Mere Valuation Disagreement Not Enough for UDTP Claim Against Insurer

By: Daniel J. Knight, Anderson Jones, PLLC

In a recent unpublished decision, the North Carolina Court of Appeals reviewed whether an insurer’s handling of a claim constituted, inter alia, an unfair and deceptive trade practice.  Jackson v. Century Mutual Ins. Co., 2017 WL 3863901 (N.C. App. 2017).  Split 2-to-1, the Court ultimately affirmed summary judgment for the insurer.

Jackson involved a claim under a homeowners’ liability policy after the insureds’ home was severely damaged in a fire.  In submitting their claim to Century, the Jacksons sought relief under their Dwelling, Loss of Use, and Contents coverages.  Unsatisfied with the amounts they were compensated and with Century’s handling of their claim, the Jacksons filed suit against Century, alleging Unfair and Deceptive Trade Practices, Breach of Contract, Bad Faith, and Infliction of Mental or Emotional Distress.  In claiming that Century committed unfair and deceptive trade practices, the Jacksons sought relief under Chapters 58 and 75 of the General Statutes; specifically, the homeowners claimed a violation of N.C. Gen. Stat. § 58-63-15(11) also violated N.C. Gen. Stat. § 75-1.1.  Finding no genuine issue of material fact, the trial court granted summary judgment in favor of Century.

In affirming summary judgment for Century, the Court of Appeals, citing North Carolina’s Supreme Court, stated “[w]hile the violation of G.S. 58-63-15(11) does not create a cause of action in favor of a policyholder per se, our Supreme Court has held that such activities may give rise to a claim under G.S. 75-1.1.  Id. at *1 (citing Gray v. N.C. Ins. Underwriting Ass’n, 352 N.C. 61, 529 S.E.2d 676 (2000).  However, a policy holder must still establish a prima facie claim under 75-1.1.  A prima facie claim under § 75-1.1 requires a plaintiff to show, inter alia, he or she suffered actual injury.  Upon review of the homeowners’ claims, the Court of Appeals held that the homeowners had failed to show they suffered actual injury.

With respect to their Loss of Use claim, the insureds argued that Century had misrepresented to them the length of time Century was obligated to cover their living expenses while the home was being rebuilt.  Unconvinced, the majority held that “assuming that these statements were unfair or deceptive, Homeowners failed to point to any evidence. . . showing that they were damaged by these statements.”  Jackson at 2.

Similarly, the majority rejected the insureds’ argument with respect to their Contents claims.  Following the fire, the insureds had valued their lost contents at over $240,000 with many of the lost items having been purchased within the preceding 2 years.  However, in submitting their claim, the insureds failed to provide sufficient documentation, including pictures, receipts, or other evidence, as required by their Policy.  Concerned that the contents portion was inflated, Century hired an independent adjuster to review the insureds’ contents list.  Looking at the insureds’ income and family circumstances, the adjuster ultimately adjusted the insureds’ loss at $40,000.  Thereafter, the insureds exercised their right to an appraisal process set out in their Policy.  Following the appraisal process, two of the appraisers agreed that the insureds were entitled to $81,000 actual cash value and up to $135,000 replacement value.  When the insureds failed to submit proof that they had replaced the damaged items, Century paid the insureds $36,000 ($45,000 had already been paid).  Unconvinced by the insureds’ argument, the majority found that the insureds had failed to offer sufficient evidence that Century had acted unreasonably.  Rather, following the loss, Century “acknowledged liability almost immediately and merely disagreed with Homeowners’ unsubstantiated valuation of their loss.”  Id. at 3.  Without more, mere disagreement over the valuation of a claim is insufficient to support a claim for unfair and deceptive trade practices against the insurer.

In a dissenting opinion, Judge Murphy disagreed with the majority’s assessment of the Contents Coverage portion of the unfair and deceptive trade practice claim.  Citing Gray, Judge Murphy stated “Homeowners are entitled to advance their claim past the summary judgment stage if they can produce evidence tending to show that Insurer violated one or more of the provisions of N.C. Gen. Stat. § 58-63-15(11).”  Jackson at *5-6.  With respect to the Contents Coverage, Judge Murphy pointed to a report by an independent adjuster hired by Century as evidence that Century had “vastly undervalued” the insureds’ Contents Coverage claim, in violation of 58-62-15(11), rendering summary judgment inappropriate.

In addition to their unfair and deceptive trade practice claim, the insureds alleged Century acted in bad faith.  In affirming summary judgment for Century, the Court held that an “honest disagreement regarding the value of a claim” does not give rise to a claim for bad faith.  Id. at 4 (citing Lovell v. Nationwide, 108 N.C. App. 416, 424 S.E.2d 181 (1993)).  Rather, the plaintiff must show “(1) a refusal to pay after recognition of a valid claim, (2) bad faith, and (3) aggravating or outrageous conduct.”  Lovell v. Nationwide, 108 N.C. App. 416, 420, 424 S.E.2d 181, 184 (1993).  In Jackson, the majority found that Century “properly conceded coverage, properly communicated with Homeowners when it disagreed with Homeowners’ valuation of their claim, that Insurer’s disagreements were reasonable, and that Insurer paid all amounts due under the Policy in a timely fashion.”  Jackson at 4.

The Jackson decision is currently headed to the Supreme Court.  In the meantime, this case serves as a strong reminder that mere disagreement over the valuation of a claim, without more, is not sufficient to support an unfair and deceptive trade practice or bad faith claim against an insurer.

Contact Anderson Jones by email or phone, 919-277-2541, for any insurance legal issue.