Nationwide Mutual Insurance v. Aetna Life & Casualty Co.

BRANCH, Justice. The primary purpose of the Motor Vehicle and Financial Responsibility Act of 1953, Article 9A, Chapter 20 of the General Statutes is to compensate the innocent victims of financially irresponsible motorists. The victim’s right to recover against the insurer is not derived through the insured, as in cases of voluntary insurance, but under this Act his right to recover is statutory and becomes absolute upon occurrence of an injury covered by the policy. G.S. 20-279.21 (f) (1); Jones v. Insurance Co., 270 N.C. 454, 155 S.E. 2d 118; Insurance Co. v. Roberts, 261 N.C. 285, 134 S.E. 2d 654. *91 One of the ways in which the Act attempts to accomplish its purpose is by requiring every owner or operator of a motor vehicle to prove his financial responsibility by acquiring an owner’s insurance policy or an operator’s insurance policy providing coverage in accordance with the statutory provisions. G.S. 20-279.19, 21. An owner’s policy protects the named insured and any person using the designated insured vehicle with the owner’s permission. Such policy offers no protection for liability arising from the use of a vehicle not described in the policy. An operator’s policy protects the named insured from liability arising out of the use of any vehicle. G.S. 20-279.21 (c); Lofquist v. Insurance Company, 263 N.C. 615, 140 S.E. 2d 12. The policy issued by Aetna to Murphy was an owner’s policy. Since the automobile described in the policy was being used by Alexander with Murphy’s permission, the policy afforded protection to both Murphy and Alexander unless the exclusion relating to use of the automobile while engaged in the automobile business was valid. Thus, determination of Aetna’s liability rests upon the validity of the exclusion contained in its policy. It is well recognized in North Carolina that the provisions of a statute applicable to insurance policies are a part of the policy to the same extent as if therein written, and when the terms of the policy conflict with statutory provisions favorable to the insured, the provisions of the statute will prevail. Insurance Company v. Insurance Company, 269 N.C. 341, 152 S.E. 2d 436; Insurance Company v. Roberts, supra; Howell v. Indemnity Company, 237 N.C. 227, 74 S.E. 2d 610; Eckard v. Insurance Company, 210 N.C. 130, 185 S.E. 671. G.S. 20-279.21 (b) (2) provides that an owner’s policy “Shall insure the person named therein and any other person, as insured, using any such motor vehicle . . . with the . . . permission of such named insured, ...” (Emphasis ours.) Defendant relies on Insurance Company v. McAbee, 268 N.C. 326, 150 S.E. 2d 496, as authority for its contention that the exclusionary provision in its policy is valid. In that case, James A. Queen (Queen) arranged to have his automobile repaired by Aubrey McAbee, trading as McAbee’s Pine Grove Service Station. McAbee sent his agent, Ira Beach (Beach), to *92 bring the Queen automobile to McAbee’s place of business to be repaired. The automobile was repaired and on the return trip an accident occurred which resulted in personal injuries to Emily Jean Perkins. Emily Jean Perkins, by her next friend, instituted an action for damages against Queen, Beach and McAbee. At the time of the accident, Nationwide Mutual Insurance Company (Nationwide) had issued a policy of insurance, which was in full force and effect, to Queen providing owner coverage against liability arising out of the use of the vehicle. The policy excluded coverage “to an owned automobile while used in the automobile business.” At the time of the accident, there was also in effect a garage liability policy which was issued to McAbee’s Pine Grove Service Station by Federated Mutual Implement and Hardware Insurance Company (Federated) . Nationwide refused to defend Beach and McAbee in the pending action, contending that it had no liability to Beach and McAbee because of the exclusion contained in its policy. The trial court held that both Nationwide and Federated were liable within the limits of their respective policies for the injuries resulting from the operation of the Queen automobile by Beach. Nationwide appealed. This Court reversed the trial court and held that Nationwide had incurred no liability. The basis of the Court’s holding was that the employee, Beach, was operating the vehicle in the automobile business and that the exclusion in Nationwide’s policy operated to relieve Nationwide of liability. Examination of the record and briefs in McAbee reveals that the declaratory action sought an interpretation of the language contained in Nationwide’s exclusion. Nowhere do we find any mention of Article 9A of Chapter 20 of the General Statutes of North Carolina. The question of the validity of the exclusion in light of the Financial Responsibility Act was not raised by the parties and was not considered by the Court in reaching its decision^ We, therefore, hold that McAbee is not authoritative as to the specific question here presented. The exclusion in the Aetna policy purported to limit the .coverage made mandatory by G.S. 20-279.21. This exclusion, being in derogation of the mandatory requirements of the statute, as well as unfavorable to the insured and contrary to the primary purpose of the Motor Vehicle Safety and Responsibility *93 Act, is invalid. Thus, the Aetna policy issued to Murphy affords coverage both to Alexander and Murphy. We next consider the liability of Nationwide arising out of the accident by virtue of the policy issued to Alexander. This policy was also an owner’s policy on a described automobile. It afforded protection against liability “arising out of the ownership, maintenance and use of the automobile.” (Emphasis ours.) The policy also provided coverage to the named insured while he was driving an automobile other than that described in the policy. However, it excluded protection as to the use of such other automobile upon the occurrence of “any accident arising out of the operation of an automobile sales agency, . . . service station ...” “Freedom of contract, unless contrary to public policy or prohibited by statute, is a fundamental right included in our constitutional guaranties. Constitution, Art. I, sec. 17; Alford v. Insurance Co., 248 N.C. 224, 103 S.E. 2d 8; 12 Am. Jur. 641, 642.” Muncie v. Insurance Co., 253 N.C. 74, 116 S.E. 2d 474. The provisions of the Nationwide policy which insured against loss arising out of the ownership, maintenance or use of the described vehicle met the mandatory requirements of G.S. 20-279.21. The coverage furnished its insured as to the use of other automobiles was in addition to the mandatory statutory requirements and was therefore voluntary. Woodruff v. Insurance Company, 260 N.C. 723, 133 S.E. 2d 704; Insurance Company v. Roberts, supra; Swain v. Insurance Company, 253 N.C. 120, 116 S.E. 2d 482; Howell v. Indemnity Company, supra. Since this coverage was additional, or voluntary, the exclusion relating thereto is not subject to the requirements of G.S. 20-279.21. G.S. 20-279.21 (g). The exclusion in the Nationwide policy issued to Alexander does not violate public policy and is not invalidated by the provisions of the Motor Vehicle and Financial Responsibility Act. Nationwide’s exclusion, therefore, relieves it from liability under its policy issued to Alexander. The judgment entered by the trial judge is vacated, and this cause is remanded to the Superior Court of Forsyth County for entry of judgment consistent with this opinion. Reversed and remanded.