Williams v. Ohio National Life Insurance Company
Filing
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ORDER granting in part and denying in part 22 Motion for Summary Judgment. Signed by Senior Judge Graham Mullen on 1/30/2019. (nvc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO. 5:17-CV-00126-GCM
PAUL WILLIAMS,
Plaintiffs,
v.
OHIO NATIONAL LIFE ASSURANCE
COMPANY,
Defendants.
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ORDER
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THIS MATTER COMES before this Court on Defendant Ohio National Life Assurance
Company’s (“Defendant”) Motion for Summary Judgment. (Doc. No. 22). Plaintiff Paul Williams
(“Plaintiff”) filed a response (Doc. No. 27) to which Defendant replied. (Doc. No. 32). As such,
this matter is ripe for disposition.
I.
FACTUAL BACKGROUND
This case involves an insurance dispute between Plaintiff and Defendant. Plaintiff worked
as a dentist for his professional career. (Doc. No. 23, p. 2). Plaintiff owned his own practice and
operated under the name Paul H. Williams, DDS, PLLC. (Id.). Defendant sold Plaintiff a business
overhead expense insurance policy (the “Policy”) in 1999. (Id.). The Policy provided insurance
coverage in the event Plaintiff became disabled. (Doc. 1-1).
a. Insurance Policy
The Policy issued by Defendant provided Plaintiff with insurance for “covered business
expenses” in the event of disability. (Id.). The Policy described covered business expenses as those
expenses that are “normal and customary business expenses that you regularly incur in your
business. They are the kind of expenses that the Internal Revenue Code allows as income tax
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deductions.” (Id.). In the “Definitions” section of the Policy, covered business expenses are defined
as:
These are normal and customary business expenses regularly
incurred by you in your Business. A Covered Business Expense
must be of the type that the Internal Revenue Code allows as an
income tax deduction. They include but are not limited to:
(1) Rent;
(2) Electricity;
(3) Telephone;
(4) Mortgage Interest;
(5) Mortgage Principal or Property Depreciation;
(6) Equipment Loan Interest;
(7) Equipment Loan Principal or Equipment Depreciation;
(8) Other Loan Principal;
(9) Other Interest Payments;
(10) Heat and Water;
(11) Property Taxes;
(12) Equipment Rental;
(13) Employees' Wages and Benefits;
(14) Insurance (Malpractice and E&O);
(15) Insurance (Fire, Casualty, Liability, etc.
(16) Business Laundry;
(17) Equipment Maintenance;
(18) Subscriptions - Professional Journals;
(19) Membership Dues -Association;
(20) Accountants' Fees;
(21) Legal Fees.
(Id. at 8.).
Plaintiff claimed total disability on October 2, 2015. (Doc. No. 23). The Parties do not
contest that Plaintiff is in fact disabled.1 On the same date that Plaintiff claimed disability,
Plaintiff sold the assets and goodwill of his dental practice to Dr. Jakub Skowronski (“Buyer”).
(Id.). At the time of the sale, Plaintiff stopped practicing dentistry. (Id.). Plaintiff’s business
accounts were utilized to process accounts receivables and pay the interest and principal of a
business loan that survived the sale of the practice. (Id.).
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In fact, Defendant currently pays Plaintiff under a separate disability income policy.
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b. Loans and Sale Arrangement
When Plaintiff sold his dental practice to Buyer, the practice had two outstanding
business loans secured by the practice’s equipment. (Doc. No. 23-4, 5.). Plaintiff received both
loans through Peoples Bank. (Id.). One loan had a balance of $129,793.57 (“129 Loan”). The
second loan had a balance of $326,762.03 (“327 loan”). (Id.). At closing, Buyer wired
$129,793.57 to Peoples Bank which identified the beneficiary as the 129 Loan. (Doc. No. 23-13).
The loan history shows that money was used to pay off the 129 Loan. (Id.). Buyer also wired
$326,762.03 to Peoples Bank with the beneficiary as the 327 Loan. (Id.). Rather than using those
funds to payoff the 327 Loan, Peoples Bank placed those funds in the savings account of the
practice. The rest of the proceeds from the sale of the practice were wired into the practice’s
checking account.
After the sale, Plaintiff opened a new checking account. (Doc. 23-15). Bank records show
that a $327,000 withdrawal was made from the practice’s savings account that contained the
money designated for the 327 Loan. (Doc. No. 23-14, 16). The same day the withdrawal was
made, bank records also show a $327,000 deposit into Plaintiff’s new checking account. (Id.).
Subsequently, the practice’s savings account was closed. (Id.). Plaintiff was the signatory on the
new checking account, but he did not have access to it. (Doc. No. 23). Rather, Peoples Bank
made the monthly payments on the 327 Loan directly from the account. (Id.).
After the sale of the goodwill and assets of the practice, Plaintiff filed a claim under the
Policy to cover the payments associated with the 327 Loan. (Doc. No. 23-20). Defendant
requested several forms of documentation to support Plaintiff’s claim under the Policy. (Doc.
No. 23, p. 8). The entirety of Defendant’s review process of Plaintiff’s claim took at least one
full year to complete. (Doc. No. 23-21). After Defendant completed its review, Defendant denied
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Plaintiff’s claim. Plaintiff brought suit in this Court alleging (1) breach of contract, (2) bad faith,
and (3) unfair and deceptive trade practices.
II.
STANDARD OF REVIEW
Summary judgment shall be granted “if the movant shows that 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). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
fact is material only if it might affect the outcome of the suit under governing law. Id.
The movant has the “initial responsibility of informing the district court of the basis for
its motion, and identifying those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986) (internal citations omitted). Once this initial burden is met, the burden shifts to
the nonmoving party, which “must set forth specific facts showing that there is a genuine issue
for trial.” Id. at 322 n.3. The nonmoving party may not rely upon mere allegations or denials of
allegations in his pleadings to defeat a motion for summary judgment. Id. at 324. Instead, “the
non-moving party must present sufficient evidence such that ‘reasonable jurors could find by a
preponderance of the evidence’ for the non-movant.” Sylvia Dev. Corp. v. Calvert Cnty., Md.,
48 F.3d 810, 818 (4th Cir. 1995) (citing Anderson, 477 U.S. at 252 (1986)).
When ruling on a summary judgment motion, a court must view the evidence and
any inferences from the evidence in the light most favorable to the nonmoving party.
Anderson, 477 U.S. at 255. “Where the record taken as a whole could not lead a rational
trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Matsushita
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v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In the end, the question posed by a
summary judgment motion is whether the evidence “is so one-sided that one party must prevail
as a matter of law.” Anderson, 477 U.S. at 252.
III.
DISCUSSION
Defendant moved for summary judgment in this case arguing that the Policy as issued did
not cover Plaintiff’s loan principal or interest payments after the sale of his business as a matter
of law. Additionally, Defendant argued that summary judgment is appropriate on both the bad
faith and unfair and deceptive trade practices claims. Plaintiff argued that the Policy did in fact
cover both the principal and interest payments, and at the very least, a genuine issue of material
fact exists on that matter. Additionally, Plaintiff argued a genuine issue of material fact still
exists as to the bad faith and unfair and deceptive trade practices claims.
a. Breach of Contract
1. Policy Ambiguity
First, Defendant argued that the unambiguous language of the Policy did not cover the
loan principal or interest payments. North Carolina law controls this case. Danby of N. Am., Inc.
v. Travelers Ins. Co., 2002 WL 75841 at *2 (4th Cir. 2002) (North Carolina’s choice-of-law
principles provide that “[t]he law of the place where the contract was made . . . controls its
interpretation.”). Under North Carolina law, an insurance policy is a contract. Lambe Realty
Investment v. Allstate Ins. Co., 137 N.C. App. 1, 5 (2000). When construing a contract, the goal
of the Court is to reach the intent of the parties at the time of issuance. Id. If the Court finds the
contract language ambiguous, the Court is to construe the language in favor of the insured.
Brown v. Lumbermens Mut. Casualty Co., 326 N.C. 387, 391 (1990). This is because insurance
companies create the language included in the policy. Lambe, 197 N.C. App. at 11.
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A contract term or phrase is ambiguous if the language is susceptible to two different
interpretations. Id.; Woods v. Nationwide Mut. Ins. Co., 295 N.C. 500, 506, 246 S.E.2d 773, 777
(1978). “Where a policy defines a term, that definition is to be used. If no definition is given,
nontechnical words are to be given their meaning in ordinary speech, unless the context clearly
indicates another meaning was intended.” Harford Mut. Ins. Cos. v. Agean, Inc., 2011 WL
2295036, at *3 (M.D.N.C. June 8, 2011). If possible, every word of a contract is to be given
effect. Woods, 295 N.C. at 506. In insurance contracts, ambiguity does not exist unless “in the
opinion of the court, the language of the policy is fairly and reasonably susceptible to either of
the constructions for which the parties contend.” Wachovia Bank & Trust Co. v. Westchester
Fire Ins. Co., 276 N.C. 348, 354 (1970).
The Policy defines “Covered Business Expense” as “normal and customary business
expenses regularly incurred by you in your Business. A Covered Business Expense must be of
the type that the U.S. Internal Revenue Code allows as an income tax deduction.” (Doc. No. 1-1,
p.8). The Policy goes on in the next sentence to read “[t]hey include but are not limited to: . . ..”
(Id.) The list that follows the “include but are not limited to” language includes several different
types of loan principal and interest. (Id.). Importantly, of the items listed after the above cited
language, the items are not always tax deductible. The Defendant in his own brief stated
“[d]epending on the facts, each of the above expenses could be tax deductible or non-tax
deductible. . ..” (Doc. No. 23, p. 12).
The question before the Court as to Defendant’s first argument is whether the language
defining “Covered Business Expense” is ambiguous. As described in the applicable case law, the
question asks whether the language is susceptible to two reasonable interpretations. The Court
finds that it is. On the one hand, the language states that a Covered Business Expense “must be
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of the type that the U.S. Internal Revenue Code allows as an income tax deduction.” If that were
the only language on the subject, the Policy would indeed be unambiguous. That language
clearly seems to require federal income tax deductibility in order for the expense to be covered.
The very next sentence, however, states that the definition of a Covered Business
Expense “include[s] but [is] not limited to: . . . 4) Mortgage Interest; 5) Mortgage Principal or
Property; 6) Equipment Loan Interest; 7) Equipment Loan Principal; 8) Other Loan Principal; 9)
Other Interest Payments. . ..” This language seems to clearly state that any of those items would
be covered under the Policy. This sentence does not, as argued by the Defendant, contain any
language that makes the provision dependent on or subject to the previous sentence. Rather, the
provision affirmatively says that Covered Business Expenses “include but are not limited to.”
(emphasis added). A reasonable reading of that language would lead an insured to believe that
items on that list are covered regardless of their tax deductibility.
As such, the Court finds that the Policy is ambiguous as it relates to the definition of
Covered Business Expense. On the one hand, the Policy seems to require deductibility in order
for the item to be covered. On the other hand, the Policy unequivocally states that the items listed
are covered. Therefore, the Court finds the Policy is ambiguous and must be construed in favor
of the insured.
Next, Defendant’s brief discussed the applicability of the genuine indebtedness doctrine
and the effects of that doctrine on the tax deductibility of Plaintiff’s 327 Loan interest in this
case. Because the Court has found that tax deductibility is not required under the Policy in order
to be covered, the Court need not reach the merits of whether this particular loan would qualify
as a tax deduction.
2. Liability of Insurer After Insured Sold Goodwill and Assets of the
Practice
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Next, Defendant argues that even if the loan principal and interest were Covered Business
Expenses prior to the sale of the practice, the principal and interest did not qualify after the sale.
Defendant argues that once Plaintiff sold the practice, Plaintiff could no longer regularly incur
expenses in his business. To this end, Defendant relies on several cases from outside of the
Fourth Circuit for the proposition that once an insured sells his or her business, the insured can
no longer incur regular business expenses under a business overhead policy. See Wilson v.
Monarch Life Ins. Co., 971 F.2d 312, 313 (9th Cir. 1992); see, e.g., Twin Tiers Eye Care
Associates, P.C. v. First Unum Life Ins. Co., 270 A.D.2d 918, 918 (2000); Richardson v.
Guardian Life Ins. Co., 161 Or.App. 615, 984 P.2d 917 (1999); Paul Revere Life Ins. Co. v.
Klock, 169 So.2d 493 (Fla. Dist. Ct. App. 1964); Chenvert v. Paul Revere Life Ins. Co., 2004 WL
1739718 (D. Del. Aug. 2, 2004); Principal Mut. Life Ins. Co. v. Toranto, 1997 WL 279751 (N.D.
Tex. May 15, 1997), reconsidered in part on other grounds, 1997 WL 361872 (N.D. Tex. Jun.
23, 1997).
Words and phrases contained within contracts must be given effect, if possible. Woods,
295 N.C. at 506. As such, the language contained within a contract controls. In this case,
Defendant argues that the above cited cases stand for the proposition that once a business is sold
or no longer in active practice, the insured cannot incur regular business expenses under a
business overhead policy. As Defendant notes, in each of the above cited cases, the courts found
that the language contained within the policies at issue prevented the insured from recovering.
However, in each of those cases, the policy language differed in an important way from the
Policy language found in this case. Each of the policies from the cases above had language that
required a continuation of the business in order to qualify as a covered business expense. See
Wilson, 971 F.2d at 313 (“the usual overhead expenses you have in running your office or
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business.”); Twin Tiers Eye Care Associates, P.C. 270 A.D.2d at 918 (in the “operation” of the
office); Richardson, 161 Or.App. at 617 (“which you normally incur in the conduct of your
business”); Paul Revere Life Ins. Co., 169 So.2d at 494 (“in the conduct and operation of the
Insured’s office”); Toranto, 1997 WL 279751 at *5 (“in the operation of [his] business”)
(emphasis added in all).
Each of the cases cited by the Defendant dealt with policy language that required some
sort of continuation of the business. Whether it was operation, running, or conduct, each of those
verbs have a present, active component. Language such as that does not appear in the Policy
before this Court. As such, the Court finds each of those cases largely unpersuasive as they dealt
with materially different policy language. Plaintiff represented to the Court that the Policy
language at issue in this case has never been ruled on by this Court or any other. The Court did
an independent review of the case law and likewise did not find a case directly on point. As such,
the Court is left to determine the meaning of this Policy without reference to any controlling case
law and very sparse persuasive authority.
The Policy defines Covered Business Expense as “normal and customary business
expenses regularly incurred by you in your Business.” Business is defined in the Policy as
“[y]our occupation, business or profession when a Total Disability starts.” (Doc. No. 1-1, p. 8).
Plaintiff’s occupation and profession was that of a dentist at the time the disability started.
However, Plaintiff’s business was Paul Williams DDS PLLC. That business was the debtor on
the 327 Loan. The business incurred the debt on that loan prior to the disability. The debtor
maintained the obligation for the debt on that loan expressly through the sales agreement. (Doc.
No. 23-1, p. 4).
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Thus, the question before this Court is whether the 327 Loan principal and interest
remained covered under the Policy after the sale of assets and goodwill of the practice. To make
this decision, the Court must look at the Policy language. First, the 327 Loan was normal,
customary, and regular in the course of Plaintiff’s business. There is no evidence on the record
that Plaintiff took out the 327 Loan for nefarious or hidden reasons. Second, Plaintiff incurred
the debt through his business prior to the start of the disability as the Policy definition requires.
The Court finds those are the only elements the Policy requires before the expense becomes
covered under the Policy. While Defendant argued strenuously in brief that once Plaintiff was no
longer in business he could no longer incur expenses, the Policy as written by the Defendant
states otherwise. Defendant could have inserted a clause requiring some continuous act as
described in the cases it cited. Defendant chose not to do so. The Court will not retroactively
insert that language in for Defendant at this stage.
Thus, the Court finds that the 327 Loan principal and interest payments are covered by
the Policy. At best for Defendant, the Policy is ambiguous on the issue. When a Policy is
ambiguous, the Court must construe the language in favor of the insured. Thus, the Court would
reach the same result. Therefore, the Court DENIES Defendant’s Motion for Summary
Judgment as to the breach of contract claim.
b. Bad Faith
In the context of insurance, a claim of bad faith requires the plaintiff to “prove refusal to
pay after recognition of a valid claim, bad faith, and aggravated or outrageous conduct.” Blis Day
Spa, LLC v. The Hartford Ins. Group, 427 F.Supp.2d 621, 631 (W.D.N.C. Apr. 11, 2006) (citing
Topsail Reef Homeowners Ass'n v. Zurich Specialties London, Ltd., 2001 WL 565317 (4th Cir.
May 25, 2001) (further internal citations omitted)). Bad faith is defined as not based on a
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“legitimate, honest disagreement as to the validity of the claim. Aggravated conduct is defined to
include fraud, malice, gross negligence, insult ... willfully, or under circumstances of rudeness or
oppression, or in a manner which evinces a reckless and wanton disregard of the plaintiff's
rights.” Id. (internal citations and quotations omitted).
In this case, there is no dispute that Defendant failed to pay Plaintiff under the insurance
policy. The question then becomes was that refusal the result of a legitimate, honest
disagreement as to policy coverage or was it the result of bad faith on the part of the Defendant.
Defendant argues that Defendant never recognized Plaintiff’s claim as valid up until the point
that it denied the claim. Defendant asserts that the delay from the time Plaintiff submitted the
claim until the time the claim was denied was the result of Plaintiff’s unwillingness to submit the
required documentation. Plaintiff argues that if Defendant truly believed that the sale of the
goodwill and assets extinguished coverage under the Policy as argued in its brief to the Court,
Defendant should have been able to deny Plaintiff’s claim in weeks rather than months.
On these facts, the Court finds summary judgment is appropriate. The Plaintiff has failed
to establish a genuine issue of material fact on all three required elements. First, Plaintiff failed
to provide any evidence that Defendant recognized the validity of the claim and refused to pay
after that recognition. Rather, the evidence on record supports the proposition that the Parties
failed to agree on whether the loan principal and interest were required to be tax deductible in
order to be covered. There is absolutely no evidence before this Court that would suggest
Defendant recognized the claim as valid but chose to not pay. As such, the refusal to pay resulted
from an honest disagreement which defeats Plaintiff’s bad faith claim.
Even if there was evidence to support the proposition that Defendant recognized the
claim as valid and refused to pay, Plaintiff failed to provide evidence of aggravated conduct. The
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evidence of record does not support the proposition that Defendant acted fraudulently,
maliciously, grossly negligent, in an insulting manner, or under “circumstances of rudeness or
oppression.” Topsail, 2001 WL 565317 at *9. Rather, the evidence before this Court shows that
Plaintiff’s claim was reasonably in dispute. As such, Defendant’s Motion for Summary Judgment
as to the bad faith claim is GRANTED.
c. Unfair and Deceptive Trade Practices
To establish a claim of unfair and deceptive trade practices in violation of Chapter 75 of
the North Carolina General Statutes (“UDTPA”), a plaintiff must prove the existence of: (1) an
unfair or deceptive act or practice, or unfair method of competition, (2) in or affecting
commerce, and (3) which proximately caused actual injury to the plaintiff or his business.”
Murray v. Nationwide Mut. Ins. Co., 472 S.E.2d 358, 362 (N.C. App. 1996) (internal citations
omitted). The Court must determine as a matter of law whether a particular act or practice is
unfair or deceptive. Blis Day Spa, LLC v. Harford Ins. Group, 427 F.Supp.2d 621, 634
(W.D.N.C. April 11, 2006) (citing Ellis v. Northern Star Co., 388 S.E.2d 127, 131
(N.C.1990). The North Carolina Supreme Court has held that an insurance company violates the
UDTPA by not “attempting in good faith to effectuate prompt, fair and equitable settlements of
claims in which liability has become reasonably clear.” Id. (citing N.C. Gen. Stat. § 58–63–
15(11)(f) (other internal citations omitted). North Carolina General Statute Section 58-6315(11)(e) also makes it an unfair and deceptive trade practice for insurance companies to “[f]ail[]
to affirm or deny coverage of claims within a reasonable time after proof-of-loss statements have
been completed
As discussed above, liability on Plaintiff’s claim never became reasonably clear. The
Parties disputed liability under the Policy up through and including the current Motion before the
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Court. Having read the Policy, the briefs, and reviewed the entirety of the record, the Court finds
that Plaintiff’s claims remained reasonably in dispute throughout the review period conducted by
Defendant. No evidence on the record provides otherwise. Therefore, the Court finds as a matter
of law that Defendant did not engage in any unfair or deceptive acts in violation of the statute.
As such, Defendant is entitled to summary judgment on the unfair and deceptive trade practices
claim.
IV.
CONCLUSION
For the aforementioned reasons, Defendant’s Motion for Summary Judgment is DENIED
IN PART and GRANTED IN PART. Defendant’s Motion for Summary Judgment is DENIED
as to the breach of contract claim. Defendant’s Motion for Summary Judgment is GRANTED as
to the bad faith and unfair and deceptive trade practices claims.
SO ORDERED.
Signed: January 30, 2019
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