News

A MIXED BAG ON GOVERNMENTAL IMMUNITY

26 Jun 2019 10:33 AM | Jennifer Edwards (Administrator)

THE MEINCK OPINIONS PROVIDE CLARITY ON IMMUNITY, BUT ALTER CONTRACT INTERPRETATION

By: Ryan Bostic, Clawson and Staubes

As many governmental law practitioners are aware, the North Carolina Supreme Court issued a recent ruling on governmental immunity in the case Meinck v. City of Gastonia. In that case, which the NCADA in conjunction with the North Carolina League of Municipalities submitted amicus briefs, the Supreme Court further clarified how to determine if a government actor was engaged in a proprietary function versus a governmental function.

            The facts are rather straight forward. Gastonia purchased a vacant historic building which it then rented to a local art guild as part of a downtown revitalization project.  Gastonia charged rent to the art guild and collected a percentage of any sales. The rent was minor and the income never offset the cost of operating the building.  The arrangement was never designed to turn a profit. The plaintiff was a tenant who fell down a set of steps and was injured. The trial court granted summary judgment in favor of Gastonia finding it was engaged in a governmental function by revitalizing its downtown.

            The Court of Appeals overturned the trial court relying on the factors established in Estate of Williams. In addressing the first factor, “whether the Legislature had addressed the issue,” the Court of Appeals held that the Legislature had not specifically stated that revitalizing a blighted downtown is a government function. The Court of Appeals further held that Gastonia’s activity (leasing property) was not one solely and traditionally provided by a governmental entity and the revenue received was substantial, although it did not cover the operating costs.

            The Supreme Court overturned the Court of Appeals with a majority of the opinion focusing on the General Statutes addressing Urban Redevelopment Law. The Supreme Court repeatedly noted that that governmental immunity is a fact-intensive inquiry that is properly applied on a case-by-case basis. Still, the true value of the opinion is the clarification that the Legislature does not have to use magic words for a government entity to be entitled to immunity. The holding makes clear that lower courts are to look at the purpose behind the activity, not just the activity itself. Moreover, the Supreme Court held that looking at the problem the Legislature was trying to address can be instructive in the determination. The Supreme Court noted that the Court of Appeals did not mention any of applicable General Statutes. 

            Further analysis was conducted on the other Estate of Williams’s factors, but it was stressed that courts and practitioners should not become overly reliant on them. For example, when examining whether it is an activity traditionally undertaken by a government the Supreme Court again looked to the language in the General Statutes for clarification, but found that was not dispositive. When addressing the revenue factor, the Supreme Court reversed a longstanding trend of finding any revenue to be substantial regarding the immunity analysis. The Supreme Court looked at Gastonia’s activity as “decidedly noncommercial” and the testimony that Gastonia never set out to make a profit was persuasive.

            The major takeaway should be to include the reasons that a government actor is engaging in an activity and explain why it benefits the citizenry and not be strictly married the Estate of Williams’s factors. Attorneys need to put forth the purpose of the activity, what problem it addresses, and how the Legislature gave it the ability to do so and why. Regarding revenue, ask did the government actor seek to profit for the activity or did it know going in that it would never become revenue neutral, but undertook the activity because it benefited the citizens. The opinion stresses the inclusion of these arguments at all stages of litigating immunity.  

            The Meinck odyssey did not end at the Supreme Court. The case was remanded to the Court of Appeals to determine if the insurance policy waived governmental immunity. The Court of Appeals in Meinck v. City of Gastonia II found that an ambiguity existed in the insuring agreement and then construed the policy in favor of coverage and a waiver of immunity.

            This holding represents a departure from typical contract principles and appears to create a new subset of law specifically for government insurance contracts preserving immunity. What makes the opinion extraordinary is that no party to the insurance contract thought there was an ambiguity. In fact, one of the two parties to the contract was not a party to the suit. The result was effectively having declaratory judgment entered against the insurer without it being able to defend itself. The Court of Appeals departed from the established precedent of strictly construing the waiver of immunity and determining the intent of the parties, to strictly construing the policy in favor of coverage. This is most telling when one considers that the only evidence in the record was testimony by the City Manager that Gastonia was aware of governmental immunity and sought to preserve it in the insurance contract.

            Admittedly, the language in the policy was not as clear as it could have been. Moving forward, it is imperative that any insuring agreement that looks to preserve immunity state so in the clearest and simplest terms. The question of which legal policy to follow (strictly construing against waiver of immunity vs. strictly construing in favor of coverage) seems to have been resolved in favor of coverage and a waiver of immunity. Therefore, all government entities and their insurers need to assess and potentially revise the language contained in the policies to ensure immunity is preserved.

           

           

           

371 N.C. 497, 819 S.E.2d 353 (2018).

366 N.C. 195, 732 S.E.2d 137 (2012).

823 S.E.2d 459 (N.C. App. 2019).


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