BarclaysAmerican/Leasing, Inc. v. North Carolina Insurance Guaranty Ass'n

WELLS, Judge. Defendant advances two arguments challenging the trial court’s entry of summary judgment for plaintiff on its first claim for relief. First, defendant contends that plaintiff’s claim was not within the coverage of the residual value policy issued by Integrity. Second, defendant contends that the North Carolina Insurance Guaranty Association Act does not apply to the residual value policy in that such policy is “credit insurance,” expressly excluded from coverage under the Act. We find it unnecessary to reach this second question. For assuming arguendo that the residual value policy is within the Act, we conclude that plaintiff’s claim is not within the coverage of that policy. The provisions of the North Carolina Insurance Guaranty Association Act applicable to this case are set forth at Chapter 58, Article 17B of the North Carolina General Statutes.1 In cases where an insurer is insolvent, G.S. § 58-155.48(a)(1) requires the Association to assume the insurer’s obligations “to the extent of the covered claims existing prior to the determination of insolvency and arising within 30 days after the determination of insolvencyf.]” The Act defines a covered claim, in pertinent part, as an unpaid claim . . . which is in excess of fifty dollars ($50.00) and arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this Article applies[.] N.C. Gen. Stat. § 58-155.45(4). [294] The leased vehicle residual value policy issued to plaintiff by Integrity provides in pertinent part: VII. Exclusions This policy does not apply to: (b) Any Enrolled Vehicle for which the relevant lease is terminated prior to the Scheduled Lease Termination Date, whether by default of the Lessee, prepayment or otherwise. (Emphasis added.) The scheduled termination date of the lease for the enrolled vehicles in this case, as set forth in the supplement to the lease agreement between plaintiff and Adjusters, is “36 months from Rental Commencement Date. Rental Commencement Date: January 10, 1984.” Consequently, the dispositive question is whether the lease between plaintiff and Adjusters terminated prior to 10 January 1987. If so, then plaintiff’s claim is not within the coverage of the residual value policy, and defendant is therefore not required to assume this obligation of Integrity. Defendant argues that the orders of the bankruptcy court, affording plaintiff relief from the automatic stay, effected a termination of the lease between plaintiff and Adjusters prior to the scheduled termination date. We agree. In addressing this issue, we note that we are not required to construe whether the granting of relief from the automatic stay imposed pursuant to 11 U.S.C. § 362 operates generally to terminate contract rights on an executory contract under federal bankruptcy law. We are concerned here only with the narrow question, arising under North Carolina insurance law, of whether the relief granted plaintiff by the bankruptcy court in the Ohio action effected a termination of the lease between plaintiff and Adjusters within the meaning of the exclusionary clause of the residual value policy issued by Integrity. We hold that it did. The settled law of this State places the burden of showing an exclusion on the insurer. Reliance Ins. Co. v. Morrison, 59 N.C. App. 524, 297 S.E.2d 187 (1982) (and cases cited therein). Exclusions from coverage are not favored and should be strictly construed to effect coverage under the policy. Id.; see also W & J Rives, Inc. v. Kemper Ins. Co., 92 N.C. App. 313, 374 S.E.2d 430 (1988), [295] disc. rev. denied, 324 N.C. 342, 378 S.E.2d 809 (1989) (citing Stanback v. Westchester Fire Ins. Co., 68 N.C. App. 107, 314 S.E.2d 775 (1984)). The orders entered by the bankruptcy court make clear that Adjusters, pursuant to plaintiff’s allegations of default, were required to return all of the vehicles that were the subject matter of its lease with plaintiff, which necessarily included the 300 cars enrolled under the residual value policy issued by Integrity. Moreover, plaintiff was required to dispose of all of these vehicles and apply the proceeds of such disposition to the indebtedness of Adjusters. Finally, the orders make equally clear that Adjusters retained no rights whatsoever in any of the vehicles. The undeniable effect of the relief afforded to plaintiff in the bankruptcy court was thus to extinguish the lease between plaintiff and Adjusters with respect to the 300 cars that were enrolled under the residual value policy. This occurred in August 1986, well before the scheduled termination date of 10 January 1987. We cannot rewrite the order of the bankruptcy court under the guise of the rule of strict construction. See Reliance Ins. Co., supra. Consequently, by the express terms of the residual value policy issued by Integrity, plaintiff’s claim pertaining to such vehicles is not covered. Because plaintiff’s claim is not covered by the policy, defendant, as a matter of law, is not required under the Act to assume Integrity’s obligation. Summary judgment is appropriate only when there is no genuine issue of material fact and a party is entitled to judgment as a matter of law. N.C. Gen. Stat. § 1A-1, N.C. R. Civ. P., Rule 56. Summary judgment for the nonmovant may be entered where this standard is satisfied. A-S-P Assocs. v. City of Raleigh, 298 N.C. 207, 258 S.E.2d 444 (1979) (and cases cited therein). Because there is no genuine issue of material fact and defendant, rather than plaintiff, is entitled to summary judgment as a matter of law, the trial court erred in entering summary judgment for plaintiff on its first claim for relief. We therefore reverse the order of summary judgment for plaintiff on its first claim for relief and remand this case for entry of summary judgment on this claim for defendant. Finally, plaintiff has attempted to bring forward two cross-assignments of error challenging the trial court’s dismissal of its second claim for relief asserting a lien under former G.S. § 58-185 [296] in assets of Integrity held by defendant pursuant to former G.S. § 58-155.60. Because this claim is predicated on the existence of defendant’s liability as insurer of Integrity’s obligations under G.S. § 58-155.48, our disposition of defendant’s appeal has rendered plaintiff’s cross-assignments of error moot, and we therefore do not consider them. Reversed and remanded. Judge PARKER concurs. Judge DUNCAN concurs and files a separate concurring opinion. Footnotes [1] We note that effective 5 June 1989, the North Carolina Insurance Guaranty Association Act was amended and recodified at N.C. Gen. Stat. § 58-48-1, et seq. These amendments are not applicable to this case.