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BUILDERS MUTUAL INSURANCE COMPANY v. NORTH MAIN CONSTRUCTION,
LTD., GAJENDRA SIROHI, and wife, POONAM SIROHI
No.  155A06
FILED:  15 DECEMBER  2006
Insurance-commercial general liability policy--automobile exclusion-negligent hiring,
retention, and supervision claims-auto accident sole source of injury-exclusion applicable
As a general rule, an insurance policy will not provide coverage where an excluded
cause is the sole cause of liability, but coverage extends when damage results from more than one
cause, even if one of those is excluded.  Here, an auto exclusion in a commercial general liability
policy applied, and summary judgment was correctly granted for plaintiff insurer in a declaratory
judgment action to determine liability for claims of negligent hiring, retention, and supervision,
where the injuries in the case arose from the use of a company van.
Justice TIMMONS-GOODSON dissenting.  Justice MARTIN joins in this
dissenting
opinion.
Appeal pursuant to N.C.G.S.  §  7A-30(2) from the
decision of a divided panel of the Court of Appeals,  176 N.C.
App.  ___,  625 S.E.2d  622  (2006), reversing an order entered  19
October  2004 by Judge Howard E. Manning, Jr. in Superior Court,
Wake County, and remanding for entry of summary judgment in
plaintiff’s favor.    Heard in the Supreme Court  16 October  2006.
Pinto Coates Kyre & Brown, P.L.L.C., by Richard L.
Pinto and John I. Malone, Jr., for plaintiff-appellee.
Pulley, Watson, King & Lischer, P.A., by Guy W.
Crabtree, for defendant-appellants Gajendra and Poonam
Sirohi.
WAINWRIGHT, Justice.
This is a declaratory judgment action brought by
plaintiff Builders Mutual Insurance Company  (Builders Mutual)
against defendants North Main Construction, Ltd.  (North Main) and
Gajendra and Poonam Sirohi  (the Sirohis).    Builders Mutual
insures North Main under a Commercial General Liability Insurance
Policy  (the policy), which contains the following exclusionary
clause:




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This insurance does not apply to:
g.    Aircraft, Auto Or Watercraft.
“Bodily injury” or  “property damage” arising
out of the ownership, maintenance, use or
entrustment to others of any aircraft,  “auto”
or watercraft owned or operated by or rented
or loaned to any insured.    Use includes
operation and  “loading or unloading.”
The sole question before this Court is whether Builders Mutual
has a duty under the policy to defend or indemnify North Main in
a negligence suit filed by the Sirohis.1
In a complaint dated  20 September  2002 and filed in
Superior Court, Wake County, the Sirohis asserted multiple causes
of action against North Main and its employee, Ronald F. Exware,
Jr.  (Exware), including claims for negligent driving, negligent
entrustment, negligent hiring, negligent retention, and negligent
supervision.    The Sirohis’ complaint alleges that Poonam Sirohi
was injured on  29 November  2001 when Exware drove the company van
across the median of Interstate  40 and collided with her vehicle.
Exware was cited for driving while intoxicated and careless and
reckless driving in connection with the wreck.    At that time,
Exware already had multiple moving violations on his seven-year
driving record, including one previous conviction for driving
North Main’s van on the wrong side of the road, three speeding
charges, and one charge of transporting an open container of
alcoholic beverage.
1 The record reflects that Builders Mutual also insured
North Main under a separate business automobile liability policy,
the scope and coverage of which is not at issue on appeal.




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The Sirohis’ complaint alleged that North Main was
negligent in the following ways:
(a) North Main allowed Exware to drive a
company vehicle, even though it knew that he
had received a citation for driving on the
wrong side of the road in a company vehicle
several months before the wreck;
(b) North Main knew that Exware’s driving
record was extremely poor, to the extent that
his operation of a motor vehicle would likely
cause great risk and danger to others, such
as Mrs. Sirohi;
(c) North Main failed to properly hire,
supervise, and retain its employees;
(d) North Main participated in and condoned
conduct that was likely to lead to death or
injury to others;
(e) North Main created and fostered an
atmosphere among its employees and officers
that the consumption of alcohol and illegal
drugs and the use of company vehicles was
permissible.
On  12 April  2004, Builders Mutual filed this
declaratory judgment action seeking a determination that it does
not have a duty to defend or indemnify North Main against the
Sirohis’ suit because its policy with North Main does not provide
liability coverage for injuries arising out of the use or
entrustment of an automobile.    Although North Main failed to
respond to Builders Mutual’s complaint, the Sirohis filed an
answer on  24 May  2004.    Thereafter, the Sirohis moved for summary
judgment and Builders Mutual moved for judgment on the pleadings,
which the trial court also considered as a motion for summary
judgment.    On  19 October  2004, the trial court entered an order
allowing each motion in part and denying each motion in part.
The court ruled that the policy does not provide coverage for the




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claims of negligent entrustment and negligent driving, but that
the policy does provide coverage for claims of negligent hiring,
negligent supervision, and negligent retention.    Builders Mutual
appealed, and on  21 February  2006, a divided panel of the Court
of Appeals reversed the trial court and remanded the case for
entry of summary judgment in favor of Builders Mutual.
This Court must now determine whether the Sirohis’
claims for negligent hiring, retention, and supervision are
covered by Builders Mutual’s policy with North Main.    In so
doing, the Court will review the trial court’s order allowing
summary judgment de novo.    Howerton v. Arai Helmet, Ltd.,  358
N.C.  440,  470,  597 S.E.2d  674,  693  (2004).    Summary judgment is
appropriate when  “there is no genuine issue as to any material
fact” and  “any party is entitled to a judgment as a matter of
law.”    N.C.G.S.  §  1A-1, Rule  56(c)  (2005).
An insurer’s duty to defend a policy holder against a
lawsuit is determined by the facts alleged in the pleadings.
Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co.,  315 N.C.
688,  691,  340 S.E.2d  374,  377  (1986).    If the pleadings  “state
facts demonstrating that the alleged injury is covered by the
policy, then the insurer has a duty to defend, whether or not the
insured is ultimately liable.”    Id.    If the pleadings  “allege
facts indicating that the event in question is not covered, and
the insurer has no knowledge that the facts are otherwise, then
it is not bound to defend.”    Id.
Insurance contracts commonly contain exclusionary
clauses that list sources of liability the policy does not cover.




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In the case sub judice, Builders Mutual’s policy with North Main
excludes  “‘[b]odily injury’ or  ‘property damage’ arising out of
the ownership, maintenance, use or entrustment to others of any  .
.  .  ‘auto’  .  .  . owned  .  .  . by  .  .  . any insured  [North Main].”
(Emphasis added.)    An injury  “arises out of” an excluded source
of liability when it is proximately caused by that source.    State
Capital Ins. Co. v. Nationwide Mut. Ins. Co.,  318 N.C.  534,  547,
350 S.E.2d  66,  73-74  (1986).
“As a general rule, coverage will extend when damage
results from more than one cause even though one of the causes is
specifically excluded,” Avis v. Hartford Fire Ins. Co.,  283 N.C.
142,  150,  195 S.E.2d  545,  549  (1973)  (citations omitted), but if
an excluded source of liability is the  “sole cause of the injury”
then the policy does not provide coverage, State Capital,  318
N.C. at  546,  350 S.E.2d at  73.    This Court has previously
determined that the use of an automobile was not the  “sole cause
of the injury” when an insured party accidently shot his
passenger while retrieving a loaded shotgun from the storage
compartment of his pickup truck.    State Capital,  318 N.C. at  536,
547,  350 S.E.2d at  67-68,  74.    In that case,  “negligent
mishandling of the rifle” was  “a non-automobile proximate cause”
of injury.    Id. at  547,  350 S.E.2d at  74.    Accordingly, the Court
concluded that the insured party’s homeowners insurance policy
covered the accident, even though the policy contained an
automobile exclusion similar to the exclusion in the policy sub
judice.    Id.




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Here, Poonam Sirohi was injured when Exware drove North
Main’s van into her vehicle; therefore, her injuries  “arise[] out
of” the use of a vehicle owned by North Main.    Although the
Sirohis allege that North Main was negligent in hiring,
retaining, and supervising Exware, these actions were harmful to
Poonam Sirohi only because Exware was required to drive the
company van in the course of his employment, and the collision
was the sole cause of Sirohi’s injury.    For this reason, we
determine that negligent hiring, negligent retention, and
negligent supervision are not  “non-automobile proximate cause[s]”
of Poonam Sirohi’s injuries for the purpose of determining the
scope of Builders Mutual’s liability under the policy.
Because the facts alleged by the Sirohis in their
pleadings indicate that their injuries are not covered by
Builders Mutual’s policy with North Main, Builders Mutual does
not have a duty to defend or indemnify North Main against the
Sirohis’ negligence action.    Accordingly, the decision of the
North Carolina Court of appeals is affirmed.
AFFIRMED.
Justice TIMMONS-GOODSON dissenting.
Because I believe the Sirohis have forecast evidence
that establishes as a matter of law the presence of a non-
automobile proximate cause, I would hold that the automobile
exclusion contained in North Main’s Commercial General Liability
Insurance Policy does not apply.    Therefore, I respectfully
dissent.




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The sole issue before us is whether Builders Mutual has
a duty to defend North Main Construction and Ronald Exware
against the Sirohis’ claims that North Main engaged in negligent
hiring, supervision, and retention.    Because an insurer’s duty to
defend is broader than its duty to provide coverage, we need not
determine whether North Main will ultimately be held liable or
whether Builders Mutual will be required to provide coverage.
Waste Management of Carolinas, Inc. v. Peerless Insurance Co.,
315 N.C.  688,  691,  340 S.E.2d  374,  377  (1986).    Rather, we must
determine whether the pleadings contain any facts demonstrating
that  “the alleged injury is covered by the policy.”    Id.    If such
facts are present,  “then the insurer has a duty to defend.”    Id.
Finally,  “[a]ny doubt as to coverage is to be resolved in favor
of the insured.”    Id. at  693,  340 S.E.2d at  378.
In State Capital Insurance Co. v. Nationwide Mutual
Insurance Co.,  318 N.C.  534,  547,  350 S.E.2d  66,  74  (1986), we
held that  “exclusionary language  .  .  . should be interpreted as
excluding accidents for which the sole proximate cause involves
the use of an automobile.    If there is any non-automobile
proximate cause, then the automobile use exclusion does not
apply.”    Id. at  547,  350 S.E.2d at  74  (emphasis added).    As the
majority recognizes, under the facts of State Capital,  “negligent
mishandling of  [a] rifle” was a non-automobile proximate cause.
Id.    Therefore, the homeowners policy in question provided
coverage.    Id.
The State Capital decision is in line with our long-
standing general rule that  “[e]xclusions from and exceptions to




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undertakings by  [an insurance company] are not favored, and are
to be strictly construed to provide the coverage which would
otherwise be afforded by the policy.”    Maddox v. Colonial Life &
Accident Ins. Co.,  303 N.C.  648,  650,  280 S.E.2d  907,  908  (1981);
see also Wachovia Bank & Tr. Co. v. Westchester Fire Ins. Co.,
276 N.C.  348,  355,  172 S.E.2d  518,  522-23  (1970); Allstate Ins.
Co. v. Shelby Mut. Ins. Co.,  269 N.C.  341,  346,  152 S.E.2d  436,
440  (1967); Thompson v. Mut. Benefit Health & Accident Ass’n,  209
N.C.  678,  682,  184 S.E.  695,  698  (1936).    The majority in the
instant case misapplies State Capital.
We have defined proximate cause as  “a cause that
produced the result in continuous sequence and without which it
would not have occurred, and one from which any man of ordinary
prudence could have foreseen that such a result was probable
under all the facts as they existed.”    Mattingly v. N.C. R.R.
Co.,  253 N.C.  746,  750,  117 S.E.2d  844,  847  (1961)  (citing
Ramsbottom v. Atl. Coast Line R.R. Co.,  138 N.C.  38,  50 S.E.  448
(1905)).    In a claim for negligent hiring and retention, two
separate inquiries must be conducted as to causation:    First, did
the employee’s actions cause the injury?    Second, did the
employer’s hiring and retention of the employee cause the injury?
See, e.g., Waddle v. Sparks,  331 N.C.  73,  87,  414 S.E.2d  22,  29
(1992)  (“An essential element of a claim for negligent retention
of an employee is that the employee committed a tortious act
resulting in plaintiffs’ injuries.”); Medlin v. Bass,  327 N.C.
587,  591,  398 S.E.2d  460,  462  (1990)  (noting that the essential
elements of a claim for negligent employment or retention include




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proof of both the underlying negligent act and that the injury
resulted from the employer’s negligent hiring and retention).
Though the majority in the instant case cites State
Capital, it applies that case’s proximate cause standard
incorrectly when it concludes that North Main’s  “actions were
harmful to Poonam Sirohi only because Exware was required to
drive the company van in the course of his employment.”    The
Sirohis claim that North Main’s negligent hiring, retention, and
supervision of employees regarding the use of drugs and alcohol
was a proximate cause of Poonam Sirohi’s injuries.    These causes
of action impose direct liability for North Main’s negligence, as
opposed to vicarious liability for Exware’s use of the vehicle.
See Charles E. Daye & Mark W. Morris, North Carolina Law of Torts
§  23.10, at  453  (2d ed.  1999).    As such, a proximate cause of the
harm for the negligent hiring, retention, and supervision claims
is North Main’s negligence in hiring, retaining, and supervising
Exware, this negligence concurring with Exware’s negligent use of
the automobile.    North Main’s decision to hire and retain Exware
predates the tortious activity that is the subject of this case
and is wholly separate from that activity.    Thus, while Exware’s
operation of a vehicle was a proximate cause of Poonam Sirohi’s
injuries, it was not the sole one.
The facts of Nationwide Mutual Insurance Co. v. Davis
provide a helpful comparison to the present case.                         118 N.C. App.
494,  455 S.E.2d  892, disc. rev. denied,  341 N.C.  420,  461 S.E.2d
759  (1995).    In Davis, a young girl was hit by a car after
leaving her grandmother’s van to follow her grandmother across




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the street.    Id. at  495-96,  455 S.E.2d at  893.    The Court of
Appeals found that  “the  ‘use’ of the van was not the sole
proximate cause of the accident; a concurrent cause was  [the
grandmother’s] negligent supervision of  [the girl] when  [she]
exited the van.”    Id. at  501,  455 S.E.2d at  896.    Because there
was a non-automobile proximate cause, the Court of Appeals held
that the automobile exclusion did not apply.    Id.    In the same
way, the automobile that Exware was driving was not the sole
proximate cause of Poonam Sirohi’s injuries.    Here, North Main’s
negligent hiring, retention, and supervision of its employees
regarding the use of drugs and alcohol is a concurrent proximate
cause.
Whether the Sirohis can ultimately prove that North
Main’s negligent hiring, retention, and supervision caused Poonam
Sirohi’s injuries is a question for the jury.    I would hold,
however, that because the Sirohis have forecast sufficient
evidence of a non-automobile proximate cause as a matter of law,
Builders Mutual must defend North Main under its Commercial
General Liability Insurance Policy.    Therefore, I respectfully
dissent.
Justice MARTIN joins in this dissenting opinion.

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