## Facts

- A June 16, 1987 collision occurred when Robert McPhaul crossed the center line and struck a car driven by Clifton Oxendine.
- Arnetta McPhaul (Robert’s wife and the named insured on a Nationwide auto liability policy) was a passenger; Arnetta and Oxendine died from collision injuries.
- In applying for the Nationwide policy, Arnetta allegedly misrepresented that she was divorced and the sole driver in her household and failed to disclose her husband’s adverse driving history, including a DWI conviction.
- After the accident, Nationwide denied coverage, asserting the policy was void ab initio due to fraudulent, intentional misrepresentations in the application.
- The estates of Arnetta McPhaul and Clifton Oxendine sued to recover under the Nationwide policy.
- The trial court denied Nationwide’s summary-judgment motion and declared the policy in full force and effect; Nationwide appealed.

## Issues

1. Whether, after an accident causing injury, an auto liability insurer may avoid bodily-injury liability by rescinding the policy for fraudulent application misrepresentations, in light of N.C. Gen. Stat. § 20-279.21(f)(1).
2. Whether the insurer may assert fraud to avoid or limit liability for coverage above the statutory minimum limits required by the Financial Responsibility Act.
3. Whether the insurer’s tender of partial payments (including funeral expenses) waived coverage defenses or created an estoppel absent proof of detrimental reliance.

## Decision

- The court held the insurer’s liability for the statutory minimum limits became “absolute” upon the accident, and fraud in the application could not defeat minimum compulsory coverage.
- The court held fraud may be asserted to avoid or limit liability for policy limits exceeding the statutory minimum because the statute’s absolute-liability protection does not extend to excess coverage.
- The court rejected waiver/estoppel based on Nationwide’s tender of partial payments because the claimants did not show detrimental reliance or prejudice.

## Legal Principles

- Under N.C. Gen. Stat. § 20-279.21(f)(1), once an accident causing injury occurs, an insurer cannot use application misrepresentations or policy-condition violations to void coverage up to the statutory minimum liability limits.
- Contract defenses, including rescission for fraud, remain available to the insurer as to coverage amounts above the statutory minimum limits.
- Waiver or estoppel based on an insurer’s conduct requires proof of detrimental reliance or prejudice; tender of partial payments alone does not bar coverage defenses.

## Conclusion

The court enforced North Carolina’s compulsory insurance policy by requiring Nationwide to provide at least the statutory minimum liability coverage despite alleged application fraud, while permitting Nationwide to litigate fraud as a defense to any coverage above the minimum and rejecting waiver/estoppel absent detrimental reliance.


Odum v. Nationwide Mut. Ins. Co., 101 N.C. App. 627, 401 S.E.2d 87 (N.C. Ct. App. 1991)