Denial of a Claim Over Whether Water Entering Building is a Flood Alone is not Bad Faith

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In Summit Management Services, Inc, and Riverwalk Denver II, LLC v. Falls Lake Fire & Casualty Company And Colony Insurance Company, Civil Action No. 5:21-CV-00110-KDB-DSC, United States District Court, W.D. North Carolina, Statesville Division (March 11, 2022) the Parties each moved for a judgment on the pleadings which is treated similarly to a motion to dismiss.

MOTIONS TO DISMISS

The court, on a motion to dismiss accepts all well-pled facts as true and draws all reasonable inferences in Plaintiff’s favor. In so doing, the Court must view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party.

DISCUSSION

There are specific rules of interpretation for insurance policies under North Carolina law. Significantly, wherever possible, the policy will be interpreted in a manner which gives, but never takes away coverage. The insured bears the burden to prove coverage. Interpreting the Policy, the Court must take into account that North Carolina is a concurrent causation state. A loss will generally be covered if the damage results from more than one cause of loss, even if one of the causes is specifically excluded under the terms of the policy.

Plaintiff’s “Bad Faith” and Unfair Trade Practices Claims

In addition to its breach of contract claim for coverage under the Policy, Plaintiff asserts claims for breach of the “covenant of good faith and fair dealing” and claims for violation of North Carolina statutes related to “unfair claims settlement practices” and unfair and deceptive trade practices. The court concluded that the defendant insurer was entitled to judgment on the pleadings on Plaintiff’s “bad faith” and unfair practices claims. The parties here are engaged in a contractual dispute about coverage under a written insurance policy, no more and no less.

ZALMA OPINION

This case establishes that plaintiffs abuse the bad faith tort by claiming bad faith conduct when the parties are simply involved in a dispute over an issue of the coverage provided by a policy and its application to specific policy language. The bad faith tort requires despicable conduct on the part of the insurer not just a dispute over what the policy means.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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