TEIJIN AUTOMOTIVE TECHNOLOGIES NA HOLDING CORP. v. SOMPO AMERICA INSURANCE COMPANY

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

TEIJIN AUTOMOTIVE TECHNOLOGIES )

NA HOLDING CORP. )

)

Plaintiff. )

) 1:24CV159

v. )

)

SOMPO AMERICA INSURANCE )

COMPANY, )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

THOMAS D. SCHROEDER, District Judge.

This case involves claims arising from the denial of insurance

coverage for losses resulting from the COVID-19 pandemic.

Plaintiff Teijin Automotive Technologies NA Holding Corporation

(“Teijin”) alleges claims against Defendant Sompo America

Insurance Company (“Sompo”) for breach of contract, breach of the

covenant of good faith and fair dealing, and unfair and deceptive

trade practices. Before the court is Sompo’s motion to dismiss

the complaint for failure to state a claim. (Doc. 9.) Teijin has

responded (Doc. 16), and Sompo has replied (Doc. 18). The court

held argument on the motion on January 21, 2025, and the parties

submitted supplemental briefing. (Docs. 24, 25.) For the reasons

set out below, the motion to dismiss will be denied.

I. BACKGROUND

The facts, based on the well-pleaded allegations of the

complaint, are accepted as true for purposes of the motion to

dismiss and are viewed in the light most favorable to Teijin. The

insurance policy underlying the parties’ dispute was attached to

Sompo’s motion to dismiss (Doc. 9-2), and the court considers it

for the purpose of the pending motion. See Brown Goldstein Levy

LLP v. Fed. Ins. Co., 68 F.4th 169, 174 (4th Cir. 2023) (“[W]hen

a defendant attaches a document to its motion to dismiss, a court

may consider it in determining whether to dismiss the complaint if

it was integral to and explicitly relied on in the complaint and

if the plaintiffs do not challenge its authenticity.” (quoting Am.

Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234

(4th Cir. 2004))). Teijin does not challenge the authenticity of

the policy, which was integral to and relied upon in the complaint.

Teijin is “a manufacturer of highly-engineered materials for

several mobility related industries, including automotive, heavy

truck, marine and recreational vehicle segments.” (Doc. 1 ¶ 6.)

It is incorporated in Delaware and has its principal place of

business in Michigan but has facilities “throughout North America,

Europe, and Asia.” (Id.) Sompo is an insurer incorporated in New

York with headquarters in Charlotte, North Carolina. (Id. ¶ 9.)

“It is licensed and authorized to [provide insurance in] Michigan,

Louisiana, Indiana, Ohio, and North Carolina.” (Id.)

Teijin purchased a manuscript property insurance policy from

Sompo in July of 2019. (Id. ¶ 1.) The policy was issued from

Sompo’s office in Charlotte, North Carolina. (Id. ¶ 9.) It

provides $400,000,000 of “all risk” coverage for “direct physical

loss, damage, or destruction to [Teijin’s] property.” (Doc. 9-2

at 111, 119; see Doc. 1 ¶ 15.) Teijin’s six plants in North

Carolina, Louisiana, Indiana, Ohio, and Michigan and its

headquarters in Michigan are covered by the policy. (Doc. 1 ¶¶ 7-

8.) The policy has a number of exclusions. Relevant here, it

excludes coverage for “direct physical loss, damage or destruction

including costs or expenses in connection with any kind or

description of seepage and/or pollution and/or contamination”

(Doc. 9-2 at 139) and “delay, loss of market, or loss of use” (id.

at 141).

The policy period runs from July 1, 2019, to July 1, 2020.

(Doc. 1 ¶ 13.) The “Suit Against the Company” section of the

policy provides that “any action or proceedings against [Sompo]

for recovery of any loss under this Policy shall not be barred if

commenced within two years and one day after [Teijin] provides

notice to [Sompo], . . . which period shall be tolled from the

date of notice until the date that [Teijin] receives [Sompo’s]

‘Final Coverage Decision.’” (Doc. 9-2 at 155-56.) For covered

property in North Carolina, the policy endorsement makes several

changes. (See id. at 75-79.) One of those modifications

“replace[s]” the Suit Against the Company provision and states

that an action under the policy must be “brought within three years

after the date on which the direct physical loss or damage

occurred.” (Id. at 75.)

An endorsement to the policy, Endorsement No. 2

(“Communicable Disease Coverage Endorsement”), provides coverage

for “Interruption by Communicable Disease” and “Communicable

Disease Response.” (Doc. 1 ¶¶ 16-18; Doc. 9-2 at 182-84.) The

“Interruption by Communicable Disease” section states:

If a location owned, leased or rented by [Teijin] has

the actual not suspected presence of communicable

disease and access to such location is limited,

restricted or prohibited by:

1) an order of an authorized governmental agency

regulating the actual not suspected presence of

communicable disease; or

2) a decision of an Officer of [Teijin] as a result of

the actual not suspected presence of communicable

disease,

this Policy covers the Actual Loss Sustained and EXTRA

EXPENSE incurred by [Teijin] during the PERIOD OF

LIABILITY at such location with the actual not suspected

presence of communicable disease.

(Doc. 1 ¶ 16; Doc. 9-2 at 182.) The period of liability for this

section is defined as “starting at the time of the order of the

authorized governmental agency or the Officer of [Teijin]” and not

“exceed[ing] the time limit of $50,000,000.” (Doc. 1 ¶ 17; Doc.

9-2 at 183.) The section titled “Communicable Disease Response”

provides further coverage for “the reasonable and necessary costs

incurred by [Teijin]” for “cleanup, removal and disposal” of the

disease and “actual costs of fees payable to public relations

services or actual costs of using [Teijin’s] employees for

reputation management.” (Doc. 9-2 at 183; see Doc. 1 ¶ 18.) The

endorsement excludes from coverage any loss or costs incurred due

to “any law or ordinance with which [Teijin] was legally obligated

to comply prior to the time of the actual spread of communicable

disease.” (Doc. 9-2 at 182-83.)

“In February and March of 2020, Teijin began suffering major

losses due to the COVID-19 pandemic.” (Doc. 1 ¶ 2.) Teijin

alleges that COVID-19 was present at its facilities in Louisiana,

Indiana, North Carolina, Ohio, and Michigan in March of 2020. (Id.

¶ 30.) It alleges this presence based on the “statistical[]

certain[ty]” that COVID-19 would have been at the facilities

because “COVID-19 was everywhere and highly contagious” (id. ¶ 34)

and on reported cases from employees (id. ¶¶ 35, 37-38).

Specifically, on March 27, 2020, an employee at Teijin’s

headquarters in Michigan tested positive for COVID-19. (Id. ¶ 38.)

On April 1, an employee at Teijin’s plant in Carey, Ohio tested

positive, and on April 20, an employee at the Michigan plant tested

positive. (Id.) In May, an employee at the North Baltimore, Ohio

plant tested positive for COVID-19, and in June, employees at the

North Carolina, Louisiana, and Indiana plants also tested

positive. (Id. ¶ 35.) In addition, Teijin “attempted to track

symptomatic and asymptomatic cases” at its facilities in 2020,

finding that there were symptomatic cases at the following plants:

North Baltimore, Ohio (March 23); North Carolina (March 23);

Louisiana (March 30); Michigan (April 4); Carey, Ohio (April 7);

and Indiana (June 11). (Id. ¶ 37.)

Teijin’s facilities remained open throughout the pandemic

because its manufacturing operations were deemed essential by

governmental authorities. (Id. ¶ 33.) However, access to the

facilities was limited. In March of 2020, many governors issued

executive orders limiting access to businesses to essential

workers and placing social distancing and quarantine restrictions

on those workers, including the governors of Ohio (March 22),

Indiana (March 23), Michigan (March 23), Louisiana (March 23), and

North Carolina (March 27). (Id. ¶¶ 41-45.)

Executives at Teijin also implemented restrictions and

procedures “in response to the actual presence of COVID-19 onsite”

at its facilities. (Id. ¶ 47.) On March 17, 2020, Dina Graham,

Teijin’s Vice President of Environmental Legal Affairs, Health,

Safety, and Sustainability, issued an order requiring Teijin

plants “to adopt rigorous deep cleaning and disinfection

procedures and use of isolation rooms in response to employees

that [became] symptomatic or test[ed] positive for COVID-19 while

onsite.” (Id.) This policy also restricted the access of

employees who were symptomatic of or tested positive for COVID-19

to Teijin’s plants. (Id.) On May 7, 2020, Graham implemented a

policy requiring that “each visitor to [Teijin’s plants] be

‘essential or business critical.’” (Id.)

As a result of these orders, “Teijin suffered loss in extra

expense beginning in March 2020.” (Id. ¶ 48.) It also alleges it

experienced “staffing issues and reduced output resulting in

substantial lost revenue.” (Id.) Finally, Teijin claims it

“incurred costs in undergoing substantial sanitation efforts,

including purchasing and using cleaning disinfection products,

personal protection equipment, and related items; and hiring

outside companies to clean up and/or remove COVID-19.” (Id. ¶ 49.)

“Teijin notified Sompo of its ongoing losses on June 26,

2020.” (Id. ¶ 50.) On July 21, 2020, Sompo responded by a letter

from a senior commercial property claims specialist from its

Charlotte, North Carolina office without acknowledging the

existence of the Communicable Disease Coverage Endorsement. (Id.

¶ 51.) Teijin provided additional information on June 3, 2021,

and Sompo informed Teijin that it would “re-evaluate its coverage

position.” (Id. ¶ 52). Teijin again provided additional

information to Sompo in February of 2022, and Sompo denied coverage

by letter on March 15, 2022. (Id. ¶ 53.) Teijin alleges that the

denial letter “suggested the Communicable Disease Coverage

Endorsement was not part of the Policy” and asserted that “the

Communicable Disease coverages require ‘direct physical loss,

damage, or destruction’ to property.” (Id. ¶ 54.)

Teijin filed this action on February 28, 2024 (Doc. 1), and

Sompo filed its motion to dismiss on June 28, 2024 (Doc. 9). The

motion is fully briefed and ready for decision.

II. ANALYSIS

Federal Rule of Civil Procedure 8(a)(2) provides that a

pleading must contain “a short and plain statement of the claim

showing that the pleader is entitled to relief.” Fed. R. Civ. P.

8(a)(2). A Rule 12(b)(6) motion to dismiss is meant to “test[]

the sufficiency of a complaint” and not to “resolve contests

surrounding the facts, the merits of a claim, or the applicability

of defenses.” Republican Party of N.C. v. Martin, 980 F.2d 943,

952 (4th Cir. 1992). To survive such a motion, “a complaint must

contain sufficient factual matter, accepted as true, 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)). In considering a Rule 12(b)(6)

motion, a court “must accept as true all of the factual allegations

contained in the complaint,” Erickson v. Pardus, 551 U.S. 89, 94

(2007) (per curiam), and all reasonable inferences must be drawn

in the non-moving party's favor, Ibarra v. United States, 120 F.3d

472, 474 (4th Cir. 1997). However, the court “need not accept as

true unwarranted inferences, unreasonable conclusions, or

arguments.” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.

2008). Rule 12(b)(6) protects against meritless litigation by

requiring sufficient factual allegations “to raise a right to

relief above the speculative level,” Twombly, 550 U.S. at 555, so

as to “nudge[] the[] claims across the line from conceivable to

plausible,” id. at 570. See Iqbal, 556 U.S. at 678. Thus, mere

legal conclusions should not be accepted as true, and “[t]hreadbare

recitals of the elements of a cause of action, supported by mere

conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.

A. Breach of Contract Claim

1. Choice of Law

Sompo argues that North Carolina law governs the procedural

interpretation of the insurance policy and that New York law

governs its substantive interpretation. (Doc. 10 at 10-11.) It

contends that while the “law of the forum state governs procedural

matters” (id. at 10), North Carolina follows the lex loci

contractus rule, which prescribes that “an insurance contract is

subject to the law of the state where the contract was entered”

(id. at 11). Sompo argues that the insurance policy was delivered

to Teijin in New York and thus was entered there. (Id. at 11.)

In its supplemental brief, Sompo addresses the application of North

Carolina General Statute section 58-3-1, which Sompo explains is

“a narrow exception to the lex loci contractus rule for cases where

a close connection exists between the state of North Carolina and

the interests insured by an insurance policy.” (Doc. 24 at 4.)

Sompo contends that “[n]o such ‘close connection’ exists here.”

(Id.)

Teijin argues that North Carolina law governs the

interpretation of the insurance policy. (Doc. 16 at 18-20.) It

contends that section 58-3-1 applies because “North Carolina

represents where both parties have a physical presence, where the

Policy was issued, and where some of Teijin’s loss was caused and

felt.” (Id. at 19.)

North Carolina indeed employs the lex loci contractus rule to

determine which state’s law governs the interpretation of a

contract. Fortune Ins., Co. v. Owens, 351 N.C. 424, 428 (2000).

Therefore, the law of the state where the last act to make a

binding contract occurred - usually the delivery of the policy in

the insurance context - will govern. Id. Section 58-3-1 creates

an exception to this general rule for “[a]ll contracts of insurance

on property, lives, or interests in [North Carolina],” requiring

that they are “deemed to have been made within [North Carolina]

and are subject to the laws thereof.” To ensure compliance with

the Due Process Clause of the Fourteenth Amendment, the Supreme

Court of North Carolina has determined that North Carolina must

have a “close connection” to the interests insured for its law to

apply. Collins & Aikman Corp. v. Hartford Acc. & Indem. Co., 436

S.E.2d 243, 246 (N.C. 1993).

While the insurance policy lists a New York address for

Teijin’s mailing address (Doc. 9-2 at 6), the complaint does not

allege where the policy was delivered. Additionally, the complaint

lists six plants and two buildings, referred to as Teijin’s

headquarters, as the insured facilities that are the subject of

its claims. (Doc. 1 ¶¶ 7-8.) However, it is not clear whether

these are the only facilities covered by the policy. For example,

the policy includes provisions that change the policy terms for

Teijin’s property in California (Doc. 9-2 at 40-44), Georgia (id.

at 45-49), New York (id. at 71-74, 86), and South Carolina (id. at

84-85, 88-90). Neither party has addressed the extent of the

insured property under the policy, and the policy is 183 pages

long (see Doc. 9-2). It is not the court’s burden to search the

record for this information. See, e.g., Johnson v. City of

Shorewood, 360 F.3d 810, 817 (8th Cir. 2004) (“It is not a court’s

obligation to search the record for specific facts that might

support a litigant’s claim.”); Ritchie v. Glidden Co., 242 F.3d

713, 723 (7th Cir. 2001) (“[A] court is not required to scour the

record in search of evidence to defeat a motion.”) (internal

quotation marks omitted); Krakauer v. Dish Network, L.L.C.,

No. 1:14-CV-333, 2018 WL 11429948, at *5 (M.D.N.C. Jan. 25, 2018).

On the current record, the parties have not adequately set out,

nor can the court determine, whether the interests insured by the

policy have a “close connection” to North Carolina. A more fulsome

indication of the interests insured is necessary. Thus, without

more, the court cannot determine whether to apply either the lex

loci contractus rule or section 58-3-1.

At the hearing on the motion, Sompo argued that the court

should decide the choice of law issue at this stage because it is

relevant to the determination of whether direct physical loss or

damage has occurred. (Doc. 23 at 4:4-7.) But, as explained in

Section II.A.3 below, the parties now concede that the existence

of direct physical loss or damage is no longer at issue. And New

York and North Carolina law are otherwise consistent on the issues

relevant to the breach of contract claim. For example, both states

require contracts to be interpreted according to their plain and

ordinary meaning, see Consol. Rest. Operations, Inc. v. Westport

Ins. Corp., 235 N.E.3d 332, 336 (2024); Integon Nat. Ins. Co. v.

Villafranco, 745 S.E.2d 922, 925 (N.C. Ct. App. 2013), and when an

insurance contract is ambiguous, both states agree that the

contract should be construed against the insurer, see Consol. Rest.

Operations, Inc., 235 N.E.3d at 336; Cowell v. Gaston Cnty., 660

S.E.2d 915, 918 (N.C. Ct. App. 2008). Therefore, the court at

this early stage need not choose between North Carolina or New

York law for purposes of the present motion.

2. Suit Limitation Provision

Sompo argues that Teijin’s action is untimely. In its initial

brief, Sompo contended that the endorsement titled “North Carolina

Changes,” which provides that an action under the policy must be

“brought within three years after the date on which the direct

physical loss or damage occurred,” applies. (Doc. 10 at 11-12.)

Sompo argued that Teijin began suffering losses in February of

2020, and so it had until February 2023 to file its lawsuit. (Id.

at 14.) However, at the hearing, Sompo argued that while the

three-year limitation applied to claims of direct physical loss

under the general policy provisions, the two-year limitation found

in the “Suit Against the Company” provision, accruing from the

date of the final coverage denial, applied to claims of other

losses, including those under the Communicable Disease Coverage

Endorsement. (Doc. 23 at 11:5-8, 13:4-10.) Sompo contended that

the insurance claim was first denied in February 2021, and that

the two-year limitations period ran from then until Sompo re-

evaluated the coverage decision in June 2021. (Id. at 15:16-25.)

When the claim was denied again in March 2022, Sompo contended,

the period resumed running and thus the two-year limitations period

expired in late November 2023, some three months prior to Teijin

filing this action. (Id. at 16:7-21.)

Teijin similarly argues that the two-year limitation applies.

(Doc. 16 at 14.) However, it contends that this period began

running in March 2022, when Sompo’s denial letter was issued, and

thus its action, filed on February 28, 2024, was timely. (Id.)

The policy’s “North Carolina Changes” endorsement measures

three years from the date of “direct physical loss or damage.”

(Doc. 9-2 at 75.) The parties agree that no such damage is alleged

(Doc. 23 at 59:18-60:5), and so this provision is not applicable.

Sompo raised its argument that the two-year limitation

applies to Teijin’s claim, as well as its construction of the way

to count the running of the two-year period, for the first time at

oral argument. For the purpose of the present motion, therefore,

it is waived. See In re Crop Prot. Prods. Loyalty Program

Antitrust Litig., No. 1:23-md-3062, 2025 WL 315835, at *12

(M.D.N.C. Jan. 28, 2025) (citing United States v. Bowles, 602 F.3d

581, 583 n.* (4th Cir. 2010)). However, even if not waived,

Sompo’s argument fails at this stage. Aside from Sompo’s proposed

manner of counting the two-year period, the complaint does not

allege that a denial letter was sent in February 2021. Rather, it

alleges that the final denial letter was issued in March 2022,

resulting in a two-year limitation period that would expire in

March 2024, subsequent to the filing of the complaint. (See Doc.

1 ¶ 53.) Therefore, the court cannot conclude at this pleadings

stage that this action is time-barred. Dickinson v. Univ. of N.C.,

91 F. Supp. 3d 755, 763 (M.D.N.C. 2015) (“To succeed on a statute-

of-limitations defense at [the motion to dismiss] stage, all facts

necessary to show the time bar must clearly appear ‘on the face of

the complaint.’” (quoting Goodman v. Praxair, Inc., 494 F.3d 458,

464 (4th Cir. 2007))). Sompo’s motion to dismiss on this basis

will therefore be denied.

3. Coverage Under the Communicable Disease Coverage

Endorsement

In Sompo’s briefing, it argued that Teijin’s insurance claim

was not covered by the policy because (1) no physical loss or

damage occurred (Doc. 10 at 15), (2) the loss of market and loss

of use exclusions applied (id. at 18), (3) the claim was barred by

the policy’s pollution and contamination exclusion (id. at 18-19),

and (4) the Communicable Disease Coverage Endorsement did not apply

because “Teijin did not identify any order restricting access to

its property as a result of the actual presence of Covid-19 on its

premises” (id. at 17). At the hearing, however, the parties agreed

that Teijin is only seeking coverage under the Communicable Disease

Coverage Endorsement and, therefore, whether physical loss or

damage occurred and whether the policy exclusions apply are no

longer relevant issues. (Doc. 23 at 59:18-60:5.) Sompo does

maintain that Teijin has not alleged any qualifying orders under

the Communicable Disease Coverage Endorsement because the orders

by state governments and Teijin officers identified in the

complaint were “based on the general spread of COVID-19, not the

actual presence of COVID-19 at the property,” as required by the

endorsement. (Id. at 27:14-16; see also id. at 28:18-25, 29:3-9;

Doc. 18 at 6.) It also contends that the endorsement’s exclusion

for costs and losses due to “any law or ordinance with which

[Teijin] was legally obligated to comply prior to the time of the

actual spread of communicable disease” applies to Teijin’s claimed

losses because they are due “to government orders that were issued

prior to the alleged infection of its employees.” (Doc. 10 at 17-

18.)

Teijin argues that the five government orders and two orders

by Teijin officers described in the complaint are qualifying orders

under the Communicable Disease Coverage Endorsement. (Doc. 16 at

24-27.) It highlights the different language used to describe the

two types of qualifying orders in the endorsement: the government

order must be “regulating the actual not suspected presence” of

COVID-19, while the decision of the Teijin officer must be “a

result of the actual not suspected presence” of COVID-19. (Doc.

9-2 at 182 (emphasis added); see Doc. 16 at 24-26.) Teijin argues,

therefore, that the government orders need not be “a result of”

the presence of COVID-19 but must simply “regulat[e]” COVID-19.

(Doc. 16 at 25-26.) Teijin adds that the endorsement’s exclusion

for losses due to a “law or ordinance with which [it] was legally

obligated to comply prior to the time of the actual spread of

communicable disease” does not apply. (Doc. 23 at 57:6-58:3.) It

contends that the exclusion’s language, given the contrast with

the endorsement’s language about qualifying orders, should be

interpreted to refer to “basic health and safety regulations.”

(Id. at 57:15-21.)

To trigger coverage under the Communicable Disease Coverage

Endorsement, a Teijin property must have the “actual not suspected

presence of communicable disease,” and the access to such property

must be “limited, restricted or prohibited” by either “an order of

an authorized governmental agency regulating the actual not

suspected presence of communicable disease” or “a decision of [a

Teijin officer] as a result of the actual not suspected presence

of communicable disease.” (Doc. 9-2 at 182.) Sompo concedes that

Teijin has alleged the actual presence of COVID-19 at Teijin

facilities (see Doc. 23 at 26:12-17) but contests whether the

government and officer orders identified in the complaint are

qualifying orders under the endorsement.

Each of the government orders, in Ohio, Indiana, Michigan,

Louisiana, and North Carolina, restricted access to Teijin

facilities by limiting access to essential workers and

implementing social distancing. (See Doc. 1 ¶¶ 41-45.) And Teijin

has sufficiently alleged that these orders regulated the actual,

not suspected, presence of COVID-19 at its facilities. With

allegations of test results and its tracking of symptomatic cases,

Teijin has plausibly alleged that its employees in these five

states contracted COVID-19 prior to or close in time to these

orders. (See id. ¶¶ 35-39.)

Even if the government orders were not sufficient to trigger

coverage, Teijin has plausibly alleged that the decisions of its

officers from March 17 to May 7, 2020, are qualifying orders

pursuant to the endorsement. The March 17 decision not only

adopted cleaning procedures and the use of isolation rooms for

infected employees but also restricted the access of infected

employees to Teijin plants. (Id. ¶ 47a.) The May 7 decision

“required each visitor to a [Teijin plant] to be ‘essential or

business critical,’” further restricting access. (Id. ¶ 47b.)

Teijin alleges that access was limited by these decisions “due to”

and “in response to” the actual presence of COVID-19 at its

properties (id. ¶ 47) and that COVID-19 was present at its

facilities as early as March 2020 (id. ¶¶ 35-39), close in time to

the first order and prior to the second. Therefore, Teijin has

pleaded sufficient facts at this stage to plausibly allege that

its claimed losses are covered by the Communicable Disease Coverage

Endorsement. Sompo’s motion to dismiss on this basis will

therefore be denied.

B. Breach of the Covenant of Good Faith and Fair Dealing

Claim

Sompo’s argument that Teijin’s claim for breach of the implied

covenant of good faith and fair dealing should be dismissed rests

entirely on its contention that Teijin failed to state a claim for

breach of contract. (Doc. 10 at 19.) Because the court has found

that Teijin has plausibly stated a claim for breach of contract,

Sompo’s motion to dismiss this claim will be denied.

C. Unfair and Deceptive Trade Practices Claim

1. Application of North Carolina Law

Sompo asserts that North Carolina’s Unfair and Deceptive

Trade Practices Act (“UDTPA”), N.C. Gen. Stat. § 58-63-15, the

basis for Teijin’s third claim, does not apply. (Doc. 10 at 20.)

It argues that “[i]n evaluating a claim of unfair and deceptive

trade practices, North Carolina courts apply the law of the state

‘where the last act occurred giving rise the injury.’” (Id.

(quoting P & L Dev., LLC v. Bionpharma, Inc., 367 F. Supp. 3d 421,

428 (M.D.N.C. 2019)).) Sompo further contends that North Carolina

courts usually find that “economic loss is felt where the plaintiff

maintains its principal place of business,” which in this case is

Michigan. (Id.) Sompo argues, therefore, that the last act giving

rise to Teijin’s injury occurred outside of North Carolina and

thus North Carolina law does not apply to Teijin’s claim. (Id.)

Teijin responds that North Carolina law should be applied

under the “most significant relationship” test. (Doc. 16 at 30

(quoting Andrew Jackson Sales v. Bi-Lo Stores, Inc., 314 S.E.2d

797, 799 (N.C. Ct. App. 1984)).) It explains that “[i]n deciding

choice-of-law, the Fourth Circuit opts for the ‘flexible approach’

provided by the most significant relationship test in cases

involving, as here, ‘special multi-state features.’” (Id.

(quoting Santana, Inc. v. Levi Strauss & Co., 674 F.2d 269, 273

(4th Cir. 1982)).) Teijin argues that, pursuant to this test,

“[t]he parties have physical operations, Sompo issued the Policy,

and Teijin suffered loss all in North Carolina.” (Id.) It also

contends that even if the court applies the lex loci test, North

Carolina law would still apply. (Id. at 31.) This is because,

Teijin explains, “[t]he last act giving rise to Teijin’s UDTPA

claim [occurred] in North Carolina.” (Id.) That is, “Sompo made

its misrepresentations in North Carolina, Sompo issued its

coverage denial letter in North Carolina signed by an employee in

its Charlotte office, and Teijin was forced to pay covered clean-

up costs in Salisbury[, North Carolina] in connection with Sompo’s

tortious conduct.” (Id. (citations omitted).)

“In a diversity action . . . , the court must apply the choice

of law rules of the state in which it sits.” M-Tek Kiosk, Inc. v

Clayton, No. 1:15CV886, 2016 WL 2997505, at *4 (M.D.N.C. May 23,

2016) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,

496 (1941), superseded by statute on other grounds). However,

when the supreme court of the state “has spoken neither directly

nor indirectly on the particular issue . . . , [the court must]

predict how that court would rule if presented with the issue.”

Priv. Mortg. Inv. Servs., Inc. v. Hotel & Club Assocs., Inc., 296

F.3d 308, 312 (4th Cir. 2002). The Supreme Court of North Carolina

has not addressed the proper test for determining when the UDTPA

applies. The North Carolina Court of Appeals has recognized a

“split of authority” within its court regarding whether the lex

loci test or the most significant relationship test should be used.

Stetser v. TAP Pharm. Prods., Inc., 598 S.E.2d 570, 580 (N.C.

2004). Given this uncertainty, “federal courts generally appear

to favor the lex loci rule.” SmithKline Beecham Corp. v. Abbott

Labs., No. 1:15-CV-360, 2017 WL 1051123, at *6 (M.D.N.C. Mar. 20,

2017). And the Fourth Circuit has instructed that “when the place

of injury is open to debate in regard to an unfair trade practices

claim, North Carolina choice of law rules require a court to apply

the law of the state with the most significant relationship to the

transaction.” Edmondson v. Am. Motorcycles Ass’n, Inc., 7 F. App’x

136, 150 (4th Cir. 2001).1 Consistent with this guidance, this

court will first apply the lex loci test, but if its application

does not produce a clear result, it will turn to the most

significant relationship test. See, e.g., P & L Dev., LLC v.

Bionpharma, Inc., 367 F. Supp. 3d 421, 427-28 (M.D.N.C. 2019);

SmithKline Beecham Corp. c. Abbott Labs., No. 1:15-CV-360, 2017 WL

1051123, at *6-8 (M.D.N.C. Mar. 20, 2017).

The lex loci test asks where the injury was sustained, meaning

where the last act occurred that gave rise to the injury. United

Va. Bank v. Air-Lift Assocs., Inc., 339 S.E.2d 90, 93-94 (N.C. Ct.

App. 1986). The suffering of damages is usually considered such

1 Unpublished opinions of the Fourth Circuit are not precedential but

are cited for their persuasive, but not controlling, authority. See

Collins v. Pond Creek Mining Co., 468 F.3d 213, 219 (4th Cir. 2006).

a last act. Id. at 94. Courts sometimes consider the plaintiff’s

principal place of business as the place of injury for a financial

loss. See P & L Dev., LLC, 367 F. Supp. 3d at 429.

Teijin claims its covered losses from Sompo’s unfair and

deceptive conduct are lost profits due to staffing issues and

reduced output, and the costs of cleaning and personal protection

equipment. (Doc. 1 ¶¶ 48-49, 80.) It alleges that these losses

were incurred at six plants in five states, North Carolina,

Louisiana, Indiana, Ohio, and Michigan, and two facilities in

Michigan that together are referred to as Teijin’s “headquarters.”

(Id. ¶¶ 7-8 (capitalization omitted).) The complaint does not

provide any detail about the relative magnitude of the losses at

each of these facilities. While courts often look to the

plaintiff’s principal place of business as the place of injury for

an economic loss felt in multiple states, North Carolina courts

have made it clear that this is not a bright line rule. See P & L

Dev., LLC, 367 F. Supp. 3d at 429 (“While a plaintiff may feel the

economic loss in the state of its principal place of its business,

North Carolina courts have rejected a bright line rule requiring

such a finding.”); Harco Nat. Ins. Co. v. Grant Thornton LLP, 698

S.E.2d 719, 725-26 (N.C. Ct. App. 2010). Teijin has alleged that

at least some of its losses were felt in North Carolina. Indeed,

North Carolina was among the earliest of its facilities to

experience the actual presence of COVID-19 in March of 2020. (See

Doc. 1 ¶ 37.) It is at least plausible, therefore, that the UDTPA

applies under the lex loci test, and without more, the court cannot

determine, as Sompo argues, that it does not.

The parties dispute whether the most significant relationship

test applies. Sompo disputes its application, but without

analysis; Teijin argues it applies. The most significant

relationship test considers (1) the place of injury, (2) the place

of the conduct causing the injury, (3) the domiciles of the

parties, and (4) the place where the relationship is centered.

SmithKline Beecham Corp. c. Abbott Labs., No. 1:15-CV-360, 2017 WL

1051123, at *9 (M.D.N.C. Mar. 20, 2017). The place of injury

factor is equivalent to the lex loci test, which the court has

already addressed. The place of the conduct - here, the denial of

coverage - was North Carolina, as the denial letter was issued

from Sompo’s Charlotte office. The domiciles of the parties

include Delaware, Michigan, New York, and North Carolina. Finally,

the place where the relationship is centered, the most important

factor, is unclear on this record. See id. (“Courts analyzing

North Carolina UDTPA claims under the most significant

relationship test focus on ‘where the relationship between the

parties was created and where it was centered.’” (quoting Jacobs

v. Cent. Transp., Inc., 891 F. Supp. 1088, 1111 (E.D.N.C. 1995))).

Teijin does not address where the relationship was centered. The

parties entered into a contractual relationship, which was created

where the contract was delivered; yet the complaint does not

provide this factual detail. The policy was issued from Sompo’s

Charlotte, North Carolina office (Doc. 1 ¶ 9), and communications

about the denial of Teijin’s insurance claim also came from that

office (id. ¶ 51). The complaint does not allege where any other

communications about the policy took place. Finally, the policy

insured properties throughout North America, including at least

Teijin’s facilities in North Carolina, Louisiana, Indiana, Ohio,

and Michigan. North Carolina, as the place of the conduct, a

domicile of the Defendant, and the location of one of Teijin’s

facilities that suffered loss, does have a significant

relationship to the claim. However, the record is not developed

on, nor have the parties adequately addressed, the extent to which

the policy coverages render North Carolina, versus any other state,

the state with the “most” significant relationship to the claim.

Thus, without knowing more about where the relationship was

centered, the court cannot conclude at this early stage that North

Carolina did not have the most significant relationship to the

claim such that the UDTPA does not apply. Sompo’s motion to

dismiss Teijin’s UDTPA claim on this basis will therefore be

denied.

2. Unfair and Deceptive Trade Practices Act

Sompo argues that even if the UDTPA applies, Teijin has failed

to state a claim. (Doc. 10 at 20.) A violation of the UDTPA,

codified as North Carolina General Statute section 75-1.1, is

shown if (1) an unfair and deceptive act or practice (2) in or

affecting commerce (3) proximately caused the plaintiff’s injury.

Dan King Plumbing Heating & Air Conditioning, LLC v. Harrison, 869

S.E.2d 34, 42 (N.C. Ct. App. 2022) (citing Gray v. N.C. Ins.

Underwriting Ass’n, 529 S.E.2d 676, 681 (N.C. 2000)). Whether a

practice is unfair or deceptive is a question of law for the court.

Gray, 529 S.E.2d at 681 (citing Ellis v. N. Star Co., 388 S.E.2d

127, 131 (N.C. 1990)). “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., 653 S.E.2d

393, 398 (N.C. 2007) (quoting Marshall v. Miller, 276 S.E.2d 397,

403 (N.C. 1981)). “A practice is deceptive if it has the capacity

or tendency to deceive.” Id. (quoting Marshall, 276 S.E.2d at

403) (alteration adopted).

North Carolina General Statute section 58-63-15(11) defines

unfair practices in the context of settling insurance claims.

Elliot v. Am. States Ins. Co., 883 F.3d 384, 396 (4th Cir. 2018).

Section 58-63-15(11) does not provide a private right of action,

however; the remedy is to file a claim under section 75-1.1. Id.

“Thus, an individual may file an independent § 75-1.1 claim, or

may file a § 75-1.1 claim that relies on a violation of § 58-63-

15(11).” Id. (citing Gray, 529 S.E.2d at 684).

To establish that a defendant has violated section 58-63-

15(11), a plaintiff must show that the defendant committed one of

the acts or practices listed in that section and that the act or

practice was committed “with such frequency as to indicate a

general business practice.” Id. (quoting N.C. Gen. Stat. § 58-

63-15(11)). However, “conduct that violates § 58-63-15(11)

constitutes a violation of N.C.G.S. § 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 . . . .’” Id. (quoting Gray, 529 S.E.2d at 683)

(alterations adopted); see Country Club of Johnson Cnty., Inc. v.

U.S. Fid. & Guar. Co., 563 S.E.2d 269, 279 (N.C. Ct. App. 2002)

(stating that “a plaintiff is not required to prove a violation of

N.C. Gen. Stat. § 58–63–15(11) in order to succeed on an

independent claim under N.C. Gen. Stat. § 75–1.1” but the court

“may look to the types of conduct prohibited by N.C. Gen. Stat.

§ 58–63–15(11) for examples of conduct which would constitute an

unfair and deceptive act or practice”).

The Fourth Circuit has noted that it is “unclear whether

conduct that violates § 58-63-15 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,” requiring

additional proof of commerce and proximate cause. Elliot, 883

F.3d at 396 n.7. Given this lack of clarity and the North Carolina

courts’ indication that practices listed by section 58-63-15(11)

constitute examples of unfair and deceptive acts or practices, see

Gray, 529 S.E.2d at 683; Country Club, 563 S.E.2d at 279, the court

will proceed under the typical framework for a claim brought under

section 75-1.1. That is, the court will consider conduct that

violates section 58-63-15(11) as a violation of section 75-1.1,

but will otherwise require a showing of commerce2 and proximate

causation.

3. Deceptive Trade Practice

Sompo first argues that Teijin has failed to sufficiently

allege that Sompo engaged in an unfair and deceptive act or

practice. (Doc. 10 at 20–21.) It explains that “[a] mere breach

of contract, standing alone, is not sufficient to maintain a UDTPA

claim”; rather, there must be aggravating circumstances. (Id. at

21.)

Teijin responds that Sompo violated the UDTPA by

“misrepresent[ing] the Policy by ignoring the Communicable Disease

Coverage Endorsement, . . . assert[ing] instead a physical loss or

damage requirement for coverage where none exists, . . . fail[ing]

to conduct a reasonable (or any) investigation, and . . . in

denying the claim, fail[ing] to provide a reasonable explanation

2 Sompo does not challenge whether Teijin has met the commerce element

(see Doc. 10 at 20-21), so the court does not address it at this time.

based on the Policy.” (Doc. 16 at 29-30.) It contends that these

actions “violate[d] N.C. Gen. Stat. § 58-63-15 . . ., which

constitutes an unfair method of competition or unfair or deceptive

act or practice in violation of N.C. Gen. Stat. § 75-1.1.” (Doc.

1 ¶ 76.)

Teijin’s allegations are sufficient to support its claim that

Sompo misrepresented the policy and failed to provide a reasonable

explanation for the denial, both of which are unfair and deceptive

acts or practices under North Carolina law. See N.C. Gen. Stat.

§ 58-63-15(11)(a), (n). Teijin alleges that Sompo wrongfully

represented in an initial coverage letter and then in a denial

letter that the Communicable Disease Coverage Endorsement was not

part of the policy. (Doc. 1 ¶¶ 51, 54.) In denying coverage,

Sompo also allegedly claimed that direct physical loss was required

under the policy, when the plain language of the endorsement is to

the contrary – a position Sompo has since abandoned in this

litigation. (Id. ¶ 54.)

Deception accompanying a breach of contract is sufficient to

show aggravating circumstances under the UDTPA. DENC, LLC v.

Phila. Indem. Ins. Co., 32 F.4th 38, 52-53 (4th Cir. 2022) (citing

Bartolomeo v. S.B. Thomas, Inc., 889 F.2d 530, 535 (4th Cir.

1989)). Teijin’s allegations are sufficient to plausibly allege

deception because Sompo’s explanation of the coverage denial was

plainly contrary to the express terms of the Communicable Disease

Coverage Endorsement and is contrary to Sompo’s acknowledgment

that the physical loss provision is inapplicable. See DENC, LLC,

32 F.4th at 52 (holding that an insurance denial letter had the

“capacity to mislead” and thus violated the UDTPA because it

“fail[ed] to reasonably explain ‘the basis in the insurance policy

in relation to the facts’ for its denial”).

4. Proximate Causation

Sompo further argues that, even if it committed an unfair or

deceptive act, Teijin cannot show that it proximately caused

Teijin’s injury. (Doc. 10 at 21.) Sompo asserts that “[t]o

satisfy proximate cause, a plaintiff must demonstrate that they

detrimentally relied on the defendant’s alleged misrepresentation

or deception.” (Id.) Sompo contends that Teijin has not alleged

detrimental reliance. (Id.)

Teijin responds that Sompo’s conduct did cause its injury,

arguing that “[a]s a result of Sompo’s unfair and deceptive

misrepresentations about coverage and its failure to conduct a

reasonable coverage investigation, Teijin incurred attorneys’ fees

and costs to obtain benefits to which it was entitled.” (Doc. 16

at 31 (citations omitted).) Teijin also relies on DENC, LLC v.

Philadelphia Indemnity Insurance Company, 32 F.4th 38, 53 (4th

Cir. 2022), asserting that “the Fourth Circuit has found similar

insurer conduct regarding deceptive denial letters to violate

[the] UDTPA.” (Doc. 16 at 31–32.)

In DENC, the court held that, in the insurance context, where

the defendant had engaged in an unfair and deceptive trade practice

by issuing a deceptive denial letter, proximate causation was

shown. 32 F.4th at 52–53. It reasoned that the deceptive denial

letter also established the breach of contract, and thus there was

“one continuous transaction.” Id. at 53 (citations and internal

quotation marks omitted). The court explained that a district

court should not “apply a separate proximate-cause analysis to the

contract and UDTPA damages” under such circumstances. Id.

(citations omitted). Here, Sompo’s allegedly deceptive denial

letter also establishes the breach of contract, as in DENC.

Therefore, Teijin has alleged proximate causation, and Sompo’s

motion to dismiss on this basis will be denied.

III. CONCLUSION

For the reasons stated,

IT IS ORDERED that Sompo’s motion to dismiss (Doc. 9) is

DENIED.

/s/ Thomas D. Schroeder

United States District Judge

March 26, 2025