CANANWILL, INC.; RELIANCE INSURANCE COMPANY; and W. JOSEPH BURNS, Trustee for PILOT FREIGHT CARRIERS, INC., Plaintiffs, v. EMAR GROUP, INC.; WALSH GROUP, INC.; NATIONAL UNION INSURANCE COMPANY OF PITTSBURGH, P.A.; AMERICAN HOME INSURANCE COMPANY; AIG RISK MANAGEMENT, INC; AMERICAN INTERNATIONAL GROUP; VAN BUERDEN & ASSOCIATES INSURANCE SERVICES, INC.,
Defendants.
2:96CV00558, 2:96CV00560, 2:97CV00338
UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
250 B.R. 533; 1999 U.S. Dist. LEXIS 8222
March 5, 1999, Decided
March 5, 1999, Filed
DISPOSITION: [**1] National Union Insurance Company of Pittsburgh, P.A.'s ("National Union") motion for partial summary judgment as to count one of the Amended and Restated Complaint, as asserted by W. Joseph Burns, the Trustee of Pilot Freight Carriers, Inc. ("Pilot Freight"), GRANTED. Count one of the Amended and Restated Complaint DISMISSED with prejudice. National Union's and Van Buerden & Associates Insurance Services, Inc.'s ("Van Buerden") motions for summary judgment as to count three of the Amended and Restated Complaint, as asserted by Cananwill, Inc., and Reliance Insurance Company (collectively "Cananwill"), DENIED. EMAR Group, Inc.'s and Walsh Group, Inc.'s (collectively "EMAR") motion for partial summary judgment as to counts four and six of the Amended and Restated Complaint, as asserted by Cananwill, GRANTED. EMAR's motion for summary judgment as to National Union's cross-claim against EMAR (asserting that EMAR, as the broker of record for Pilot Freight, had a duty to National Union to see that the insurance policies met the terms of the revised proposals accepted by Pilot Freight) GRANTED. National Union's cross-claim against EMAR DISMISSED with prejudice.
COUNSEL: For CANANWILL, INC., RELIANCE [**2] INSURANCE COMPANY, plaintiffs (96-CV-558, 96-CV-560): ERIC P. HANDLER, TURNER ENOCHS & LLOYD, P.A., GREENSBORO, NC.
For W. JOSEPH BURNS, plaintiff (96-CV-558, 96-CV-560): ROBERT E. PRICE, JR., BURNS, PRICE & ARNEKE, L.L.P., WINSTON-SALEM, NC.
For VAN BUERDEN & ASSOCIATES INSURANCE SERVICES, INC., appellant (96-CV-558): MICHAEL F. SCHULTZE, CRANFORD, SCHULTZE & TOMCHIN, CHARLOTTE, NC.
For NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, appellant (96-CV-560): KENNETH RICHARD JACOBSON, ROBERT E. BOYDOH, JR., JACOBSON & BEAVERS, GREENSBORO, NC.
For EMAR GROUP, INC., WALSH GROUP, INC., appellants (97-CV-338): MICHAEL T. MEDFORD, MANNING, FULTON & SKINNER, RALEIGH, NC.
For EMAR GROUP, INC., WALSH GROUP, INC., THE, defendants (96-CV-558, 96-CV-560): MICHAEL T. MEDFORD, MANNING, FULTON & SKINNER, RALEIGH, NC.
For NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, AMERICAN HOME ASSURANCE COMPANY, AIG RISK MANAGEMENT, INC., defendants (96-CV-558, 96-CV-560): KENNETH RICHARD JACOBSON, ROBERT E. BOYDOH, JR., JACOBSON & BEAVERS, GREENSBORO, NC.
For AMERICAN INTERNATIONAL GROUP, defendant (96-CV-558, 96-CV-560): KENNETH RICHARD JACOBSON, JACOBSON [**3] & BEAVERS, GREENSBORO, NC.
For AMERICAN INTERNATIONAL GROUP, defendant (96-CV-558): ROBERT E. BOYDOH, JR., JACOBSON & BEAVERS, GREENSBORO, NC.
For VAN BUERDEN & ASSOCIATES INSURANCE SERVICES, INC., defendant (96-CV-558, 96-CV-560): MICHAEL F. SCHULTZE, CRANFORD, SCHULTZE & TOMCHIN, CHARLOTTE, NC.
For EMAR GROUP, INC., defendant (96-CV-560): JEFFREY M. GARROD, ORLOFF, LOWENBACH, STIFELMAN & SIEGEL, ROSELAND, NJ.
For WALSH GROUP, INC., THE, defendant (96-CV-560): ROBERT E. BOYDOH, JR., JACOBSON & BEAVERS, GREENSBORO, NC.
For CANANWILL, INC., RELIANCE INSURANCE COMPANY, appellees (96-CV-558, 96-CV-560, 97-CV-338): ERIC P. HANDLER, TURNER ENOCHS & LLOYD, P.A., GREENSBORO, NC.
For CANANWILL, INC., RELIANCE INSURANCE COMPANY, appellees (96-CV-560): MELANIE M. HAMILTON, TURNER ENOCHS & LLOYD, P.A., GREENSBORO, NC.
For NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, appellee (97-CV-338): KENNETH RICHARD JACOBSON, ROBERT E. BOYDOH, JR., JACOBSON & BEAVERS, GREENSBORO, NC.
JUDGES: James A. Beaty, Jr., United States District Judge.
OPINION BY: James A. Beaty, Jr.
OPINION: [*536]
MEMORANDUM OPINION
BEATY, District Judge.
I. INTRODUCTION
This matter is before [**4] the Court on appeal from an order of the United States Bankruptcy Court for the Middle District of North Carolina. For the reasons stated herein, and as a result of a de novo review, the decision of the Bankruptcy Court is affirmed to the extent that it is consistent, and reversed to the extent it is inconsistent, with the rulings set forth in this Memorandum Opinion. [*537]
II. FACTUAL BACKGROUND
In the Summer of 1988, Pilot Freight Carriers, Inc. ("Pilot Freight"), a North Carolina trucking company, retained the services of EMAR Group, Inc., and Walsh Group, Inc. (collectively "EMAR"), insurance brokers and agents located in New Jersey and New York, respectively, to solicit on its behalf a new workers' compensation insurance policy. Pilot Freight's current policy was due to expire on October 11, 1988.
As a result of EMAR's efforts, the National Union Insurance Company of Pittsburgh, P.A. ("National Union"), a New York-based insurance company incorporated in Pennsylvania, issued a workers' compensation insurance proposal on October 5, 1988 ("the October 5 proposal"). The October 5 proposal consisted of standard premium terms and retrospective terms. The retrospective terms called [**5] for an additional payment over-and-above the standard premium in the amount of $ 2,872,205.
The retrospective terms, if accepted, would convert the insurance agreement into a retrospectively rated policy. An insurance policy is "retrospectively rated" when it calls for a premium based on actual claims made. Although the insured pays an estimated premium at the inception of the policy period, an additional premium may be due, or excess premium may be refunded, depending upon actual losses incurred, a determination made at the end of the policy period. All parties involved understood the concept of retrospective rating and all parties acknowledge that the October 5 proposal provided for such a policy. Although Pilot Freight was prepared to accept the October 5 proposal, it informed National Union that it would not be able to secure a letter of credit for the $ 2,872,205, as was required according the terms of the offer. In response, National Union issued a revised proposal on October 12, 1988 ("the October 12 proposal"), which permitted Pilot Freight to satisfy its $ 2,872,205 obligation by making a cash payment of $ 2,872,205 at the inception of the policy period. The October 12 proposal, [**6] which had no other material changes, was duly accepted by Pilot Freight.
In order to make the necessary $ 2,872,205 payment to National Union, Pilot Freight entered into an Insurance Premium Finance Agreement ("Premium Finance Agreement") on October 12, 1988, with Cananwill, Inc., a Pennsylvania company specializing in insurance premium finance and which was owned at the time by Reliance Insurance Company (collectively "Cananwill"). Pursuant to the Premium Finance Agreement, Cananwill loaned Pilot Freight $ 5,361,811 so that Pilot Freight could pay the workers' compensation insurance premiums to National Union. The Premium Finance Agreement included the following security agreement:
[Pilot Freight] assigns to Cananwill as security for payment of [the loan] all sums payable to [Pilot Freight] with reference to the [National Union insurance policy], including, among other things, any gross returns or unpaid premiums and any payment on account of loss which results in reduction of unearned premium.
(Ex. 187.) In order to carry out the transaction, Cananwill sent a check for the entire loan amount to EMAR with the understanding that the entire sum would, in turn, [**7] be remitted to National Union. EMAR, however, at Pilot Freight's direction, did not remit the entire amount to National Union at that time. Instead, it deposited the $ 5,361,811 into its own bank account, issued checks to National Union in the amounts of $ 2,872,205 and $ 625,503, and transferred the remaining $ 1,864,103 into a newly-created trust. The trust funds would be used to make monthly payments to Cananwill and National Union for the premium finance loan and for the workers' compensation insurance, respectively.
The two checks issued to National Union were deposited in National Union's bank [*538] account and commingled with funds received from other policyholders. National Union maintains its insurance accounts on a modern computer system. This system tracks each policyholder's account. Therefore, at any given time National Union can determine, among other things, how much money has been received from a particular customer and how many claims have been filed under a particular policy.
On October 22, 1988, National Union issued a Workers Compensation and Employers Liability Insurance Policy ("the Standard Policy") n3 to Pilot Freight, effective October 11, 1988. This Standard Policy [**8] contained two merger clauses. The first appeared on the bottom of the first cover page: "THESE POLICY PROVISIONS WITH THE INFORMATION PAGE AND ENDORSEMENTS, IF ANY, ISSUED TO FORM A PART THEREOF, COMPLETE THIS POLICY." The second appeared on page one:
This policy includes at its effective date the Information Page and all endorsements and schedules listed there. It is a contract of insurance between [Pilot Freight] . . . and [National Union] . . . . The only agreements relating to this insurance are stated in this policy. The terms of this policy may not be changed or waived except by endorsement issued by [National Union] to be part of this policy.
The parties to the Pilot Freight insurance policy duly signed the Standard Policy. On November 14, 1988, and December 12, 1988, EMAR, on behalf of Pilot Freight, sent National Union checks for insurance premiums in the amounts of $ 625,502 and $ 625,503, respectively.
n3 National Union technically issued two insurance policies, one providing coverage in California and one providing coverage in other states. For the purposes of these appeals, the policies will be referred to as if they were one.
[**9]
On or about November 17, 1988, National Union, through EMAR, sent Pilot Freight a Premium Deferral Agreement which set forth the retrospective terms contained in the October 5 and October 12 proposals, and requested that Pilot Freight sign and return the document. The Premium Deferral Agreement was reviewed by Kenneth Gerrity ("Gerrity"), Pilot Freight's Director of Risk Management. In a letter dated November 21, 1988, and addressed to John Rapier of EMAR, Gerrity objected to several provisions of the Premium Deferral Agreement. Among other things, Gerrity took issue with the section entitled "EARNED PREMIUM COMPUTATION." He wrote:
If a retro[spective] return is due Pilot Freight . . . , I expect that we receive 100% of this return. [National Union] is currently holding over $ 2.8 million of our money in collateral, therefore I see absolutely no need for [National Union] to hold on to additional retrospective returns. We have never been involved in a retro[spectively rated policy] that did not return 100% of a retrospective return when it was due to the company.
(Ex. 368.) The Premium Deferral Agreement was never signed by Pilot Freight.
Despite the fact that [**10] Gerrity also wrote that "the [Premium Deferral] Agreement is not acceptable in its current form," (id.), he testified during discovery as follows:
Q. Did you consider the provisions of the Premium Deferral Agreement inconsistent with the arrangements that you understood at the time that the deal with Cananwill was made?
A. No, not really. The . . . Premium Deferral Agreement is something that any insurance policy, since the time that I've been involved in, you always get one of those things and it seems like they never get signed. It's like not a big deal to get them signed, from my experience. There was nothing more in there, you know, grossly in error. There were some things that they wanted us to agree to that I didn't feel that we should agree to and that's what I[] outlined [in the November 21, 1988, letter]. [*539] There were a few, you know, minor adjustments, nothing basic--major wrong with it.
(Gerrity Dep. Vol. I at 177-78.) It should be noted, however, that National Union never filed any of the documents constituting the Pilot Freight insurance policy with state regulators.
Soon thereafter and prior to January 1989, Pilot Freight removed EMAR as [**11] its insurance broker of record and began using the services of Van Buerden & Associates Insurance Services, Inc. ("Van Buerden"), a California insurance agent. In January 1989, Van Buerden, on behalf of Pilot Freight, met with representatives of National Union to discuss the possibility of reducing the $ 2,872,205 held by the insurance company. National Union concluded that, in light of the fact that Pilot Freight had significantly reduced its payroll since October 1988, a refund was appropriate. National Union agreed to reduce the $ 2,872,205 by $ 1,053,120. On or about February 15, 1989, National Union processed the $ 1,053,120 refund to Pilot Freight by executing a wire transfer to Van Buerden which, in turn, wired the funds to Pilot Freight.
Later in February 1989, Pilot Freight defaulted on its obligations to Cananwill and National Union. National Union canceled the insurance policy on April 16, 1989.
III. PROCEDURAL BACKGROUND
On July 13, 1989, an involuntary bankruptcy petition was filed against Pilot Freight in the United States Bankruptcy Court for the Middle District of North Carolina. W. Joseph Burns was duly appointed as the Trustee of the bankrupt estate.
On June [**12] 22, 1990, Cananwill instituted an Adversary Proceeding to recover monies allegedly owed by the Trustee. After settling its claims with Cananwill in July 1993, the Trustee realigned to join Cananwill as a plaintiff for further proceedings.
On April 15, 1994, Cananwill and the Trustee filed an Amended and Restated Complaint against EMAR, National Union, Van Buerden, and other entities not relevant to this appeal. The Amended and Restated Complaint contained six "counts." The first and second counts are alternative claims, asserting that the Trustee is entitled to unearned premiums held by National Union with respect to the Pilot Freight insurance policy. (Am. & Restated Compl. PP 54-66.) In count one, the Trustee seeks recovery by calculating unearned premiums due and owing based upon an interpretation that the policy was not retrospectively rated. (Id. at PP 55-58.) In count two, the Trustee seeks recovery by calculating unearned premiums due and owing as if the policy was retrospectively rated. (Id. at PP 63-65.) Count three consists of a claim by Cananwill that National Union's delivery of the $ 1,053,120 refund to Van Buerden constituted a conversion of Cananwill's property. [**13] (Id. at PP 67-72.) Count four is an allegation by Cananwill that EMAR and National Union negligently made certain misrepresentations to Cananwill with respect to the nature of the Pilot Freight insurance policy. (Id. at PP 73-80.) In count five Cananwill claims that National Union is responsible for the negligence of EMAR pursuant to the doctrine of respondeat superior. (Id. at PP 81-86.) In count six Cananwill alleges that EMAR fraudulently concealed from Cananwill certain materials terms of the Pilot Freight insurance policies. (Id. at PP 87-102.)
Various counterclaims and cross-claims were subsequently asserted by the parties. These counterclaims and cross-claims are not relevant to the appeals currently before the Court, with the following exception: National Union asserted a cross-claim against EMAR, contending that, as the broker of record for Pilot Freight, EMAR had a duty to National Union to see that the insurance policies met the terms of the revised proposals accepted by Pilot Freight. [*540]
Several motions for summary judgment were made in the Bankruptcy Court. By orders dated December 28, 1995, and January 5, 1996, the Bankruptcy Court granted two motions. [**14] n4 On May 2, 1996, the Bankruptcy Court denied all remaining motions. Specifically, United States Bankruptcy Judge William L. Stocks wrote that "the court is not satisfied from the materials relied upon by the moving parties that there are no genuine issues of fact in this case." (Order dated 5/2/96 at 3.) Five of these denials serve as the basis for the appeals now before this Court. n5
n4 The Bankruptcy Court granted Van Buerden's motion for summary judgment as to National Union's cross-claim that Van Buerden committed an unfair and deceptive act by allegedly concealing from National Union the terms of the Premium Finance Agreement when National Union wired the $ 1,053,120 to Van Buerden. The Bankruptcy Court also granted EMAR's motion for summary judgment as to National Union's cross-claim that EMAR committed an unfair and deceptive act by allegedly concealing the existence of the Premium Finance Agreement.
n5 Two of these denials--the denials of National Union's and Van Buerden's motions for summary judgment as to Cananwill's claim of conversion--will be treated together for the purpose of this Court's review.
[**15]
IV. APPEALS BEFORE THE COURT
As noted above, each appeal asserted by the various parties contends that the Bankruptcy Court erred when it denied summary judgment. The specific motions denied by the Bankruptcy Court and on appeal before this Court are described below.
First, National Union moved for partial summary judgment as to the Trustee's claim that is was entitled, on behalf of Pilot Freight, for a turnover of unearned premiums due and owing to Pilot Freight, calculated based upon the conclusion that the insurance policy was not retrospectively rated (count one). n6 Second, both National Union and Van Buerden moved for summary judgment as to Cananwill's claim that National Union's delivery of the $ 1,053,120 refund to Van Buerden constituted a conversion of Cananwill's property (count three). Third, EMAR moved for partial summary judgment as to Cananwill's claims that EMAR made certain misrepresentations about, and fraudulently concealed certain material terms of, the insurance policy issued to Pilot Freight (counts four and six). Lastly, EMAR moved for summary judgment as to National Union's cross-claim that EMAR, as the broker of record for Pilot Freight, had a duty to [**16] National Union to see that the insurance policies met the terms of the revised proposals accepted by Pilot Freight.
n6 Although National Union's motion is styled as one directed towards both counts one and two of the Amended and Restated Complaint, the Court notes that count two includes a calculation of premium that is consistent with National Union's argument, to wit, that the insurance policy at issue was retrospectively rated. As such, National Union's motion is, in effect, only directed towards count one.
V. STANDARD OF REVIEW
Conclusions of law made by a bankruptcy court are to be reviewed de novo. In Re Ballard, 65 F.3d 367 (4th Cir. 1995). Summary judgment is appropriate when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In making this determination, the Court views the evidence in the light most favorable to the non-moving party, according that party the benefit of all reasonable inferences. [**17] Bailey v. Blue Cross & Blue Shield, 67 F.3d 53, 56 (4th Cir. 1995), cert. denied, 516 U.S. 1159, 134 L. Ed. 2d 190, 116 S. Ct. 1043 (1996). Judges are not "'required to submit a question to a jury merely because some evidence has been introduced by the party having the burden of proof, unless the evidence be of such character that it would warrant the jury in finding a verdict in favor of that party.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, [*541] 91 L. Ed. 2d 202, 213, 106 S. Ct. 2505 (1986) (quoting Schuylkill & Dauphin Improvement & R.R. Co. v. Munson, 81 U.S. (14 Wall.) 442, 448, 20 L. Ed. 867, 872 (1871)).
VI. DISCUSSION
The Court will address the appeals in the order they were described in Section IV of this Memorandum Opinion.
A. National Union's Motion for Partial Summary Judgment as to the Trustee's Claim That it Was Entitled, on Behalf of Pilot Freight, to a Turnover of Unearned Premiums Due and Owing to Pilot Freight, Calculated Based upon the Conclusion That the Insurance Policy Was Not Retrospectively Rated (Count One)
As noted previously, count one of the Amended and Restated Complaint alleges that the Trustee is entitled to unearned [**18] premiums held by National Union with respect to the Pilot Freight insurance policy. Specifically, the Trustee contends, on behalf of Pilot Freight, that based upon the Trustee's calculations National Union owes Pilot Freight $ 4,333,981. (Am. & Restated Compl. P 58.) The Trustee arises at this figure as follows:
________________________________________________________________________________
Total premium payments received by National Union
$ 6,850,079
Less: February 1989 refund to Pilot Freight
(1,053,120)
Less: Earned premiums by National Union
(1,462,978)
Unearned premiums held by National Union
$ 4,333,981
(Id. at PP 45, 57, 58.) The Trustee's calculation of earned premiums is based on its contention that the Pilot Freight insurance policy was not retrospectively rated.
With its motion in the Bankruptcy Court, National Union sought partial summary judgment on the ground that the Pilot Freight insurance policy was retrospectively rated and, therefore, the Trustee's calculation of unearned premiums was incorrect. It contended in the Bankruptcy Court that earned premiums on the policy amount to $ 3,600,787, as set forth by the Trustee in count two, and, therefore, unearned premiums would, at most, amount to [**19] $ 1,703,828, not $ 4,333,981, calculated as follows:
(3,600,787)
$ 1,703,828
(Id. at 64.) With this appeal, National Union argues that the Bankruptcy Court erred when it denied the partial summary judgment motion since there is no genuine issue of material fact and the insurance policy, as a matter of law, was retrospectively rated. (Case 2:96CV00560, Br. of Appellant National Union at 7-8.) n7 In opposition to the appeal, the Trustee and Cananwill have filed a joint response.
n7 The Court notes that the parties have briefed the various issues regarding these appeals in several filings submitted in connection with multiple cases. As such, the Court will refer to the court documents by case number, filing, and, where applicable, page number.
At the outset, the Court notes [**20] that the parties do not contest the alternative calculations of earned premium. In other words, the parties agree that, if the policy is not deemed to be retrospectively rated, then earned premiums would amount to $ 1,462,978. The parties also acknowledge that, if the policy is deemed to be retrospectively rated, then earned premiums would amount to $ 3,600,787. The amount at issue, therefore, is the difference between these two figures, or $ 2,630,153.
National Union's argument is twofold. First, it contends that the Trustee judicially admitted in filings prior to the Amended and Restated Complaint that the insurance policy was retrospectively rated. Second, National Union asserts that, even if the Trustee's admissions do not constitute a complete bar to its claim, applicable rules of contract construction mandate partial [*542] summary judgment in National Union's favor because, as a matter of law, the insurance policy was retrospectively rated. The Court will address each argument separately.
1. Judicial Admission
Prior to the submission of the Amended and Restated Complaint on April 15, 1994, by the Trustee and Cananwill, the Trustee asserted in multiple filings with the Bankruptcy [**21] Court that the Pilot Freight insurance policy was, indeed, retrospectively rated.
On February 18, 1992, the Trustee filed a brief in support of a motion before the Bankruptcy Court requesting summary judgment as to Cananwill's claims that it was entitled to funds held by National Union as unearned premium. In the "Facts Presented and Procedural Posture" section of its brief, the Trustee asserted the following:
Pilot [Freight] obtained multi-state workers compensation insurance for the period October 11, 1988 to October 10, 1989 from National Union . . . . The terms of the agreement with National Union were that National Union would receive $ 3,829,606.00 in premium, paid in installments, together with $ 2,872,205.00 in collateral . . . . The policy was "retrospectively rated."
(Ex. 216 at 2 (emphasis added) (citations omitted).) Later in his brief, the Trustee further contended that (1) the policy was retrospectively rated and (2) the "collateral" was to be applied to any shortfall in premium due after the retrospective calculations, in the event that Pilot Freight failed to pay National Union directly for the additional premiums:
It is clear that the [**22] parties to the Workers' Compensation Insurance Policy . . . agreed that Pilot [Freight] would, in addition to its performance under the insurance policy, place collateral with National Union as security for its future performance under the insurance policy. The Workers' Compensation policy agreed to between Pilot [Freight] and National Union was a retrospectively rated policy. A retrospectively rated policy is one where within certain minimum and maximum limits, the premium due on the policy may change based on the claims experienced under the policy. If the claims were such, that upon a retrospective rating, the premium would increase, then, in that event the policy holder, Pilot [Freight], would be billed for the difference between the premium already paid and the premium due. If Pilot [Freight] did not pay that amount, then the insurance company could seek payment from the collateral posted . . . The Function of the collateral security fund was to protect National Union from future defaults by Pilot [Freight], in view of the shaky financial condition of the company.
Id. at 11 (emphasis added) (citations omitted).)
Next, on March 20, 1992, the Trustee filed [**23] his reply brief in connection with his motion for summary judgment filed on February 18, 1992. In the brief, the Trustee further contends that the policy was retrospectively rated. (Ex. 229 at 4-5.) In doing so, he noted that "even in the negotiations respecting the terms of the retrospective agreement, . . . Gerrity . . . refers to the retrospective nature of the policy." (Id. at 5.)
Lastly, on July 28, 1992, the Trustee filed a supplemental memorandum at the request of the Bankruptcy Court. Attached to the memorandum was, among other things, an affidavit by Roger D. Hershman ("Hershman"), Chief Executive Officer of the National Transportation Consulting Group, Inc., "a management consulting company having experience in operational, financial, and risk management aspects of the trucking industry." (Hershman Aff. P 1.) In the affidavit, Hershman set forth detailed information regarding the workers' compensation laws and related insurance policies. (Id. at [*543] PP 1-15.) In addition, he reviewed aspects of the Pilot Freight insurance policy and noted the following:
The National Union policy was retrospective. It was based on the actual experience of the insured during the [**24] policy period. Certainly, not all workers compensation policies are retrospective, but this one certainly was.
. . .
The National Union . . . policy with Pilot [Freight] is an example of a retrospectively rated policy.
(Id. at PP 21, 26.)
As noted above, National Union contends that these assertions constitute judicial admissions by the Trustee that support National Union's position that the policy was, in fact, retrospectively rated. As such, it argues that the assertions constitute a conclusive bar to the Trustee's present claim. Therefore, National Union further asserts, the Bankruptcy Court erred when it denied National Union's motion for partial summary judgment. In opposition, the Trustee and Cananwill argue that the doctrine of judicial admission applies only to statements of fact, not to arguments of law. They contend that "whether the Policy was (or was not) retrospective is not a question of fact; rather, it is a question of law regarding the proper construction of the Policy." (Case 2:96CV00560, Joint Br. of Pls./Appellees in Resp. to the Appeal of National Union at 8.) The Trustee and Cananwill further argue that, even if the statements were factual [**25] in nature, they do not constitute judicial admissions because the pleading on which the brief was based was subsequently amended. (Id. at 9.)
The doctrine of judicial admission is based upon the view that "[a] party is bound by his pleadings and, unless withdrawn, amended, or otherwise altered, the allegations contained in all pleadings ordinarily are conclusive as against the pleader." Davis v. Rigsby, 261 N.C. 684, 686, 136 S.E.2d 33, 34 (1964). "The effect of a judicial admission is to establish the fact for the purposes of the case and to eliminate it entirely from the issues to be tried." Rollins v. Junior Miller Roofing Co., 55 N.C. App. 158, 162, 284 S.E.2d 697, 700 (1981). The doctrine of judicial admission applies to assertions of fact, not arguments of law. Guidry v. Sheet Metal Workers Int'l Ass'n, Local No. 9, 10 F.3d 700, 716 (10th Cir. 1993). A court may, in its discretion, treat statements in a brief as binding admissions of fact. See, e.g., City Nat'l Bank v. United States, 907 F.2d 536, 544 (5th Cir. 1990). As the Fourth Circuit has explained,
[a] judicial admission is usually treated as absolutely binding, but such admissions go to [**26] matters of fact which, otherwise, would require evidentiary proof. They serve a highly useful purpose in dispensing with proof of formal matters and of facts about which there is no real dispute. Once made, the subject matter ought not to be reopened in the absence of a showing of exceptional circumstances, but a court, unquestionably, has the right to relieve a party of his judicial admission if it appears that the admitted fact is clearly untrue and that the party was laboring under a mistake when he made the admission.
New Amsterdam Cas. Co. v. Waller, 323 F.2d 20, 24 (4th Cir. 1963).
Here, the Trustee asserted on multiple occasions in briefs supporting its prior pleading that the Pilot Freight insurance policy was "retrospectively rated." In other words, the Trustee admitted that the insurance policy, by his own definition, was "one where within certain minimum and maximum limits, the premium due on the policy may change based on the claims experienced under the policy." These assertions do not constitute arguments of law. At the very least, they are mixed assertions of law and fact. Factually, they constituted admissions regarding the terms of an agreement entered [**27] into between two parties. See Universal Leaf Tobacco Co. v. Oldham, 113 N.C. App. 490, 439 S.E.2d 179 (1994); Rollins v. Junior [*544] Miller Roofing Co., 55 N.C. App. 158, 162, 284 S.E.2d 697, 700 (1981).
In Universal Leaf two insurance companies-INA and Lloyds--had issued separate policies covering property owned by the plaintiffs. The property was destroyed by fire and a dispute arose as to which insurance policy provided the "primary" coverage and which insurance policy covered the "excess." Among other things, the trial court had found that one of the terms of the insurance policies issued by INA contained a typographical error. Universal Leaf, 113 N.C. App. at 493, 439 S.E.2d at 181. n8 In reversing this finding, the Court of Appeals of North Carolina noted that INA, in its answer to Lloyd's counterclaim, had alleged an affirmative defense which included an excerpt of the term at issue. n9 That excerpt was consistent with Lloyd's assertions. The court held that "INA's allegation . . . constituted a judicial admission which INA could not thereafter contradict and which the trial court was bound to accept as true." Id. at 494, 439 S.E.2d at 181.
n8 The insurance policies issued by INA contained the following clause: "It is expressly agreed that this insurance will not cover to the extent of any other valued and collectible insurance . . . ." Universal Leaf, 113 N.C. App. at 493, 439 S.E.2d at 181 (emphasis in original). The trial court found that the clause contained a typographical error to the extent that the word "valued" should actually have been "valid." Id. Lloyds had asserted that there was no such typographical error and that the clause was correct as written.
[**28]
n9 INA alleged as an affirmative defense that "'INA issued policy number 434973 to Universal Leaf, which policy was in effect on October 3, 1986 and provided as follows: 7. It is expressly agreed that this insurance shall not cover to the extent of any other valued and collectible insurance . . . .'" Universal Leaf, 113 N.C. App. at 493, 439 S.E.2d at 181 (emphasis in original).
Similarly, in Rollins the plaintiffs alleged in their complaint that they entered into a contract with one of the defendants. That defendant, in turn, confirmed entering into the contract in its answer, and subsequently cited--and attached to its pleading--the same contract as the basis for its counterclaim. The plaintiffs then admitted entering into the contract in their reply. During discovery, the plaintiffs denied in depositions that the signature on the contract was that of one of the plaintiffs. With this testimony, they sought to defeat a summary judgment motion made by the defendant. In rejecting the deposition testimony, the Court of Appeals of North Carolina noted that the contract was attached to [**29] the defendant's counterclaim and "was established by the pleadings as the contract between the parties." Rollins, 55 N.C. App. at 161, 284 S.E.2d at 700. As a result, "the terms of the contract . . . were thus judicially admitted." Id. (emphasis added).
As indicated by Universal Leaf and Rollins, a court may apply the doctrine of judicial admission when a party pleads the factual existence or accuracy of terms of a contract in dispute. By asserting that the Pilot Freight insurance policy was "retrospectively rated," the Trustee was also asserting that the terms of the Premium Deferral Agreement, that is, retrospective rating, were a necessary part of the contract between National Union and Pilot Freight. Thus, the doctrine of judicial admission may apply in this instance. n10
n10 The Trustee and Cananwill cite Guidry v. Sheet Metal Workers Int'l Ass'n, Local No. 9, 10 F.3d 700 (10th Cir. 1993), in support of its position. Guidry, however, dealt with an attorney's assertion regarding the effect of a prior precedent on that attorney's case. Such an assertion is entirely a proposition of law and not a statement of fact.
[**30]
Moreover, with respect to the Fourth Circuit's guidance in New Amsterdam, it does not appear that the admitted fact is "clearly untrue" or that the Trustee was "laboring under a mistake" when he asserted that the agreement between National Union and Pilot Freight was retrospective in nature. The only material new factual development that would have had any effect upon the Trustee's prior pleadings [*545] was the final calculation of premium due under a retrospective calculation. Since that calculation resulted in a final figure that was substantially higher than the estimated amount as of the date of the Trustee's prior filings, it was of concern to the Trustee that the amount of unearned premiums available to the bankrupt estate of Pilot Freight substantially decreased. In fact, the Trustee acknowledged during oral argument that his primary motivation for now claiming that the policy was not retrospectively rated is that a non-retrospective calculation would result in the availability of more unearned premiums.
As noted above, the Trustee argues that even if the prior statements constituted factual assertions they cannot constitute judicial admissions because the pleading upon which [**31] the brief was based was later amended. This Court disagrees. Superseding a pleading by amendment affects the weight, not the competency, of statements made in the original:
When a pleading is amended . . . the superseded portion ceased to be a conclusive judicial admission; but it still remains as a statement once seriously made . . . and as such it is competent evidence of the facts stated, though controvertible, like any other extrajudicial admission made by a party or his agent.
Kunglig Jarnvagsstyrelsen v. Dexter & Carpenter, Inc., 32 F.2d 195, 198 (2d Cir. 1929) (emphasis added); see also Kabatnik v. Westminster Co., 71 N.C. App. 758, 761, 323 S.E.2d 398, 400 (1984) (amendment to pleading affects weight, not competency, of assertions made in original). n11 Here, the pleading which the briefs supported was superseded by the Amended and Restated Complaint. As such, the prior factual assertions cannot constitute a conclusive judicial admission. The statements, however, are not rendered inadmissible, and may be considered by this Court.
n11 Some courts have even suggested that the amendment of a pleading has no effect on the question of whether statements in the original may be judicially admitted. See, e.g., Andrews v. Metro N. Commuter R.R. Co., 882 F.2d 705, 707 (2d Cir. 1989) ("The amendment of a pleading does not make it any the less an admission of the party.").
[**32]
This determination is consistent with the view that "[a] party . . . cannot advance one version of the facts in its pleadings, conclude that its interests would be better served by a different version, and amend its pleadings to incorporate that version, safe in the belief that the trier of fact will never learn of the change in stories." United States v. McKeon, 738 F.2d 26, 31 (2d Cir. 1984) (emphasis added); see also United States v. Belculfine, 527 F.2d 941, 944 (1st Cir. 1975) ("Judicial admissions generally arise only from deliberate voluntary waivers that expressly concede . . . the truth of an alleged fact.").
Based upon the foregoing analysis, this Court finds that the Trustee judicially admitted in its prior filings that the Pilot Freight insurance policy was, in fact, retrospectively rated. However, the admission is not conclusive since the pleading the admissions supported was subsequently amended. As a result, it alone does not serve to bar the Trustee's claim.
2. Contract Construction
As noted previously, with its motion in the Bankruptcy Court National Union requested partial summary judgment as to the Trustee's first claim that the Pilot Freight policy [**33] was not retrospectively rated. National Union asserted that there was no genuine issue of material of fact and that, as a matter of law, the Pilot Freight insurance policy was retrospectively rated.
At the outset, the parties contest the law to be applied for the purposes of examining the Pilot Freight insurance policy. National Union asserts that North Carolina law applies because that state has a "close connection" to the insured. (Case 2:96CV00560, Br. of Appellant National Union at 16-17.) The Trustee and Cananwill, on the other hand, argue that New York law applies because the North Carolina [*546] choice-of-law rule regarding contracts is the lex locus. (Case 2:96CV00560, Joint Br. of Pls./Appellees in Resp. to the Appeal of National Union at 11 n. 12.)
In North Carolina, contract construction issues are decided by applying the law of the state "where the contract was made." Tanglewood Land Co. v. Byrd, 299 N.C. 260, 261 S.E.2d 655 (1980). The Trustee and Cananwill contend that the Pilot Freight insurance policy was "made" in New York. (Case 2:96CV00560, Joint Br. of Pls./Appellees in Resp. to the Appeal of National Union at 11 n. 12.) However, section 58-3-1 of the North [**34] Carolina General Statutes provides as follows:
All contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein, and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof.
N.C. Gen. Stat. § 58-3-1 (emphasis added). Since this case involves an insurance contract, and such application was taken by a resident of North Carolina, it is deemed made in North Carolina. Therefore, this Court will apply North Carolina law. Collins & Aikman Corp. v. Hartford Accident & Indem. Co., 335 N.C. 91, 436 S.E.2d 243 (1993); Pace v. New York Life Ins. Co., 219 N.C. 451, 14 S.E.2d 411 (1941) (North Carolina law applied when application for life insurance made by resident of North Carolina).
This Court recognizes that the Trustee and Cananwill argue that Collins & Aikman is "in conflict with the rule of lex locus contract, which has long been followed [in North Carolina] and which looks, even for insurance contracts, to the state where the last act occurred that was necessary to make the contract." (Case 2:96CV00560, [**35] Joint Br. of Pls./Appellees in Resp. to the Appeal of National Union at 11 n. 12.) In support of this proposition, they cite Roomy v. Allstate Insurance Co., 256 N.C. 318, 123 S.E.2d 817 (1962). But the Supreme Court of North Carolina in Collins & Aikman, 335 N.C. 91, 436 S.E.2d 243 (1993), specifically declined to extend Roomy beyond its particular facts. The court in Collins & Aikman noted that Roomy held, "without any references to N.C.G.S. § 58-3-1 or its predecessor, that the law of the state[] in which the policy was issued was the law that governed. It is the very few contacts with this state that distinguishes . . . Roomy from this case." Id. at 94, 436 S.E.2d at 245. Similarly, this Court finds that, although the policies did not provide coverage within North Carolina, the extent of Pilot Freight's presence in the state (i.e., headquartered in Winston-Salem, North Carolina) at the time the insurance policy was issued constitutes a sufficient connection with the state and, therefore, consistent with Collins & Aikman, North Carolina law should apply to any examination of Pilot Freight's contractual relationship with National Union. See also [**36] Martin v. Continental Ins. Co., 123 N.C. App. 650, 474 S.E.2d 146 (1996) (sufficient connection to warrant applying North Carolina law where 17.858% of vehicles insured through the policy at issue were in North Carolina).
As noted previously, the parties do not dispute, among other things, that (1) Pilot Freight and National Union intended to enter into a retrospectively rated insurance contract; (2) National Union's October 12 proposal, which included retrospective provisions, was accepted by Pilot Freight; (3) Pilot Freight obtained premium financing from Cananwill on October 12, 1988, and, through EMAR, paid National Union $ 2,872,205 and $ 625,503; (4) the Standard Policy was sent by National Union to Pilot Freight on October 22, 1988, and was duly signed by the parties; (5) the Standard Policy contained merger clauses; and (6) the Premium Deferral Agreement was sent by National Union to Pilot Freight on November 17, 1988, and was not signed by Pilot Freight. [*547]
Given these undisputed facts, National Union contends that, as a matter of contract law, Pilot Freight became bound by the retrospective terms of the Premium Deferral Agreement. (Case 2:96CV00560, Br. of Appellant National [**37] Union at 17-35.) The Trustee and Cananwill argue that, as a matter of contract law, the retrospective rating provisions contained in the October 12 proposal and agreed to by Pilot Freight do not apply because they were not included in the Standard Policy--which contained merger clauses--issued by National Union on October 22, 1988. (Case 2:96CV00560, Joint Br. of Pls./Appellees in Resp. to the Appeal of National Union at 10-21.) Considering the facts in the light most favorable to the Trustee and Cananwill, the nonmovants, this Court finds with respect to the construction of the contract that there is no genuine issue of material fact and, as a matter of law, the Pilot Freight insurance policy was, indeed, retrospectively rated.
In analyzing the construction of a contract, a court must also determine to what extent matters outside a writing affect the rights and responsibilities of the parties to that contract. In doing so, a court must make multiple inquiries. See Smith v. Central Soya of Athens, Inc., 604 F. Supp. 518 (E.D.N.C. 1985). A court initially must determine whether the writing was "integrated." Id. at 524. Only findings of integration will implicate the parol evidence [**38] rule, which provides as follows:
Any or all parts of a transaction prior to or contemporaneous with a writing intended to record them finally are superceded and made legally ineffective by the writing. The execution of the final writing may be termed the 'integration' of the transaction. By it all prior and contemporaneous negotiations or agreements, whether oral or written, are 'merged' into the writing, which thus becomes the exclusive source of the parties' rights and obligations with respect to the particular transaction or part thereof intended to be covered by it.
Id. (quoting 2 Brandis on North Carolina Evidence § 251 (1982) (emphasis in original)).
The effect of the parole evidence rule further depends, however, on whether the integration was "partial" or "total." Id. Therefore, a court must next make such an inquiry. If the court finds that the writing was a total or complete integration, then "evidence of prior and contemporaneous negotiations and agreements are not admissible to vary, add to, or contradict the writing." Id. (citing Rowe v. Rowe, 305 N.C. 177, 185, 287 S.E.2d 840, 845 (1982)). If, however, the writing is determined to [**39] be only a partial integration, then "not only may prior or contemporaneous evidence be admitted to clarify any ambiguity, but evidence of consistent additional terms may also be introduced and incorporated in the writing by means of parol evidence." Id. (citing Hoots v. Calaway, 282 N.C. 477, 193 S.E.2d 709 (1973); A & A Discount Ctr., Inc. v. Sawyer, 27 N.C. App. 528, 219 S.E.2d 532 (1975)).
Following these rules, this Court must initially determine "whether the . . . writing[] . . . [was] intended by the parties as [a] final expression[] . . . of the terms contained therein, i.e. did the parties intend the writing[] to evidence their final agreement with regard to the included terms in the contract[]." Id. In other words, did Pilot Freight and National Union intend for the Standard Policy to evidence the final agreement with regard to the terms included in that document? National Union argues that, "because Pilot Freight and National Union performed the contract in accordance with the Standard [Policy] and the Premium Deferral Agreement after the [Standard Policy was] issued, it is clear that the [Standard Policy] alone [was] not intended to [**40] be the final expression of the terms between the parties." (Case 2:96CV00560, Br. of Appellant National Union at 35 (emphasis in original).) In response, the Trustee and Cananwill primarily argue that "the [*548] threshold question of whether a contract is 'integrated' cannot be answered with parol evidence . . . ." (Case 2:96CV00560, Joint Br. of Pls./Appellees in Resp. to the Appeal of National Union at 14.)
Contrary to the Trustee's and Cananwill's assertions, this Court may consider extrinsic evidence for the purposes of determining whether the writing was integrated: "Whether a writing has been adopted as an integrated agreement is . . . to be determined in accordance with all relevant evidence." Restatement (Second) of Contracts § 209 cmt. c. (1981) (emphasis added); see also Burroughs Corp. v. Weston Int'l Corp., 577 F.2d 137, 140 (4th Cir. 1978) ("The determination is dependent upon the facts of each case, and no relevant evidence should be excluded in making this preliminary determination." (emphasis added)). n12
n12 While the Court must determine whether the agreement is integrated before admitting parol evidence for the trier of fact's consideration, the Court is free to rely on this very same extrinsic evidence in reaching the threshold determination of whether the writing is integrated. See Restatement (Second) of Contracts § 209 reporter's note to cmt. c; id. § 213 cmt. b.
[**41]
Applying the above rules to the case at hand, this Court finds that there was no integration as to the Standard Policy. It is undisputed that Pilot Freight and National Union intended their premium arrangements to reflect the retrospective rating calculations set forth in the October 12 proposal. There has been no evidence presented which would tend to indicate that the parties' intentions with respect to such premium arrangements ever changed. Rather, the facts tend to indicate that, at the time the Standard Policy was executed by the parties, the intention was to follow the retrospective terms set forth in the October 12 proposal and later embodied in the Premium Deferral Agreement. Gerrity's reaction to the Premium Deferral Agreement when it was sent to Pilot Freight in November is consistent with this finding. Had Pilot Freight intended for the Standard Policy to be a final expression of the premium terms, Gerrity would have rejected outright the Premium Deferral Agreement's central purpose, to wit, the establishment of a retrospectively rated insurance agreement. Instead, he testified that his decision to forego signing the document was due to the fact that "there were a [**42] few . . . minor adjustments, nothing basic [or] major wrong with it." Given these undisputed facts, it is clear that the parties did not intend for the premium provisions in the Standard Policy to serve as the "last word" on those matters. Instead, both parties intended to have a retrospectively rated insurance policy, consistent with the terms set forth in the October 12 proposal and the Premium Deferral Agreement. In other words, the parties did not intend for the Standard Policy to be the final expression of the terms contained therein. Based upon the foregoing, therefore, this Court concludes that there was no integration with respect to the Standard Policy.
Having concluded that there was no integration with respect to the Standard Policy, this Court need not further consider whether any integration was partial or total. This Court further finds that the agreement between Pilot Freight and National Union included the retrospective rating terms set forth in the October 12 proposal and the Premium Deferral Agreement, and agreed to by Pilot Freight. Thus, this Court concludes that the Bankruptcy Court erred when it denied National Union's motion for partial summary judgment. [**43]
The Court notes that EMAR contends that, even if the Pilot Freight insurance policy was retrospectively rated, the contract is unenforceable because National Union failed to make certain state regulatory filings with respect to the policy. EMAR makes this argument in connection with its motion for partial summary judgment as to Cananwill's claims that EMAR [*549] made certain negligent misrepresentations about, and fraudulently concealed certain material terms of, the insurance policy issued to Pilot Freight (counts four and six). That motion is addressed below (section VI.C.). Since this argument was made in connection with EMAR's motion, not National Union's the Court will discuss the substantive issue it raises later in this Memorandum Opinion.
B. National Union's and Van Buerden's Motions for Summary Judgment as to Cananwill's Claim That National Union's Deliv
