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N.C. SUPREME COURT AFFIRMS LIMITATIONS ON RESIDENT-RELATIVE COVERAGE

28 December 2020

Joe Fulton

This month, the N.C. Supreme Court gave insurance coverage lawyers a real holiday treat: a published policy interpretation decision. Not only that, we got a dissent from Justice Earls. The decision, N.C. Farm Bureau v. Martin (available from the Court here and to Lexis subscribers here), dealt with one of my personal favorite coverage issues: the resident-relative.[1] This time under a personal auto policy.

A resident-relative is a type of insured in many policies including homeowners and personal auto. The exact policy language defining this category differs from policy to policy. The definition of “insured” in a typical N.C. Homeowners policy includes the following:

a. You and residents of your household who are:

(1) Your relatives; or

(2) Other persons under the age of 21 and in your care or the care of a resident of your household who is your relative;

. . .

A typical personal auto policy includes a very similar definition:

1. You or any family member for the ownership, maintenance or use of any auto or trailer.

“Family member” is defined to mean “a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child.” Although expressed somewhat differently, the essence of both definitions is that a relative that is a resident of the name insured’s household is also an insured.

This language has spawned at least several hundred appellate decisions around the country, if not more. Courts have often noted that the relevant phrase, “resident of your household,” is ambiguous. In 1985, the N.C. Court of Appeals held in David v. Maryland Cas. Co., that a minor whose parents lived apart could be a resident of both parents’ households.[2] This holding was uncontroversial in my view. However, at the end of its decision, the Court announced that the minor and her father were in “a continuing and substantially integrated family relationship” and therefore the minor “was a resident of her insured father’s household . . ..”

In 2014, the N.C. Court of Appeals took resident-relative coverage to what is its outer limit to date. The case is N.C. Farm Bureau v. Paschal. The Court held that a minor plaintiff was a resident of her grandfather’s household. It reached this holding even though the minor and the grandfather did not live in the same house. More specifically, the minor lived about a mile away, but on a contiguous piece of property referred to as a “family farm.” The grandfather was paying all of the bills associated with the minor’s house. The minor, at times, lived with her grandfather when her father was either in jail and after her father died. They saw each other almost every day and the grandfather considered the minor to be part of his household. The minor had previously lived with her grandfather for a year but was not living with him at the time of the accident. Citing to the “substantially integrated family relationship” standard, the Court held that the minor was a resident of her grandfather’s household.[3]

Now we arrive at what you came here for: N.C. Farm Bureau v. Martin. The N.C. Court of Appeals issued an opinion on this case in September of 2019 (available from the Court here and to Lexis subscribers here). For a detailed discussion of the factual background, check out the post I did on the Court of Appeals decision here. To quickly summarize: Jean Martin and her daughter Marina sought UIM coverage under a personal auto policy issued to Mary Martin, Jean’s mother-in-law and Marina’s grandmother. Jean, Marina, and Mary lived on a family farm. Mary lived in the main house on the farm. Jean and Marina lived in a guesthouse. Mary paid all of the property taxes and utilities for the guesthouse either from the family farm’s account or from her own personal account. The Court of Appeals held that Jean and Marina were not residents of Mary’s household.

The majority opinion at the Court of Appeals was written by Judge Philip Berger, Jr. A dissent was written by Judge Lucy Inman. Interestingly, in this past election the two squared-off for a seat on the N.C. Supreme Court. Judge Berger won that contest by a margin of just over one percent.

The N.C. Supreme Court affirmed the Court of Appeals. The most important thing to know about the N.C. Supreme Court’s decision in Martin is that is unequivocally rejected the “substantially integrated family relationship” test. The majority opinion, authored by Justice Davis, held that “family members who have never actually lived together in the same dwelling cannot be considered to be residents of a single household.” The Davis and Paschal decisions left a lot of room for argument and ligation. Certainly to the relief of insurers, Martin shut the door on a substantial portion of those arguments. Particularly, it shut the door on the argument that a “substantially integrated family relationship” is sufficient to find that a person is a resident-relative. The Court very effectively described the outer-limit of resident-relative coverage as follows:

[I]n order to be deemed residents of the same household, parties must have lived in the same dwelling for some meaningful period of time under circumstances demonstrating an intent to form a common household . . ..

The dissent by Justice Earls was scathing. She notes that the living arrangement of the Martins is common in rural areas. Then, in language that essentially accuses the majority of being elitist urbanites, she launches her most direct attack:

I am doubtful that the majority would apply the same stringent definition to living arrangements that are more common in urban parts of the state. If Jean and Marina lived in a semi-detached garage apartment on Mary’s property, would they still be part of Mary’s household? What if they lived separately in both units of a duplex? Or what if Mary occupied an in-law suite complete with a kitchen, bath, and a separate living room, but which was physically contained within the same structure? No matter how the majority would interpret contracts applying to individuals in these hypothetical circumstances, the majority provides no convincing rationale for why that decision should turn entirely on whether or not the parties previously lived together in a single physical structure. We should apply the same fact-intensive, contextual approach to resolve a claim arising from Knotts Island as we would to a claim arising from Raleigh.

As is customary, she ends with “I respectfully dissent.”

As another election-related side note, Governor Cooper appointed Justice Davis, the author of the majority opinion, in May of 2019. He lost his seat in November to Tamara Barringer in a close election. Justice Earls, a democrat, won election to the Court in 2018. Controversially, her race included two Republicans, incumbent Barbara Jackson and Christopher Anglin who had been a Democrat until about five months before the election.

The Supreme Court’s decision in N.C. Farm Bureau v. Martin is an important one. It significantly tightens the realm of uncertainty in this area. Although there will be no shortages of other arguments to have, this much is now clear: When a party has not lived in the same dwelling as an insured for some meaningful period of time, that party is not insureds as a resident relative.

About the Author: Joe Fulton is a partner with Martineau King PLLC and focuses the majority of his practice on representing insurance companies in coverage disputes. Comments and feedback are welcome. Joe can be contacted by email at [email protected].

Important Disclaimer: The above is not legal advice and is made available for educational purposes only. You should not act upon this information without seeking advice from a lawyer licensed in your own state or jurisdiction. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state or jurisdiction. The presentation of this information does not form a lawyer/client relationship.

[1] N.C. Farm Bureau Mut. Ins. Co. v. Martin, No. 391A19, 2020 N.C. LEXIS 1136 (Dec. 18, 2020)

[2] Davis v. Md. Cas. Co., 76 N.C. App. 102, 331 S.E.2d 744 (1985)

[3] N.C. Farm Bureau Mut. Ins. Co. v. Paschal, 231 N.C. App. 558, 752 S.E.2d 775 (2014)

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