The leading case on unfair and deceptive trade practices and unfair practices in the settlement of insurance claims, is often cited as Gray v. North Carolina Insurance Underwriting Association.1 Let’s break down these two sections of the law. In North Carolina, N.C. G.S. § 58–63–15(11), specifies the unfair practices in the settlement of insurance claims. Misrepresentation during the claim, refusing to communicate during the claim, and failing to adopt reasonable standards for a prompt investigation based upon all available information are just three of fourteen specific insurance claim violations. In addition, North Carolina has N.C. G.S. § 75-1.1, which prohibits unfair and deceptive acts or practices in general.

In the Gray case, the insurance company provided coverage for Tower Circle Motel for wind and hail damage. In August 1993, Hurricane Emily caused damage to Tower Circle Motel and a claim was made for the wind damage with insurance company.

Tower Circle is well known to many who vacation in North Carolina. It has been a family owned and operated business in Buxton, North Carolina on Hatteras Island for over 50 years.

After the hurricane, the insurance company sent a third party adjustment company to inspect the loss and the adjustment company sent the insurance company a report of damage on each building in the motel. The adjusters reports showed that buildings one and two were damaged beyond policy limits and three other buildings also had covered wind damages. However, the insurance company did not pay the claim in this manner and did not agree that buildings one and two were total losses. The adjusters were asked to withdraw from handling other claims for the insurance company, and the motel owners were not provided the adjusters’ reports.

After the hurricane, the adjustment company had estimated approximately $246,473.76 in damages and submitted the reports and photos in September of 1993 to the insurance company. However, the insurance company only offered $60,821.51 to settle the motel’s wind damage and this offer was sent until May of 1994.

The jury’s verdict was in favor of the policyholders and the motel owners were awarded the following:

On 26 March 1997, the trial court entered a judgment that incorporated the jury’s verdict and findings. The trial court entered an amended judgment on 22 April 1997, setting out additional findings of fact; awarding plaintiffs $607,256.91, which included breach of contract damages in the amount of $256,256.91 and trebled damages in the amount of $351,000 for defendant’s unfair and deceptive acts; awarding prejudgment interest on all sums awarded; and taxing costs to defendant, including attorneys’ fees in the sum of $117,000. The trial court found that plaintiffs were entitled to the “proceeds under the policy of insurance free of any claim or interest of any party not entitled to receive payment under that policy.

The insurer appealed, but the Supreme Court of North Carolina found there was sufficient evidence to sustain a jury verdict that defendant did not attempt in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability had become reasonably clear.

As we now hold that ‘[n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear” is a violation of N.C.G.S. § 75–1.1, it follows that defendant committed a violation of N.C.G.S. § 75–1.1 separate and apart from any violation of N.C.G.S. § 58–63–15(11). Defendant’s conduct constituted an unfair or deceptive act or practice in or affecting commerce that proximately caused injury to plaintiffs. See First Atl. Mgmt. Corp., 131 N.C.App. at 252, 507 S.E.2d at 63.’

Insurance companies should handle claims ethically and should pay in accordance with the policy and damages. The extent of damages or the repair methodology to a building can result in a good faith disagreement, but there are also times when an insurance company is not justified in outright withholding of insurance benefits. The Gray case is just one example. It is important for policyholders and their representatives to press forward when a claim is underpaid or improperly denied and not accept the low ball offers or be stopped by road blocks on the route to proper claim payment.

For other blogs on North Carolina coverage issues see:

Carolina Coverage: Understanding Appraisal of a Property Damage claim in Tar Heel State, Part I

Carolina Coverage: The 60 day Rule on Proofs of Loss

Carolina Coverage – Are All These Documents Really Necessary?

1 Gray v. North Carolina Ins. Underwriting Ass’n, 352 N.C. 61 (2000).