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COWELL v. GASTON CO.,

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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.


NO. COA07-1434

NORTH CAROLINA COURT OF APPEALS

Filed: 3 June 2008

PATRICK COWELL and wife,
TERRI COWELL,

Plaintiffs,

v
.
Gaston County


No. 06 CVS 3657
GASTON COUNTY, FIRST GASTON
BANK OF NORTH CAROLINA,
COUNTRYWIDE HOME LOANS, INC.,

Defendants.

Appeal by defendant Gaston County from an order entered 9
August 2007 by Judge J. Gentry Caudill in Gaston County Superior
Court. Heard in the Court of Appeals 30 April 2008.

Gray, Layton, Kersh, Solomon, Sigmon, Furr & Smith, P.A., by
William E. Moore, Jr. and Arcangela M. Mazzariello, for
plaintiffs-appellees.

Harack, Talley, Pharr & Lowndes, P.A., by D. Christopher
Osborn and Phillip E. Lewis, for Gaston County, defendant-
appellant.

JACKSON, Judge.

Plaintiffs initiated the instant suit on 9 August 2006,
claiming that defendant, through the negligent actions of its
building inspectors, caused damage to their property, specifically
a house they were building. Plaintiffs contend that defendant was
responsible for inspecting for code violations and safe
construction of their house, and due to defendant’s negligence,plaintiffs’ general contractor was allowed to build a house unfit
and unsafe for habitation. Plaintiffs made additional claims
against defendant and other parties, which were dismissed upon
motion pursuant to Rule 12(b)(6) by order filed 13 March 2007.
Defendant moved for summary judgment in its favor on the remaining
negligence claims on 24 May 2007, arguing that it held no insurance
policies covering plaintiffs’ claims, and it was therefore immune
from suit due to the doctrine of governmental (or sovereign)
immunity. Defendant’s motion for summary judgment was denied by
order filed 9 August 2007. From this order denying summary
judgment, defendant appeals.
In defendant’s sole assignment of error, it contends that the
trial court erred in denying its motion for summary judgment
because it was immune from liability for plaintiffs’ claims based
upon the doctrine of governmental immunity. We disagree.
Summary judgment is properly granted only if
the pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any, show
that there is no genuine issue as to any
material fact and that any party is entitled
to a judgment as a matter of law. On appeal,
our standard of review is (1) whether there is
a genuine issue of material fact and (2)
whether the movant is entitled to judgment as
a matter of law. The evidence presented is
viewed in the light most favorable to the
non-movant.

The court is not authorized by Rule 56 to
decide an issue of fact. It is authorized to
determine whether a genuine issue of fact
exists. The purpose of summary judgment is to
eliminate formal trials where only questions
of law are involved by permitting penetration
of an unfounded claim or defense in advance of
trial and allowing summary disposition foreither party when a fatal weakness in the
claim or defense is exposed. Under the
doctrine of governmental immunity, a county is
immune from suit for the negligence of its
employees in the exercise of governmental
functions absent waiver of immunity. When a
county purchases liability insurance, however,
it waives governmental immunity to the extent
it is covered by that insurance.

McCoy v. Coker, 174 N.C. App. 311, 313, 620 S.E.2d 691, 693 (2005)
(citations and quotations omitted).
In the instant case, the only issue on appeal is whether
plaintiffs’ complaint should have been dismissed because defendant
was immune from suit based upon governmental immunity. The
dispositive issue in this matter is whether defendant had waived
its immunity through the purchase of liability insurance.
Defendant purchased two insurance policies from the Zurich North
America arm of Zurich Financial Services Group (Zurich). One
policy was issued by Northern Insurance Company of New York
(Northern policy), and another policy was issued by Maryland
Casualty Insurance Company (Maryland policy). Both policies
covered a term from 1 July 2001 to 1 July 2002. According to
plaintiffs’ complaint, construction of their house began in mid-
June of 2001, and was “completed” around the end of 2001 or the
beginning of 2002. Defendant was responsible for inspecting the
work done in building plaintiffs’ house during this time period.
If either of the policies provided coverage against the alleged
negligent acts of defendant’s building inspector, then defendant
has waived its governmental immunity and its motion for summary
judgment was properly denied. It is defendant’s burden to showthat no genuine issue of material fact exists that the policies do
not cover its actions in the instant case. Marlowe v. Piner, 119
N.C. App. 125, 127-28, 458 S.E.2d 220, 222 (1995).
We first address the Maryland policy, which is entitled
“Public Officials Liability Coverage.” This policy includes an
“exclusions” section, which reads in relevant part:
This Policy does not apply to any “claim” made
against an insured:

. . . .

3. for damage to or destruction of any
property, including diminution of value
or loss of use.

. . . .

16. Based upon or arising out of the
performance or failure to perform any
professional, supervisory, inspection or
engineering services including
architects, engineers, surveyors,
healthcare providers, accountants,
lawyers or any other professional service
by an insured or by anyone else for whom
the insured may be responsible.

Based upon the clear language of this policy, plaintiffs’
claims were excluded from coverage for defendant’s actions as a
building inspector. Even assuming arguendo that building
inspection does not constitute a “professional service”, as argued
by defendant’s Assistant County Manager, William Beasley (Beasley),
exclusion 3 clearly exempts from liability coverage the type of
harm plaintiffs claim. The Maryland policy did not cover
plaintiffs’ claims, and summary judgement in favor of defendant
would have been proper as to this policy. The Northern policy requires a more intricate analysis, and
our use of the rules of contract interpretation.
It is well established that contracts for
insurance are to be interpreted under the same
rules of law as are applicable to other
written contracts. One of the most
fundamental principles of contract
interpretation is that ambiguities are to be
construed against the party who prepared the
writing. Therefore, in an insurance contract
all ambiguous terms and provisions are
construed against the insurer.
Chavis v. Southern Life Ins. Co., 318 N.C. 259, 262, 347 S.E.2d
425, 427 (1986) (internal citations omitted). “[A] contract of
insurance should be given that construction which a reasonable
person in the position of the insured would have understood it to
mean and, if the language used in the policy is reasonably
susceptible of different constructions, it must be given the
construction most favorable to the insured, since the company
prepared the policy and chose the language.” Grant v. Emmco Ins.
Co.
, 295 N.C. 39, 43, 243 S.E.2d 894, 897 (1978) (citation
omitted).
When an insurance company, in drafting its
policy of insurance, uses a “slippery” word to
mark out and designate those who are insured
by the policy, it is not the function of the
court to sprinkle sand upon the ice by strict
construction of the term. All who may, by any
reasonable construction of the word, be
included within the coverage afforded by the
policy should be given its protection. If, in
the application of this principle of
construction, the limits of coverage slide
across the slippery area and the company falls
into a coverage somewhat more extensive than
it contemplated, the fault lies in its own
selection of the words by which it chose to be
bound.
Id.

[T]he intention of the parties as gathered
from the language used in the policy is the
polar star that must guide the courts in the
interpretation of such instruments. “The
heart of a contract is the intention of the
parties which is to be ascertained from the
expressions used, the subject matter, the end
in view, the purpose sought, and the situation
of the parties at the time.” Therefore, in
the interpretation of language contained in an
insurance policy, the court may take into
consideration the character of the business of
the insured and the usual hazards involved
therein in ascertaining the intent of the
parties.

McDowell Motor Co. v. New York Underwriters Ins. Co., 233 N.C. 251,
253-54, 63 S.E.2d 538, 540-41 (1951) (internal citations omitted).
The relevant portion of the Northern policy is the section
entitled “Commercial General Liability Coverage.” In its brief,
defendant argues that the Northern policy does not cover the work
of its building inspectors, and thus plaintiffs’ suit must fail
because governmental immunity applies. Defendant argues that a
particular provision in that policy specifically exempts the work
of its building inspectors from liability coverage. Defendant
bases the entire argument in its brief on one provision in the
Commercial General Liability Coverage section of the Northern
Policy. Specifically, an endorsement which reads as follows:
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE
READ IT CAREFULLY.

EXCLUSION – ENGINEERS, ARCHITECTS OR SURVEYORS
PROFESSIONAL LIABILITY

This endorsement modifies insurance provided
under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART
The following exclusion is added to paragraph
2, Exclusions of COVERAGE A – BODILY INJURY
AND PROPERTY DAMAGE LIABILITY (Section I –
Coverages) and paragraph 2, Exclusions of
COVERAGE B – PERSONAL AND ADVERTISING INJURY
LIABILITY (Section I – Coverages):

This insurance does not apply to “bodily
injury”, “property damage”, “personal injury”
or “advertising injury” arising out of the
rendering of or failure to render any
professional services by you or any engineer,
architect or surveyor who is either employed
by you or performing work on your behalf in
such capacity.

Professional services include:

1. The preparing, approving, or failing to
prepare or approve, maps, shop drawings,
opinions, reports, surveys, field orders,
change orders or drawings and specifications;
and

2. Supervisory, inspection, architectural or
engineering activities.

Defendant argues that because the term “inspection” is
included in the professional services portion of this exclusionary
endorsement, its inspectors were excluded from liability coverage
under the Northern policy. Defendant further argues that the word
“you” in the phrase “professional services by you or any engineer,
architect or surveyor who is either employed by you or performing
work on your behalf in such capacity” broadens the scope of this
exclusionary provision beyond the professional services rendered by
engineers, architects or surveyors expressly denoted in the
exception. We note that because defendant bases its entire argument
on its assertion that the above endorsement explicitly excluded its
building inspectors from liability coverage, and does not argue
that any other portion of the Northern policy might also excludecoverage for its inspectors, we limit our review of the policy to
this issue. N.C. R. App. P., Rule 28(b)(6).
Initially, we note that the endorsement is captioned
“Exclusion – Engineers, Architects or Surveyors Professional
Liability”. By its very specific and limiting language, this
caption alerts the insured that the following language pertains to
the acts of three named professions. In the body of the
endorsement, Zurich states that it will not cover liability for
certain damages, including personal injury and property damage,
“arising out of the rendering of or failure to render any
professional services by you or any engineer, architect or surveyor
who is either employed by you or performing work on your behalf in
such capacity.” Even viewing this language in the light most
favorable to defendant’s argument (which is contrary to our legal
duty on appeal), this language is ambiguous. Defendant argues that
the language “arising out of the rendering of or failure to render
any professional services by you or . . .” (Emphasis added),
provides a blanket exclusion in the Northern Policy for any
professional service conducted by Gaston County itself, at least
for the named “professional services” in the endorsement, which
include “inspection”. However, both the caption of the
endorsement, and its effective language could be interpreted by a
reasonable insured to mean the exclusion applied only to
professional engineers, architects or surveyors, whether permanent
employees of Gaston County, or otherwise retained by Gaston County.
We note that all of the listed “professional services”, including“inspection”, are services performed by engineers, architects and
surveyors.
Defendant’s interpretation of the endorsement would leave
Zurich with broad discretion in deciding what professional services
could be denied coverage, and leave the insured unable to discern
the limits of its coverage. Using this interpretation, it is
unclear how the contracting parties could have had any meaningful
meeting of the minds as to what services were and were not
excluded. See Creech v. Melnik, 347 N.C. 520, 527, 495 S.E.2d 907,
911-12 (1998). We hold that the word “you” in this context
constitutes a “slippery” word as contemplated in Grant, must be
construed against Zurich, and thus allow coverage for defendant’s
building inspectors’ acts. Grant, 295 N.C. at 43, 243 S.E.2d at
897.
Further, Zurich has demonstrated that it is capable of
drafting exclusionary provisions, without ambiguity, broadly
limiting liability coverage for professional work done by or on
behalf of defendant. In the Maryland policy, Section I(B.)(16.)
states that the policy does not cover any claim: “Based upon or
arising out of the performance or failure to perform any
professional, supervisory, inspection or engineering services
including architects, engineers, surveyors, healthcare providers,
accountants, lawyers or any other professional service by an
insured or by anyone else for whom the insured may be responsible.”
This provision unambiguously excludes all forms of professional
services from liability coverage under the Maryland policy. Beasley, an Assistant County Manager for Gaston County, was
made available by defendant for deposition on 14 January 2005. In
his deposition, Beasley, representing defendant, agreed that the
contested endorsement should not apply to building inspectors
working for defendant, further stating that he did not consider
building inspection to be a “professional service”. Beasley’s
deposition testimony provides some insight into “the construction
which a reasonable person in the position of the insured would have
understood [the provision] to mean”. Grant, 295 N.C. at 43, 243
S.E.2d at 897. “[I]f the language used in the policy is reasonably
susceptible of different constructions, it must be given the
construction most favorable to the insured, since the company
prepared the policy and chose the language.” Id. Having offered
Beasley as not only a reasonable person, but one of its employees
most qualified to interpret the contested insurance policies,
defendant may not now argue the opposite. This testimony raises at
least a question of material fact concerning defendant’s reasonable
understanding of the coverage it was purchasing. Id. Beasley’s
testimony further provides some evidence as to defendant’s intent
and understanding of the coverage it was purchasing. McDowell, 233
N.C. at 253-54, 63 S.E.2d at 540-41. In light of the multiple
ambiguities in the Northern policy endorsement, and based upon
established rules of contract interpretation, these ambiguities
must be construed against Zurich (and therefore against defendant’s
arguments), and in favor of liability coverage. Grant, 295 N.C. at
43, 243 S.E.2d at 897. We hold that the contested endorsement is“reasonably susceptible of different constructions,” and
defendant’s motion for summary judgment based upon the defense of
governmental immunity was properly denied as to the Northern
policy. Id. We note that at trial, plaintiffs’ suit may only
proceed based upon the coverage provided pursuant to the Northern
policy.
Affirmed.
Judges McGEE and ELMORE concur.

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