An insurance claim begins when an “insured” (i.e. the person who bought the insurance policy, or who is otherwise covered by the policy) submits a claim to an insurance company. This can be a claim under an automobile insurance policy (e.g. collision, comprehensive, or medical payments (“med pay”) coverage), under a homeowner’s policy (e.g. for a fire loss, or loss of contents), under a commercial general liability (CGL) policy, or under numerous other policies. The insurance company should then investigate the claim and, ultimately, accept or reject the claim. Where the insurance company pays the full amount of the claim, then of course there is no dispute.
Sometimes, however, the insurance company will deny the claim. It is possible of course that the denial of the claim is proper. It is also possible that the insurer is wrong in denying the claim. In some instances, the insurance company is not only wrong in its decision to deny the claim, but its decision to deny the claim is so erroneous, or the insurer’s other conduct in connection with the denial is so egregious, that the insurer’s conduct constitutes “bad faith,” or an “unfair practice.” The significance of this is that under these circumstances, the insured can recover not only the amount due under the insurance policy, but she can also recover “punitive” or “treble” damages.
The recovery of punitive damages is now governed by Chapter 1D of the General Statutes in North Carolina. Most of the case law on this claim developed, however, prior to this statute; as a result, there are few cases applying Chapter 1D to a claim for bad faith against an insurance company. In general, however, it appears that the insured must show “tortious” or “aggravated” conduct by the insurer. If the insurer’s decision to deny the claim was erroneous but was the result of a good faith interpretation of the insurance policy, then the insurer generally is not liable for bad faith, in which case it is not liable for punitive damages. There are many cases in North Carolina finding that the evidence was sufficient to support a claim for bad faith, and many others finding that the evidence was insufficient.
The recovery of “treble” (or triple) damages is governed by Chapter 75 of the North Carolina General Statutes, which prohibits unfair acts or practices in or affecting commerce. Pursuant to this law, an insurer which acts unfairly toward the insured is liable for treble damages, i.e. three times the damages caused by the unfair conduct. The insurer can also be liable for the insured’s attorneys fees. Further, Chapter 58 prohibits certain conduct by insurers, such as failing to act promptly upon the insured’s claim and failing to provide an explanation for a denial of a claim. A violation of these specific rules constitutes a violation of Chapter 75.
The prosecution of a bad faith action in North Carolina raises numerous considerations. These considerations actually begin well in advance of litigation. Both the insurer and the insured must take great care in how the claim is presented and handled during the claims process, as this will ultimately largely determine the outcome of the bad faith action. Once in suit, both sides face numerous strategic and procedural issues. These include whether to retain experts, and whether to “bifurcate” (i.e. split) the trial between compensatory and punitive damages.
Another page on this Website has a comprehensive discussion of insurance coverage, including a thorough discussion of claims under Chapter 75 (for unfair or deceptive acts) and claims for bad faith. These claims are very difficult to assemble and require the services of a skilled lawyer to pursue these claims against insurance companies.
This is also an ever-evolving area of law. A case from the Middle District of North Carolina (federal court) ruled in a case from 2013 that an insurance company providing Underinsured Motorist Coverage can be liable for bad faith and treble damages, for the way it handled the UIM claim. A discussion of this and other recent cases can be found at the recent cases page of this site. A case decided by the Western District of North Carolina on October 21, 2013 held that the plaintiff, who had a fire loss claim under a homeowners policy, had not sufficiently pled a claim for bad faith or unfair-and-deceptive practices; the court ruled that “threadbare” allegations are not sufficient. Currie v. Phoenix Ins. (WDNC 2013).
John Kirby has represented insurance companies in multiple suits in which the insured sought punitive damages, and has also represented insureds in multiple suits against insurance companies for bad faith. He has also taught courses to lawyers and to insurance adjusters on the substantive law of bad faith in North Carolina, and on the litigation of such claims in North Carolina.