A recent opinion by United States District Judge Graham Mullen, W.D.N.C., is another example in a long line of insurance bad faith decisions in which a first-party insured’s extracontractual claims fail to survive the pleading and summary judgment stages. The main lesson, often taught, is that an insurer may reasonably dispute a claim without incurring extracontractual (bad faith or UDTP) liability.
Prosperity Vill. Townhome Ass’n, Inc. v. State Farm Fire & Cas. Co., No. 3:13-CV-00363, 2014 WL 4311498 (W.D.N.C. Aug. 29, 2014), involves an insurance dispute arising out of hail damage to the roofs of some residential condominiums in Charlotte, North Carolina. The court found that State Farm made a prompt and thorough inspection of the damage and that State Farm paid the undisputed part of the claim in good faith. The court held that, as a matter of law, State Farm did not engage in unfair and deceptive trade practices.
The plaintiff was a condominium homeowners’ association (HOA). The condominiums, consisting of thirty buildings, were insured against hail damage by defendant State Farm Fire & Casualty Co. The condo roofs were damaged by hail on May 11, 2011. The HOA filed an insurance claim with State Farm on October 12, 2011. State Farm inspected the property and estimated the covered damage amount as $73,720.03. State Farm paid that amount to the HOA on November 12, 2011, one month after the claim was filed. State Farm heard nothing else from the HOA for six months.
Six months later, State Farm received a claim from the HOA’s public adjuster in the amount of $1,428,209.72, which included the cost of complete replacement of all thirty roofs. State Farm hired a five-person team, including engineers and a roof consultant, to reinspect every roof and building envelope. The team found problems, unrelated to hail damage, with the 10-13 year-old roofs. The team also found some uncovered cosmetic damage caused by hail. The new inspection supported the contention that State Farm had made an adequate payment for the hail damage.
The HOA sued State Farm in Mecklenburg County for breach of contract. The HOA also alleged the extracontractual claims of breach of fiduciary duty, bad faith, and unfair and deceptive trade practices. State Farm removed the case to federal court.
After State Farm moved for partial summary judgment on all of the extracontractual claims, the HOA dropped its claims for breach of fiduciary duty and bad faith. That left the UDTP claim as the only remaining extracontractual claim.
In deposition, the HOA president said he had no personal knowledge of anything that State Farm did that violated North Carolina’s unfair claims settlement practices act—the HOA president testified that he relied on statements from the HOA’s public adjuster for that information.
In turn, the public adjuster testified in deposition that he had no criticism of State Farm’s handling of the claim other than the fact that State Farm disputed the amount of the claim. (The public adjuster later signed an affidavit that criticized State Farm’s claim handling, but the court refused to accept the later self-contradiction.)
The court found, as a matter of law, that State Farm did not violate the UDTP and granted State Farm’s motion for partial summary judgment.
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Raleigh, North Carolina attorneys David Stradley and Robert Holmes at White & Stradley, PLLC, represent policyholders and insureds in insurance bad faith cases.
Call 844-361-7511