• North Carolina Court of Appeals Holds Covenant Not to Execute against Insured Precludes Recovery against Insurer
  • July 22, 2013 | Author: George B. Hall
  • Law Firm: Phelps Dunbar LLP - Houston Office
  • The North Carolina Court of Appeals recently held that a covenant not to execute against an insured precluded claimants from recovering against the insurer because the insured could no longer be held “legally responsible” by the claimants. North Carolina Farm Bureau Mutual Insurance Company v. Smith, 2013 WL 2169577 (N.C. App. May 21, 2013).

    Following a two-car accident, two claimants brought separate lawsuits in South Carolina state court against a North Carolina driver. Both claimants entered into covenants not to execute with the insured, which provided that the claimants would not execute any judgment against the insured driver in his individual capacity while they continued to pursue their lawsuits against the driver’s insurer. Subsequently, the driver’s insurer sought a declaratory judgment that, inter alia, coverage was barred for the claims because the covenants not to execute meant the insured could no longer be held “legally responsible” as defined by the policy’s insuring agreement. The trial court granted summary judgment in favor of the insurer, and the claimants appealed.

    Affirming, the North Carolina Court of Appeals held that the covenants precluded the claimants from executing any judgment against the insured, and therefore for purposes of insurance, the insured could no longer be held “legally responsible” and there was therefore no coverage for those claims.