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Horace Mann Insurance Co. v. Continental Casualty Co.

Filed: November 17, 1981.

HORACE MANN INSURANCE COMPANY, J. E. MARTIN, AND PAUL G. HEATON
v.
CONTINENTAL CASUALTY COMPANY



Appeal by defendant from Kivett, Judge. Order entered 25 November 1980 in Superior Court, Guilford County. Heard in the Court of Appeals 14 October 1981.

Becton, Judge. Chief Judge Morris and Judge Arnold concur.

Becton

I

The facts are undisputed. In December 1977, the individual plaintiffs, J. E. Martin and Paul G. Heaton, as suerintendent and principal, respectively, in the Stanly County School System, were sued in federal court by Michael Smith, a teacher, who alleged that his teaching contract had not been renewed because of his exercise of First Amendment rights.*fn1 At the time the federal

court suit was instituted by Smith, CNA had in force and effect its policy number BEL 318 1371, under which the Stanly County Board of Education and the individual plaintiffs, Martin and Heaton, were assureds. Horace Mann had in force and effect its policy number M-3008, insuring Heaton, and its policies Nos. M-3013 and M-4002, insuring Martin.

Unquestionably, each policy in controversy would have separately covered Smith's claim against Martin and Heaton were it not for the existence of the policy(ies) of the other insurer. The Horace Mann policies required it to defend any civil suit against Martin and Heaton arising out of their activities in a professional capacity, even if the suit were groundless, false or fraudulent. CNA's policy is one of indemnity. It does not contain the standard insuring agreement to furnish the assureds with a defense to an action as do liability policies. CNA's policy, however, does require it to reimburse the assureds for loss covered by the policy for which the assureds should become legally obligated to pay, and the definition of loss includes cost of defense of legal actions.

Horace Mann contends that its policies contain "excess insurance" clauses and only provide coverage in excess of the primary coverage provided by CNA. CNA contends that its policy contains an "other insurance" clause*fn2 and provides no coverage to Martin and Heaton since they had valid policies with Horace Mann. Because CNA denied coverage, Horace Mann undertook the defense of the federal case, and a settlement was eventually negotiated.*fn3

The plaintiffs filed this action in state court asserting that CNA wrongfully denied coverage to Martin and Heaton and that the plaintiffs were entitled to recover from CNA $52,479.68 -- the amount paid in settlement and defense of the federal court action.

CNA argues on appeal (1) that since there was no genuine issue as to any material fact, it, as opposed to Horace Mann, was entitled to summary judgment as a matter of law; (2) that if CNA's other insurance clause is not controlling, the clause at least cancels Horace Mann's excess clause and the loss should be prorated between the two companies; and (3) if Horace Mann is not liable on its policy, then it defended the action as a "mere volunteer" and is not entitled to maintain this action against CNA.

II

We must first decide which of the two policies is primary and which is excess. The relevant provisions in the CNA policy are ...


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