
not provide any argument on that point in their briefing. (See
Doc. 54 ¶ 2; see generally Defs.’ Br. (Doc. 55).) Harrington and
Irving briefly mention the issue in their response to Penn
National’s Motion for Summary Judgment, (Defs.’ Resp. (Doc. 65)
at 2 n.1), but not in a way that substantively advances the
argument. Therefore, in this opinion, the court does not address
any issues involving Kearse’s status under Viking’s insurance
policies.
4
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party bears the initial burden of demonstrating “that there is
an absence of evidence to support the nonmoving party’s case.”
Celotex Corp., 477 U.S. at 325. If the “moving party discharges
its burden . . . , the nonmoving party then must come forward
with specific facts showing that there is a genuine issue for
trial.” McLean v. Patten Cmtys., Inc., 332 F.3d 714, 718-19 (4th
Cir. 2003) (citing Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586-87 (1986)). “In satisfying this burden,
the nonmoving party must support the asserted claims with
evidence that is significantly probative.” Young v. Prince
George’s Cty., 355 F.3d 751, 755 (4th Cir. 2004); Hit Prods.
Corp. v. Anchor Fin. Corp., 215 F.3d 1318 (4th Cir. 2000). The
nonmoving party’s failure to set forth such evidence renders
summary judgment appropriate. Young, 355 F.3d at 755 (quoting
Barwick v. Celotex Corp., 736 F.2d 946, 958–59 (4th Cir. 1984)).
Summary judgment should be granted “unless a reasonable jury
could return a verdict for the nonmoving party on the evidence
presented.” McLean, 332 F.3d at 719 (citing Liberty Lobby, 477
U.S. at 247–48).
When facing cross-motions for summary judgement, this court
reviews “each motion separately on its own merits to determine
whether either of the parties deserves judgment as a matter of
law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)
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(citations and internal quotation marks omitted). “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
that motion.” Id. (citation and internal quotation marks
omitted).
III. ANALYSIS OF PENN NATIONAL’S MOTION FOR SUMMARY JUDGMENT
The court begins by analyzing Penn National’s Motion for
Summary Judgment. (Doc. 62.) Penn National claims that Viking
breached the notification and cooperation provisions of its
insurance contracts. (See Auto Policy (Doc. 22-1) at 24;
Umbrella Policy (Doc. 22-2) at 37–38.) Therefore, Penn National
argues, they should be legally absolved from indemnifying Viking
in the Underlying Lawsuit.
On the failure to notify claim, Penn National argues that
Kuone, as Viking’s sole officer, acted in bad faith in failing
to notify Penn National about the 2014 accident until April
2017. First, Penn National argues that since Kuone indisputably
knew about the accident but did not report it, he acted with bad
faith as a matter of law. (Pl.’s Br. (Doc. 63) at 15.) Penn
National also argues that Kuone acted in bad faith when he
failed to notify Penn National after Dilthey served the suit
papers in November 2016. (Id. at 16.) Penn National argues that
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Kuone’s failure to follow up on the numerous letters also
qualifies as bad faith as a matter of law. (Id. at 16–17.) Since
Penn National could not investigate the accident in 2014, Penn
National claims it was materially prejudiced by the delay in
notification. (Id. at 17–19.)
Regarding Kuone’s alleged failure to cooperate, Penn
National argues that Kuone breached his duty to cooperate when
he failed to respond to their numerous communications sent to
the proper addresses and phone number. (Id. at 20–21.) As for
prejudice resulting from Kuone’s failure to cooperate, Penn
National’s only argument is that since they could not contact
Kuone, they could not have retained counsel to represent Viking,
even if they decided to do so. (Id. at 21.)
Since there are genuine issues of material fact regarding
Viking’s subjective good faith and any prejudice to Penn
National from the late notice of lack of cooperation by Viking,
this court finds that Penn National’s Motion for Summary
Judgment should be denied.5
The court feels the need to emphasize from the beginning
that it is not blind to the fact that Viking, through Kuone,
behaved in a manner that is, at the very least, arguably
negligent. At worst, Viking did act in bad faith. Still, this
inquiry cannot be resolved at this stage in light of Kuone’s own
statements and explanations.
5
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A.
Duty to Notify6
“In resolving this diversity action, we are obliged to
apply the substantive law of North Carolina.” Metric/Kvaerner
Fayetteville v. Fed. Ins. Co., 403 F.3d 188, 197 (4th Cir.
2005).7
To determine if an “insurer may be relieved of its
obligation to indemnify due to its insured’s asserted failure to
comply with a policy requirement that notice of loss be given to
the insurer ‘as soon as practicable,’ North Carolina utilizes
the test enunciated in its Supreme Court’s Great American
decisions.” Id. at 197–98 (citing Great Am. Ins. Co. v. C.G.
Tate Constr. Co. (Great American I), 303 N.C. 387, 279 S.E.2d
The Auto Policy requires the insured, in the event of an
“accident” or “suit,” to give Penn National or an “authorized
representative prompt notice of the” the accident or claim.
(Auto Policy (Doc. 22-1) at 24.) An insured must also
“[i]mmediately send us copies of any request, demand, order,
notice, summons or legal paper received concerning the claim or
‘suit.’” (Id.) The Umbrella Policy also contains a notice
provision, requiring the insured to “see to it that [Penn
National is] notified as soon as practicable” of a claim.
(Umbrella Policy (Doc. 22-2) at 37–38.) Further, if a claim or
suit is brought against an insured, the insured must “see to it
that [Penn National] receive[s] written notice of the claim or
‘suit’ as soon as practicable.” (Id.)
6
The parties do not dispute that North Carolina law
applies. (See Defs.’ Br. (Doc. 55) at 21; Pl.’s Br. (Doc. 63) at
12.)
7
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769 (1981); Great Am. Ins. Co. v. C.G. Tate Constr. Co. (Great
American II), 315 N.C. 714, 340 S.E.2d 743 (1986)).
In Great American I, the North Carolina Supreme Court
“redefined the ‘notice as soon as practicable’ provision to mean
that the requirement is satisfied despite any delay in notifying
the insured, so long as it is occasioned in good faith and the
insurer is not materially prejudiced.” Great American II, 315
N.C. at 719, 340 S.E.2d at 747. The “Great American test”
includes three prongs:
(1) whether there was a delay in notifying the insurer
of a covered loss (the “Notice Element”); (2) if such
notice was delayed, whether the insured acted in good
faith with respect to the delay (the “Good Faith
Element”); and (3) if the insured acted in good faith,
whether the insurer was nevertheless materially
prejudiced by the delay (the “Prejudice Element”).
Metric/Kvaerner Fayetteville, 403 F.3d at 197–98 (citing Great
American II, 315 N.C. at 718–19, 340 S.E.2d at 746–47).
The first prong of the test is relatively straightforward.
“[I]n most instances, unless the insurer’s allegations that
notice was not timely are patently groundless, the first part of
the test is met by the fact that the insurer has introduced the
issue to the court.” Pa. Nat’l Mut. Cas. Ins. Co. v. JJA
Constr., Inc., Civil Action No. 3:18-CV-00266-GCM, 2019 WL
2241685, at *4 (W.D.N.C. May 23, 2019) (quoting Great American
II, 315 N.C. at 719, 340 S.E.2d at 747). “How much time must
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pass between the occurrence and notice before the period is
determined to be a ‘delay’ is a question of law for the court.”
Great American II, 315 N.C. at 719 n.3, 340 S.E.2d at 747 n.3.
The parties do not dispute that the first prong is met for
purposes of this motion. (Defs.’ Br. (Doc. 55) at 22; Pl.’s Br.
(Doc. 63) at 4 n.2). With no dispute between the parties that
the first Great American prong is satisfied, and the parties
appear to rely on April 10, 2017, as the date of notification,
the court turns to the next two prongs: good faith and
prejudice. The court notes that April 10, 2017, is thirty months
after the September 14, 2014 accident, but sixteen months after
the Bell Letter was sent.
1.
Good Faith Prong
The burden is on the insured to show they acted in good
faith. St. Paul Reinsurance Co. v. Rudd, 67 F. App’x 190, 194
(4th Cir. 2003); see Great American I, 303 N.C. at 399, 279
S.E.2d at 776. On the “good faith prong,” Great American I held
that “[a]nyone who knows that he may be at fault or that others
have claimed he is at fault and who purposefully and knowingly
fails to notify ought not to recover even if no prejudice
results.” Great American I, 303 N.C. at 399, 279 S.E.2d at 776
(emphasis added). As later expounded by the Great American II
court, the second prong is composed of two questions: “1) Was
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the insured aware of his possible fault, and 2) [d]id the
insured purposefully and knowingly fail to notify the insurer?”
Great American II, 315 N.C. at 720, 340 S.E.2d at 747. The good
faith test is conjunctive. Id.
Both good faith questions ask, “not what a reasonable
person in the position of the insured would have known, but what
the insured actually did know.” Id. Further, “the test . . . is
not simply whether [an insured] knew of its potential
liability.” Pulte Home Corp. v. Am. S. Ins. Co., 185 N.C. App.
162, 174, 647 S.E.2d 614, 622 (2007). Rather, there must be
evidence “suggesting a purposeful, intentional, or deliberate
decision by [the insured] to delay notification . . . .” Id. at
175, 647 S.E.2d at 622. Delays in reporting that result from
faulty or negligent reporting systems are not bad faith delays,
Duke Univ. v. St. Paul Mercury Ins. Co., 95 N.C. App. 663, 678,
384 S.E.2d 36, 45 (1989), nor are negligent mistakes by the
insured himself, St. Paul Reinsurance Co., 67 F. App’x at 196–
97. The Great American II court offered several examples of what
would and would not qualify as a good faith delay, including the
following:
[W]here the insured simply negligently forgets to
report the accident, there is knowledge, but there is
no knowing, purposeful failure to notify the insurer.
But where the insured does not think he is involved
but knows that claims might be filed against him, and
he fails to notify the insurer because of that
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uncertainty, then there is both actual knowledge of
possible liability and there is a knowing and
purposeful decision not to inform the insurer.
Great American II, 315 N.C. at 721, 340 S.E.2d at 748 (emphasis
added). Further, if an insured “had no actual awareness of any
accusation that he might be liable, then his failure to notify,
though deliberate, is in good faith.” Id. at 720, 340 S.E.2d at
747 (emphasis added).
Specifically discussing the “good faith prong” of the Great
American test, the North Carolina Supreme Court has noted that
“summary judgment is rarely appropriate in actions in which the
litigant’s state of mind, motive, or subjective intent is an
element of plaintiff’s claim.” Liberty Mut. Ins. Co. v.
Pennington, 356 N.C. 571, 580, 573 S.E.2d 118, 124–25 (2002)
(internal quotations and citations omitted).8
Of course, “it has repeatedly been held that federal
procedural standards govern whether summary judgment is
appropriate in any case.” Util. Control Corp. v. Prince William
Constr. Co., 558 F.2d 716, 720 (4th Cir. 1977). The court cites
the language from Pennington only to underscore the point that
subjective state of mind is often an inappropriate question for
resolution on summary judgment when analyzing an insured’s good
faith under Great American. Federal courts regularly decline to
resolve issues of intent or subjective good faith on summary
judgment. See, e.g., Morrison v. Nissan Co., 601 F.2d 139, 141
(4th Cir. 1979); Croley v. Matson Navigation Co., 434 F.2d 73,
77 (5th Cir. 1970); St. Paul Reinsurance Co., 67 F. App’x at 196
(citing Pennington with approval); In re Jenkins, No. 3:12-cv851-RJC, 2013 WL 4805731, at *6 (W.D.N.C. Sept. 6, 2013)
(Footnote continued)
8
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[W]hen the disposition of a case turns on a
determination of intent, courts must be especially
cautious in granting summary judgment, since the
resolution of that issue depends so much on the
credibility of the witnesses, which can best be
determined by the trier of facts after observation of
the demeanor of the witnesses during direct and crossexamination.
Morrison v. Nissan Co., 601 F.2d 139, 141 (4th Cir. 1979).
Kuone was Viking’s only officer. At issue is whether he was
“aware of his possible fault” or, once aware, if he purposefully
and knowingly failed to notify Penn National. In dealing with
those issues, Penn National relies on different evidence that
develops over three periods: (1) the moment Kuone was made aware
of the accident on September 14, 2014, to the mailing of the
Bell Letter on December 16, 2015; (2) the mailing of the Bell
Letter in December 2015 to the mailing of the Underlying
Lawsuit’s process papers in November/December 2016; and (3) the
service of the lawsuit papers in December 2016 to the notice
finally given to Penn National on April 11, 2017. “When
considering each individual motion, the court must take care to
resolve all factual disputes and any competing, rational
(“Summary judgment is generally not appropriate for the
disposition of a fraudulent transfer claim based on actual
intent because the debtor’s subjective intent is at issue.”
(quoting Allman v. Wappler (In re Cansorb Indus. Corp.), No.
07-6072, 2009 WL 4062220, at *9 (Bankr. M.D.N.C. Nov. 20,
2009))).
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inferences in the light most favorable to the party opposing
that motion.” Rossignol, 316 F.3d at 523 (internal citation
omitted).
Starting with the first period, there is a genuine dispute
of material fact about whether Viking “purposefully and
knowingly fail[ed] to notify the insurer.” Great American II,
315 N.C. at 720, 340 S.E.2d at 747. Although the parties do not
dispute the fact that no notice was given to Penn National in
2014, (Defs.’ Br. (Doc. 55) at 22), Kuone testified that he
“absolutely” contacted the insurance agency after the accident,
(Kuone Dep. (Doc. 56) at 22). Later, Kuone stated that he did
not “have any specific recollection” of reporting the accident,
but instead he did “remember the process,” and the process
included notifying the insurer. (Id. at 82–83.) Kuone further
stated that he did not “intentionally decide to not follow [his]
standard [reporting] practice for this accident.” (Id. at 104.)
Finally, Kuone noted that his recollection of the process he
would have followed was “not speculation.” (Id. at 21.) Even if
the parties agree no notice was given, this testimony creates an
issue of fact as to whether Kuone purposefully and knowingly
failed to notify Penn National in 2014. The jury could find from
Kuone’s testimony that he did notify Penn National, or that he
tried and failed to notify Penn National as a result of faulty
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reporting systems,9 conclusions that create an issue of fact.
“[W]here the insured simply negligently forgets to report the
accident, there is knowledge, but there is no knowing,
purposeful failure to notify the insurer.” Great American II,
315 N.C. at 721, 340 S.E.2d at 748; see also Duke Univ., 95 N.C.
App. at 678, 384 S.E.2d at 45 (noting that a faulty reporting
system “may be unwise or negligent, [but] reliance on that
system does not constitute a deliberate failure to notify the
insurer under Great American II”). Therefore, this court cannot
say, as a matter of law, that Viking acted in bad faith from the
time of the accident in September 2014 until the Bell Letter was
mailed in December 2015.
The second relevant time period is from the time the Bell
Letter was mailed in December 2015 until Dilthey mailed the suit
papers in November 2016. Penn National contends that the Bell
Letter was mailed in 2014, and that the letter put Viking and
Kuone on renewed notice that Viking was “at fault or that others
have claimed [it was] at fault . . . .” Great American I, 303
N.C. at 399, 279 S.E.2d at 776. During this time period there is
This is not an unfathomable conclusion in light of the
fact that Viking was losing its franchises because of multiple
errors in other areas of operations. (Kuone Dep. (Doc. 56) at
86–87.)
9
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a genuine issue of material fact as to Viking’s knowledge of the
Underlying Lawsuit.
There is no dispute that Julie Bell mailed a letter to 305
Chastain Court on December 16, 2015. (Bell Letter (Doc. 63-14)
at 2.) That letter also included a copy of the accident report
generated by the Raleigh Police Department following the
accident, but did not use the words “suit,” “claim,” or a
synonym. (Id.) The letter did request that Viking have its
insurance carrier contact the law firm directly. (Id.) 305
Chastain Court was the appropriate address for Viking Pizza,
Inc. (Viking Info (Doc. 63-2).) Despite this, Kuone testified
that he was “sure” he did not remember seeing the Bell Letter
before his 2019 deposition. (Kuone Dep. (Doc. 56) at 25.)
“Evidence of the deposit in the mails of a letter, properly
stamped and addressed, establishes prima facie that it was
received . . . .” Wilson v. Claude J. Welch Builders Corp., 115
N.C. App. 384, 386, 444 S.E.2d 628, 629 (1994). “Evidence of
nonreceipt of the letter by the addressee or by his agent, is
some evidence that the letter was not mailed and raises a
question of fact for the trier of fact.” Id. As the Fourth
Circuit noted in Benner v. Nationwide Mutual Insurance Co., 93
F.3d 1228 (4th Cir. 1996),
[w]hile the presumption may be rebutted so as to
create a question of fact, testimony by the addressee
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that he . . . does not remember receiving[] the
material is not conclusive. The trier of fact should
consider that proof along with all of the other
evidence offered in the case to determine whether the
item was mailed and received.
Id. at 1234–35.10
Kuone’s testimony that he does not recall seeing the Bell
Letter is some evidence of whether Viking received the letter,
though it is not conclusive. Furthermore, the Bell Letter was
sent via regular mail, (Dilthey Dep. (Doc. 58) at 48–49), and,
according to the evidence, during December 2015, Kuone, Viking’s
only officer, was not at 305 Chastain Court as often due to his
ongoing business around Wake County, where he also had an
apartment, (Kuone Dep. (Doc. 56) at 29). These facts, along with
Kuone’s testimony that he was “sure” he did not see the letter,
(id. at 25), make receipt of the Bell Letter uncertain enough to
create a genuine issue of fact for the jury. The Bell Letter
therefore cannot, as a matter of law, serve as evidence of Kuone
and Viking’s knowledge that Viking was at fault or others
claimed it was at fault.
The third period spans from November 30, 2016, the date
Dilthey mailed the process papers and interrogatories in the
Though interpreting Maryland law, Maryland has a mailbox
presumption similar to North Carolina’s, and therefore the logic
in Brenner seems to apply to North Carolina’s mailbox
presumption.
10
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Underlying Lawsuit, to April 11, 2017, when Penn National
received notice. Again, the good faith inquiry is two part: “1)
[w]as the insured aware of his possible fault, and 2) [d]id the
insured purposefully and knowingly fail to notify the insurer?”
Great American II, 315 N.C. at 720, 340 S.E.2d 747.
Penn National contends that the facts during this timeframe
establish Kuone’s, and thus Viking’s, knowledge that others
claimed they were at fault. First, Dilthey served process on
Kuone at 305 Chastain Court by registered mail, return receipt
requested. (Shonda Kuone Dep. (Doc. 59) at 71.) Kuone’s wife,
Shonda, signed for the papers on December 1, 2016. (Id.)
However, Kuone testified he did not recall ever seeing the
documents. (Kuone Dep. (Doc. 56) at 88.) The facts submitted
show that Shonda Kuone signed for the papers during a time when
Steven Kuone was not living at 305 Chastain Court and when the
two of them would go periods of time without speaking. (Id. at
88–89; Shonda Kuone Dep. (Doc. 59) at 17.) Also, the record
indicates that by November 30, 2016, Viking had sold all its
Domino’s franchises, making it more reasonable to infer that
Kuone would ignore mail addressed to Viking, as the evidence
suggests. Steven Kuone stated there were periods of time after
he sold the franchise where he might not have seen mail
addressed to Viking. (Kuone Dep. (Doc. 56) at 28.)
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Steven Kuone did see the process papers at some point prior
to April 17, 2017;11 the record supports the inference that
Steven Kuone did not see the process papers until March 16,
2017. On that date, Steven and Shonda were subpoenaed, by an inperson process server, to appear for the April 11, 2017
deposition. (Shonda Kuone Dep. (Doc. 59) at 53, 67; Dilthey Dep.
(Doc. 58) at 96–97.) Steven Kuone indicated he probably did not
see the process papers until close to his 2017 deposition.
(Kuone Dep. (Doc. 56) at 28–29.) Shonda’s recounting supports
this inference. Shonda Kuone stated that she had not actually
looked through the process papers until she and Steven were
personally served with the subpoenas for the April 2017
deposition. (Shonda Kuone Dep. (Doc. 59) at 59.) After they were
served with the subpoenas, Steven “brought [the process papers]
to [her] attention” and she then “started looking through the
paperwork.” (Id.) Though it is not Shonda Kuone’s knowledge of a
claim that matters, her testimony indicates that Steven did not
see and/or understand the process papers until he was subpoenaed
on March 16, 2017. The in-person service of the subpoena was
Dilthey’s recounting of his conversation with Steven
Kuone on that day supports this conclusion; Kuone implied to
Dilthey that he had seen the papers prior to arriving for the
deposition, but that he did not think he needed to respond. (See
Dilthey Dep. (Doc. 58) at 84.)
11
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also the only communication that is objective evidence of Steven
Kuone’s knowledge of the Underlying Lawsuit, evidence supported
by the record of personal service and Kuone’s actions in
response. (Dilthey Dep. (Doc. 58) at 96–97.) Though there are
adverse inferences that can be drawn against Kuone from the fact
that he did not respond until he was served in person, the
inference in favor of Defendants is that he responded because he
was finally made aware of the claim and pending suit.
The finder-of-fact is free to evaluate credibility and
could find, from this evidence, multiple instances in which
Kuone had actual knowledge of an asserted claim; however,
viewing the record in a light most favorable to Defendants,
there is evidence from which a jury could find that Steven Kuone
did not have actual knowledge of a claim, or that one was
asserted, until March 16, 2017. As a matter of law and for
purposes of summary judgment, the undisputed facts permit this
court to find that Kuone had knowledge within the meaning of
Great American I and II as of March 16, 2017.12 He then waited a
month to notify Penn National on April 17, 2017. This is a time
The court is referring to when Kuone was aware of the
Underlying Lawsuit and associated insurance claim. There is no
dispute Kuone was aware of Kearse’s accident soon after it
occurred in 2014. Again, the genuine dispute during that initial
period is whether Kuone purposefully and knowingly failed to
notify Penn National.
12
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period shorter than other bad faith delays. See, e.g., Kubit v.
MAG Mut. Ins. Co., 210 N.C. App. 273, 298, 708 S.E.2d 138, 156
(2011) (finding an unexplained delay of over eight months to
have been in bad faith).13 The court cannot conclude, as a matter
of law, that a delay of one month is one made in bad faith.
In addition to the limited period of delay, the material
and undisputed facts include Kuone’s own statements about his
There is also evidence supporting the inference that
Kuone may not have understood he, as Viking’s only officer, was
actually facing a claim even after he saw the process papers. As
the Great American II court pointed out, an insured who “had no
actual awareness of any accusation that he might be liable, then
his failure to notify, though deliberate, is in good faith.”
Great American II, 315 N.C. at 720, 340 S.E.2d at 747 (emphasis
added). Dilthey spelled out Kuone’s thinking on this point when
he paraphrased his conversation with Kuone about why it had been
difficult for Dilthey to reach him:
13
I said to him, why are you not getting up with me
about this. And he said, because I don’t own the
company. I have sold the company. And his whole
fixation as to why this was happening was, he was
convinced that, since he was not the owner of the
company when the papers were being served, he didn’t
feel that he had any responsibility to do anything.
(Dilthey Dep. (Doc. 58) at 84.) Based on Dilthey’s testimony
about his conversation with Kuone, Kuone did not believe he was
facing any suit, because he had effectively sold Viking when
Viking sold the franchises. The suit was against Viking Pizza,
Inc., not Kuone. (Service (Doc. 63-17) at 3.) In Dilthey’s
words, Kuone “was convinced, [that since he] sold the
corporation,” he was not involved. (Dilthey Dep. (Doc. 58) at
95.) The record suggests that Kuone, assuming he was aware there
was a suit against Viking, believed that the fact Viking sold
the franchises removed him from the situation.
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confusion leading up to the point where he provided notice,
further suggesting that any delay was not purposeful and
knowing. An insured’s confusion about the availability of
coverage can lead to a good faith delay — in Duke University v.
St. Paul Mercury Insurance Co., a delay of roughly eleven months
was found to be in good faith because the insured did not
believe a claim, one involving complex legal issues, was covered
by a particular policy. 95 N.C. App. at 667, 678, 384 S.E.2d at
38–39, 45.14 By contrast, delay without reason is not in good
faith, Kubit, 210 N.C. App. at 298, 708 S.E.2d at 157, nor is a
delay made to avoid adverse results, Digh v. Nationwide Mut.
Fire Ins. Co., 187 N.C. App. 725, 731, 654 S.E.2d 37, 41 (2007).
In this case, the record supports the inference that Kuone was
confused about whether Viking still had coverage since Viking
had sold the franchises, (Kuone Dep. (Doc. 56) at 37; Gibson
Dep. (Doc. 57) at 125), creating a genuine issue of whether he
“purposefully and knowingly fail[ed] to notify the insurer[,]”
Great American II, 315 N.C. at 720, 340 S.E.2d 747.15
An additional period of delay in that case was excused
for Duke’s claim reporting systems.
14
Viking continued to exist as a corporation after it sold
the franchises, but, as Kuone stated, Viking did not engage in
any other business. (Kuone Dep. (Doc. 56) at 52–53.)
15
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Viewing the evidence in a light most favorable to
Defendants, there are genuine disputes as to material facts
about when Kuone, and thus Viking, received actual notice he
might “be at fault or that others have claimed he is at fault
. . . .” Great American I, 303 N.C. at 399, 279 S.E.2d at 776.
There are also genuine disputes regarding whether Kuone, and
thus Viking, “purposefully and knowingly fail[ed] to notify”
Penn National. Id. Kuone’s own testimony about his failure to
notify Penn National creates a genuine issue of material fact on
the good faith prong. While there may be concerns about the
factors alleged by Kearse, see supra, note 5, there are issues
of credibility that this court is not permitted to resolve at
this stage. Viewing the evidence in the light most favorable to
Defendants, “the evidence is such that a reasonable jury could”
find that Kuone acted in good faith. Since the issue is at least
in part one of Kuone’s credibility, it cannot be resolved at
this stage. See Morrison, 601 F.2d at 141.
2.
Prejudice Prong
If the insured shows that his delayed notice was done in
good faith, the burden then shifts back to the insurer to show
that they were materially prejudiced by the delay in notice. St.
Paul Reinsurance Co., 67 F. App’x at 194; Bissette v. AutoOwners Ins. Co., 208 N.C. App. 321, 334, 703 S.E.2d 168, 177
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(2010); Pennington, 141 N.C. App. at 500, 541 S.E.2d at 507.
Wm. C. Vick Constr. Co. v. Pa. Nat’l Mut. Cas. Ins. Co., 52 F.
Supp. 2d 569, 577 (E.D.N.C. 1999), aff’d sub nom. Wm. C. Vick
Const. Co. v. Great Am. Ins. Co., 213 F.3d 634 (4th Cir. 2000)
(“[U]nder the three-step test in Great American I, ‘the burden
then shifts to the insurer to show that its ability to
investigate and defend was materially prejudiced by the delay.’”
(quoting Great American I, 303 N.C. at 399, 279 S.E.2d at 776)).
The Great American I court laid out a non-exhaustive list
of factors to consider when determining if an insurer was
prejudiced by a delay in notification:
[T]he availability of witnesses to the accident; the
ability to discover other information regarding the
conditions of the locale where the accident occurred;
any physical changes in the location of the accident
during the period of the delay; the existence of
official reports concerning the occurrence; the
preparation and preservation of demonstrative and
illustrative evidence, such as the vehicles involved
in the occurrence, or photographs and diagrams of the
scene; the ability of experts to reconstruct the scene
and the occurrence; and so on.
Great American I, 303 N.C. at 398, 279 S.E.2d at 776 (quoting
Great Am. Ins. Co. v. C. G. Tate Const. Co., 46 N.C. App. 427,
437, 265 S.E.2d 467, 473 (1980), aff’d as modified, 303 N.C.
387, 279 S.E.2d 769 (1981)). “Proof of the existence of any of
the above factors is not determinative; the insurer must also
show that the changed circumstance materially impairs its
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ability to investigate the claim or defend and, thus, to prepare
a viable defense.” Id. at 398–99, 279 S.E.2d at 776. “Often,
proof of the changed circumstance itself will give rise to an
inference of prejudice; for example, proof of the unavailability
of a sole independent eyewitness.” Id. at 399, 279 S.E.2d at
776. The prejudice prong of the Great American test “is not
designed to determine whether the insurer has suffered material
prejudice in any and all respects. Rather, the prejudice with
which [Great American] is concerned is that relative to the
ability of the insurer to investigate and defend the claim in
question.” Pennington, 356 N.C. at 581, 573 S.E.2d at 125.
Penn National has failed to show that it was so prejudiced
by the delay as to negate coverage as a matter of law. As
Defendants point out, Penn National claims that witnesses were
unavailable in 2017, but it fails to cite a specific witness who
was not available. (Pl.’s Br. (Doc. 63) at 17–19.) Throughout
its Motion for Summary Judgment, Penn National uses conditional
language to describe the unavailability of witnesses. “Several
witnesses to Kearse’s accident would not have been available by
the time Penn National could have interviewed them.” (Id. at
18.) “Other witnesses may have been interviewed by police or by
Dilthey, but could not have been located for an interview in
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April 2017.”16 (Id.) In addition to not naming any specific
witnesses, Penn National speculates further that there was a
“significant likelihood that the witnesses’ testimony would have
supported a contributory negligence defense.” (Id.) Despite Penn
National’s insistence that unnamed witnesses could not have been
located, the police reports in the accident reconstruction
report lists several witnesses. (RPD Report (Doc. 63-6) at 11,
16.) “[T]he unavailability of a sole independent eyewitness” is
proof of prejudice. Great American I, 303 N.C. at 399, 279
S.E.2d at 776. Penn National, however, does not cite any of
these witnesses as unreachable.
Beyond witnesses, Penn National also points out that it was
not able to participate in a May 2016 deposition of Kearse, the
driver who struck Harrington. (Pl.’s Br. (Doc. 63) at 18.) Penn
National argues that, had counsel for Viking been present,
“different or additional testimony could have been elicited,”
(id. at 18-19), specifically as it pertained to Kearse’s
recollection of where he was when he first saw Harrington and
the other boys in the road. Assuming Penn National is correct,
there is nothing that would have prevented them from redeposing
Since one of the witnesses was Harrington’s younger
brother, Defendant Irving would have been useful in finding and
speaking with him. (See RPD Report (Doc. 63-6) at 12.)
16
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Kearse in 2017.17 Indeed, Dilthey stated he delayed seeking entry
of default in order to get Penn National into the case; he did,
in fact, wait until August 2017. (Dilthey Dep. (Doc. 58) at 98–
99.) Further, Kearse was represented by Nationwide’s retained
counsel at the deposition, and Penn National does not point to
any specific mistake committed by that counsel. (Kearse Dep.
(Doc. 63-4) at 2.)
Finally, Penn National argues that they were prejudiced in
that they were not able to independently investigate the
accident. (Pl.’s Br. (Doc. 63) at 19.) Dilthey stated that the
accident reconstruction report done by the Raleigh Police
Department was “all anybody would need to evaluate what went on
that day.” (Dilthey Dep. (Doc. 58) at 38–39.) Dilthey also
stated that the accident report was “better than mine ever,”
despite the fact that Dilthey had been “on the scene for months
and almost a year or so.” (Id. at 98.) The report was so good
Kearse’s alleged unavailability in this suit, filed at
the end of 2017, does not establish that Kearse was not
available in Spring and Summer of 2017 when Penn National first
received notice. Further, Penn National knew Kearse still worked
at the New Bern Avenue store in April 2017. (Claim Notes (Doc.
63-23) at 8.)
17
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that Dilthey ceased further investigation. (Id. at 39.)18 The
accident report included crash data from Kearse’s car, exact
distances for when Kearse saw the three pedestrians, reacted,
and stopped, seventeen photos of the damage to Kearse’s car, and
twenty-two photos of the accident scene. (RPD Report (Doc. 63-6)
at 18–28, 59, 62–100.)
Finally, Penn National’s arguments about prejudice are
undercut by their contemporaneous claim notes; the only
challenges in the case that Penn National noted at the time were
the severity of the injuries and the fact that a lawyer had been
retained by Harrington. (Gibson Dep. (Doc. 57) at 154–55.)
Penn National cites no other examples of the prejudice it
suffered due to the delay in notice. The court cannot say that,
as a matter of law, Penn National was prejudiced by the delay.
The prejudice prong of the Great American test “is not designed
to determine whether the insurer has suffered material prejudice
in any and all respects. Rather, the prejudice with which [Great
American] is concerned is that relative to the ability of the
insurer to investigate and defend the claim in question.”
Pennington, 356 N.C. at 581, 573 S.E.2d at 125. Penn National
The jury may choose not to
this point, since he does have an
Penn National was not prejudiced.
great as to render his statements
18
believe Dilthey’s testimony on
interest in establishing that
However, his bias is not so
incompetent as evidence.
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may have suffered some prejudice as a result of the delay, but
it still had time and resources to defend “the claim in
question.” The burden is on the insurer to prove they suffered a
“material prejudice” as a result of delayed notification. Penn
National has not provided evidence that meets that burden as a
matter of law.
3.
Conclusion on Failure to Notify
Penn National has failed to show that there is no genuine
dispute about material facts underpinning their failure to
notify argument and that they are entitled to judgment as a
matter of law. For that reason, Penn National’s motion will be
denied on that claim.
B.
Duty to Cooperate
There are also genuine issues of material fact on Penn
National’s duty to cooperate claim.19
Cooperation clauses in insurance contracts are generally
binding on the parties, and, when “[p]roperly interpreted, they
The Auto Policy contains the following cooperation
clause: “Duties In The Event Of Accident, Claim, Suit Or
Loss . . . b.(3) Cooperate with us in the investigation or
settlement of the claim or defense against the ‘suit’.” (Auto
Policy (Doc. 22-1) at 24.) The Umbrella Policy also contains a
cooperation clause: “You and any other involved insured must:
. . . c.(3) Cooperate with us in the investigation or settlement
of the claim or defense against the ‘suit’ . . . .” (Umbrella
Policy (Doc. 22-2) at 37–38.)
19
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will be enforced.” Henderson v. Rochester Am. Ins. Co., 254 N.C.
329, 332, 118 S.E.2d 885, 887 (1961); Greco v. Penn Nat’l Sec.
Ins. Co., 218 N.C. App. 394, 395, 721 S.E.2d 280, 281 (2012)
(“[North Carolina] courts do not follow ‘the strict contractual
approach when construing cooperation clauses . . . .’” (quoting
Great American I)). However, an “insurer will not be relieved of
its obligation because of an immaterial or mere technical
failure to comply with the policy provisions,” rather the
“failure must be material and prejudicial.” Henderson, 254 N.C.
at 332, 118 S.E.2d at 887; see also M.F.A. Mut. Ins. Co. v.
Cheek, 34 Ill. App. 3d 209, 213–15, 340 N.E.2d 331, 334–35
(1975) (noting that the material and prejudicial standard,
adopted by North Carolina and other states, “is more favorable
to insured persons and to accident victims” than a “substantial
and material standard”). “The burden of proving material
prejudice lies with the insurer.” Bissette 208 N.C. App. at 334,
703 S.E.2d at 177; Guessford v. Pa. Nat’l Mut. Cas. Ins. Co.,
918 F. Supp. 2d 453, 470 (M.D.N.C. 2013).
“[I]t is well settled that, to relieve the insurer of
liability on the ground of lack of cooperation, discrepancies in
statements by the insured must be made in bad faith and must be
material in nature and prejudicial in effect.” Henderson, 254
N.C. at 332–33, 118 S.E.2d at 887. Other than cases where the
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insured has taken some affirmative bad faith action, such as
colluding with the injured, “courts generally hold the question
of materiality and prejudice is a question for the jury.” Id. at
333, 118 S.E.2d at 888; see also Greco, 218 N.C. App. at 396,
721 S.E.2d at 282 (noting that North Carolina case law generally
holds “that some kind of affirmative action by the insured is
required before a court can conclude, as a matter of law, that
the insured failed to cooperate”). Though an insured’s
unavailability may be enough to establish a failure to
cooperate, “unavailability is not per se failure to cooperate on
the part of the insured.” Greco, 218 N.C. App. at 397–98, 721
S.E.2d at 283.
1.
Penn National’s Ability to Defend Underlying
Lawsuit
Penn National, in its Motion for Summary Judgment, alleges
Viking’s failure to cooperate was prejudicial in that “[e]ven if
Penn National had hired counsel to defend Viking Pizza, counsel
could not have represented Viking Pizza without first getting in
touch with Kuone.” (Pl.’s Br. (Doc. 63) at 21.) In other words,
Penn National argues it was prejudiced because, without Kuone’s
cooperation, there was no way for them to defend Viking in the
Underlying Lawsuit. In support of that assertion, Plaintiff
cites to several cases, most prominent of which is Dunkley v.
Shoemate, 350 N.C. 573, 515 S.E.2d 442 (1999). Dunkley was
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summarized by a later North Carolina Court of Appeals panel as
follows:
Our Supreme Court in the recent decision of
Dunkley v. Shoemate, held “that a law firm or attorney
may not represent a client without the client’s
permission to do so[.]” Dunkley . . . involved an
attorney employed by an insurance carrier who
attempted to contact the insured without success and
therefore was not authorized to appear on his behalf
and defend the lawsuit. The Supreme Court affirmed
this Court’s ruling that no attorney-client
relationship existed between defendant and the
attorney seeking to represent him.
Morin v. Sharp, 144 N.C. App. 369, 372, 549 S.E.2d 871, 873
(2001) (internal citations omitted). Dunkley, however, also
noted that an insurer can often intervene under North Carolina
Rule of Civil Procedure 24(a). Id. Under that rule, a
prospective intervenor seeking such intervention as a
matter of right under Rule 24(a)(2) must show that (1)
it has a direct and immediate interest relating to the
property or transaction, (2) denying intervention
would result in a practical impairment of the
protection of that interest, and (3) there is
inadequate representation of that interest by existing
parties.
Virmani v. Presbyterian Health Servs. Corp., 350 N.C. 449, 459,
515 S.E.2d 675, 683 (1999).
Morin dealt with an insurer who was unable to locate two
insured parties in a pending lawsuit. Morin, the plaintiff, had
been injured by Sharp, a truck driver, while Morin was riding
his motorcycle. Sharp was an employee of U.S. Transport. Both
Transport and Sharp were insured by Legion Insurance Company.
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Legion Insurance did not receive notice of Morin’s tort suit
until after a default had been entered against Sharp and
Transport. Once Legion received notice of the default, it
retained counsel who moved to set aside the default. Morin
consented, and counsel proceeded to defend the action. However,
counsel “was unable to locate [Sharp or Transport].” Morin, 144
N.C. App. at 371, 549 S.E.2d at 872. Both Morin and Legion filed
motions to allow Legion to intervene, which the trial court
granted. A jury later returned a sizeable verdict for Morin, and
Sharp20 and Legion appealed.
Among its arguments on appeal, Legion argued that it
intervened because it was “being forced” to do so in order to
avoid a default judgment against its insured. Id. at 372, 549
S.E.2d at 873. Legion also argued that “such intervention would
prejudice defendant Legion, as issues of insurance coverage and
the availability of insurance would be improperly raised during
the trial.” Id. The Court of Appeals disagreed. Citing Dunkley,
the court noted that though Dunkley held a lawyer cannot
represent a client with whom she has no contact, the Dunkley
court also pointed out that North Carolina Rule of Civil
Though the opinion does not explain when counsel found
Sharp, he was apparently eventually located, since he took part
in the appeal. Morin, 144 N.C. App. at 371, 549 S.E.2d at 872.
Defendant U.S. Transport was not located. See id.
20
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Procedure 24 allows an interested party, under certain
circumstances, to intervene in a lawsuit so that it can protect
its own interests. Id. With that, the Morin court held that the
trial court correctly granted the “motions to allow defendant
Legion to intervene as a party defendant to protect its
interests as articulated in Dunkley,” because the court
“fail[ed] to see how defendant Legion was forced to intervene or
was prejudiced by this intervention.” Id. at 372–73, 549 S.E.2d
at 873.21
Taking the facts in the light most favorable to Defendants,
the prejudice that Penn National asserts resulted from Kuone’s
North Carolina’s own preclusion law underscores the
propriety of an insurer intervening in situations similar to
Morin and the one at bar. In the case of a properly-informed
insurer who is also a proper third-party intervenor, North
Carolina follows the general rule that
21
when [an] insurer is later sued by the injured person,
if the insurer had a right to defend the action
against the insured, had timely notice of such action,
and defends or elects not to defend, the judgment in
such case, in the absence of fraud or collusion, is
generally binding upon the insurer as to issues which
were or might have been litigated therein.
State Farm Fire & Cas. Co. v. Garrity, 785 F.2d 1225, 1226–27
(4th Cir. 1986) (quoting Strickland v. Hughes, 273 N.C. 481,
487, 160 S.E.2d 313, 318 (1968)). As these sources show, an
insurer with a duty to defend takes a risk when they elect not
to defend, and it is not a risk that is attributable to the
insured absent collusion, fraud, or failure to notify.
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lack of cooperation after April 11, 2017, is speculative. As
demonstrated by Morin, Penn National did not need Kuone to
respond in order to defend Viking in the Underlying Lawsuit.
Penn National meets all three criteria listed by the Virmani
court for intervention under North Carolina Rule of Civil
Procedure 24(a)(2). Penn National could have defended the
Underlying Lawsuit without Viking, so Kuone’s recalcitrance is
not the source of any prejudice when it comes to an alleged
inability to defend.22
Penn National was also in a better position compared to the
insurer in Morin. Kuone, though unresponsive, could be found. It
took in-person service to find him, but he could be contacted at
relatively low cost.23 (Dilthey Dep. (Doc. 58) at 96–97.) Second,
Penn National cites Pennsylvania National Mutual Casualty
Insurance Co. v. JJA Construction, Inc., Civil Action No. 3:18CV-00266-GCM, 2019 WL 2241685 (W.D.N.C. May 23, 2019), as
support for the proposition that complete unavailability equates
to a failure to cooperate. (Pl.’s Br. (Doc. 63) at 20–21.) The
court is not persuaded. First, Kuone was not completely
unavailable, as is evidenced by Dilthey’s ability to reach him.
Second, JJA Construction conducted a Great American failure-tonotify analysis, not a strict failure-to-cooperate analysis. The
two tests are not the same. See Great American I, 303 N.C. at
393 n.2, 279 S.E.2d at 773 n.2.
22
This is another distinguishing fact between this case and
Dunkley. In Dunkley, the insured was a con artist who pretended
to be a licensed psychiatrist. Once he was discovered and a suit
was filed, the insured disappeared. He never notified his
insurer, nor was he ever found. Dunkley, 350 N.C. at 575, 515
S.E.2d at 443.
23
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also unlike Morin, Penn National had notice of the Underlying
Lawsuit before entry of default; they also had cooperative
opposing counsel who was willing to delay entry of default in
order to give Penn National time to intervene. (Id. at 98–99.)
Regarding the ability to enter a defense, there is at least an
issue of fact as to whether it was Penn National’s decision to
not intervene or Viking’s lack of cooperation that caused any
prejudice here.24
2.
Conclusion Regarding Duty to Cooperate
“The burden of proving material prejudice lies with the
insurer.” Bissette, 208 N.C. App. at 334, 703 S.E.2d at 177.
Penn National has failed to present evidence that shows that
there is no genuine issue of material fact and that they are
entitled to judgment as a matter of law as a result of any
failure to cooperate by Kuone or Viking. In its motion for
summary judgment, Penn National focuses on Kuone’s
Penn National’s only argument that it was prejudiced by
Viking’s failure to cooperate was that it was unable to defend
the Underlying Lawsuit without Viking, but there is also some
implied question or whether Viking’s cooperation was necessary
to help develop any defense Penn National might have presented.
Penn National does not expressly raise those arguments. Further,
the court is not aware of any way in which Viking’s lack of
cooperation in 2017 materially prejudiced Penn National’s
ability to defend. There are genuine issues of material fact
about the prejudice Viking’s lack of cooperation caused Penn
National.
24
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unavailability as the fact that prevented it from hiring counsel
to defend the Underlying Lawsuit; as Morin demonstrates, that
difficulty does not establish prejudice as a matter of law. Penn
National, therefore, is not entitled to judgment as a matter of
law on its claim that Kuone failed to cooperate.
C.
Conclusion: Penn National’s Motion for Summary
Judgment
Other than the delayed notice prong of the failure to
notify claim, Penn National has failed to show that there is no
genuine issue of material fact underpinning its failure to
notify and failure to cooperate claims. When taking the facts in
a light most favorable to Defendants, there are genuine issues
of material fact as they pertain to the good faith and prejudice
prongs of the Great American test for delayed notice. Likewise,
there are genuine issues of material fact on the failure to
cooperate claim. For these reasons, Penn National’s Motion for
Summary Judgment will be denied.
IV.
ANALYSIS OF DEFENDANTS IRVING AND HARRINGTON’S MOTION FOR
SUMMARY JUDGMENT
Defendants Irving and Harrington, as counter-claimants,
also move for summary judgment on their own declaratory judgment
action. Defendants move for summary judgment on the grounds that
the record establishes, as a matter of law, that Viking did not
breach either the notice or cooperation provisions of its
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insurance policies. (Defs.’ Br. (Doc. 55) at 2.) Penn National
counters that the record establishes they are entitled to
summary judgment and, therefore, Irving and Harrington’s motion
should be denied. (Pl.’s Resp. (Doc. 64) at 13.) The points of
contention in Defendants’ motion are the same as those in Penn
National’s: Viking’s alleged failure to notify and breach of its
cooperation clause.
Pursuant to the law and analysis, as explained and applied
in Section III supra, the court briefly addresses each issue,
taking the facts in a light most favorable to Penn National.
Rossignol, 316 F.3d at 523. The court finds that there are
genuine issues of material fact that require submission of the
notice and cooperation questions to the trier-of-fact. The court
will therefore deny Irving and Harrington’s Motion of Summary
Judgment.
A.
Viking’s Failure to Notify
To review, the “Great American test” includes three prongs:
(1) whether there was a delay in notifying the insurer
of a covered loss (the “Notice Element”); (2) if such
notice was delayed, whether the insured acted in good
faith with respect to the delay (the “Good Faith
Element”); and (3) if the insured acted in good faith,
whether the insurer was nevertheless materially
prejudiced by the delay (the “Prejudice Element”).
Metric/Kvaerner Fayetteville, 403 F.3d at 197–98 (citing Great
American II, 315 N.C. at 718–19, 340 S.E.2d at 746–47). The
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first prong is not contested, so the court need only address the
“good faith” and “prejudice” prongs.
1.
Good Faith Prong
There are genuine issues of material fact that prevent the
court from granting summary judgment to Defendants Irving and
Harrington on the failure to notify claim.
Beginning with the good faith prong, there are issues of
fact that cannot be resolved at this stage. First, there is an
issue of whether Kuone actually did attempt to report the
accident in 2014, but his franchise’s reporting systems failed.
Second, there is an issue of whether Kuone received the Bell
Letter in 2015 and whether that letter would have put him on
notice that there was a possible claim against him. Finally,
there are factual issues about when Kuone received notice of the
Underlying Lawsuit and why he delayed notification. Kuone’s
credibility is a dispositive issue on most of these questions.
As stated above, resolving issues of credibility is normally not
appropriate on a motion for summary judgment. Reasonable jurors
could choose not to believe Kuone’s accounting of the events or
his reasons for delay, making summary judgment on the failureto-notify claim inappropriate.
Reasonable jurors could also apply the presumption that
Viking actually received the Bell Letter in 2015 when Viking
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still owned the Domino’s franchises. If they do, then Kuone’s
argument that he did not think he was involved in a lawsuit
would not be relevant since he was still the sole owner and
officer of Viking at the time the Bell Letter was sent. Though
the letter does not expressly mention a law suit, (see Bell
Letter (Doc. 63-14) at 2), it did indicate that there were
potential claims against Viking. Jurors may not believe Kuone
when he claims to not remember receiving the letter; Kuone has
problems remembering many events, even events that undoubtedly
occurred. (See, e.g., Kuone Dep. (Doc. 56) at 37.) Kuone’s wife,
Shonda, also testified that she would place mail for Viking in
one of two places for Steven Kuone to find it. (Shonda Kuone
Dep. (Doc. 59) 11–12, 16.) Steven Kuone was in the habit of
checking in those places for mail. (Kuone Dep. (Doc. 56) at 89–
90.) Since the letter was properly addressed and not returned to
sender, a reasonable juror could infer that it was received by
someone at 305 Chastain Court and put in a place Kuone would
find it, thus giving him renewed notice. In short, a reasonable
juror could find the presumption of receipt was not rebutted
based on Defendants’ evidence.
Kuone maintained, as stated by Dilthey, that even though he
knew something was going on with Viking in late 2016, that he
did not think it actually involved him since Viking sold the
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Domino’s franchises. Though Kuone also testified that even after
his April 11, 2017 deposition, he still did not understand how
he was involved in the Underlying Lawsuit, a jury could choose
not to believe Kuone’s testimony on that point.
Added to all these issues is the fact that it is ultimately
Defendants’ burden to prove Viking acted in good faith in its
failure to notify. Issues of subjective good faith are rarely
appropriate for resolution on summary judgment. See supra, note
8. For that reason, the court will deny Defendants Irving and
Harrington’s Motion for Summary Judgment as to the good faith
prong.
2.
Prejudice to Penn National
The question of prejudice incurred by Penn National is
closer, but the court still finds that there are genuine issues
of material fact that preclude granting Defendants’ motion.
By the time Penn National received notice in April 2017,
more than thirty months had passed since the accident in
September 2014. Penn National has not pointed to a specific
witness which it could not reach, but the fact is that, after
thirty months, memories fade. Since contributory negligence was
one of the only mitigating factors cited by Penn National in its
internal communications, (Gibson Dep. (Doc. 57) at 154), the
testimony of eye witnesses would have been critical. Since the
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events of that day happened in a matter of seconds, (see Dilthey
Dep. (Doc. 58) at 28–30), it would also have been critical that
eye witnesses offer precise testimony, something they would have
been less able to do after almost three years.
Furthermore, some witnesses were not included in the
accident report. (Id. at 23.) Though the report provided the
names and some contact information for several witnesses, there
could have been important witnesses who were not included. The
witnesses who were interviewed also gave differing accounts.
(RPD Report (Doc. 63-6) at 6–16.)
Since contributory negligence is a complete bar to recovery
in North Carolina,25 any lost evidence on this point would be
both material and prejudicial in the defense of a negligence
action. A reasonable juror could infer from the lapse of time
that Penn National was materially prejudiced by Viking’s failure
to notify.
3.
Defendants’ Motion Denied on Failure to Notify
When viewing the record in a light most favorable to Penn
National, there are genuine issues of material fact on both the
“It is well established in North Carolina that a
claimant’s contributory negligence is a complete bar to recovery
on a claim for damages sustained by reason of a defendant’s
negligent conduct.” Whaley v. White Consol. Indus., Inc., 144
N.C. App. 88, 94, 548 S.E.2d 177, 181 (2001) (citing Smith v.
Fiber Controls Corp., 300 N.C. 669, 268 S.E.2d 504 (1980)).
25
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good faith and prejudice prongs of the failure to notify claim.
For that reason, Defendants Irving and Harrington’s Motion for
Summary Judgment will be denied as to the failure to notify
claim.
B.
Failure to Cooperate
The court finds that there is also a genuine issue of
material fact as it pertains to the failure to cooperate claim.
“[T]he failure to co-operate in any instance alleged must
be attended by prejudice to the insurer in conducting the
defense.” Henderson, 254 N.C. at 332, 118 S.E.2d at 887. “The
burden of proving material prejudice lies with the insurer.”
Bissette, 208 N.C. App. at 334, 703 S.E.2d at 177; Guessford,
918 F. Supp. 2d at 470.
Penn National’s primary argument about prejudice resulting
from Kuone’s failure to cooperate is its inability to defend the
Underlying Lawsuit. (Pl.’s Resp. (Doc. 64) at 10; see also Pl.’s
Br. (Doc. 63) at 21–22.) In light of North Carolina Rule of
Civil Procedure 24(a) and Morin, it is untenable to claim that
Penn National was required to reach Viking before it could
defend. However, just because Penn National could enter a
defense does not mean they were not prejudiced by Viking’s
complete lack of cooperation.
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First, there is probative evidence suggesting that Viking
received Penn National’s many communications and that Kuone
understood he owed a duty to cooperate. Kuone personally signed
for at least one reservation-of-rights letter from Penn
National. (Penn National Letters (Doc. 63-25) at 2; June 13
Reservation of Rights Letter Signature Card (Doc. 60) at 1;
Kuone Dep. (Doc. 56) at 49.) Penn National repeatedly used the
email address and phone number that Kuone testified he monitored
during the period in question. (Doc. 63-1 at 89, 93, 96; see
generally Claim Notes (Doc. 63-23).) Though good faith is not a
part of the failure to cooperate analysis,26 Viking’s lack of
cooperation is indicative of the difficult task Penn National
faced in defending an absentee defendant.
Second, the issue of Kearse’s negligence was not clear. Cf.
Bissette, 208 N.C. App. at 335–36, 703 S.E.2d at 178 (noting
that an insured’s complete absence was not prejudicial since the
driver’s negligence was so clear it was stipulated to by
defense). There was evidence pointing to the contributory
The Henderson failure-to-cooperate analysis does not
include a good faith test, but the Great American failure-tonotify analysis does. See generally Henderson, 254 N.C. 329, 118
S.E.2d 885. Henderson’s only mention of good or bad faith is a
quote to a Maine Supreme Court opinion discussing misstatements
made by insureds to insurers during an investigation. Id. at
333, 118 S.E.2d at 887. It is not asserted that Kuone made any
such statements about the Underlying Lawsuit or 2014 accident.
26
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negligence of Harrington, (Claim Notes (Doc. 63-23) at 9), and
evidence that Kearse had been driving appropriately, (Kearse
Dep. (Doc. 63-4) at 13–14; RPD Report (Doc. 63-6) at 7). Even
though Kuone was not present at the scene of the accident, he
was notified shortly after and may have had some information
about what occurred that day.
Even more important than Viking’s knowledge of the accident
itself was Viking’s understanding of its relationship with
Kearse and whether Kearse was covered under its Penn National
policies. This information was especially important since the
Underlying Lawsuit proceeded on a theory of respondeat superior.
(Doc. 1-3 ¶¶ 16, 21.) Viking was in the best position to
describe its relationship with Kearse, the driver who struck
Harrington.
Third, Penn National requested several pieces of
information from Viking to assist in defending the Underlying
Lawsuit. (See Penn National Letters (Doc. 63-25) at 2.) The
first two items requested were any employee manual in effect at
the time of the accident and any specific rules for drivers not
listed in such a manual. (Id.) Though Gibson noted that there
was no policy requirement that insureds have such manuals, nor
did he cite any policy exclusions that might have applied to
such rules, (see Gibson Dep. (Doc. 57) at 95–95), this evidence
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could have assisted Penn National in mounting a personal injury
defense. A driving manual and strict driving regulations would
have helped demonstrate that Kearse, if following them, was not
negligent and that Viking had helped ensure he was not.
Fourth, Penn National also requested any motor vehicle
reports on Kearse that Viking pulled before or after the
accident. (Penn National Letters (Doc. 63-25) at 2.) These
reports were not required by Penn National’s policy, (Gibson
Dep. (Doc. 57) at 94), but would have been helpful in showing
that Viking reviewed Kearse’s driving record before hiring him
and acted swiftly to correct any deficiencies soon after the
accident. Again, the court cannot say as a matter of law that
the lack of such evidence would not have materially prejudiced
Penn National in its defense.
The materiality of prejudice resulting from an insured’s
failure to cooperate is usually a question for the jury.
Henderson, 254 N.C. at 333, 118 S.E.2d at 888. Such is the case
here. It is possible that Viking’s failure to cooperate would
not have materially prejudiced Penn National in defending this
particular action; however, the record does not allow the court
to conclude that as a matter of law. For that reason,
Defendants’ Motion for Summary Judgment will also be denied on
the failure to cooperate claim.
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IV.
CONCLUSION
For the foregoing reasons,
IT IS THEREFORE ORDERED that Plaintiff’s Motion for Summary
Judgment, (Doc. 62), is DENIED.
IT IS FURTHER ORDERED that Defendants Irving and
Harrington’s Motion for Summary Judgment, (Doc. 54), is DENIED.
This the 27th day of July, 2020.
__________________________________
United States District Judge
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Case 1:17-cv-01155-WO-JLW Document 90 Filed 07/27/20 Page 57 of 57
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