BACON v. STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

CARLTON F. BACON, )

Administrator of the Estate )

of Mikal U. Bacon, deceased, )

)

Plaintiff, )

)

v. ) 1:20cv1007

)

STATE AUTO PROPERTY & CASUALTY )

INSURANCE COMPANY, )

)

Defendant. )

MEMORANDUM OPINION AND RECOMMENDATION

OF UNITED STATES MAGISTRATE JUDGE

This case comes before the undersigned United States

Magistrate Judge for a recommendation on “Defendant’s Motion to

Dismiss Pursuant to Rule 12(b)(6) [of the Federal Rules of Civil

Procedure (the ‘Rules’)]” (Docket Entry 11) (the “Dismissal

Motion”). For the reasons that follow, the Court should grant the

Dismissal Motion.

BACKGROUND

Alleging violations of North Carolina law, Carlton F. Bacon,

as Administrator of the Estate of Mikal U. Bacon, (the “Plaintiff”)

filed suit in North Carolina state court against State Auto

Property & Casualty Insurance Company (the “Defendant”) for

Defendant’s alleged “bad faith claim investigating, adjusting,

appraising and negotiating, in addition to unfair and deceptive

conduct” (Docket Entry 3 (the “Complaint”), ¶ 1). (See generally

Docket Entry 3.) After removing this action under the Court’s

diversity jurisdiction (see Docket Entry 1 at 2-3),1 Defendant

moved to dismiss Plaintiff’s Complaint on the grounds that “it

fails to state claims upon which relief can be granted” (Docket

Entry 11 at 1). Plaintiff opposes the Dismissal Motion, contending

that he “plead over 130 specific facts in his Complaint this Court

must accept as true,” and that, “[c]onstruing these facts in

Plaintiff’s favor, this Court should deny [the Dismissal M]otion.”

(Docket Entry 13 at 4.) According to the Complaint:

At all relevant times, Plaintiff possessed an insurance

contract with Defendant that provided combined uninsured and

underinsured motorist (“UIM”) coverage (the “State Auto Policy”).

(Docket Entry 3, ¶¶ 2, 32, 41, 45, 46.) “Plaintiff’s decedent and

natural son, Mikal [U. Bacon (‘Mikal’)]” (id., ¶ 3), “liv[ed] with

[Plaintiff]” (id., ¶ 4), and “was a named insured driver on [the

State Auto P]olicy and was an insured resident relative” (id.,

¶ 3). “Plaintiff’s State Auto Policy included UIM coverage

available to himself and Mikal in the amount of $500,000.00 per

person and $500,000.00 per accident.” (Id., ¶ 48.) “Plaintiff

voluntarily paid an extra premium for the UIM coverage on the State

Auto Policy so that Plaintiff and his son would have the safeguard

1 Docket Entry page citations utilize the CM/ECF footer’s

pagination.

2

of additional coverage in the event he or his son were injured or

killed by someone with insufficient liability coverage.” (Id.,

¶ 49.)

Mikal worked as a third-shift delivery truck driver for Ceva

Logistics U.S., Inc. (“Ceva Logistics”). (Id., ¶¶ 8, 51.) “During

the early hours of June 17, 2017, Mikal was on the job . . . making

deliveries throughout southeastern North Carolina.” (Id., ¶ 51.)

“Around 4:40 a.m., Mikal was driving a 2016 Freightliner three-axle

single unit box truck in an easterly direction on U.S. Highway 74

(‘U.S. 74’) approaching Chadbourn in Columbus County, North

Carolina.” (Id., ¶ 52.) “This stretch of U.S. 74 is in a rural

farming area that is completely unlit and very dark between four-

and five o’clock in the morning.” (Id., ¶ 53.) “The speed limit

on this stretch of U.S. 74 is 70 miles per hour, but Mikal was

driving less than the speed limit at 65 miles per hour as he

approached Chadbourn[].” (Id., ¶ 54.) “Prior to Mikal’s approach

to Chadbourn, Michael Rice [(‘Rice’)] parked his black 2008

Chevrolet sport utility vehicle halfway in the travel lane in which

Mikal was traveling” (id., ¶ 55) even though “there was nothing

mechanically defective with [his] vehicle, and [Rice] had not run

out of gas” (id., ¶ 58). “Rice parked his vehicle in the dark in

Mikal’s travel lane without any lights or hazard indicators.”

(Id., ¶ 56.) “Rice and his female companion left the vehicle to

urinate in the woods.” (Id., ¶ 57.)

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“At around 4:40 a.m., Mikal suddenly came upon Mr. Rice’s

unlit vehicle obstructing his lane, was not able to avoid it,

causing Mikal to lose control of his box truck and run off the

roadway.” (Id., 9 59.) “Mikal’s box truck hit a ditch and tree

off the road to the right, causing the truck to turn over on its

passenger side.” (Id., 7 60.) Mikal managed to climb through one

of the truck windows, but “collapsed on the side of the trailer,

complaining of difficulty breathing.” (Id., 62.) Shortly

thereafter, Mikal died from “massive head and chest trauma from the

motor vehicle accident” (id., 47 67) as EMS officials “were

preparing to transport him to the hospital” (id., 7 66).

That same morning, “the North Carolina State Highway Patrol

charged Mr. Rice with misdemeanor death by vehicle.” (Id., YI 68.)

Rice fled North Carolina, leading to issuance of a warrant for his

arrest, which remained active as of the filing of the Complaint.

(Id., ITI 69-70.) The North Carolina Highway Patrol investigated

the accident and produced a report in early July 2017. (See id.,

71.) The police report attributed no contributing circumstances

to Mikal, but noted that, per one witness, Rice and his companion

smelled strongly of alcohol. (See id., TI 72-73.) Within days

after the accident, “Ceva Logistics opened a Workers’ Compensation

Claim, providing benefits based on Mikal’s income in the year

preceding his death of over $48,000.00.” (Id., ¶ 74.)2

At the time of his death at age 39 (id., ¶ 11), Mikal

financially supported his minor daughters, aged 12 and 7 (id.,

¶ 75). “Plaintiff sought counsel for assistance with the liability

and UIM claims for the benefit of his grandchildren, Mikal’s two

daughters.” (Id., ¶ 76.) “Rice had Thirty Thousand No/100 dollars

($30,000.00) of liability insurance coverage through a Progressive

Insurance affiliate (‘Progressive’), at the time of the collision.”

(Id., ¶ 77.) “At the time of Mikal’s injuries and subsequent

death, he had his own insurance policy with State Farm Mutual

Insurance Company (‘State Farm’), and he duly paid for UIM benefits

of $50,000.00 per person.” (Id., ¶ 79.) As noted, Mikal also “was

a named insured and resident relative insured on Plaintiff’s [State

Auto Policy], for which Plaintiff duly paid premiums for UIM

benefits of $500,000.00 per person.” (Id., ¶ 80.) On August 28,

2017, “Plaintiff’s counsel opened up claims and sent letters of

representation to Progressive, State Farm and Defendant.” (Id.,

¶ 81.) “Progressive and State Farm evaluated and resolved the

2 In May 2018, the North Carolina Industrial Commission

resolved this claim, finding “that Mikal’s two daughters, age 7 and

12 at the time of his death, were wholly financially dependent on

Mikal and that they were entitled to receive compensation due under

the Workers Compensation statute. Based on [Ceva Logistics] paying

funeral expenses and compensation to Mikal’s daughters, the total

Workers Compensation payments would total around $380,000.00.”

(Id., ¶ 106.)

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claims promptly, reasonably and good faith” (id., {I 82), offering

on October 4, 2017, and October 16, 2017, to tender their $30,000

and $50,000 policy limits, respectively (id., II 85-86). “By

contrast, Defendant [] sought, from the beginning of the claim, to

deny liability.” (Id., 7 83.)

More specifically, Defendant pursued a contributory negligence

defense for the next two and a half years. (See generally id.,

Wi 83-155.) During this period, Defendant twice sought to inspect

Mikal’s truck (see id., 89, 104), repeatedly sought records,

including cell phone records, Mikal’s employment records, ten years

of Mikal’s medical records, Mikal’s June 2017 driving/travel log,

and Ceva Logistics’s driver safety protocol documents (see, e.g.,

id., WII 98, 104), as well as various law enforcement records

relevant to the accident (see, e.g., (7 101, 104, 112), and refused

to negotiate, notwithstanding Defendant’s counsel’s requests for

authority to negotiate (see, e.g., id., 77 141, 158). “On December

5, 2018, Plaintiff filed a wrongful death complaint with a demand

for arbitration and request for a stay of the civil action pending

arbitration.” (Id., 109.) “Plaintiff chose arbitration to

resolve the claim faster than court and because it is allowed in

the UIM policy drafted by Defendant.” (Id., @ 110.) “On February

15, 2019, Defendant [] answered Plaintiff’s complaint, alleging

contributory negligence and claiming that liability coverage must

first be proven to be inadequate, even though Defendant [] was

already aware that liability carrier Progressive already offered

its minimum [sic] limits coverage and UIM carrier State Farm had

offered its UIM policy limits.” (Id., ¶ 113.)

“On February 26, 2019, Defendant[’s outside] counsel told

Plaintiff’s counsel that he knew that Progressive and State Farm

wanted out of the case, but [Defendant’s] adjuster would not

resolve the case unless the contributory negligence defense becomes

impossible to maintain.” (Id., ¶ 114.) “During the same

conversation on February 26, 2019, Defendant[’s outside] counsel

stated that he understood that Rice left his vehicle halfway in the

roadway, but they were still wanting phone records, employment

records and the law enforcement file.” (Id., ¶ 115.)

“Defendant[’s] insistence on obtaining phone records, employment

records and the law enforcement file were tactics [sic] intended to

further delay payment of UIM benefits.” (Id., ¶ 117.)

In March 2019, Plaintiff’s counsel obtained, and provided to

Defendant’s counsel, pictures from the investigating Highway Patrol

officer, including pictures of “the black Chevy Equinox that Mr.

Rice left in the roadway” (id., ¶ 120), as well as the Highway

Patrol “Fatal Packet” (id., ¶ 121). (Id., ¶¶ 120-21.) This packet

contained more details from the investigation, including that

(i) Rice admitted smoking marijuana and drinking alcohol prior to

the accident, and smelled strongly of both substances when speaking

with the officer at the scene of the accident, (ii) Rice’s “[b]lack

7

vehicle [was] sitting half way in [the] road[’s] east bound lane,”

(iii) Rice stopped his vehicle to urinate, (iv) “[t]here were no

mechanical problems with” the vehicle, (v) Rice indicated that he

“was heading from Myrtle Beach to Boston” following a night of

drinking to celebrate his birthday but he “was driving eastbound on

U.S. 74 away from Interstate 95 and back toward the coast,” and

(vi) Rice and his girlfriend, a passenger in his vehicle, each

maintained an elevated blood alcohol concentration (a “BAC”) for

multiple hours after the accident. (Id., ¶ 124 (emphasis in

original) (internal quotation marks omitted).) The packet also

contained the following witness statement from Tyler Helms:

I seen the car in the middle of the road which I nearly

hit myself. I looked in my rear view mirror because I

knew there was a Class B box truck I had just passed to

make sure he didn’t hit it. Turns out he did. CAR WAS

IN THE MIDDLE OF THE ROAD!!! NO FLASHERS OR

INDICATORS!!!

(Id. (emphasis in original) (internal quotation marks omitted).)

On April 18, 2019, Defendant’s outside counsel “conceded that

what Michael Rice did was ‘extremely negligent.’” (Id., ¶ 125.)

“Plaintiff’s counsel reminded Defendant[’s outside] counsel that

gross negligence on the part of a defendant precludes contributory

negligence as a defense. Defendant[’s outside] counsel stated that

his adjuster still wants things like driver logs. Plaintiff’s

counsel told Defendant[’s outside] counsel that Plaintiff would not

be engaging in discovery and that if Defendant [] wanted things

like driver logs, it should request permission from the arbitration

8

panel.” (Id., ¶ 126.) However, Defendant “never requested

permission for written discovery from the arbitration panel.”

(Id., ¶ 127.)

On May 9, 2019, Plaintiff’s counsel informed Defendant’s

counsel that the only cell phone records located for Mikal showed

one telephone call at midnight on June 17, 2017, which call lasted

only a minute. (Id., ¶ 133.) That same day, Defendant’s counsel

reported “that he had spoken with [Defendant’s] adjuster and

reported that Defendant [] did not deny liability or damages, they

just needed more information about contributory negligence and that

was why they were interested in phone records and employment

records.” (Id., ¶ 134.) Defendant’s counsel further “acknowledged

that Mr. Rice had been drinking and smoking marijuana and did not

do well on the field sobriety test, but that he only had a BAC of

0.04 [four hours later] and was not charged with driving while

impaired.” (Id., ¶ 135 (brackets in original).) Finally,

Defendant’s counsel indicated that Defendant “was not taking the

position that Mikal was grossly negligent on the level of Mr. Rice

and that if contributory negligence was not an issue, the case was

worth more than one million dollars.” (Id., ¶ 136.)

On July 2, 2019, counsel discussed

Rice’s gross negligence and recklessness. Plaintiff’s

counsel reiterated that gross negligence and recklessness

is a defense to a claim of contributory negligence.

Defendant[’s outside] counsel acknowledged that the

trooper noted the heavy smell of alcohol and marijuana

and that Mr. Rice and his companion admitted to drinking

9

and smoking marijuana, but said that Mr. Rice was not

charged with DWI even though he failed the field sobriety

test. He said further that Rice’s BAC was 0.06 which is

not over the legal limit. Plaintiff’s counsel again

pointed out that this BAC was hours after Mikal died.

Nevertheless, Defendant[’s outside] counsel said it was

not 100% clear that Mr. Rice was DWI and said that it

would help if there is an appellate opinion that it is

grossly negligent to leave a car in the roadway with no

lights on. He concluded by stating that it is only

established that DWI, street racing and excessive speed

are grossly negligent, but not necessarily leaving a car

in the roadway.

(Id., ¶ 139.) Thereafter:

On November 6, 2019, as the day for arbitration

approached, Plaintiff’s counsel again asked Defendant[’s

outside] counsel about whether Defendant [] had yet

provided authority to negotiate. Defendant[’s outside]

counsel stated that they see this as a contributory

negligence case but that counsel was interested in

negotiation. He stated, again, that in the absence of

contributory negligence the case was worth at least the

policy limits. He also stated, again, that Mr. Rice’s

BAC was 0.04. Plaintiff’s counsel repeated that this BAC

was four hours later, that the BAC was 0.06 two and half

hours later and that Mr. Rice failed the field sobriety

test. Defendant[’s outside] counsel stated that there

was not enough evidence that Mr. Rice was impaired, and

that he was not charged with DWI. He stated that he

would be speaking with the adjuster for Defendant [] the

next week.

(Id., ¶ 141.)

The parties proceeded to arbitration on December 16, 2019.

(Id., ¶ 142.) Before the arbitration commenced that day,

Plaintiff’s counsel asked Defendant’s counsel whether Defendant

“had provided any authority to negotiate,” and defense counsel

confirmed that it had not. (Id., ¶ 144.) “At the arbitration,

Defendant[’s outside] counsel repeated the same arguments upon

10

which the carrier refused to authorize negotiations, that Mr.

Rice’s BAC was 0.06 two and a half hours after Mikal was killed and

0.04 four hours later and that he was not charged with DWI.” (Id.,

¶ 145.) Defendant “did not present testimony or evidence from a

toxicologist to corroborate its contention that Mr. Rice was not

impaired at the time he left his vehicle in the roadway.” (Id.,

¶ 146.) Defendant also failed to interview Tyler Helms (the

witness identified on the police report), Rice, or Plaintiff, and

declined to present any live witnesses, instead submitting an

affidavit from an accident reconstructionist that it previously had

failed to disclose. (Id., ¶¶ 147, 150-51, 154, 177.) The

arbitration panel then unanimously “awarded $2.48 million dollars

in damages and expressly found that Mikal was not contributorily

negligent” (id., ¶ 155). (See id., ¶ 156.) “The arbitration award

was approximately 500% or five times the UIM policy limits.” (Id.,

¶ 157.) “After the arbitration concluded, Defendant[’s outside]

counsel admitted that he and his partner had been asking for

authority to negotiate, but Defendant [] refused to allow them to

negotiate.” (Id., ¶ 158.)

Plaintiff subsequently commenced this lawsuit, challenging

Defendant’s actions in the investigation and handling of Mikal’s

estate’s UIM claim. Specifically, Plaintiff brings a breach of

contract claim (see id., ¶¶ 159-69) on the theory “that, among

other things, Defendant [(i)] as of the [sic] October 2017, and at

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the latest March 29, 2019, had all the information necessary to

determine that the amount Plaintiff was legally entitled to recover

as a result of the automobile collision exceeded the limits of UIM

coverage sold by Defendant [] to Plaintiff” (id., @ 165) and

(ii) “failed, refused, and neglected to pay or even offer Plaintiff

the limits of his purchased UIM coverage ina timely and reasonable

fashion, and failed, refused and neglected to pay Plaintiff the

amount to which he was legally entitled” (id., @ 166). Plaintiff

further asserts a claim for “Bad Faith/Breach of Covenant of Good

Faith and Fair Dealing” (id. at 25 (emphasis and all-cap font

omitted); see id., 170-81), based on Defendant’s, inter alia,

(i) failure to promptly pay UIM benefits after Plaintiff presented

his claim, (ii) pursuit of a contributory negligence investigation

in the face of Rice’s “grossly negligent and reckless conduct”

(id., @ 175), and (iii) refusal to negotiate. (See id., J 177.)

Plaintiff also pursues a claim for “Aggravated Bad Faith/Tortious

Breach of Contract” (id. at 31 (emphasis and all-cap font

omitted)), premised on the theory that Defendant (i) “knew or

should have known that Plaintiff’s UIM claim was valid and should

have been offered [sic] at or around the time the other carriers,

and especially fellow UIM carrier State Farm, offered their limits

to resolve the wrongful death claim” (id., 7 197) and (ii) “refused

to pay any part of Plaintiff’s UIM claim even after it knew or

should have known that it was a valid UIM claim with the ultimate

12

of damages, the loss of an active and supportive father with two

young children” (id., @ 198). Finally, Plaintiff asserts a claim

for “Unfair and Deceptive Trade Practices” (id. at 28 (emphasis and

all-cap font omitted)) based on Defendant’s alleged “Unfair Claims

Settlement Practices” (id., 4 187) in violation of North Carolina

General Statute Section 58-63-15(11). (See id., TF 182-95.)

DISCUSSION

I. Motion to Dismiss Standards

In reviewing a motion to dismiss pursuant to Rule 12(b) (6),

the Court must “accept the facts alleged in the complaint as true

and construe them in the light most favorable to the plaintiff.”

Coleman v. Maryland Ct. of App., 626 F.3d 187, 189 (4th Cir. 2010),

aff’d sub nom., Coleman v. Court of App. of Md., 566 U.S. 30

(2012). The Court must also “draw all reasonable inferences in

favor of the plaintiff.” E.1T. du Pont de Nemours & Co. v. Kolon

Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (internal quotation

marks omitted). It “do[es] not, however, accept as true a legal

conclusion couched as a factual allegation” nor does it “accept

unwarranted inferences, unreasonable conclusions, or arguments.”

SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 422 (4th Cir.

2015), as amended on reh’g in part (Oct. 29, 2015) (internal

quotation marks omitted). The Court “can further put aside any

naked assertions devoid of further factual enhancement.” id.

(internal quotation marks omitted).

13

To avoid Rule 12(b)(6) dismissal, a complaint must contain

sufficient factual allegations “to ‘state a claim to relief that is

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007)). To qualify as plausible, a claim needs sufficient factual

content to support a reasonable inference of the defendant’s

liability for the alleged misconduct. Id. “Where a complaint

pleads facts that are merely consistent with a defendant’s

liability, it stops short of the line between possibility and

plausibility of entitlement to relief.” Id. (internal quotation

marks omitted). This standard “demands more than an unadorned,

the-defendant-unlawfully-harmed-me accusation.” Id. In other

words, “the tenet that a court must accept as true all of the

allegations contained in a complaint is inapplicable to legal

conclusions. Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.”

Id. Moreover, “where the well-pleaded facts do not permit the

court to infer more than the mere possibility of misconduct, the

complaint” cannot “survive a Rule 12(b)(6) motion.” Francis v.

Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009). “At bottom,

determining whether a complaint states . . . a plausible claim for

relief . . . will ‘be a context-specific task that requires the

reviewing court to draw on its judicial experience and common

sense.’” Id. (quoting Iqbal, 556 U.S. at 679).

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II. Analysis

Defendant moves to dismiss the Complaint primarily on the

grounds that, under North Carolina law, it bore no obligation to

pay UIM benefits until entry of judgment against Rice, and thus

Plaintiff’s claims, which all relate to Defendant’s refusal to

settle and pay UIM benefits prior to entry of such judgment, fail

as a matter of law. (See, e.g., Docket Entry 11 at 1.) In

response, Plaintiff argues that “Defendant incorrectly contends

that a judgment must be obtained to establish breach of an

insurance contract — and for there to be any UIM benefits at all.

Defendant cites incorrect case law, as applied to this case, which

would allow insurance carriers to engage in any unreasonable

conduct up to the point of judgment — without consequence.”

(Docket Entry 13 at 4.) Defendant’s position should prevail.

As the United States Court of Appeals for the Fourth Circuit

explained:

UIM coverage is only triggered in certain

circumstances. Under North Carolina law, “[u]nderinsured

motorist coverage is deemed to apply when, by reason of

payment of judgment or settlement, all liability bonds or

insurance policies providing coverage for bodily injury

caused by the ownership, maintenance, or use of the

underinsured highway vehicle have been exhausted.” N.C.

Gen. Stat. § 20-279.21(b)(4). Even once UIM liability is

triggered, however, such liability is still “derivative

and conditional,” in that “[u]nless [the plaintiff] is

‘legally entitled to recover damages’ . . . from the

uninsured motorist[,] the contract upon which he sues

precludes him from recovering against defendant.” Brown

v. Lumbermens Mut. Cas. Co., 285 N.C. 313, 204 S.E.2d

829, 834 (1974). “To be ‘legally entitled to recover

damages’ a plaintiff must not only have a cause of action

15

but a remedy by which he can reduce his right to damages

to judgment.” Id. at 833. Additionally, the amount due

under the UIM policy “is conclusively determined in

litigation against the [ ] motorist . . . .” Chew v.

Progressive Universal Ins. Co., No 5:09-CV-351-FL, 2010

WL 4338352, at *10 (E.D.N.C. Oct. 25, 2010) (first citing

Brown, 204 S.E.2d at 834, then citing McLaughlin v.

Martin, 92 N.C. App. 368, 374 S.E.2d 455, 456 (1988)).

Therefore, under state law, a plaintiff is legally

entitled to recover under a UIM policy only once a

judgment is issued against the underinsured motorist

determining liability and damages owed to the plaintiff.

[The defendant insurer] was thus not required to settle

[the plaintiff’s] UIM claim until after it was determined

that [the plaintiff] was legally entitled to recover from

[the underinsured driver] — i.e., until after judgment

was entered in [the plaintiff’s lawsuit against the

underinsured driver].

Elliott v. American States Ins. Co., 883 F.3d 384, 397-98 (4th Cir.

2018) (ellipsis and certain brackets in original).

Relying on Elliott, Defendant asserts that Plaintiff’s claims

fail as a matter of law because they all “relate to [Defendant’s]

alleged failure to provide [UIM benefits] under an insurance policy

and alleged unfair settlement practices in that regard,” but the

Complaint fails to allege entry of a “valid judgment against [Rice]

determining both liability and damages.” (Docket Entry 11 at 1.)3

Plaintiff counters that “Defendant’s out-of-context read of

Elliott” as “provid[ing] no right to UIM benefits absent a valid

judgment . . . . is unfounded and indefensible as to the results

3 Defendant further contends that the arbitration award does

not constitute a valid judgment for UIM purposes. (See, e.g.,

Docket Entry 12 at 8.) The Court need not resolve that contention,

however, as Plaintiff does not allege a failure to pay UIM benefits

after entry of the arbitration award. (See generally Docket Entry

3.)

16

such an interpretation would yield.” (Docket Entry 13 at 5; see

also id. (“Applying Elliott universally would allow insurance

carriers to engage in any unreasonable conduct prior to judgment

and would inundate the state and federal court systems with UIM

claimants seeking judgments. This is an absurd result North

Carolina law could not have intended . . . .”).)

In Plaintiff’s view,

Elliott is not intended for a breach of contract claim.

Further, the quote Defendant utilizes in its brief

demonstrates Elliott is not based in sound North Carolina

law. Specifically, Elliott cites Brown, 285 N.C. 313,

285 S.E.2d 829, and notes, “Even once UIM liability is

triggered, however, such liability is still ‘derivative

and conditional,’ in that ‘[u]nless [the plaintiff] is

‘legally entitled to recover damages’ . . . from the

uninsured motorist[,] the contract upon which he sues

precludes him from recovering against defendant.’”

Elliott, 883 F.3d at 397-98, [sic] (quoting Brown, 285

N.C. at 319, 285 S.E.2d at 834). A careful reading of

the Brown decision makes clear this quote is not

applicable to the Elliott decision as Defendant seeks to

use it under the circumstances here.

In Brown, the plaintiff sought to utilize a

three-year breach of contract statute of limitations

after the two-year wrongful death statute had run. Id.

On this question, the North Carolina Supreme Court

determined a plaintiff must have a legal cause of action

against the motorist in order to maintain a cause of

action in contract. Id. (“We perceive no reason why

plaintiff should have three years to sue the insurance

company when he had only two in which to sue the

individual primarily liable.”). Reading Elliott in the

proper context (no breach of contract claim raised), as

well as taking into account the Elliott decision’s basis

in state law from Brown, this Court should not follow

Elliott’s rationale and instead apply the proper rule,

whether Plaintiff is legally entitled to recover under

the policy when he has a cause of action and a remedy.

17

To accept Defendant’s erroneous interpretation of

North Carolina law that there is no triggering of

coverage here because “under state law, a plaintiff is

legally entitled to recover under a UIM policy only once

a judgment is issued against the underinsured motorist

determining liability and damages owed to the plaintiff,”

Elliott, 883 F.3d 398, would produce “an absurd and

unjust result” not contemplated under the law. Such a

determination allows insurers, like Defendant, in the

face of overwhelming evidence supporting a claim, to

refuse to negotiate in all cases, abdicating its duty to

the courts to resolve. This contravenes and frustrates

the very obligations of insurance companies to their

insureds under North Carolina law. See N.C. Gen. Stat.

§ 20-279.21[;] N.C. Gen. Stat. § 58-63-15(11).

Defendant’s conduct in failing to recognize Plaintiff’s

valid claim after the liability carrier tendered

constitutes a breach of contract with its insured. State

Farm, an equally situated UIM carrier, offered its policy

limits, which further demonstrates Defendant’s wrongful

conduct. This Court should deny Defendant’s motion to

dismiss on the breach of contract claim.

(Docket Entry 13 at 10-12 (ellipsis and certain brackets in

original) (footnote omitted).)

Plaintiff’s arguments fall short. First, Elliott did not

limit its interpretation of UIM law to “unfair claims settlement

practice action[s and] per se unfair and deceptive trade practices

action[s]” (id. at 6), but rather examined North Carolina’s UIM law

generally, see Elliott, 883 F.3d at 397-98. Accordingly, its

interpretation of North Carolina’s UIM law applies equally to

breach of contract claims as to unfair claims settlement

allegations. Thus, even assuming “Elliott is not based in sound

North Carolina law” (Docket Entry 13 at 10), this Court must follow

Elliott in resolving the Dismissal Motion. See, e.g., Boone v.

Board of Governors of Univ. of N.C., No. 1:17cv113, 2018 WL

18

1620971, at *3 (M.D.N.C. Mar. 30, 2018) (“Moreover, despite [the

p]laintiff’s misguided characterization of binding Fourth Circuit

precedent as ‘deeply flawed’ and ‘useless,’ as a district court

within the Fourth Circuit, this Court is obligated to follow Fourth

Circuit precedent.” (citation omitted)).

Furthermore, contrary to Plaintiff’s contentions, Elliott sets

forth a sound reading of North Carolina law. For instance, the

North Carolina Supreme Court has endorsed various decisions

applying the principle “that a U[I]M carrier’s liability does not

attach until a valid judgment is obtained against an uninsured

motorist,” Grimsley v. Nelson, 342 N.C. 542, 547, 467 S.E.2d 92, 95

(1996) (internal quotation marks omitted). See id. at 547-48, 467

S.E.2d at 95-96. The North Carolina Supreme Court noted:

These cases are consistent with the language of [North

Carolina General Statute] § 20-279.21(b)(3)a, which

provides that all insurance policies in the State will be

deemed to include a provision that “the insurer shall be

bound by a final judgment taken by the insured against an

uninsured motorist,” N.C.[ Gen. Stat.] § 20-279.21(b)(3)a

(emphasis added), providing the insurer is served with a

copy of summons and complaint.

Grimsley, 342 N.C. at 548, 467 S.E.2d at 96 (emphasis in original)

(concluding that, where “the trial court correctly dismissed the

action against [the alleged uninsured motorist due to insufficient

service of process],” it also “correctly dismissed the action

against [the UIM insurance company],” whose “only obligation in

this case would be to pay any judgment entered against defendant

[uninsured motorist]”). The North Carolina Supreme Court has

19

further recognized that, although “[t]he words ‘legally entitled to

recover’” in the UIM statute “are subject to other

interpretations,” in North Carolina, “‘legally entitled to recover’

should be construed to mean that the carrier’s UIM liability is

derivative in nature.” Silvers v. Horace Mann Ins. Co., 324 N.C.

289, 294, 378 S.E.2d 21, 25 (1989) (observing that, in contrast to

North Carolina, Oklahoma’s Supreme Court construes phrase to

“simply mean that the insured must be able to establish fault on

the part of the uninsured motorist which gives rise to damages and

prove the extent of those damages” (internal quotation marks

omitted)).

In sum, “[t]herefore, under [North Carolina] law, a plaintiff

is legally entitled to recover under a UIM policy only once a

judgment is issued against the underinsured motorist determining

liability and damages owed to the plaintiff.” Elliott, 883 F.3d at

398. “[Defendant] was thus not required to settle [Plaintiff’s]

UIM claim until after it was determined that [Plaintiff] was

legally entitled to recover from [Rice] — i.e., until after

judgment was entered in [Plaintiff] v. [Rice]. With this in mind,

[the undersigned] address[es Plaintiff’s] specific arguments.” Id.

Plaintiff first asserts that Defendant breached the State Auto

Policy by failing to promptly pay UIM benefits. (See Docket Entry

3, ¶¶ 159-69.) Under North Carolina law, a breach of contract

claim requires two elements: a valid contract between the parties

20

and a breach of a contractual term. See Lake Mary Ltd. P’ship v.

Johnston, 145 N.C. App. 525, 536, 551 S.E.2d 546, 554 (2001).

Although the Complaint alleges the existence of a valid contract

between the parties, it does not allege a failure to pay UIM

benefits after entry of a judgment against Rice determining

liability and damages. (See generally Docket Entry 3.) Rather,

Plaintiff complains that Defendant acted improperly in requiring

Plaintiff to pursue such a judgment against Rice. (See id.)

Because Defendant bore no obligation to pay UIM benefits prior to

entry of valid judgment against Rice, Plaintiff’s breach of

contract claim fails as a matter of law. See, e.g., Chew, 2010 WL

4338352, at *7-8 (finding no breach of contract where insurance

company refused to pay UIM benefits until after entry of

arbitration award against uninsured motorist and observing that

“North Carolina courts have consistently rejected the view that an

insured may sue an insurance company for breach of contract for

failure to pay uninsured motorist benefits, instead holding that

such actions take the form of a tort against the uninsured

motorist, which the insurance company may defend,” id. at *7).

As for Plaintiff’s claim for bad faith/breach of the covenant

of good faith and fair dealing, this Court (per Chief United States

District Judge Thomas D. Schroeder) has previously explained:

“In addition to its express terms, a contract

contains all terms that are necessarily implied ‘to

effect the intention of the parties’ and which are not in

conflict with the express terms[,]” and these implied

21

terms include “the ‘basic principle of contract law that

a party who enters into an enforceable contract is

required to act in good faith and to make reasonable

efforts to perform his obligations under the agreement.’”

Maglione v. Aegis Family Health Ctrs., 607 S.E.2d 286,

291 (N.C. Ct. App. 2005) (first quoting Lane _v.

Scarborough, 200 S.E.2d 622, 624 (1973); and then quoting

Weyerhaeuser Co. v. Godwin Bldg. Supply Co., 253 S.E.2d

625, 627 (1979)). “All parties to a contract must act

upon principles of good faith and fair dealing to

accomplish the purpose of an agreement, and therefore

each has a duty to adhere to the presuppositions of the

contract for meeting this purpose.” Id. “[W]here a

party’s claim for breach of the implied covenant of good

faith and fair dealing is based upon the same acts as its

claim for breach of contract, [courts] treat the former

claim as ‘part and parcel’ of the latter.” Cordaro v.

Harrington Bank, FSB, 817 S.E.2d 247, 256 (N.C. Ct. App.

2018) (quoting Murray v. Nationwide Mut. Ins. Co., 472

S.E.2d 358, 368 (1996), disc. review denied, 483 S.E.2d

172-73 (1997)); see also Suntrust Bank v. Bryant/Sutphin

Props., LLC, 732 S.E.2d 594, 603 (“As the jury determined

that plaintiff did not breach any of its contracts with

defendants, it would be illogical for this Court to

conclude that plaintiff somehow breached implied terms of

the same contracts.”)}), disc. review denied, 735 S.E.2d

180 (2012).

Grimes v. Government Emps. Ins. Co., No. 1:18-cv-798, 2019 WL

3425227, at *10 (M.D.N.C. July 30, 2019) (brackets in original).

Plaintiff’s claims for breach of contract and breach of the

implied covenant of good faith rest on the same conduct, namely

Defendant’s handling of Plaintiff’s UIM claim. (See Docket Entry

3, FI 159-81.) Because Plaintiff’s breach of contract claim fails,

so too does his claim for violation of “the implied covenant of

good faith and fair dealing.” Grimes, 2019 WL 3425227, at *10.

The Court should therefore dismiss that claim.

22

In addition, “[u]nder North Carolina law, bad faith breach of

contract is not a recognized cause of action independent of a claim

for breach of contract; rather, bad faith is a circumstance which

may justify granting punitive damages for a breach.” Id. at *11.

“Because the [C]ourt [should] dismiss[ Plaintiff’s] breach of

contract claim, [his] claim for bad faith breach necessarily

fails.” Id. As such, the Court should grant Defendant’s request

to dismiss that claim as well.

Finally, Plaintiff maintains that Defendant violated North

Carolina’s Unfair and Deceptive Trade Practices Act (the “UDTPA”).

(See Docket Entry 3, ¶¶ 182-95.) The UDTPA, North Carolina General

Statute Section “75-1.1, prohibits unfair and deceptive acts or

practices, generally, and North Carolina’s ‘Unfair Claim Settlement

Practices’ statute, N.C. Gen. Stat. § 58-63-15(11) [(the ‘UCSP’)],

defines unfair practices in the settlement of insurance claims.”

Elliott, 883 F.3d at 396. Although Section “58-63-15(11) provides

that the Commissioner of Insurance has the authority to enforce the

provisions of that subsection,” Gray v. North Carolina Ins.

Underwriting Ass’n, 352 N.C. 61, 69, 529 S.E.2d 676, 682 (2000),4

the conduct it prohibits can “support a finding of unfair or

deceptive acts or practices” under the UDTPA, id. at 71, 529 S.E.2d

4 More specifically, the statute “create[s] a[] cause of

action in favor of . . . the Commissioner” when an insurance

company “[c]ommit[s] or perform[s] with such frequency as to

indicate a general business practice” any of fourteen specified

actions. N.C. Gen. Stat. § 58-63-15(11).

23

at 683. Accordingly, for private plaintiffs, “the remedy for a

violation of section 58-63-15 is the filing of a section 75-1.1

claim.” Country Club of Johnston Cnty., Inc. v. United States Fid.

& Guar. Co., 150 N.C. App. 231, 244, 563 S.E.2d 269, 278 (2002)

(internal quotation marks and emphasis omitted). “Thus, an

individual may file an independent [Section] 75-1.1 claim, or may

file a [Section] 75-1.1 claim that relies on a violation of

§ 58-63-15(11).” Elliott, 883 F.3d at 396.

In this regard, the Fourth Circuit has observed:

To establish a violation of § 58-63-15(11), a

complainant must show that the defendant committed one of

the enumerated unfair practices in the settlement of

insurance claims, and that such conduct was committed or

performed “with such frequency as to indicate a general

business practice.” [N.C. Gen. Stat.] § 58-63-15(11).

To establish a claim under § 75-1.1(a), a complainant

must show: (1) an unfair or deceptive act or practice,

(2) in or affecting commerce, (3) which proximately

caused injury to plaintiff. Gray, 529 S.E.2d at 681.

“The determination of whether an act or practice is an

unfair or deceptive practice . . . is a question of law

for the court.” Id. (citation omitted). “A practice is

unfair when it offends established public policy as well

as when the practice is immoral, unethical, oppressive,

unscrupulous, or substantially injurious to consumers.”

Walker v. Fleetwood Homes of N.C., Inc., 362 N.C. 63, 653

S.E.2d 393, 398 (2007) (internal quotation marks

omitted). However, “such conduct that violates

[§ 58-63-15(11)] constitutes a violation of [Section]

75-1.1, as a matter of law, without the necessity of an

additional showing of frequency indicating a ‘general

business practice,’” because “such conduct is inherently

unfair, unscrupulous, immoral, and injurious to consumers

. . . .” Gray, 529 S.E.2d at 683 (holding as to

violations of § 58-63-15(11)(f), specifically); Country

24

Club, 563 S.E.2d at 279 (extending Gray to apply to all

conduct described in § 58-63-15(11)).

Elliott, 883 F.3d at 396 (ellipses and second set of brackets in

original).5

According to Plaintiff, he “pleads violations of both N.C.

Gen. Stat § 58-63-15(11) and N.C. Gen. Stat. §75-1.1 in seriatim.”

(Docket Entry 13 at 15.) As to the UCSP, the Complaint asserts

violations of seven subsections of North Carolina General Statute

Section 58-63-15(11) (see Docket Entry 3, ¶ 187 (citing N.C. Gen.

Stat § 58-63-15(11)(b)-(d), (f)-(h), & (n))), but Plaintiff

discusses only five subsections in his opposition to the Dismissal

Motion (see Docket Entry 13 at 15-17 (not addressing N.C. Gen. Stat

§ 58-63-15(11)(b) & (n)). As such, Plaintiff effectively concedes

that his claims under the omitted subsections, which prohibit

“[f]ailing to acknowledge and act reasonably promptly upon

communications with respect to claims arising under insurance

policies,” N.C. Gen. Stat. § 58-63-15(11)(b), and “[f]ailing to

promptly provide a reasonable explanation of the basis in the

5 As the Fourth Circuit also noted, “it is unclear whether

conduct that violates § 58-63-15(11) is a per se violation of

§ 75-1.1, or instead whether that conduct satisfies § 75-1.1’s

conduct requirement of an unfair or deceptive act or practice,

still requiring the complainant to show that the act or practice

was in or affecting commerce and proximately caused injury to the

plaintiff before finding a violation of § 75-1.1.” Id. at 396 n.7

(collecting cases). Because, as discussed below, Plaintiff “failed

to plausibly state a claim that [Defendant] committed any of the

conduct prohibited in § 58-63-15(11), however, it is unnecessary to

resolve this question.” Id.

25

insurance policy in relation to the facts or applicable law for

denial of a claim or for the offer of a compromise settlement,”

N.C. Gen. Stat. § 58-63-15(11)(n), should be dismissed. See, e.g.,

Kinetic Concepts, Inc. v. Convatec Inc., No. 1:08cv918, 2010 WL

1667285, at *6-9 (M.D.N.C. Apr. 23, 2010) (explaining that party

concedes opponent’s argument by failing to address it in party’s

response and collecting cases). In any event, the Complaint does

not contain factual allegations that support violations of said

subsections (see generally Docket Entry 3), necessitating dismissal

of such claims, see Iqbal, 556 U.S. at 678.

The Complaint similarly lacks any factual allegations

establishing that Defendant “[f]ail[ed] to adopt and implement

reasonable standards for the prompt investigation of claims arising

under insurance policies,” N.C. Gen. Stat. § 58-63-15(11)(c)

(emphasis added). (See generally Docket Entry 3.) As to that

matter, Plaintiff emphasizes that, “[i]n less than two months from

the date Plaintiff opened claims against all insurance carriers,

both Progressive and State Farm promptly evaluated the claims and

offered policy limits” (Docket Entry 13 at 15), but Defendant

conducted a lengthy investigation into the accident (id. at 15-16),

rendering Defendant’s actions “anything but prompt, reasonable or

in good faith” (id. at 16). Although Plaintiff takes issue with

Defendant’s actual investigation, he fails to provide any factual

support for his conclusory assertion that “Defendant failed to

26

adopt and implement reasonable standards for the prompt

investigation of claims arising under the policy” (id. at 15

(emphasis added)). (See id. at 15-16; see generally Docket Entry

3.) Accordingly, Plaintiff fails to state a viable claim for

violation of Section 58-63-15(11) (c). See Igbal, 556 U.S. at 678;

SD3, 801 F.3d at 422; see also Whitworth v. Nationwide Mut. Ins.

Co., No. 1:1l7ev1124, 2018 WL 4494885, at *7 (M.D.N.C. Sept. 19,

2018) (recommending entry of summary judgment against plaintiffs

where defendant insurance company provided guidelines for its

appraisers and plaintiffs “neither directly contend that

[defendant’s] alleged failure to adhere to corporate policies

contravenes Section 58-63-15(11)(c) nor provide any support for

such proposition,” and observing that “it seems unlikely that the

mere failure to follow established procedures, without more, would

contravene Section 58-63-15(11) (c), given that the UCSP appears

focused on systemic issues in handling insurance claims”), report

and recommendation adopted, No. 1l:1l7evl1l124, 2018 WL 6573472

(M.D.N.C. Oct. 19, 2018); Cash v. State Farm Mut. Auto. Ins. Co.,

137 N.C. App. 192, 199, 528 S.E.2d 372, 376 (affirming dismissal

where “plaintiff allege[d] that [the defendant’s] investigation was

not adequate,” but did not allege that defendant “failed to ‘adopt

and implement reasonable standards for the prompt investigation of

claims arising under’ plaintiff’s policy” (emphasis in original)),

aff’d, 353 N.C. 257, 538 S.E.2d 569 (2000).

27

Plaintiff next contends that Defendant “[r]efus[ed] to pay

claims without conducting a reasonable investigation based upon all

available information,” N.C. Gen. Stat. § 58-63-15(11)(d), on the

theory that “Defendant refused to recognize a valid claim and made

no offers to pay throughout the pendency of the claim” (Docket

Entry 13 at 16). However, the Complaint challenges only conduct

arising before entry of the arbitration award in Plaintiff’s suit

against Rice. (See generally Docket Entry 3.) Accordingly,

Plaintiff fails to state a valid claim based on this subsection.

See Elliott, 883 F.3d at 398 (explaining that insurer bears no

obligation to pay UIM claims until after judgment entered against

tortfeasor).

Plaintiff further asserts that Defendant did “[n]ot attempt[]

in good faith to effectuate prompt, fair and equitable settlements

of claims in which liability has become reasonably clear,” N.C.

Gen. Stat. § 58-63-15(11)(f) (emphasis added), and “[c]ompell[ed

Plaintiff] to institute litigation to recover amounts due under an

insurance policy by offering substantially less than the amounts

ultimately recovered in [Plaintiff’s] action[ against Rice],” N.C.

Gen. Stat. § 58-63-15(11)(g) (emphasis added). (See Docket Entry

3, ¶ 187; Docket Entry 13 at 16-17.) Plaintiff fails to “plausibly

state a claim upon which relief can be granted based on th[ese]

subsection[s] because liability did not become reasonably clear

until after a judgment [or, at a minimum, an arbitration award] was

28

entered in [Plaintiff’s suit against Rice] and, consequently,

[Defendant] had no obligation to settle [Plaintiff’s] claim before

this time.” Elliott, 883 F.3d at 398.

Finally, Plaintiff asserts that Defendant violated Section

§ 58-63-15(11)(h), which prohibits “[a]ttempting to settle a claim

for less than the amount to which a reasonable man would have

believed he was entitled,” N.C. Gen. Stat. § 58-63-15(11)(h). (See

Docket Entry 3, ¶ 187; Docket Entry 13 at 17.) According to

Plaintiff, “Defendant’s refusal to make an offer under the[]

circumstances is worse than attempting to settle a claim for less

than a reasonable man would have believed he was entitled.”

(Docket Entry 13 at 17.) However, Plaintiff provides no authority

for the proposition that failing to engage in settlement

negotiations constitutes an attempt to settle a claim for less than

its value in contravention of Section 58-63-15(11)(h). (See id.)

Accordingly, Plaintiff does not plausibly allege that Defendant

violated this subsection by “refus[ing] to offer anything” (id.).

Because Plaintiff “failed to state a claim upon which relief

could be granted under § 58-63-15(11), [he] consequently also

failed to state a claim upon which relief could be granted under

§ 75-1.1, as a matter of law.” Elliott, 883 F.3d at 399. Thus,

the Court should dismiss Plaintiff’s USCP-based UPTPA claim. See

id. Plaintiff argues, however, that he “established a separate

cause of action under [Section] 75-1.1,” independent of his USCP

29

claims. (Docket Entry 13 at 17.) More specifically, Plaintiff

contends:

First, Defendant’s refusal to recognize and pay any part

of Plaintiff’s UIM claim even after it knew or should

have known it was a valid claim involving the loss of a

father to two young children constitutes an unfair or

deceptive act or practice. Defendant’s conduct is

further exacerbated by the fact that the other carriers,

including another UIM carrier, offered their limits in

less than two months. Instead, Defendant accused Mikal

of contributory negligence and maintained that position

as additional facts only exacerbated Rice’s gross

negligence, willful and wanton conduct. Based upon the

evidence presented, the only logical conclusion is that

Defendant never sought to consider Plaintiff’s claim,

even though its own counsel sought authority to negotiate

and settle. No factual issue would have changed

Defendant’s mind.

(Id. at 17-18; see also id. at 18 (asserting that Defendant’s

failure to pay UIM benefits prior to litigation “after years of

[Plaintiff’s] premium payments affects commerce”).)

As discussed, however, Defendant bore no obligation to pay UIM

benefits until Plaintiff obtained a judgment against Rice

establishing both liability and damages. Moreover, “[a]ny defense

available to [Rice as] the uninsured tort-feasor [w]ould be

available to [Defendant, as the UIM] insurer” in defending against

Plaintiff’s claim. Brown, 285 N.C. at 319, 204 S.E.2d at 834.

Accordingly, Defendant’s pursuit of a contributory negligence

defense and refusal to pay Plaintiff’s UIM claim prior to issuance

of the arbitration award against Rice fails to plausibly state a

UDTPA claim. See, e.g., Elliott, 883 F.3d at 399 (“The mere fact

of having UIM coverage does not entitle the insured to recover at

30

all, or to recover the maximum amount of coverage.”). The Court

should therefore grant Defendant’s request to dismiss Plaintiff’s

UDTPA claim.

CONCLUSION

Under North Carolina law, Defendant bore no obligation to pay

UIM benefits prior to entry of a judgment against Rice determining

both liability and damages. As such, Plaintiff fails to plausibly

allege that Defendant breached the State Auto Policy or engaged in

unfair and deceptive trade practices.

IT IS THEREFORE RECOMMENDED that the Dismissal Motion (Docket

Entry 11) be granted.

This 1st day of June, 2021.

/s/ L. Patrick Auld

L. Patrick Auld

United States Magistrate Judge

31