In North Carolina Farm Bureau Mut. Ins. Co. v. Armwood, No. COA06-176, 2007 WL 91129 (N.C. App. Jan. 16, 2007), a North Carolina appeals court ruled that “minimum liability coverage requirements of Financial Responsibility Act of 1957 for not-for-hire commercial vehicles are inserted as a matter of law into every insurance policy that is issued for such vehicles.”

 

T. J. Armwood was injured while exiting a passenger bus when another vehicle struck him. The bus was owned and operated by Jimmy Lee Best and insured by Farm Bureau. When Best's insurance agent sold him the policy, she offered liability limits of $750,000 per accident and for uninsured/underinsured motorists and $5,000 for medical payments per accident. Best refused the amounts offered, and the agent crossed through the original amounts and changed the limits to $50,000/$100,000/$25,000 per accident, $1,000 for medical payments per accident, and uninsured/underinsured motorists coverage of $50,000/$100,000/$25,000.

 

T.J.'s parents filed claim on their son's behalf against Farm Bureau, who offered to settle for $50,000, but the Armwoods did not accept and demanded damages in excess of the policy limit.

 

The court was presented with this issue of first impression:

 

When a passenger bus transports passengers without requiring payment for services, should the insured or the insurer bear the responsibility of including the minimum statutory requirements of N.C General Stats.§20-309(a1) in the liability policy if the bus is classified as a not-for-hire commercial vehicle?

 

Farm Bureau argued that it was the insured's responsibility to ensure that the minimum liability requirements were met. The Armwoods, though, said that Best charged money to transport children and for other uses, and thus the mandatory coverage was that required of a bus for-hire, in excess of $750,000.

 

The court noted that, although the statute does provide that the owner is to obtain financial responsibility for the vehicle, he is not responsible for ensuring the insurance contains the minimum liability coverage. The minimum is written into each policy as a matter of law.

 

The appeals court found that the lower court properly denied Farm Bureau's summary judgment and affirmed the decision.