The opinion
Murphy-Brown, LLC v. Ace Am. Ins. Co., 2019 NCBC 75.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 19 CVS 2793
MURPHY-BROWN, LLC and
SMITHFIELD FOODS, INC.,
Plaintiffs,
v.
ACE AMERICAN INSURANCE
COMPANY, et al.,
Defendants.
AMERICAN GUARANTEE &
LIABILITY INSURANCE
COMPANY,
ORDER AND OPINION ON
Counterclaim/ DEFENDANTS’ MOTIONS FOR
Third Party JUDGMENT ON THE PLEADINGS
Plaintiff,
v.
MURPHY-BROWN, LLC and
SMITHFIELD FOODS, INC.,
Counterclaim
Defendants,
and
BANDIT 3 LLC DBA CROOKED
RUN FARM, et al.,
Third Party
Defendants.
THIS MATTER comes before the Court upon Defendants Great American
Insurance Company of New York (“Great American”), American Guarantee &
Liability Insurance Company (“Zurich”), XL Insurance America, Inc. (“XLIA”), ACE
American Insurance Company (“ACE”) and ACE Property & Casualty Insurance
Company’s (“ACE P&C”; collectively Great American, Zurich, XLIA, ACE American,
and ACE P&C are the “Moving Defendants”) Motions for Judgment on the Pleadings.
(“Motions,” ECF Nos. 81, 83, 108, 159.)
THE COURT, having considered the Motions, the briefs filed in support of and
in opposition to the Motions, the arguments of counsel at the hearing on the Motions,
and other appropriate matters of record, concludes that the Motions should be
GRANTED.
Middlebrooks Law, PLLC by James Middlebrooks for Plaintiffs Murphy-
Brown, LLC and Smithfield Foods, Inc.
Reed Smith LLP by Evan T. Knott and John D. Shugrue for Plaintiffs
Murphy-Brown, LLC and Smithfield Foods, Inc.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP by Michael
W. Mitchell for Plaintiffs Murphy-Brown, LLC and Smithfield Foods,
Inc.
Cranfill Sumner & Hartzog LLP by Theodore B. Smyth for Defendant
Great American Insurance Company of New York.
Clyde & Co US LLP by Bruce D. Celebrezze for Defendant Great
American Insurance Company of New York.
Nexsen Pruet, PLLC by James West Bryan, Brett Becker, and David S.
Pokela for Defendant American Guarantee & Liability Insurance
Company.
Bailey & Dixon, LLP by John T. Crook and David S. Coats for
Defendants Ace American Insurance Company and Ace Property &
Casualty Insurance Company.
Clyde & Co US LLP by Marianne May and Daren McNally for
Defendants Ace American Insurance Company and Ace Property &
Casualty Insurance Company.
Phelps Dunbar LLP by Thomas Contois for Defendant XL Insurance
America, Inc.
Fox Rothschild LLP by Elizabeth Sims Hedrick and Troy D. Shelton for
Defendant XL Insurance America, Inc.
McGuire, Judge.
I. FACTS AND PROCEDURAL BACKGROUND 1
1. Plaintiff Murphy-Brown, LLC (“Murphy-Brown”) is a Delaware limited
liability company with its principal place of business in Warsaw, North Carolina.
Plaintiff Smithfield Foods, Inc. (“Smithfield”) is a Delaware corporation with its
principal place of business in Smithfield, Virginia (collectively, Murphy-Brown and
Smithfield are referred to as “Plaintiffs”). (ECF No. 9, at ¶ 11.) Murphy-Brown’s
managing member is Smithfield Packaged Meats Corp., a business corporation
organized under the laws of Delaware. (Id.) Smithfield Packaged Meats Corp. is a
wholly-owned subsidiary of Smithfield. (Id.)
2. Murphy-Brown is in the business of producing and growing hogs on
company-owned farms and contracting with farms owned by third parties (the
contract third-party farms are hereinafter referred to as “Growers”). Fourteen (14)
1 The facts are drawn from the Plaintiffs’ Amended Complaint. (“Amended Complaint,” ECF
No. 9.)
of the farms at issue in this action are owned by Murphy-Brown and seventy-five (75)
are owned by Growers. (Id. at ¶ 28.)
3. During the periods relevant to this lawsuit, Plaintiffs were insured
under primary general liability policies and primary automobile liability policies. In
addition, Plaintiffs were insured under umbrella and excess policies (the “Excess
Policies”) issued by the Moving Defendants. (Id. at ¶¶ 49–50.)
4. Plaintiffs allege that under the language of the Excess Policies, Moving
Defendants must “defend and/or reimburse the defense costs incurred by Murphy-
Brown in connection with the defense of a claim or suit that [falls] within the coverage
of those [Excess] Policies.” (Id. at ¶ 55.)
5. Murphy-Brown is a defendant in twenty-six (26) lawsuits pending in
federal court (hereinafter, the “Federal Litigation”). (Id. at ¶ 33.) “A series of
bellwether trials in the Federal Litigation commenced in April 2018, and four of those
trials went to verdict in 2018.” (Id. at ¶ 3.) More bellwether trials are scheduled to
proceed in 2019. (Id.) At the time this lawsuit commenced “the jury verdicts rendered
against Murphy-Brown after the bellwether trials in the Federal Litigation total
$97,982,400, not including accrued prejudgment or post-judgment interest.” (Id. at ¶
48.)
6. “Each complaint in the Federal Litigation alleges that Murphy-Brown’s
hogs and related farm activities caused the underlying plaintiffs to suffer property
damage and/or bodily injury at their homes or residences located near the farms
where Murphy-Brown’s hogs are grown.” (Id. at ¶ 35.) Specifically, the complaints
in the Federal Litigation allege, inter alia, that “the hog product and operations at
the farms and elsewhere cause odor, annoyance, dust, noise, and loss of use and
enjoyment of the plaintiffs’ real and personal property.” (Id. at ¶ 36.)
7. Plaintiffs allege that “[t]he alleged property damage and bodily injury
was caused by an ‘occurrence,’ which one or more of the policies define as an [sic] ‘an
accident, including continuous or repeated exposure to substantially the same
general harmful conditions.’” (Id. at ¶ 59.) Plaintiffs further aver that “[t]he alleged
property damage and bodily injury was caused by an ‘accident,’ which one or more of
the policies define to include ‘continuous or repeated exposure to the same conditions
resulting in “bodily injury” or “property damage.”’” (Id. at ¶ 60.)
8. In addition, at least one primary automobile liability policy provides
that “[a]ll ‘bodily injury’, ‘property damage’ and ‘covered pollution cost or expense’
resulting from continuous or repeated exposure to substantially the same conditions
will be considered as resulting from one ‘accident.’” (Id. at ¶ 61.)
9. Plaintiffs allege that the terms of the Excess Policies obligate the
Moving Defendants to defend and/or reimburse defense costs and to indemnify
Murphy-Brown for damages arising from the Federal Litigation (“Federal Litigation
Defense Costs”). (Id. at ¶¶ 55–62.)
10. Moving Defendants either refused to defend Plaintiffs in the Federal
Litigation or reserved their rights under the policies. (Id. at ¶¶ 67, 73.) In doing so,
Moving Defendants take the position that “the operative pollution exclusion provision
in their respective Policies applies to [Plaintiffs’] claims for coverage regarding the
Federal Litigation, and that the pollution exclusion[s] purportedly precludes
coverage, in whole or in part, for [Plaintiffs].” (Id. at ¶ 142.)
11. Plaintiffs allege that they continue to suffer damages as a result of
Moving Defendants’ denial of coverage. These damages include the legal fees and
expenses that Plaintiffs are expending to pursue coverage under Moving Defendants’
policies in connection with the Federal Litigation.
12. Plaintiffs initiated this lawsuit on March 5, 2019, by filing a Complaint
in the Wake County Superior Court of North Carolina. (ECF No. 4.)
Contemporaneous with the filing of the Complaint, Plaintiffs filed a Notice of
Designation to have the case designated as a mandatory complex business case. (ECF
No. 6.) On March 6, 2019, this action was designated to the North Carolina Business
Court (ECF No. 3), and was assigned to the undersigned on March 7, 2019 (ECF No.
2).
13. On March 19, 2019, Plaintiffs amended their Complaint. (ECF No. 9.)
In the Amended Complaint, Plaintiffs make claims against the Moving Defendants
for, among other things, a declaratory judgment that Defendants have a duty to pay
Murphy-Brown’s Federal Litigation Defense Costs (“Duty to Defend Claim”). (Id. at
¶¶ 110–18.) Plaintiffs also allege that Moving Defendants’ “acts, practices and
conduct were unfair and/or deceptive in violation of the Unfair Claims Act provisions
contained in N.C. Gen. Stat. § 58-63-15 (“UCPA”), and therefore as a matter of law
constitute an actionable violation of the North Carolina Unfair and Deceptive Trade
Practices Act, N.C. Gen. Stat. § 75-1.1.” (“UDTPA Claim,” Id. at ¶¶ 132–49.)
14. Between May 16, 2019 and May 23, 2019, Moving Defendants, along
with other Defendants, filed Answers to the Amended Complaint. (ECF Nos. 72–80.)
15. On May 28, 2019, Great American filed its Motion for Partial Judgment
on the Pleadings (ECF No. 81), and a Brief in Support seeking to dismiss Plaintiffs’
Duty to Defend and UDTPA Claims. (“Great American’s Brief,” ECF No. 82). On May
28, 2019, Zurich also filed its Motion for Partial Judgment on the Pleadings (ECF No.
83), and a Brief in Support, adopting and incorporating by reference the argument
for dismissal of the UDTPA Claim in Great American’s Brief (ECF No. 84).
16. On June 27, 2019, Plaintiffs filed a Consent Motion to Dismiss the Duty
to Defend Claim (ECF No. 110), and on June 28, 2019, the Court issued an Order
dismissing the Duty to Defend Claim without prejudice. 2 (ECF No. 112). On June
27, 2019, Plaintiffs also filed a Combined Response in Opposition to Great American
and Zurich’s Motions for Partial Judgment on the Pleadings as to the UDTPA Claim.
(ECF No. 111.) On July 8, 2019, Great American filed a Reply Brief (ECF No. 162),
and Zurich filed a Reply Brief (ECF No. 163).
17. On June 27, 2019, XLIA filed its Motion for Partial Judgment on the
Pleadings (ECF No. 108), and a Brief in Support, which incorporates Great
American’s Brief by reference and adds additional arguments for dismissal of the
UDTPA Claim. (ECF No. 109). On July 8, 2019, ACE and ACE P&C filed a joint
Motion for Partial Judgment on the Pleadings (ECF No. 159), and a Joint Brief in
2 The dismissal of the Duty to Defend Claims leaves only the motions for judgment on the
UDTPA Claim for decision by the Court.
Support, which incorporates by reference Great American’s Brief and XLIA’s
arguments for dismissal of the UDTPA Claim. (ECF No. 161).
18. On July 31, 2019, Plaintiffs filed a Combined Response in Opposition to
the Motions for Partial Judgment on the Pleadings filed by ACE, ACE P&C, and
XLIA. (ECF No. 194.) On August 13, 2019, XLIA filed a Reply Brief. (ECF No. 205.)
19. This matter came before the Court for a hearing where the Court heard
oral argument from counsel. The Motions are now ripe for decision.
II. ANALYSIS
A. Standard of Review
20. “A motion for judgment on the pleadings is the proper procedure when
all the material allegations of fact are admitted in the pleadings and only questions
of law remain. When the pleadings do not resolve all the factual issues, judgment on
the pleadings is generally inappropriate.” Ragsdale v. Kennedy, 286 N.C. 130, 137,
209 S.E.2d 494, 499 (1974). “A complaint is fatally deficient in substance, and subject
to a motion by the defendant for judgment on the pleadings if it fails to state a good
cause of action for plaintiff and against defendant[.]” Bigelow v. Town of Chapel Hill,
227 N.C. App. 1, 3, 745 S.E.2d 316, 319 (2013) (citation omitted).
21. The Court may only consider “the pleadings and exhibits which are
attached and incorporated into the pleadings.” Davis v. Durham Mental Health/Dev.
Disabilities/Substance Abuse Area Auth., 165 N.C. App. 100, 104, 598 S.E.2d 237,
240 (2004). The Court must “view the facts and permissible inferences in the light
most favorable to the nonmoving party.” Ragsdale, 286 N.C. at 137, 209 S.E.2d at
499. “All well pleaded factual allegations in the nonmoving party’s pleadings are
taken as true and all contravening assertions in the movant’s pleadings are taken as
false. All allegations in the non-movant’s pleadings, except conclusions of law, legally
impossible facts, and matters not admissible in evidence at the trial, are deemed
admitted by the movant.” Id. (internal citations omitted).
22. Thus, a Rule 12(c) motion for judgment on the pleadings should be
denied “unless it is clear that plaintiff is not entitled to any relief under any statement
of the facts.” Praxair, Inc. v. Airgas, Inc., 1999 NCBC LEXIS 5, at *8 (N.C. Super.
Ct. 1999) (citing Arroyo v. Scottie’s Professional Window Cleaning, Inc., 120 N.C. App.
154, 461 S.E.2d 13 (1995) and Hedrick v. Rains, 121 N.C. App. 466, 466 S.E.2d 281
(1996)).
B. Nature of Plaintiffs’ Claim for Violation of the Unfair or Deceptive Trade
Practices Act
23. To properly decide Moving Defendants’ Motions, the Court must first
discuss the theory underlying Plaintiffs’ UDTPA Claim. Plaintiffs allege a claim for
violation of the UDTPA based on Moving Defendants’ alleged violations of the UCPA.
(ECF No. 9, at ¶¶ 133–49.) Specifically, Plaintiffs claim that Moving Defendants
have engaged in conduct in violation of three distinct provisions of N.C.G.S. § 58-63-
15: subpart (1); subpart (11)(a); and subpart (11)(n). (Id. at ¶¶ 136–44). Those
subparts of § 58-63-15 provide as follows:
The following are hereby defined as unfair methods of
competition and unfair and deceptive acts or practices in
the business of insurance:
(1) Misrepresentations and False Advertising
of Policy Contracts. – Making, issuing,
circulating, or causing to be made, issued or
circulated, any estimate, illustration, circular or
statement misrepresenting the terms of any policy
issued or to be issued or the benefits or advantages
promised thereby or the dividends or share of the
surplus to be received thereon, or making any false
or misleading statement as to the dividends or share
or surplus previously paid on similar policies, or
making any misleading representation or any
misrepresentation as to the financial condition of
any insurer, or as to the legal reserve system upon
which any life insurer operates, or using any name
or title of any policy or class of policies
misrepresenting the true nature thereof, or making
any misrepresentation to any policyholder insured
in any company for the purpose of inducing or
tending to induce such policyholder to lapse, forfeit,
or surrender his insurance.
...
(11) Unfair Claim Settlement Practices. –
Committing or performing with such frequency as to
indicate a general business practice of any of the
following: Provided, however, that no violation of
this subsection shall of itself create any cause of
action in favor of any person other than the
Commissioner:
a. Misrepresenting pertinent facts or insurance
policy provisions relating to coverages at
issue;
...
n. Failing to promptly provide a reasonable
explanation of the basis in the insurance
policy in relation to the facts or applicable law
for denial of a claim or for the offer of a
compromise settlement.
24. Although not perfectly clear from the pleadings in the Amended
Complaint, the Court understands the theory underlying Plaintiffs’ claim that
Moving Defendants violated the UCPA to be as follows:
(a) Moving Defendants understood the nature of Plaintiffs’ business to be hog
farming and knew that Plaintiffs’ “central and normal business activity is
growing hogs at concentrated animal feeding operations farms located
throughout the Eastern part of North Carolina” . . . “involv[ing] the generation
and management of hog byproducts.” (ECF No. 9, at ¶¶ 134, 143(a), 145.) Hog
farming activities produce “odors,” and “flies, insects, buzzards, vultures,
pests, noise from trucks, light from trucks, or dust created by passing trucks.”
(Id. at ¶¶ 143(c), (d));
(b) Plaintiffs purchased “general liability and business auto liability insurance
coverage [from Moving Defendants] to protect it from liabilities arising from
the very type of business activities” that produce these hazards, and that
Plaintiffs reasonably “would have understood claims [arising from such
hazards produced by hog farming] to be covered under the [Moving Defendants’
Insurance Policies].” (Id. at ¶ 145); and
(c) Therefore, by asserting that the exclusions in Moving Defendants’ policies for
“‘man-made or naturally occurring’ pollutants” preclude claims for damages
caused by the odors, flies, insects, buzzards, vultures, pests, noise from trucks,
light from trucks, or dust created by passing trucks generated by Plaintiffs’
normal business activities, Moving Defendants have engaged in conduct that
is “wrongful[ ],” “unfair[ ],” and “unreasonable.” (Id. at ¶¶ 142, 143(b).)
25. Based on this theory, Plaintiffs allege that
Each of the [Moving Defendants] has wrongfully and
unreasonably asserted . . . that the operative pollution
exclusion provision in their respective Policies applies to
[Plaintiffs’] claims for coverage . . . and that the pollution
exclusion[s] purportedly [preclude] coverage, in whole or in
part, for [Plaintiffs]. Such assertions misrepresent to
[Plaintiffs] the pertinent facts and provisions of the
operative pollution exclusions in their respective Policies,
fail to provide a reasonable explanation for refusing
coverage on the basis of the operative pollution exclusion
in their Policies, and are made for the purpose of inducing
or tending to induce [Plaintiffs] to lapse, forfeit, or
surrender its insurance coverage under the [Moving
Defendants’] Policies.
(Id. at ¶ 142.)
26. In other words, Plaintiffs contend that Moving Defendants’ position that
Plaintiffs’ claims for coverage and indemnity are precluded by the pollution
exclusions are: (1) misrepresentations regarding the coverage provided by the Excess
Policies; (2) unreasonable explanations for refusing to provide coverage; and (3)
intended to induce Plaintiffs to forfeit or surrender the Excess Policies, or to let the
Excess Policies lapse.
27. With this understanding of Plaintiffs’ theory and claims, the Court will
analyze the specific violations of the UCPA alleged by Plaintiffs.
C. Plaintiffs’ UDTPA Claim based on N.C.G.S. § 58-63-15(1)
28. “A violation of section 75-1.1 requires proof of three elements: ‘(1) an
unfair or deceptive act or practice, (2) in or affecting commerce, 3 and (3) which
proximately caused injury to plaintiffs.’” Walker v. Fleetwood Homes of N.C., Inc.,
362 N.C. 63, 71–72, 653 S.E.2d 393, 399 (2007). Under the UDTPA, “a practice is
unfair if it is unethical or unscrupulous” and a practice rises to the level of “deceptive
‘if it has the tendency to deceive.’” Nelson v. Hartford Underwriters Ins. Co., 177 N.C.
App. 595, 609, 630 S.E.2d 221, 231 (2006) (citation omitted). However,
“actual deception is not an element necessary under [N.C.G.S.] § 75-1.1 to support an
unfair or deceptive practices claim.” Cullen v. Valley Forge Life Ins. Co., 161 N.C.
App. 570, 580, 589 S.E.2d 423, 431 (2003).
29. The issue of “whether an act or practice is an unfair or deceptive practice
that violates N.C.G.S. § 75-1.1 is a question of law for the court.” Gray v. North
Carolina Ins. Underwriting Ass’n, 352 N.C. 61, 68, 529 S.E.2d 676, 681 (2000). When
no material fact is in dispute, “the court should determine whether the defendant’s
conduct constituted an unfair or deceptive trade practice.” Eastover Ridge, L.L.C. v.
Metric Constructors, Inc., 139 N.C. App. 360, 363, 533 S.E.2d 827, 830 (2000).
30. Plaintiffs allege that Moving Defendants’ denial of coverage for the
Federal Litigation Defense Costs violates § 58-63-15(1). The North Carolina Supreme
Court has held that “a violation of N.C.G.S. § 58-63-15(1) is an unfair and deceptive
practice under N.C.G.S. § 75-1.1.” Jefferson-Pilot Life Ins. Co. v. Spencer, 336 N.C.
3 Moving Defendants do not contend that their denial of Plaintiffs’ claims is not in or affecting
commerce.
49, 53, 442 S.E.2d 316, 318 (1994) (citing Pearce v. American Defender Life Ins. Co.,
316 N.C. 461, 343 S.E.2d 174 (1986)). In this case, Plaintiffs rely exclusively on the
final sentence of § 58-63-15(1) which provides that it is unlawful to “[m]ak[e] . . . any
misrepresentation to any policyholder insured in any company for the purpose of
inducing or tending to induce such policyholder to lapse, forfeit, or surrender his
insurance.”
31. The North Carolina Supreme Court interpreted § 58-63-15(1) in
Jefferson-Pilot. 336 N.C. at 53, 442 S.E.2d at 318. There, the Court held that
This subsection is entitled “Misrepresentations and False
Advertising of Policy Contracts.” In keeping with this
subtitle and reading the subsection as a whole, we believe
it is directed at false statements connected with sale of
insurance policies. An insurance company gains no
advantage if it incorrectly advises a person as to who is the
owner or beneficiary of a policy. It could gain an unfair
advantage if it misrepresented to a potential customer the
terms, benefits or advantages of a policy as well as
dividends paid on the policy. We believe this is the evil at
which this subsection is aimed. The ‘terms’ of a policy, as
used in this subsection, deal with the conditions and limits
of policies.
Id. (emphasis added).
32. In this case, of course, Plaintiffs do not allege any misrepresentations by
Moving Defendants when Plaintiffs were “potential customers.” Moving Defendants’
conduct in asserting that the pollution exclusions preclude coverage of Plaintiffs’
claim is not alleged to have taken place in the context of the sale of the Excess Policies.
On the contrary, the allegations in the Amended Complaint are that Plaintiffs
submitted claims to Moving Defendants for the Federal Litigation Defense Costs and
Moving Defendants, in turn, denied coverage based on express exclusions found in
the Excess Policies. Therefore, the alleged misrepresentations were made under the
Excess Policies after they were purchased by Plaintiffs and in effect.
33. Plaintiffs appear to argue that Moving Defendants’ declaration that the
pollution exclusions preclude coverage for Plaintiffs’ claims are misrepresentations,
made with the intent to induce Plaintiffs to simply accept that decision, “forego
coverage under [the Excess Policies],” and that the misrepresentations were thereby
meant to induce Plaintiffs to “lapse, forfeit, or surrender” Plaintiffs’ rights under the
Excess Policies in violation of § 58-63-15(1). (ECF No. 111, at pp. 15–16.) Plaintiffs
do not cite any authority in support of their position. The Court concludes that
Plaintiffs’ argument is misplaced. Under its most logical reading, § 58-63-15(1) was
not intended to apply to the conduct other than conduct related to an insurance
carrier’s attempts to influence a policyholder or potential policyholder to forfeit their
current policy of insurance; or permit the current policy to lapse as part of the
insurance carrier’s attempts to sell the policyholder a new insurance policy.
34. Viewing the facts and permissible inferences in the light most favorable
to Plaintiffs, the Amended Complaint fails to state a viable cause of action against
Moving Defendants for a violation of the UDTPA based on N.C.G.S. § 58-63-15(1).
Therefore, Moving Defendants’ Motions for judgment on the pleadings as to Plaintiffs’
claim for violation of the UDTPA based on § 58-63-15(1) should be GRANTED.
D. Plaintiffs’ UDTPA Claims based on N.C.G.S. § 58-63-15(11)
35. Plaintiffs also allege that Moving Defendants’ denial of Plaintiffs’ claims
based on the pollution exclusions is an unfair trade practice because the denial
violates §§ 58-63-15(11)(a) and (n) of the UCPA. (ECF No. 9, at ¶ 137; ECF No. 111,
at pp. 7–11.) In Gray, the Supreme Court of North Carolina held that when an
insurance company engages in conduct that violates N.C.G.S. § 58-63-15(11)(f), it also
“engages in conduct that embodies the broader standards of N.C.G.S. § 75-1.1 because
such conduct is inherently unfair, unscrupulous, immoral, and injurious to
consumers.” Gray, 352 N.C. at 71, 529 S.E.2d at 683. The Court of Appeals
subsequently held that “[i]t follows that the other prohibited acts listed in N.C.G.S. §
58-63-15(11) are also acts which are unfair, unscrupulous, and injurious to
consumers, and that such acts therefore fall within the ‘broader standards’
of N.C.[G.S.] § 75-1.1.” Country Club of Johnston County, Inc. v. United States Fid.
& Guar. Co., 150 N.C. App. 231, 246, 563 S.E.2d 269, 279 (2002). Therefore, an
insurer’s violation of any subpart of “N.C.G.S. § 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.’” Gray, 352 N.C. at 71, 529
S.E.2d at 683 (citing N.C.G.S. § 58-63-15(11)). Moving Defendants do not argue
otherwise.
36. Moving Defendants argue that: Plaintiffs do not allege any
misrepresentation of deceptive statements by Moving Defendants; Plaintiff do not
allege “substantial aggravating circumstances” that would turn this contract
interpretation dispute into an unfair or deceptive trade practice; and Plaintiffs do not
allege any cognizable injury arising from Moving Defendants’ denial of their claims
or that the denials proximately caused Plaintiffs’ injury. (ECF No. 82, at pp. 18–24;
ECF No. 109, at pp. 5–10; ECF No. 161, passim.)
i. Plaintiffs fail to sufficiently allege a violation of N.C.G.S. § 58-63-
15(11)(a).
37. Section 58-63-15(11)(a) prohibits insurers from “[m]isrepresenting
pertinent facts or insurance policy provisions relating to coverages at issue.”
Plaintiffs contend “that [Moving Defendants’] assertions that the ‘pollution
exclusion[s] purportedly [preclude] coverage’ [of the Federal Litigation Defense Costs]
‘misrepresent to Murphy-Brown’ the ‘pertinent facts and provisions in their
respective Policies’” in violation of N.C.G.S. § 58-63-15(11)(a). (ECF No. 111, at p.
10.)
38. Moving Defendants argue that Plaintiffs’ allegations supporting their §
58-63-15(11)(a) claim “rest[] solely on allegations showing that [P]laintiffs claim to
have a disagreement with [Moving Defendants].” (ECF No. 162, at p. 9.) Moving
Defendants further contend that Plaintiffs fail to provide any “specific alleged
misrepresentation” that is actionable under the UCPA. (ECF No. 82, at pp. 23–24;
ECF No. 162, at p. 9.)
39. The Court has found no North Carolina appellate authority defining
“misrepresentation” in the context of § 58-63-15(11) or any of its subparts. However,
the Court finds our appellate courts’ definition of “misrepresentation” in the context
of fraud persuasive. For a fraud claim to survive a motion for judgment on the
pleadings, “[a] subsisting or ascertainable fact, as distinguished from a matter of
opinion or representation relating to future prospects, must be misrepresented. And
generally, the misrepresentation must be definite and specific, but the specificity
required depends upon the tendency of the statements to deceive under the
circumstances.” Ragsdale, 286 N.C. at 139, 209 S.E.2d at 500 (internal citations
omitted).
40. Additionally, in the context of misrepresentations that form the basis for
an unfair or deceptive trade practice, “a party’s words or conduct must possess the
‘tendency or capacity to mislead’ or create the ‘likelihood of deception.’” First Atl.
Mgmt. Corp. v. Dunlea Realty Co., 131 N.C. App. 242, 254, 507 S.E.2d 56, 64 (1998)
(internal citations and quotations omitted).
41. The Court agrees with Moving Defendants’ interpretation of the
allegations in the Amended Complaint. The Amended Complaint is completely
devoid of any specific “misrepresentation” made by any Moving Defendant. Rather,
Plaintiffs allege that their interpretation of the pollution exclusions in the Excess
Policies and their opinion as to the exclusions’ inapplicability to Plaintiffs’ claims is
the only reasonable one and, therefore, Moving Defendants’ interpretation must
constitute a misrepresentation as to the Excess Policies’ coverages. In other words,
instead of alleging a specific misrepresentation, Plaintiffs effectively allege that
Moving Defendants’ counter-interpretation of the pollution exclusions and their
applicability to Plaintiffs’ claims is a “misrepresentation.”
42. Plaintiffs cite Guessford v. Pennsylvania Nat. Mut. Cas. Ins. Co., 918 F.
Supp. 2d 453, 464 (M.D.N.C. 2013) in support of their position that they have
sufficiently pleaded a violation of subsection 11(a). (ECF No. 111, at p. 11.) However,
Plaintiffs’ reliance on Guessford is misplaced.
43. In Guessford, the district court denied an insurer’s motion for judgment
on the pleadings as to an insured’s UDTPA claim that was based on a violation of §
58-63-15(11)(a). 918 F. Supp. 2d. at 464. In support of the insured’s allegation that
the insurer violated § 58-63-15(11)(a), a correspondence between the insured and
insurer was attached to the complaint. Id. In the correspondence, the insurer stated:
“a voluntary mediation could be set only ‘if the Worker’s Compensation carrier was
in agreement and in a position to resolve their lien.’” Id. The court noted that
“[m]aking mediation contingent on the participation of [the insured’s] worker’s
compensation insurer [was] not a requirement under the insurance contract.” Id.
Therefore, the court held the insured, “supported by attached documents,” sufficiently
alleged that the insurer “misrepresented policy provisions and the law governing
those provisions in violation of Section 58-63-11(a).” Id.
44. Plaintiffs’ allegations in the Amended Complaint fall short of the specific
misrepresentation provided by the insured in Guessford. Plaintiffs fail to provide
anything beyond conclusory allegations. Conversely, the insured in Guessford
attached to the complaint a correspondence from the insurer that unambiguously
misrepresented the terms of the insurance contract. Plaintiffs’ allegations simply fail
to demonstrate the same indicia of a misrepresentation consistent with the
correspondence before the court in Guessford.
45. On the other hand, North Carolina’s Court of Appeals held that an
insurer did not engage in an unfair or deceptive practice in violation of § 58-63-
15(11)(a) by asserting that a specific exclusion precluded coverage of an insured’s
claim. Nelson, 177 N.C. App. at 610–11, 630 S.E.2d at 231–32. In Nelson, the Court
reviewed the policy language at issue and the insurer’s letter denying coverage under
two separate exclusions and concluded that the insurer “did not misrepresent [the
insurer’s] insurance policy.” Id. at 610–11, 630 S.E.2d at 232. The court held that
the “denial letter was not unethical or unscrupulous, nor did it have the tendency to
deceive plaintiffs, and therefore it was neither unfair nor deceptive.” Id. at 611, 630
S.E.2d at 232.
46. Here, Plaintiffs do not provide the specific language at issue from any of
the pollution exclusion provisions in the Excess Policies or explain how Moving
Defendants’ denial misrepresents such exclusions. The Court notes that Plaintiffs
did not attach to the Amended Complaint nor provide to the Court any of Moving
Defendants’ denial letters, or any document similar to the one presented to the court
in Nelson. Nevertheless, Plaintiffs fail to allege that anything specifically in Moving
Defendants’ denial letter misrepresents pertinent facts regarding the operative
Excess Policies.
47. Rather, Plaintiffs allege, generally, that Moving Defendants are
“wrongfully and unfairly” using the pollution exclusions to deny coverage for the
Federal Litigation. Like the court in Nelson, the Court finds that Moving Defendants’
denial of coverage based on their assertion of exclusions in the Excess Policies is not
“unethical or unscrupulous.” In the absence of an actual, specific misrepresentation
or precedent supporting the proposition that a disagreement over a policy exclusion
equates to a misrepresentation, the Court must conclude that the denial of coverage
based on an exclusion does not have a “tendency to deceive.” See id.
48. The Court finds that Plaintiffs’ have not alleged that Moving Defendants
misrepresented “the pertinent facts or insurance policy provisions relating to
coverages at issue” in violation of N.C.G.S. § 58-63-15(11)(a). Accordingly, Moving
Defendants’ Motions for judgment on the pleadings as to Plaintiffs’ claim for violation
of the UDTPA based on § 58-63-15(11)(a) should be GRANTED.
ii. Plaintiffs fail to sufficiently allege a violation of N.C.G.S. § 58-63-
15(11)(n).
49. Section 58-63-15(11)(n) prohibits insurers from “[f]ailing to promptly
provide a reasonable explanation of the basis in the insurance policy in relation to
the facts or applicable law for denial of a claim or for the offer of a compromise
settlement.” On the same grounds that Plaintiffs allege Moving Defendants have
engaged in unfair or deceptive conduct by relying on the pollution exclusions to deny
coverage of Plaintiffs claims, they allege that Moving Defendants have “wrongfully
and unreasonably” failed “to provide a reasonable explanation for refusing coverage
on the basis of the operative pollution exclusion[s].” (ECF No. 9, at ¶ 142.)
50. Moving Defendants argue that Plaintiffs have not pleaded with
specificity what explanation Moving Defendants have given that could be considered
“unreasonable” in violation of § 55-63-15(11)(n). (ECF No. 82, at p. 23.) Moreover,
Moving Defendants contend they “did, in fact, provide a reasonable basis for declining
coverage – the pollution exclusion[s].” (ECF No. 162, at pp. 6–7.) Like Plaintiffs’
claim for alleged violations of § 58-63-15(11)(a), Moving Defendants argue that
Plaintiffs’ claim for violation of § 58-63-15(11)(n) amounts to a “disagreement as to
the scope of coverage between the parties to the insurance policies.” (ECF No. 82, at
p. 22.)
51. The Court concludes Plaintiffs’ UDTPA claim based on violation of
N.C.G.S. § 58-63-15(11)(n) is nothing more than a repackaging of the same contention
underlying their other UDTPA claims—that Moving Defendants’ position that the
pollution exclusions apply to Plaintiffs’ claims is, in and of itself, an unreasonable
explanation for denial of coverage. (ECF No. 111, at pp. 7–10.) However, Plaintiffs
fail to cite any precedent supporting their argument that an insurer’s assertion that
an exclusion in an insurance contract precludes coverage is tantamount to an
“unreasonable explanation” for denying coverage.
52. In support of their argument that they sufficiently allege a violation of
§ 58-63-15(11)(n), Plaintiffs rely on Country Club of Johnston County, Inc. (ECF No.
111, at p. 9.) In Country Club of Johnston County, following a trial,
the jury determined that [the insurer] “prematurely and
improperly” determined it would deny the Club’s claim
prior to conducting a “meaningful investigation”; that [the
insurer] “misrepresented” to the Club that it would
investigate the claim and specifically, the application of
Exclusion C when it had already concluded it would deny
the claim; that [the insurer] “unfairly” and “improperly”
sent a reservation of rights letter based on Exclusion C
without having “an adequate or documented basis to
reverse [the claims examiner]’s position to not reserve
rights as to Exclusion C . . . ”; and that [the insurer]
solicited an opinion letter from counsel only after having
made its decision regarding coverage.
150 N.C App. at 246–47, 563 S.E.2d at 279.
53. The Court of Appeals upheld the trial court’s conclusion that the insurer
violated § 75-1.1, in part, because the insurer “arguably violated” subpart (11)(n),
although it is not clear from the opinion what specific facts formed the basis for the
court’s conclusion. Id.
54. The Court of Appeals’ holding in Country Club of Johnston County is
inapposite. First, it was decided on a challenge to a verdict entered by the trial court
after a trial. More significantly, the insurer’s conduct in Country Club of Johnston
County was far beyond any conduct alleged by Plaintiffs in this case. Contrary to
the insurer’s actions in Country Club of Johnston County, Plaintiffs’ allegations
demonstrate that Moving Defendants took the position that the pollution exclusions
applied from the outset and maintain that position. Moreover, Moving Defendants
have provided a “basis” in the insurance policy—the pollution exclusions—for
denying coverage. Accordingly, Moving Defendants’ denial of coverage based on the
pollution exclusions does not appear to be an “unwarranted refusal to pay.” See id.
at 247, 563 S.E.2d at 279.
55. Plaintiffs also rely on Miller v. Nationwide Mut. Ins. Co., 112 N.C. App.
295, 435 S.E.2d 537 (1993). (ECF No. 111, at p. 8–9.) In Miller, the North Carolina
Court of Appeals held that an insured sufficiently alleged a UDTPA claim based on
violations of N.C.G.S § 58-63-11(n). 112 N.C. App. at 305, 435 S.E.2d at 544. The
court found the following factual allegations in the complaint, among others, to be
sufficient to withstand a challenge at the dismissal stage:
[Insurer] had sufficient information to determine that a
substantial portion, if not all, of the UIM coverages
available to [insured], would be properly due and payable
to [insured]; nevertheless, . . . [insurer] unreasonably
withheld payments to [insured.]
...
[Insurer] withheld payment of $ 150,000 of the remaining
funds it acknowledged was due [insured.]
...
[Insurer] has continued to refuse payment . . . without just
cause or excuse.
...
[Insurer] has failed to identify any policy provision and
[insurer] has cited no case law or statutory authority that
supports its refusal to pay[.]
Id. at 303–04, 435 S.E.2d at 544.
56. Plaintiffs’ factual allegations in the Amended Complaint fall well short
of the allegations present in Miller. Specifically, the insured in Miller alleged the
insurer acknowledged that the insured was due payments under the policy but
refused to make the payments or explain the basis for the refusal. By contrast,
Plaintiffs do not allege that Moving Defendants acknowledged that Plaintiffs are due
payments under the Excess Policies but, rather, that Moving Defendants have
consistently taken the position that no payment is due to the Plaintiffs because the
pollution exclusions bar coverage of Plaintiffs’ claims. Moreover, unlike the
allegations in Miller that the insurer refused payment without “just cause or excuse”
and failed to identify any policy provision to support its refusal, Moving Defendants
have cited to and relied upon a specific provision in the Excess Policies.
57. The Court notes, again, that no reservation of rights letter or denial
letter is attached to the Amended Complaint, nor have Plaintiffs provided a recitation
of the explanation given by the Moving Defendants to support Plaintiffs’ conclusory
allegation that Moving Defendants failed to provide a “reasonable explanation.”
58. Therefore, to the extent Plaintiffs base their UDTPA Claim on a
violation of subpart 11(n), Plaintiffs’ claim should be DISMISSED. 4
III. CONCLUSION
THEREFORE, it is ORDERED that Moving Defendants’ Motions for judgment
on the pleadings as to Plaintiffs’ Ninth Cause of Action for violation of the UDPTA is
GRANTED, and that claim is DISMISSED.
SO ORDERED, this the 16th day of December, 2019.
/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases
4 The Court notes that “a plaintiff is not required to prove a violation of [the UCPA] in order
to succeed on an independent claim under N.C. Gen. Stat. § 75-1.1.” Country Club of Johnston
County, 150 N.C. App. at 246, 563 S.E.2d at 279. However, it does not appear that Plaintiffs
base the UDTPA Claim on anything other than Moving Defendants’ alleged violations of the
UCPA.