First Protective Insurance Company v. Brown

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

EASTERN DIVISION

No. 4:20-CV-239-BO

FIRST PROTECTIVE INSURANCE )

COMPANY, )

Plaintiff,

V. ORDER

JEFFREY BROWN AND CATHERINE

BROWN, )

Defendants.

This cause comes before the Court on plaintiff's motion to enforce settlement agreement

and defendants’ motion for judgment on the pleadings. For the following reasons, both motions

are denied.

BACKGROUND

Plaintiff issued a homeowners policy to defendants Mr. Jeffrey and Ms. Catherine

Brown, the owners of a vacation home located at 2311 Emerald Dr., Emerald Isle, North

Carolina 28594. The policy had effective dates of August 30, 2018 to August 30, 2019 and

provided for certain coverages, including Coverage A (Dwelling) and Coverage C (Personal

Property). On September 18, 2018, defendants notified plaintiff of damage incurred at the

property from Hurricane Florence on September 14, 2018. Plaintiff hired an independent field

adjuster to inspect the property on September 26, 2018, and plaintiff issued an initial payment of

$74,550.18 to defendants on November 5, 2018. Plaintiff subsequently ordered a second

inspection of the property, and after defendant submitted additional invoices, issued

supplemental payments on November 7, 2018, in the amount of $15,154.10; on November 14,

2018, in the amount of $16,091.53; and on December 1, 2019, in the amounts of $19,373.07 and

$1,989.16. In total, plaintiff made $127,158.04 in payments under Coverage A and C of the

policy to defendants.

Unsatisfied by the amount they received from plaintiff for their property damage claim,

defendants hired StormPro Consultants, LLC on September 26, 2019 to assist them in handling

their insurance claim. According to defendants, StormPro provided an estimate in October 2019

of $305,620.97 for the total cost to mitigate and repair the property under Coverage A of the

policy. Plaintiff sent a letter and supplemental estimate dated December 17, 2019 to defendants

indicating that plaintiff would make a payment of $56,841.56 and that its investigation of the

loss was complete. On January 31, 3030, defendants notified plaintiff that they intended to

invoke their right to appraisal as set out in the policy if they did not receive a response regarding

a subsequent submission on or before February 13, 2020. On February 7, 2020, plaintiff

contacted defendants through StormPro and indicated that plaintiff's management determined

that it paid appropriately on defendants’ claim. StormPro, on behalf of defendants, requested that

plaintiff release depreciation. On February 10, 2020, plaintiff sent a reservation of rights letters

to defendants indicating that there was a dispute as to the amount of loss.

On May 7, 2020, Mr. Ron Hicks of StormPro contacted plaintiff “one last time as a

courtesy,” asking for $25,000 in new money as an “amount to settle” the dispute. On May 8,

2020, Mr. Dave Fasking, an employee of plaintiff, sent a proposed release for defendants. On

May 19, 2020, in response to plaintiff's attempts to follow up on the status of the release, Mr.

Hicks stated that he would have to check with defendants about the release. On May 21, 2020,

further communication took place during which, according to defendants, defendants formally

rejected the proposed release or, according to plaintiff, defendants attempted to unilaterally

terminate the settlement agreement between the parties. In the following months, the parties

considered to discuss the status of the claim.

On July 6, 2020, plaintiff advised defendants that they were obligated to sit for an

examination under oath pursuant to the terms of the policy. On July 7, 2020 defendants sent an

appraisal demand form to plaintiff invoking the appraisal policy, and plaintiff agreed to

participate in the appraisal process on July 27, 2020. Appraiser Scott Mauldin and Appraiser

Lavonzel Williams performed a re-inspection of the property on October 23, 2020 and produced

an estimate of the loss. Along with the umpire, Mr. Wesley Barber, they came to an agreement

on November 1! 1, 2020 as to the amount of loss for defendants’ entire claim and submitted a

three-signature appraisal award to plaintiff on November 12, 2020. Defendants notified plaintiff

of their intention to enforce the award. Plaintiff then filed the instant lawsuit on December 29,

2020 seeking a declaratory judgment as to plaintiff's rights and obligations under the policy and

seeking enforcement of the contract and/or settlement between the parties. Defendants filed

counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, and

unfair claim settlement practices against plaintiff on January 19, 2021.

DISCUSSION

Motion to Enforce Settlement Agreement

Plaintiff filed the instant motion to enforce settlement agreement, and the Court had a

hearing on the motion on March 17, 2021, at Elizabeth City. A district court has “inherent

authority” to enforce a settlement agreement if the court finds that the parties reached a complete

settlement and the court can determine the agreement’s terms and conditions. Hensley v. Alcon

Labs., 277 F.3d 535, 540-41 (4th Cir. 2002) (citation omitted). A motion to enforce settlement

agreement “draws on standard contract principles.” /d. at 540. Under contract law, a valid and

enforceable contract exists when there is a meeting of the minds of the contracting parties upon all

essential terms and conditions of the contract. Apple Tree Ridge Neighborhood Ass'n v.

Grandfather Mountain Heights Prop. Owners Corp., 206 N.C. App. 278, 282 (2010).

Absent an agreement, “a party may demand and receive full judicial process, including a trial,”

and the district court must deny enforcement. Hensley, 277 F.3d at 540-41.

The issue here is whether there was a meeting of the minds on all essential terms of the

settlement between the parties. The Court finds there was not. Plaintiff argues that StormPro was

acting with actual and apparent authority for defendants in negotiating a settlement agreement. In

North Carolina, an agent may bind his principal to the terms of a contract: “(1) When the agent

acts within the scope of his actual authority; (2) When the contract, although unauthorized, has

been ratified; (3) When the agent acts within the scope of his apparent authority, unless the third

person has notice that the agent is exceeding his actual authority.” Morpul Researcbh Corp. v.

Westover Hardware, Inc., 263 N.C. 718, 721 (1965).

Plaintiff alleges that StormPro had both actual and apparent authority to negotiate and agree

to terms of a settlement agreement on behalf of defendants. The Court agrees. StormPro did have

authority to enter into a settlement agreement for defendants. However, this does not lead to the

conclusion that StormPro did, in fact, enter into a settlement agreement with plaintiff. Instead, the

Court finds that Plaintiff never accepted the terms of Mr. Hicks’s request for $25,000 in new

money. Even assuming, as plaintiff argues, that Mr. Hicks’s email was an offer to settle, plaintiff

made a counteroffer when it sent a release in response. This counteroffer terminated Mr. Hicks’s

original offer. See Cole v. Champion Enters., 496 F. Supp. 2d 613, 628 (M.D.N.C. 2007) (finding

that, in North Carolina, an original offer has been rejected and ceases to exist when a party makes

a counteroffer) (citing Normile v. Miller, 312 N.C. 98, 106 (1985)). The five-page release included

a variety of provisions never referenced in the May 2020 email exchange and not included in

defendant’s offer, such as provisions for assignment of benefits, indemnity, severability,

confidentiality, and liability. After receiving the proposed release and reviewing these terms,

defendants unequivocally rejected the release on May 21, 2020 through StormPro.

Motion for Judgment on the Pleadings

Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the pleadings are

closed—but early enough not to delay trial—a party may move for judgment on the pleadings.”

Fed. R. Civ. P. 12(c). In considering a Rule 12(c) motion, “[c]ourts apply the same standard that

is applied to Rule 12(b)(6) motions,” but “a court may consider all pleadings, including answers

and attached exhibits, instead of reviewing only the complaint.” Great Am. Ins. Co. v. GRM Mgemt.,

LLC, No. 4:14CV295, 2014 U.S. Dist. LEXIS 164147, at *5 (E.D. Va. 2014) (citing Edwards v.

City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999)). Judgment on the pleadings is properly

granted if “the moving party has clearly established that no material issue of fact remains to be

resolved and the party is entitled to judgment as a matter of law.” Park Univ. Enters. v. Am. Cas.

Co. of Reading, 442 F.3d 1239, 1244 (10th Cir. 2006) (cited favorably in Fireman’s Ins. Co. v.

Glen-Tree Invs., LLC, No. 7:11-CV-59-D, 2012 U.S. Dist. LEXIS 134064, *10 (E.D.N.C. 2012)).

The court “must accept the truthfulness of all factual allegations in a complaint,” but it “need not

assume the veracity of bare legal conclusions.” Wall & Assocs. v. Better Bus. Bureau of Cent.

Virginia, Inc., 685 F. App’x 277, 277-78 (4th Cir. 2017) (internal quotations omitted).

I. Declaratory Judgment Action

Plaintiff seeks a declaratory judgment invalidating the appraisal award by asserting that

defendants did not comply with a necessary condition precedent to appraisal and that the award 1s

invalid due to impeaching circumstances. Defendants, however, have filed for judgment on the

pleadings, arguing that the undisputed facts within the pleadings reveal that none of the allegations

made by plaintiff support invalidating the award. The Court finds that there are still issues of

material fact to be resolved and that defendant is not entitled to judgment on the pleadings.

Defendants argue that they should be awarded judgment on the pleadings as to plaintiff's

declaratory judgment action because they did not fail to satisfy any conditions precedent to the

appraisal process. Defendants argue further that, even if their completion of examinations under

oath was a condition precedent to the invocation of appraisal, plaintiff waived its right to rely on

that condition by proceeding with the appraisal. Under North Carolina law, when an insurer

requests compliance of post-loss duty provisions in an insurance policy, the compliance is a pre-

requisite to the insured invoking an appraisal provision. Hailey v. Auto-Owners Ins. Co., 181 N.C.

App. 677, 687 (2007). The parties must engage in some meaningful exchange of information prior

to the insured invoking an appraisal provision, id. at 684, since the objective of provisions laying

out an insured’s duties after loss is “to enable the insurance company to obtain information to

determine the extent of its obligation and to protect itself from false claims,” Chavis v. State Farm

Fire & Cas. Co.,79 N.C. App. 213, 215 (1986), rev'd on other grounds, 317 N.C. 683 (1986).

However, insurer may be found to have waived a provision or condition in an insurance policy

which is for its own benefit.” Brandon v. Nationwide Mut. Fire Ins. Co., 301 N.C. 366, 370 (1980).

An insurer waives a policy provision when there is (1) “knowledge on the part of the insurer of the

pertinent facts” and (2) “conduct thereafter inconsistent with an intention to enforce the contract.”

Cullen v. Valley Forge Life Ins. Co., 161 N.C. App. 570, 575 (2003) (internal citations omitted).

Defendants* final argument that they are entitled to judgment on this issue is that the

undisputed facts do not contain a single factual allegation suggesting that the appraisal award is

invalid based on fraud, duress, or other impeaching circumstances. However, plaintiff argues that

defendants’ alleged repeated refusal to sit for examinations under oath prior to appraisal is an

impeaching circumstance. In North Carolina, an appraisal award is binding where the relevant

appraisal provisions have been followed and there is no evidence of fraud, duress, or impeaching

circumstances. Enzor v. N. Carolina Farm Bureau Mut. Ins. Co., 123 N.C. App. 544, 545-46

(1996). An impeaching circumstance is a mean, bad, or dishonest act on the part of a party to the

appraisal that, at a minimum, has “a bearing on the accuracy or authenticity of the appraisal.”

Elledge v. Austin, No. COA04-1003, 2005 N.C. App. LEXIS 2222, at *13 (2005).

Resolution of the declaratory judgment dispute requires this Court to consider factual

disputes. For example, the conflicting allegations by the parties surrounding defendants’ failure to

complete examinations under oath when scheduled are sufficient to create a factual dispute as to

whether defendants’ conduct created an impeaching circumstance. Here, plaintiff alleges that

defendants unilaterally rescheduled their examinations under oath on two separate occasions,

thereby shirking their obligations under the policy, while simultaneously advancing the appraisal

process despite plaintiffs express objections. Plaintiff also alleges that defendants failed to provide

pertinent documentation prior to the appraisal, as requested in letters from counsel. Defendants

deny these allegations and instead assert a multitude of other explanations for rescheduling. Tlhe

factual dispute over whether bad faith was the reason for rescheduling the examination under oath,

in addition to other factual disputes, prevents the Court from granting defendants motion on the

pleadings as to the declaratory judgment action.

IJ. Breach of Contract Counterclaim

In order to prove a breach of contract claim in North Carolina, a plaintif? mus: establish

the existence of a valid contract and breach of the terms of that contract. McLamb vy. T.P. Inc., 173

N.C. App. 586, 588 (2005). A valid contract requires offer, acceptance, consideration, and a

meeting of the minds. Turner v. Ellis, 179 N.C. App. 357, 362 (2006). A breach of contract occurs

where there is a “non-performance unless the person charged shows some valid reason which may

excuse the non-performance; and the burden of doing so rests upon him.” First Protective Ins. Co.

v. Rike, No. 4:20-CV-124-D, 2021 U.S. Dist. LEXIS 16153,at *26 (E.D.N.C. Jan. 28, 2021)

(citations and quotations omitted).

The parties agree that the insurance policy is a contract, and defendants contend that

plaintiff breached the terms of the contract by failing to agree that the appraisal award was binding

upon the parties and by failing to pay the full amount of loss in the appraisal award. It is undisputed

that plaintiff is required to fulfill these obligations under the insurance policy, but there is a dispute

as to whether and to what extent these obligations were breached by non-performance. Plaintiff

contends that it fulfilled its obligations under the policy to the extent that it was able, and that

plaintiff participated in the appraisal in compliance with the policy while simultaneously

reiterating its desire to conduct examinations of the defendants before the appraisal award. Plaintiff

alleges that the appraisal award is invalid because defendants had not previously submitted to

examinations under oath, and that this is a valid reason to excuse its nonperformance.

Defendants’ breach of contract arguments and plaintiffs asserted breach of contract

defense rely on many of the same arguments as the impeaching circumstance for the appraisal

process. Since the Court has already determined that there are factual disputes over whether there

was bad faith in the rescheduling of the examinations under oath, the Court also finds that there

are factual disputes that prevent the Court from determining at this time whether plaintiff breached

the contract between the parties. Therefore, because there are material facts in dispute, defendants’

motion for judgment on the pleadings with respect to their breach of contract counterclaim fails.

III. Breach of Implied Covenant of Good Faith and Fair Dealing Counterclaim

“Under North Carolina law, every contract contains an implied covenant of good faith and

fair dealing that neither party will do anything which injures the right of the other to receive the

benefits of the agreement.” Cordaro v. Harrington Bank, FSB, 260 N.C. App. 26, 38 (2018)

(internal quotations omitted). To state a claim for breach of good faith and fair dealing, “a plaintiff

must plead that the party charged took action which injured the right of the other to receive the

benefits of the agreement, thus depriving the other of the fruits of the bargain.”” McDonald v. Bank

of New York Mellon Trust Co., 259 N.C. App. 582, 597 (2018) (internal quotations omitted). The

North Carolina Court of Appeals has held that “{a] defendant cannot breach a covenant of good

faith and fair dealing when a claimant fails to establish the defendant breached the underlying

contract.” /d. (citation omitted).

Because there can be no breach of the implied covenant of good faith and fair dealing when

there has not been a breach of contract, the Court must first decide whether there has been a breach

of contract. As previously states, the Court cannot decide at the judgment on the pleadings stage

whether there has been a breach of contract because of factual disputes, and these factual disputes

likewise prevent the Court from now determining whether there has been a breach of the implied

covenant of good faith and fair dealing. Defendants’ motion for judgment on the pleadings fails

with respect to this counterclaim.

IV. Untair Claims Settlement Practices Counterclaim

To establish an unfair and deceptive trade practices claim, a plaintiff must show: “(1) an

unfair or deceptive act or practice, (2) in or affecting commerce, and (3) which proximately caused

injury to plaintiffs.” Gray v. N. Carolina Ins. Underwriting Ass’n, 352 N.C. 61, 68 (2000). “A

[vjiolation of any form of conduct listed in N.C. Gen. Stat. § 58-63-15(11) operates as a per se

instance of unfair and deceptive trade practice under N.C. Gen. Stat. § 75-1.1. Lyon v. Serv. Team

of Prof'ls (E. Carolina), LLC, No. COA18-627, 2019 N.C. App. LEXIS 359, at *13 (2019)

(citation omitted). Conduct that violates N.C. Gen. Stat. § 58-63-15(11) is an unfair and deceptive

act or practice because “such conduct is inherently unfair, unscrupulous, immoral, and injurious

to consumers.” Gray, 352 N.C. at 71. “Not attempting in good faith to effectuate prompt, fair and

equitable settlements of claims in which liability has become reasonably clear” is conduct listed

under the statute. N.C. Gen. Stat. § 58-63-15(11)(f).

Defendants base their unfair and deceptive trade practice claim on allegations that plaintiff

“engage[d] in conduct manifesting an inequitable assertion of power or position,” Murray v.

Nationwide Mut. Ins. Co., 123 N.C. App. 1, 9 (1996) (finding that such conduct “constitutes an

unfair trade practice”), and violated N.C. Gen. Stat. § 58-63-15(11), including N.C. Gen. Stat. §

58-63-15(11)(f), when it failed to pay the full appraisal award amount within sixty days of the

award’s entry and for refusing to treat the appraisal award as a final determination of value that

would bind both parties. Again, these assertions rely on facts that are in dispute. For example,

defendants contend that plaintiff participated in the entire appraisal process without once

contending that the appraisal could not properly determine the value of defendants’ loss. On the

other hand, plaintiff contends that it repeatedly reiterated its request to conduct examinations under

oath of defendants as a condition precedent to the appraisal. Based on these disputes, the Court

denies defendants’ motion for judgment on the pleadings as to this claim.

CONCLUSION

For the foregoing reasons, plaintiff's motion to enforce settlement agreement [DE 11]

defendants’ motion for judgment on the pleadings [DE 16] are DENIED.

10

SO ORDERED, this j Giay of June, 2021.

VLA W. BOYLE

UNITED STATES DISTRICT’JUDGE

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