Brakebush Brothers., Inc. v. Certain Underwriters at Lloyd’s of London - Novae 2007 Syndicate Subscribing to Pol’y No. 93PRX17F157, 2021 NCBC 70.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION DAVIE COUNTY 20 CVS 367
BRAKEBUSH BROTHERS, INC.,
Plaintiff,
v.
CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON - NOVAE 2007 SYNDICATE SUBSCRIBING TO POLICY WITH NUMBER 93PRX17F157; HALLMARK SPECIALTY INSURANCE CO.; EVANSTON INSURANCE CO.; MAXUM INDEMNITY CO.; ORDER AND OPINION ON HUDSON SPECIALTY INSURANCE DEFENDANTS’ JOINT MOTION TO CO.; LIBERTY SURPLUS DISMISS OR STRIKE AND INSURANCE CORPORATION; PLAINTIFF’S MOTION TO STRIKE IRONSHORE SPECIALTY INSURANCE CO.; and CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON -BRIT SYNDICATE 2987 SUBSCRIBING TO POLICY WITH NUMBER PD-10972-00,
Defendants.
THIS MATTER comes before the Court on Defendants’ Joint Motion to
Dismiss or Strike pursuant to Rules 12(b)(1), 12(b)(6), and 12(f) of the North Carolina
Rules of Civil Procedure (ECF No. 42) and Plaintiff’s Motion to Strike Portions of
Defendants’ Reply Brief or, in the Alternative, Motion for Leave to File Sur-Reply
pursuant to Rule 12(f) (ECF No. 60).
THE COURT, having considered the motions, the briefs of the parties, the
arguments of counsel, the transcript of a hearing held in this matter on the pending
motions, and all applicable matters of record, CONCLUDES, for the reasons set forth below, that the Defendants’ Motion should be GRANTED in part and DENIED in
part, and that Plaintiff’s Motion should be DENIED.
Kilpatrick Townsend & Stockton LLP, by Susan Boyles, and Dorsey & Whitney LLP, by Eric Weisenburger and Vernle C. Durocher, for Plaintiff Brakebush Brothers Inc.
Nelson Mullins Riley & Scarborough LLP, by G. Gray Wilson and Stuart Russell, and Tressler, LLP, by Timothy Jabbour, Anthony Tessitore, and Kiera Fitzpatrick, for Defendants Certain Underwriters at Lloyd’s of London – Brit Syndicate 2987, Evanston Insurance Company, Maxum Indemnity Company, Hudson Specialty Insurance Company, Liberty Surplus Insurance Corporation, and Ironshore Specialty Insurance Company.
Butler Weihmuller Katz Craig LLP, by Clark Schirle, N. Khrystyne Smith, and L. Andrew Watson, for Defendant Certain Underwriters at Lloyd’s of London Novae 2007 Syndicate.
Akerman, LLP, by Bryan G. Scott, for Defendant Hallmark Specialty Insurance Company.
Davis, Judge.
INTRODUCTION
1. A fire at a chicken processing plant has caused a dispute over insurance
proceeds that has left millions of dollars hanging in the balance. After the fire, the
purchaser of the plant received an assignment from the original owner of its right to
collect insurance proceeds under various insurance policies taken out by the original
owner. Consent to the assignment was obtained from the insurer that had issued an
insurance policy providing primary coverage for the plant. No consent was obtained,
however, from any of the insurers that had issued excess insurance policies covering
the plant. The question of whether the purchaser is entitled to sue these excess
insurers in an effort to make them “pay up” despite the lack of prior consent to the assignment is the primary issue before the Court. In analyzing this question, the
Court must wade through a complex web of insurance policy provisions and legal
issues.
FACTUAL AND PROCEDURAL BACKGROUND
2. The Court does not make findings of fact on a motion to dismiss under
Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and instead recites those
facts contained in the complaint (and in documents attached, referred to, or
incorporated by reference in the complaint) that are relevant to the Court’s
determination of the motion. See, e.g., Concrete Serv. Corp. v. Inv’rs Grp., Inc., 79
N.C. App. 678, 681 (1986); Window World of Baton Rouge, LLC v. Window World,
Inc., 2017 NCBC LEXIS 60, at *11 (N.C. Super. Ct. July 12, 2017).
3. On December 14, 2017, a fire caused substantial damage to a chicken
processing facility located in Mocksville, North Carolina. (Complaint, ECF No. 3, at
¶ 2.) At the time of the fire, the facility was owned by House of Raeford Farms, Inc.
(“Raeford”), but Plaintiff Brakebush Brothers, Inc. (“Brakebush”) “was in the process
of purchasing the [facility] from Raeford when the fire occurred.” (Id.)
4. As of the date of the fire, Raeford had obtained two layers of commercial
property insurance coverage for the facility: (1) a primary insurance policy issued by
“Certain Underwriters at Lloyd’s of London and various syndicates subscribing to
that policy” with a limit of $20,000,000 (“the Primary Policy”); and (2) eight excess insurance policies that provided, in total, limits of $30,000,000 in “excess of the $20
million primary policy limits.” (Id. at ¶¶ 30–31.) 1
5. The insurers who issued the Excess Policies are the named Defendants
in this action: Certain Underwriters at Lloyd’s of London – Novae 2007 Syndicate
Subscribing to Policy With Number 93PRX17F157 (“Novae”), Hallmark Specialty
Insurance Co. (“Hallmark”), Evanston Insurance Co. (“Evanston”), Maxum
Indemnity Co. (“Maxum”), Hudson Specialty Insurance Co. (“Hudson”), Liberty
Surplus Insurance Corporation (“Liberty”), Ironshore Specialty Insurance Co.
(“Ironshore”), and Certain Underwriters at Lloyd’s of London – Brit Syndicate 2987
Subscribing to Policy With Number PD-10972-00 (“Brit”). (Id. at ¶ 31.) 2
6. Brakebush and Raeford executed an Asset Purchase Agreement
(“A.P.A”) on July 3, 2018. (Id. at ¶ 28.) As a part of the transaction, Brakebush
“secur[ed] the assignment of Raeford’s right to all insurance benefits, including all
rights and proceeds under its property insurance policies relating to the loss”
resulting from the fire. (Id. at ¶ 2.) Approximately five days before the A.P.A. was
executed, the insurers who had issued the Primary Policy gave written consent to this
assignment. (Id. at ¶ 29.) 3
1 Throughout this opinion, these eight policies are at times referred to collectively as the
“Excess Policies.”
2 Defendants are referred to collectively throughout this opinion as the “Excess Insurers.”
3 As discussed later in this opinion, however, it appears that the Primary Policy did not, in
fact, actually require the consent of the insurers to the assignment of the proceeds under that policy. (Primary Policy, ECF No. 84.1.) 7. Neither Brakebush nor Raeford, however, obtained consent from any of
the Excess Insurers prior to the assignment to Brakebush of Raeford’s right to collect
insurance proceeds under these policies. (Id.)
8. On February 3, 2020, Brakebush submitted a report to Crawford and
Company, a claims management company hired by one or more of the insurers,
claiming that the overall fire damage loss to the insured property totaled $41,274,429.
(Id. at ¶ 32, 34.) As Raeford had already received $ 4,241,277.18 under the Primary
Policy prior to the sale, Brakebush asserted that it was entitled to the remaining
$15,758,722.82 of the policy limits under the Primary Policy “for amounts it incurred
after the sale was completed.” (Id. at ¶ 35.) On or about April 29, 2020, Brakebush
received a final payment exhausting the $20 million in coverage under the Primary
Policy. (Id. at ¶ 35.) Brakebush then contacted counsel for the Excess Insurers and
demanded payment of insurance proceeds in the amount of $25,515,706.31, a figure
that consisted of the total alleged loss minus the $15,758,722.82 that had already
been paid to Brakebush under the Primary Policy. (Id. at ¶ 34–36.)
9. The Excess Insurers expressed an unwillingness to pay the full amount
demanded by Brakebush, instead offering only a combined $4,221,465.83, a
substantially smaller amount than Brakebush’s demand. (Id. at ¶ 37.) The Excess
Insurers initially took the position that they would make this payment only if
Brakebush agreed that said payment constituted “full and final payment for all
covered damages.” (Id.) In addition, the Excess Insurers required that Brakebush
execute proof of loss forms with each insurer. (Nuss Aff. Ex. 1, ECF No. 52.) The proof of loss forms were signed by Brakebush’s representative above the line entitled
“Insured’s Assignee.” (Id.)
10. Since May 1, 2020, Brakebush has repeatedly requested that the Excess
Insurers explain why they refused to pay the remaining $21 million that Brakebush
had demanded. (ECF No. 3, at ¶ 39.) At some point, the Excess Insurers provided
Brakebush with “Claim Work Papers,” which Brakebush alleges “showed that the
Excess Insurers owed at least $5,782,089.14 to Brakebush.” (Id. at ¶ 39–41.)
11. Counsel for the Excess Insurers sent Brakebush’s counsel a letter on
June 18, 2020 stating, among other things, that the Excess Insurers “reserve all
rights to deny or limit coverage pursuant to the relevant policy language regarding
an assignment of rights under the subject policy.” (June 18, 2020 Letter, ECF No.
44.6.)
12. On July 1, 2020, Brakebush notified the Excess Insurers of additional
losses and expenses from the fire totaling $2,206,532.84, increasing its total demand
to $27,722,239.15. (ECF No. 3, at ¶ 44–45.)
13. The Excess Insurers ultimately agreed to pay $4,221,465.83 to
Brakebush without requiring Brakebush to agree that this payment constituted a
“full and final payment,” thereby allowing Brakebush to continue pursuing the total
amount it sought under the Excess Policies for the fire damage. (Id. at ¶ 40.)
14. On October 8, 2020, Brakebush filed a complaint initiating this action
in Superior Court, Davie County, against the Excess Insurers. In its Complaint,
Brakebush asserted a claim for a declaratory judgment regarding the obligations of the Excess Insurers along with claims for breach of contract, bad faith, and unfair
and deceptive trade practices (UDTP). (Id. at ¶¶ 47–79.) This case was designated a
mandatory complex business case on December 2, 2020 and assigned to the
Honorable Gregory P. McGuire. (ECF Nos. 1, 2.)
15. On January 6, 2021, Defendants filed a Joint Motion to Dismiss or
Strike in which they sought the dismissal of the claims asserted by Brakebush on
various grounds and that one of the claims be stricken. (ECF No. 42.) After
Defendants filed their reply brief in support of the Joint Motion to Dismiss or Strike,
Brakebush moved to strike portions of the Defendants’ reply brief on March 8, 2021.
(ECF No. 60.) A hearing on Defendants’ Joint Motion to Dismiss or Strike and
Plaintiff’s Motion to Strike was held on April 15, 2021 but a decision on the motions
was not rendered.
16. On July 1, 2021, this matter was reassigned to the undersigned. (ECF
No. 79.)
17. At the Court’s direction, the parties submitted supplemental briefs on
August 26, 2021 as to certain specified issues. The parties were offered the
opportunity for a new hearing before the undersigned, but the parties declined the
offer based on the undersigned’s ability to review a complete transcript of the April
15, 2021 hearing. The motions are now ripe for resolution.
LEGAL STANDARD
18. The arguments asserted by the parties in the various motions pending
before the Court are based on several distinct provisions of the North Carolina Rules of Civil Procedure. The Excess Insurers have moved to dismiss each claim contained
in the Complaint under Rule 12(b)(1) for lack of subject matter jurisdiction on the
theory that Brakebush does not possess standing to bring any of the claims it has
asserted against them. The Excess Insurers also seek dismissal of all claims under
Rule 12(b)(6) for failure to state a valid claim for relief. Finally, the Excess Insurers
have moved to strike the declaratory judgment claim asserted by Brakebush
pursuant to Rule 12(f) on the ground that it is redundant. Brakebush, in turn, has
moved to strike portions of the Excess Insurers’ reply brief in support of their Joint
Motion to Dismiss or Strike on the ground that portions of the brief improperly
contain new arguments not set out in the Excess Insurers’ original brief. Each of
these respective provisions of the Rules of Civil Procedure has its own standard of
review.
19. “A plaintiff’s standing to assert its claims may be challenged under
either Rule 12(b)(1) or Rule 12(b)(6) of the North Carolina Rules of Civil Procedure.”
Raja v. Patel, 2017 NCBC LEXIS 25, at *11 (N.C. Super. Ct. Mar. 23, 2017). A Rule
12(b)(1) motion challenges a court’s “jurisdiction over the subject matter” of the
plaintiff’s claims. N.C. R. Civ. P. 12(b)(1). “Subject matter jurisdiction is the
indispensable foundation upon which valid judicial decisions rest,” In re T.R.P., 360
N.C. 588, 590 (2006), and “has been defined as ‘the power to hear and to determine a
legal controversy; to inquire into the facts, apply the law, and to render and enforce
a judgment,’ ” High v. Pearce, 220 N.C. 266, 271 (1941). “[T]he proceedings of a court without jurisdiction of the subject matter are a nullity.” Burgess v. Gibbs, 262 N.C.
462, 465 (1964) (citation omitted).
20. “As the party invoking jurisdiction, plaintiff[] ha[s] the burden of
establishing standing.” Queen’s Gap Cmty. Ass’n v. McNamee, 2011 NCBC LEXIS
37, at **3 (N.C. Super. Ct. Sept. 23, 2011). In determining the existence of subject
matter jurisdiction, the Court may consider matters outside the pleadings. Emory v.
Jackson Chapel First Missionary Baptist Church, 165 N.C. App. 489, 491 (2004).
However, “if the trial court confines its evaluation [of standing] to the pleadings, the
court must accept as true the [claimant]’s allegations and construe them in the light
most favorable to the [claimant].” Munger v. State, 202 N.C. App. 404, 410 (2010)
(quoting DOT v. Blue, 147 N.C. App. 596, 603 (2001)).
21. “It is well-established that dismissal pursuant to Rule 12(b)(6) is proper
when ‘(1) the complaint on its face reveals that no law supports the plaintiff’s claim;
(2) the complaint on its face reveals the absence of facts sufficient to make a good
claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff’s
claim.’ ” Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood
v. Guilford Cty., 355 N.C. 161, 166 (2002)). The Court may also “reject allegations
that are contradicted by the documents attached, specifically referred to, or
incorporated by reference in the complaint.” Laster v. Francis, 199 N.C. App. 572,
577 (2009).
22. Rule 12(f) permits a judge, upon motion or sua sponte, to “strik[e] from
any pleading any insufficient defense or any redundant, irrelevant, immaterial, impertinent, or scandalous matter.” N.C. R. Civ. P. 12(f). The purpose of this rule is
to “avoid expenditure of time and resources before trial by removing spurious issues,
whether introduced by original or amended complaint.” Estrada v. Jaques, 70 N.C.
App. 627, 642 (1984). A motion to strike is addressed to the sound discretion of the
trial court. Broughton v. McClatchy Newspapers, Inc., 161 N.C. App. 20, 25 (2003).
ANALYSIS
A. Defendants’ Rule 12(b)(1) Motion
23. The most significant bone of contention between the parties concerns
the Excess Insurers’ challenge to Brakebush’s standing to seek coverage under the
Excess Policies. The Excess Insurers argue that each policy contains a provision
requiring the consent of the insurer before a policyholder (such as Raeford) may
validly assign its right to collect proceeds under the policy to a third party (such as
Brakebush) and that no such consent was ever obtained in the present case. The
Excess Insurers further contend that an assignee of insurance proceeds lacks
standing to sue for bad faith or unfair and deceptive trade practices because the
assignee is a “stranger” to the insurance contract.
24. In response, Brakebush asserts that (1) North Carolina law does not
allow for the enforcement of anti-assignment clauses in an insurance policy with
regard to the post-loss assignment of proceeds; (2) even if such anti-assignment
clauses are enforceable as a general proposition, none of the Excess Policies actually
contain language that serve to prohibit the post-loss assignment of insurance
proceeds without the consent of the insurer; and (3) even if otherwise enforceable anti-assignment language was contained in the policies, the Excess Insurers waived
their right to rely on such language by paying Brakebush $4,221,465.83 and by
providing proof of loss forms that referred to Brakebush as the “Insured’s Assignee.”
1. Standing for Declaratory Judgment and Breach of Contract Claims
a. Threshold Arguments
25. “[S]tanding to seek a declaration as to the extent of coverage under an
insurance policy requires that the party seeking relief have an enforceable
contractual right under the insurance agreement.” DeMent v. Nationwide Mut. Ins.
Co., 142 N.C. App. 598, 601 (2001). As a general proposition, “[t]he right to receive
money due or to become due under an existing contract may be assigned. An assignee
of a contractual right is a real party in interest and may maintain the action.” Gr&S
Atl. Beach, LLC v. Hull, 2013 NCBC LEXIS 35, at *9 (N.C. Super. Ct. July 26, 2013)
(citations omitted). Thus, Brakebush must establish that it was properly assigned
the right by Raeford to collect the proceeds under each of the Excess Policies in order
to establish standing for its declaratory judgment and breach of contract claims.
26. The parties have each raised two threshold issues relating to standing.
The Court deems it appropriate to address these issues at the outset.
i. Brakebush’s Threshold Arguments
27. First, Brakebush argues that it is irrelevant whether the Excess Policies
contain provisions purporting to prohibit the assignment of post-loss insurance
proceeds because such clauses are unenforceable under North Carolina law as a
matter of public policy. Brakebush argues that our Court of Appeals’ decision in First- Citizens Bank and Trust Co. v. Universal Underwriters Ins. Co., 113 N.C. App. 792
(1994), establishes that the validity of a post-loss assignment of proceeds can never
be restricted by the language of an insurance policy. The Excess Insurers, in turn,
cite Terrell v. Lawyers Mut. Liab. Ins. Co., 131 N.C. App. 655 (1998), a later decision
from the Court of Appeals, for the proposition that North Carolina courts do, in fact,
enforce such provisions.
28. In First-Citizens Bank, an automotive dealership and a bank entered
into a contract in which the dealership assigned “ ‘all rights, title, and interest (both
legal and equitable)’ in [the dealership’s] insurance policy” in order for the bank to
receive the proceeds of a policy insuring a car belonging to the bank that was stolen
while on the dealership’s premises. First-Citizens Bank, 113 N.C. App. at 792–95.
The policy contained the following statement: “ASSIGNMENT – No assignment of
interest will affect this Policy unless WE [defendant] change the policy.” Id. at 796.
The policy also contained the following clause:
Changes- The only way this policy can be changed is OUR issuing an endorsement(s) or substituting the declarations. They must be signed by one of OUR representatives when required by law. Nothing else will change this policy, waive any of its terms, or stop U.S. [sic] from asserting any of OUR rights, not even notice to or knowledge learned by one of OUR representatives. If WE change any of the terms of this policy, which broadens or extends the coverage, this policy will automatically be broadened or extended as if it were actually endorsed, if the change (a) was approved by YOUR state insurance regulatory authority, during the policy period or 45 days before the policy became effective; and (b) is available to YOU without additional premiums.
Id. at 796. 29. The Court of Appeals rejected the defendant’s argument that the
attempted assignment was invalid based on the above-quoted language from the
policy. The Court of Appeals explained its reasoning as follows:
[W]e conclude that the assignment of the mere right to payment after loss in no way broadened the scope of the coverage of insurable risks provided by defendant’s policy. We particularly note that this policy did not expressly prohibit assignments: rather, our disposition here turns on the express words chosen by the defendant-insurer in this policy. We note further that most of the cases from other jurisdictions regard such express prohibitions as generally ineffective when applied to assignments which occur after the loss has been incurred[.] 4
Id. (internal citations omitted).
30. In Terrell, an attorney subject to a potential malpractice claim “assigned
any rights he had against [the defendant insurer] under the policy or under tort law”
to the malpractice claimant. Terrell, 131 N.C. App. at 656–57. The malpractice
claimant sued the attorney’s insurer, “alleging that, as [the attorney’s] assignee, she
was entitled to recover against [the insurer] for [its] alleged breach of contract with
[the attorney] or any tort rights that [the attorney] had against [the insurer].” Id. at
657.
31. The Court of Appeals concluded that the plaintiff’s attempt to hold the
insurer liable on a contractual theory was defective because of anti-assignment
4 “In most jurisdictions, courts have held that an anti-assignment clause ordinarily will not
apply to a post-loss assignment under a first-party insurance policy. . . . Although widely held and applied, this rule is not universal.” 3 NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION § 16.05 (2021). language in the policy. Id. at 660. The Court of Appeals explained the basis for its
decision as follows:
Viewing the facts and permissible inferences under Rule 12(c) in the light most favorable to plaintiff and taking plaintiff’s factual allegations as true, plaintiff’s claims against defendant arising out of contract are barred because any rights of [the attorney] under the policy cannot be assigned. The insurance policy in the instant action states, “The interest of any Insured in this policy is not assignable.” Under the terms of the policy, [the attorney’s] interest in the policy and any coverage or benefits that otherwise might exist are not assignable.
Id.
32. Based on a careful review of applicable case law, the Court concludes
that insurance policy provisions prohibiting or restricting post-loss assignments are
enforceable under North Carolina law. Brakebush’s reliance on First-Citizens Bank
is misplaced as the decision in that case was based on an interpretation of the specific
language used in the insurance policy at issue. The Court does not interpret First-
Citizens Bank as standing for the broad proposition that such clauses are per se
unenforceable as applied to a post-loss assignment of proceeds. Any statements
contained in First-Citizens Bank about the public policy implications of anti-
assignment clauses are merely dicta. Any such anti-assignment clauses are therefore
to be construed based on the actual language contained in the insurance policy. See
Capital City Ins. Co. v. Utica Mut. Ins. Co., 2009 U.S. Dist. LEXIS 154221, at *6–7
(E.D.N.C. June 15, 2009) (“Here, as in Terrell, the Policy spells out in certain terms
the limitations on assignment of an insured’s interests under the Policy: the rights of the insured are not assignable without [the insurer’s] written consent.”). Accordingly,
Brakebush’s first threshold argument fails.
33. The second threshold argument advanced by Brakebush is that the
Excess Insurers waived any anti-assignment provisions in the Excess Policies when
they paid $4,221,465.83 to Brakebush prior to the initiation of this litigation and
provided proof of loss forms that contained a line for Brakebush to sign as “Insured’s
Assignee.” In response, the Excess Insurers deny that any such waiver occurred and
contend that the payments were made under a clear reservation of rights that
specifically preserved their right to challenge the validity of the assignment under
the Excess Policies.
34. “A waiver is a voluntary and intentional relinquishment of a known
right or benefit.” Adder v. Holman & Moody, Inc., 288 N.C. 484, 492 (1975). Our
appellate courts have held that a party’s conduct may under certain circumstances
give rise to a legal waiver. See, e.g., Son-Shine Grading, Inc. v. ADC Constr. Co., 68
N.C. App. 417, 422 (1984) (citations omitted) (“The provisions of a contract may be
modified or waived by . . . conduct which naturally and justly leads the other party to
believe the provisions of the contract have been modified or waived, even though the
instrument involved provides that only written modifications shall be binding.”), disc.
review denied, 312 N.C. 85 (1984).
35. In this case, the Excess Insurers issued their payment to Brakebush
pursuant to an express reservation of rights. In a letter to Brakebush’s counsel dated
June 18, 2020, counsel for the Excess Insurers stated that “[t]he Insurers have and continue to reserve all rights under the relevant policy language regarding an
assignment of rights under the subject Policies.” (ECF No. 44.6.)
36. Courts in other jurisdictions have held that when an insurer issues a
payment subject to a reservation of rights, the insurer has not waived its right to
subsequently deny coverage. See, e.g., Polizzi Meats v. Aetna Life & Cas. Co, 931 F.
Supp. 328, 337 (D.N.J. 1996) (“There has been no waiver in this case. [The insurer]
expressly reserved its rights in the . . . letter from [the insurer] to [plaintiff’s] adjuster,
which immediately followed the $100,000 payment.”); see also 1426 Wisconsin, L.L.C.
v. Travelers Indem. Co. of Am., 110 F. Supp. 3d 259, 269 (D.D.C. 2015) (“[The insurer]
has not conceded liability. Rather, it properly reserved its rights under the policy.”). 5
Although the Court has been unable to identify a North Carolina case involving the
issue of whether a reservation of rights letter was effective to preclude waiver of an
anti-assignment clause in an insurance policy, North Carolina courts have recognized
the ability of an insurer to take action favorable to the insured subject to a reservation
of rights. See Fortune Ins. Co. v. Owens, 351 N.C. 424, 431 (2000) (“Generally an
insurer is not barred from later denying coverage when it defends its insured with a
reservation of its rights to deny coverage.”).
37. Moreover, the Court is not persuaded by Brakebush’s contention that
the Excess Insurers’ utilization of a standard proof of loss form constituted a waiver
of their right to contest the validity of the assignment at issue. Even though the proof
5 Although cases from other states are, of course, not binding on issues of North Carolina law,
they may be considered to the extent they are deemed instructive. See Carolina Power & Light Co. v. Employment Sec. Comm’n of N.C., 363 N.C. 562, 569 (2009). of loss forms may have identified Brakebush as “Assignee,” the mere use of this
form—without more—is simply insufficient to show an intentional waiver by the
Excess Insurers of their right to challenge Brakebush’s status as an assignee.
Accordingly, the Court concludes that Brakebush’s second threshold argument based
on waiver is without merit.
ii. The Excess Insurers’ Threshold Arguments
38. The first threshold argument made by the Excess Insurers can be
summarized as follows: (a) Brakebush’s Complaint alleges that “in accordance with
the policies’ terms, each of the primary carriers consented to this assignment in
writing” (ECF No. 3, at ¶ 29); (b) as a result of this allegation, Plaintiff has conceded
that consent of the Primary Insurers was required under the Primary Policy; and (c)
because the Excess Policies “follow form” 6 to the Primary Policy, each of the Excess
Policies necessarily likewise require written consent by the Excess Insurers with
regard to any assignments. (Id. at ¶ 31.)
39. The most basic flaw in this argument is that based on the Court’s review
of the Primary Policy, it does not appear to actually contain any anti-assignment
language (or any policy language that would otherwise require the consent of the
Primary Insurers to any assignment of rights under the policy). To the extent the
Complaint states that the Primary Policy does, in fact, require the consent of the
insurer to any assignments, that assertion is erroneous, and the Court is clearly not
6 “Following-form excess policies state that except for the policy limits, all of the provisions,
conditions, and exclusions of the underlying policy are incorporated into and adopted by the excess policy.” 1 LNPG: NEW APPLEMAN NC INSURANCE LITIGATION § 10.09(2) (LexisNexis 2021). bound by such a statement that is contradicted by the language of the actual
insurance policy at issue. See Laster, 199 N.C. App. at 577 (holding that courts may
“reject allegations that are contradicted by the documents attached, specifically
referred to, or incorporated by reference in the complaint.”) Therefore, the Excess
Insurers’ “follow form” argument lacks merit.
40. The second threshold argument advanced by the Excess Insurers is that
the A.P.A. contained language restricting any assignment of insurance proceeds. The
Court disagrees. In making this argument, the Excess Insurers rely upon the
following language in the A.P.A.: “Anything in this Agreement to the contrary
notwithstanding, the Seller shall not be obligated to transfer to the Buyer any
Restricted Interests without the Buyer or the Seller first having obtained all
Consents necessary for such transfers.” (ECF No. 44.2, at 4.) However, the A.P.A.
contains no independent restriction on the assignability of the right to collect
proceeds under the Excess Policies, and the Excess Insurers’ argument begs the
question as to whether the Excess Policies themselves actually contained language
requiring such consent before an assignment of post-loss proceeds could occur.
b. Anti-Assignment Language in the Excess Policies
41. Having disposed of the parties’ threshold arguments, the Court now
turns to the pertinent language in each of the Excess Policies. Initially, the Court
notes that although the Excess Insurers take the position that each of the Excess
Policies contains language requiring insurer consent before any valid assignment of proceeds under the policy can occur, the Court—as discussed in detail below—
concludes that some of the policies contain such language while others do not.
42. “It is well established that contracts for insurance are to be interpreted
under the same rules of law as are applicable to other written contracts.” Estrada v.
Timber Structures, Inc., 237 N.C. App. 202, 206 (2014) (quotation omitted). “When
interpreting the relevant provisions of the insurance policy at issue, North Carolina
courts have long held that any ambiguity or uncertainty as to the words used in the
policy should be construed against the insurance company and in favor of the
policyholder or beneficiary.” Accardi v. Hartford Underwriters Ins. Co., 373 N.C. 292,
295 (2020) (citation omitted).
43. The Court must, therefore, examine the specific policy provisions relied
upon by the Excess Insurers in support of their argument that each policy contains
language that required insurer consent before the assignment at issue between
Raeford and Brakebush could become legally effective.
i. Brit Policy
44. The Brit Policy states, in pertinent part, as follows:
Assignment. This Certificate shall not be assigned either in whole or in part without the written consent of the Correspondent 7 endorsed hereon.
(ECF No. 44.8, at p. 2.)
45. This provision requires that any assignment of rights under the Brit
Policy is subject to a consent requirement. An assignment of the right to obtain post-
7 Brit Global Specialty USA is identified as the “Correspondent” in the policy. (ECF No. 44.8, at p. 1.) loss proceeds under the policy is a type of assignment—albeit a limited one.
Therefore, Brakebush lacks standing to seek proceeds under the Brit Policy based on
the absence of such required consent.
ii. Liberty Policy
46. The Liberty Policy contains the following provision:
Transfer of Your Rights and Duties Under This Policy
Your rights and duties under this policy may not be transferred without our written consent.
(ECF No. 44.9, at p. 9.)
47. The broad language used in this section of the policy unambiguously
requires the insurer’s written consent to effect any transfer of rights, including an
assignment of the right to seek post-loss proceeds. Accordingly, Brakebush’s failure
to obtain Liberty’s written consent deprives Brakebush of standing to seek proceeds
under this policy.
iii. Evanston Policy
48. The Evanston Policy contains the following provision:
Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.
(ECF No. 44.10, at p. 28.)
49. Once again, the broad language of this provision required insurer
consent before an effective transfer of Raeford’s right to seek post-loss proceeds under the policy could be made to Brakebush. Therefore, Brakebush lacks standing with
regard to this policy as well.
iv. Maxum Policy
50. The Excess Insurers attempt to rely on three separate provisions of the
Maxum Policy to challenge Brakebush’s standing. The first reads as follows:
Changes
. . . You are only authorized to make changes in the terms of this policy with the Companies [sic] consent. The policies [sic] terms can be amended or waived only by endorsement issued by Us and made part of this policy.
(ECF No. 44.11, at p. 14.)
51. The Maxum Policy does not contain a definition of the word “terms.” “In
determining the ordinary meaning of a word [in an insurance policy], it is appropriate
to look to dictionary definitions. Our Supreme Court has held that ‘use of the plain,
ordinary meaning of a term is the preferred construction.’ ” Herring v. Liner, 163
N.C. App. 534, 538 (2004) (quoting C.D. Spangler Constr. Co. v. Industrial Crankshaft
& Eng. Co., 326 N.C. 133, 151 (1990)). The word “terms” refers to “provisions that
determine the nature and scope of an agreement.” Terms, Merriam Webster
Dictionary, https://www.merriam-webster.com/dictionary/terms.
52. The Court is of the view that an ambiguity exists as to whether this
provision requires the consent of the insurer to an assignment of the right to recover
post-loss proceeds. As noted above, it is well-settled that ambiguities in an insurance
policy must be construed against the insurer. See Accardi, 373 N.C. at 295. Accordingly, the Court concludes that this provision did not require Brakebush to
obtain Maxum’s consent in the present case.
53. The second provision of the Maxum Policy relied upon by the Excess
Insurers provides:
No Benefit to Bailee
No person or organization, other than you, having custody of Covered Property will benefit from this insurance.
(ECF No. 44.11, at p. 15.)
54. The “No Benefit to Bailee” clause is not an anti-assignment clause. “The
generally accepted definition of a bailment is that it is a delivery of goods in trust
upon a contract, express or implied, that the trust shall be duly executed, and the
goods restored by the bailee as soon as the purposes of the bailment shall be
answered.” Modern Electric Co. v. Dennis, 255 N.C. 64, 72 (1961) (citation omitted).
Therefore, this clause is directed to those persons who may have temporary custody—
but not title—to insured property. In this case, Brakebush is not a bailee and instead
is the legal owner of the property at issue. Therefore, the “No Benefit to Bailee” clause
did not serve to restrict Raeford’s ability to assign its right to post-loss proceeds under
the Maxum Policy to Brakebush.
55. The final provision in the Maxum Policy relied upon by the Excess
Insurers states as follows:
Contract of Sale
1. The Loss Payee shown in the Schedule or in the Declarations is a person or organization you have entered a contract with for the sale of Covered Property. (ECF No. 44.11, at p. 47.)
56. The Excess Insurers have offered no persuasive argument that this
clause serves as an anti-assignment clause. Accordingly, the Court concludes that
Brakebush possesses standing to seek proceeds under the Maxum Policy.
v. Ironshore Policy
57. The Ironshore Policy does not contain any anti-assignment language at
all. However, it does contain the following provision:
Perils Insured Against
This Policy insures against “All Risks” of direct physical loss or damage to the Insured’s property, subject to the same exclusions, warranties, terms, definitions and conditions as are contained in or as may be added or endorsed to the primary and underlying policy(ies) covering the Insured’s identical property. Coverage as provided herein shall also be subject to the premium, policy limits of liability, and all other exclusions, warranties, terms, definitions and conditions of this policy, which shall supersede any exclusions, warranties, terms, definitions and conditions of the primary and underlying policy(ies) in conflict with this policy. The coverage provided by this policy shall in no event provide broader coverage than the coverage provided by such primary and underlying policies.
(ECF No. 44.12, at p. 5) (emphasis added).
58. The Excess Insurers contend that this “follow form” clause means that
the same restrictions on assignments that are contained in the Primary Policy apply
equally to the Ironshore Policy as well. However, implicit in this argument is the
assertion that the Primary Policy actually contains an anti-assignment clause. As discussed earlier, no such language appears therein. Therefore, the Excess Insurers’
“follow form” argument as applied to the Ironshore Policy is meritless.
vi. Novae Policy
59. The Novae Policy contains a provision that provides:
Assignment
Assignment or transfer of this Policy will not be valid except with the prior written consent of the Company.
(ECF No. 44.14, at p. 32.)
60. This clause, on its face, requires prior written consent before the policy
itself may be assigned or transferred. However, the assignment between Raeford and
Brakebush was not of the entire policy. Rather, it was an assignment as to one
particular right under the policy—that is, the right to recover post-loss proceeds.
Therefore, the Court does not interpret this provision as requiring insurer consent
before Brakebush could be assigned the right to collect proceeds, and Brakebush
possesses standing to seek such benefits under the Novae Policy.
vii. Hallmark Policy
61. The Hallmark Policy states in pertinent part:
Assignment or transfer of this Policy will not be valid except with the prior written consent of the Company.
(ECF No. 44.15, at p. 30.) 62. This language is identical to the above-quoted provision of the Novae
Policy. As such, for the same reasons discussed above, Brakebush possesses standing
to seek post-loss proceeds under the Hallmark Policy.
viii. Hudson Policy
63. Finally, the Hudson Policy provides, in pertinent part, as follows:
When Hudson Specialty Insurance Company is participating on a layer with one or more other carriers, and more favorable terms or conditions are granted to one or more of such other carrier(s), it is a condition of this Policy that such more favorable terms and conditions be extended to Hudson Specialty Insurance Company. More favorable terms and conditions shall mean additional exclusionary verbiage, larger deductibles, reduced limits, or increased premium. 8
(ECF No. 44.13, at p. 22) (emphasis added).
64. Based on the above-quoted language from the Hudson Policy, the Excess
Insurers argue that because at least some of the Excess Policies contain anti-
assignment provisions that are written broadly enough to have required insurer
8 Brakebush suggests that New York law—rather than North Carolina law—may govern the
Hudson Policy because of a clause contained in the policy which states, “This Policy shall be interpreted solely according to the law of the State of New York without regard to the choice of law provisions of New York.” (ECF No. 44.13, at p. 16). The Court concludes, however, that the Hudson Policy is instead governed by North Carolina law. North Carolina’s General Statutes provide that “[a]ll contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein, and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof.” N.C.G.S. § 58-3-1 (2019); see Cordell v. Brotherhood of Locomotive Fireman & Enginemen, 208 N.C. 632, 640 (1935) (citation omitted) (holding that a “provision in a contract of insurance that ‘[t]his contract shall be governed by, subject to and construed only according to the laws of the State of New York, the home office of said association,’ is void in so far as the courts of this State are concerned”). Therefore, the Hudson Policy is deemed to be made in North Carolina, and North Carolina law applies to this case. See Davis v. Davis, 269 N.C. 120, 124 (1967) (“[T]he validity and construction of a contract are to be determined by the law of the place where it is made.”). consent in this case, those same provisions must necessarily be deemed applicable to
the Hudson Policy as well. However, the Court is not persuaded by this argument.
Although one can argue that a provision that limits the right of assignment favors
the insurer because it takes away a right the insured would otherwise possess, one
can also argue that such a provision does not qualify as “exclusionary verbiage” since
it does not actually restrict or diminish coverage under the policy. An “exclusionary
clause” generally refers to “a provision in an insurance policy listing the exceptions
to coverage and circumstances that prohibit recovery under the policy.” Exclusionary
clause, BLACK’S LAW DICTIONARY (10th ed. 2004). An anti-assignment clause does not
fit within this definition. Indeed, as discussed above, our Court of Appeals in First-
Citizens Bank expressly stated that “the assignment of the mere right to payment
after loss in no way broadened the scope of the coverage of insurable risks provided
by defendant’s policy.” First-Citizens Bank, 113 N.C. App. at 796.
65. The Court therefore concludes that the phrase “exclusionary verbiage”
in this context is, at best, ambiguous and must therefore be construed against the
Excess Insurers. Accordingly, the Court concludes that Brakebush has standing to
pursue its claims under the Hudson Policy.
66. In summary, Brakebush has established standing to assert its claims
for breach of contract and declaratory judgment under the Maxum, Ironshore, Novae,
Hallmark, and Hudson Policies, but not under the Brit, Evanston, or Liberty Policies.
Accordingly, the Excess Insurers’ Motion to Dismiss the declaratory judgment and
breach of contract claims pursuant to 12(b)(1) is GRANTED with respect to the Brit, Liberty, and Evanston Policies and DENIED as to the Maxum, Ironshore, Novae,
Hallmark, and Hudson Policies.
2. Standing to Assert Bad Faith and UDTP Claims
67. The Excess Insurers also argue that under North Carolina law
Brakebush lacks standing to sue the Excess Insurers for bad faith or UDTP because
Brakebush—unlike Raeford—was not a party to the policies issued by these insurers.
Brakebush disagrees, contending that North Carolina law does not prohibit an
assignee from asserting bad faith or UDTP claims where—as here—such claims are
based on the assignee’s own interactions with an insurer.
68. As an initial matter, the Court has already ruled that Brakebush lacks
standing to assert claims for breach of contract and declaratory judgment under the
policies issued by Brit, Liberty, and Evanston. Therefore, it logically follows that any
attempt by Brakebush to bring claims for bad faith or UDTP against those
Defendants is likewise barred. Accordingly, Brit, Liberty, and Evanston are
DISMISSED as parties to this action. 9
69. The Court reaches a different conclusion, however, with regard to
Brakebush’s bad faith and UDTP claims against Maxum, Ironshore, Novae,
Hallmark, and Hudson.
70. Initially, the Excess Insurers rely in their briefs on case law
establishing that tort claims in North Carolina are not assignable as a matter of
9 Accordingly, the Court’s use of the term Excess Insurers or Excess Policies for the remainder
of this opinion refers only to Maxum, Ironshore, Novae, Hallmark, and Hudson and their policies. public policy. See, e.g., Atl. Coast Mech., Inc. v. Arcadis, Geraghty & Miller of N.C.
Inc., 175 N.C. App. 339, 343 (2006) (citation omitted) (“It is well-established in this
state that personal tort claims are not assignable because such assignments would
be void against public policy because they promote champerty.”); see also Charlotte-
Mecklenburg Hosp. Auth. v. First of Ga. Ins. Co., 340 N.C. 88, 91 (1995) (citation
omitted) (“There is a distinction between the assignment of a claim for personal injury
and the assignment of the proceeds of such a claim. The assignment of a claim gives
the assignee control of the claim and promotes champerty.”).
71. These cases, however, are inapposite. Here, the bad faith and UDTP
claims at issue are not claims that previously belonged to Raeford and were then
assigned to Brakebush. Rather, they are claims that never belonged to Raeford.
Instead, Brakebush seeks to bring these claims based on the insurers’ conduct toward
Brakebush in the course of its attempt to collect post-loss proceeds under the policies
as an assignee. Indeed, the conduct forming the basis for Brakebush’s bad faith and
UDTP claims occurred after the assignment from Raeford to Brakebush.
72. The Excess Insurers next seek to rely upon a line of cases holding that
a bad faith claim cannot lie against an insurer when brought by an adverse third-
party claimant. In making this argument, however, the Excess Insurers fail to
account for the differences between first-party and third-party insurance coverage.
In the first-party situation, the insurance covers a claim directly made by the insured and examples of first-party coverage are life, health, disability, property, and fidelity insurance. In the third-party situation, a liability claim is brought by a third party which triggers the insurer’s duty to defend and indemnify. Examples of third-party coverage are professional malpractice insurance and commercial liability insurance.
8 NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION § 90.1 (2021).
73. The cases relied upon by the Excess Insurers all arose in the context of
a claim against an insurer brought by an adverse third-party claimant. In those
cases, our Court of Appeals held that a bad faith claim is unavailable to an adverse
third-party claimant suing under an insurance policy of another. See, e.g., Craven v.
Demidovich, 172 N.C. App. 340, 341–43 (2005). Similarly, the Court of Appeals has
stated that “North Carolina law does not recognize a cause of action for third-party
claimants against the insurance company of an adverse party based on unfair and
deceptive trade practices under N.C.G.S. § 75-1.1.” Id. at 341–42 (quoting Wilson v.
Wilson, 121 N.C. App. 662, 665 (1996)).
74. In Craven, the plaintiff was injured as the passenger in a vehicle driven
by the defendant. Craven, 172 N.C. App. at 340–41. The plaintiff made a demand
upon the defendant’s liability insurer and ultimately sued on theories of bad faith
and UDTP based on the insurer’s “refusal to timely adjust his claim[.]” Id. at 341.
The Court of Appeals held that the plaintiff lacked the ability to assert such claims
based on the rule that third-party adverse claimants cannot sue under the insurance
policy of another. Id. at 341–43.
75. In Wilson, the plaintiff was injured by her husband’s alleged negligence
while driving an automobile. Wilson, 121 N.C. App. at 663. She brought a negligence
claim against her husband and a UDTP claim against his liability insurance carrier
after the plaintiff “rejected [a settlement offer from the insurer] as inadequate.” Id. The Court of Appeals ruled that the plaintiff could not pursue the UDTP claim as
such a claim “may not be asserted by a third-party claimant against the insurer of an
adverse party.” Id. at 665.
76. Critically, neither of these cases involved first-party claims. Here, as an
assignee of the named insured who possessed a contractual right to collect proceeds
under the policy, Brakebush is in a materially different position than the plaintiffs in
the cases relied upon by the Excess Insurers.
77. The above-referenced cases cited by the Excess Insurers stand for the
proposition that a third-party claimant cannot pursue a bad faith or UDTP claim
against the insurer of an adverse party. The Excess Insurers are essentially arguing
that the Court should construe the term “third party claimant” to include anyone who
did not actually contract with the insurer. Under such a construction, Brakebush
would not be able to assert a claim for bad faith or UDTP because Raeford—not
Brakebush—was the named insured under the policies issued by the Excess Insurers
and Brakebush was a “stranger” to the policies.
78. However, the Court rejects this argument because Brakebush cannot
properly be viewed as a third-party claimant. See Bartlett v. Allstate Ins. Co., 929 P.
2d 227, 231 (Mont. 1996) (citation omitted) (“[I]n the context of bad faith tort actions,
a third-party claimant is typically a person who has a claim against the insured party
for certain injuries.”); Lee v. Sapp, 234 So. 3d 122, 130 (La. App. 2017) (quotation
omitted) (“In the world of insurance, a first-party claim is a claim filed by an insured
against his own insurer for damage to property or person; whereas a third-party claim is made by a claimant against the insured for damages allegedly caused by the
insured.”).
79. By virtue of the assignment from Raeford, Brakebush stepped into
Raeford’s shoes with respect to the right to collect post-loss proceeds under the Excess
Policies. See Wilmington Sav. Fund Soc’y, FSB v. Mortgage Elec. Registration Sys.,
265 N.C. App. 593, 599 (2019) (recognizing that an assignee “step[s] into the shoes of
[its assignor]”). The Excess Insurers have not cited any case from North Carolina’s
appellate courts holding that a bad faith or UDTP claim was barred under the
circumstances presented here. 10
80. Additionally, it is important to note that the public policy concerns
underpinning the holdings in Wilson and Craven do not apply to the facts of the
present case. In Wilson, the Court of Appeals cautioned that “allowing such third-
party suits against insurers would encourage unwarranted settlement demands,”
could lead to “undesirable social and economic effects (i.e., multiple litigation,
unwarranted bad faith claims, coercive settlements, excessive jury awards, and
escalating insurance, legal and other transaction costs)[,]” and might “result in a
conflict of interest for the insurance company.” Wilson, 121 N.C. App. at 666–67
(citation omitted).
10 Moreover, to the extent that privity between Brakebush and the Excess Insurers is required in order for Brakebush to possess standing to assert a bad faith or UDTP claim, such privity arguably exists as a result of the assignment from Raeford to Brakebush. See Jones Motor Co. v. Holtkamp, Liese, Beckemeier & Childress, P.C., 197 F.3d 1190, 1192 (7th Cir. 1999) (“[A]n assignee is in privity with the other party to its assignor’s contract”). 81. None of those policy concerns apply when the assignee of the named
insured asserts a bad faith claim based on its own interactions with the insurer. As
Raeford’s assignee, Brakebush is the only party who possesses a valid legal interest
in collecting post-loss proceeds from the fire. As a result, the Excess Insurers are not
faced with the prospect of receiving demands from both the named insured under the
policy and an adverse claimant. The potential for harms in the form of multiple
litigation and conflicts of interest are completely absent here.
82. Moreover, a contrary ruling would mean that even though a party in
Brakebush’s position possessed a legal right as an assignee to seek proceeds under
an insurance policy, it would lack any remedy in tort for bad faith conduct by the
insurer. Such a result would run counter to the goal of preventing unlawful conduct
by insurers with regard to the adjusting and payment of insurance claims.
83. For these reasons, the Excess Insurers’ motion to dismiss the bad faith
and Chapter 75 claims under Rule 12(b)(1) is DENIED as to Maxum, Ironshore,
Novae, Hallmark, and Hudson.
B. Defendants’ Rule 12(b)(6) Motion
84. Having ruled upon the standing issues underlying the Excess Insurers’
Rule 12(b)(1) motion, the Court must now turn its attention to their motion to dismiss
for failure to state a valid claim for relief under Rule 12(b)(6).
1. Declaratory Judgment and Breach of Contract
85. The Excess Insurers’ sole contention regarding the declaratory
judgment and breach of contract claims set out in the Complaint is that Brakebush has no legally enforceable interest in the insurance policies at issue. It appears that
this argument is largely—if not completely—derivative of their standing argument.
Therefore, because the Court has held that Brakebush does, in fact, possess standing
to assert claims under the Maxum, Ironshore, Novae, Hallmark, and Hudson policies,
the Excess Insurers’ motion to dismiss the breach of contract and declaratory
judgment claims as to these Defendants pursuant to Rule 12(b)(6) is DENIED.
2. Bad Faith
86. The Excess Insurers also seek dismissal of Brakebush’s bad faith claim,
arguing that the Complaint fails to allege the essential elements of such a claim.
Brakebush, conversely, contends that the allegations concerning the Excess Insurers’
“low-ball settlement offer,” initial refusal to provide their internal documents
regarding Brakebush’s claim, and refusal to pay the entirety of the amount shown as
recoverable losses in those documents are sufficient to state a valid bad faith claim.
87. “In order to recover . . . for the tort of an insurance company’s bad faith
refusal to settle, the plaintiff must prove (1) a refusal to pay after recognition of a
valid claim, (2) bad faith, and (3) aggravating or outrageous conduct.” Lovell v.
Nationwide Mut Ins. Co., 108 N.C. App. 416, 420 (1993) (citation omitted).
88. Among other allegations, the Complaint asserts that the Excess
Insurers’ own documents showed that the extent of the damage incurred from the fire
was approximately $1.5 million higher than the amount they paid to Brakebush and
that the Excess Insurers subsequently refused to provide an explanation for their
refusal to pay the higher amount. Construing the allegations in the light most favorable to Brakebush, as the Court is required to do at the Rule 12(b)(6) stage, the
Court concludes that Brakebush’s allegations are sufficient to state a claim for bad
faith.
89. In their briefs, the Excess Insurers invite the Court to delve into the
contents of their internal documents and determine whether their refusal to issue
payment in a higher amount was reasonable. The Court must decline this invitation
as this argument goes well beyond the limited scope of a Rule 12(b)(6) inquiry.
90. The Excess Insurers also argue that Brakebush has improperly
attempted to bring a bad faith claim under N.C.G.S. § 58-63-15 because that statue
does not provide for a private cause of action. Such an argument misconstrues
Brakebush’s bad faith claim. Although this section of the Complaint contains a
reference to N.C.G.S. § 58-63-15(11), the Court interprets the bad faith claim asserted
by Brakebush as being based under North Carolina common law.
91. Therefore, the Excess Insurers’ motion to dismiss the bad faith claim
pursuant to Rule 12(b)(6) is DENIED.
3. Unfair and Deceptive Trade Practices
92. The Excess Insurers also contend that Brakebush has not stated a
valid claim for UDTP.
93. “To state a claim under G.S. § 75-1.1, Plaintiff must allege facts
sufficient to show (1) an unfair or deceptive act or practice or an unfair method of
competition; (2) in or affecting commerce; (3) that proximately causes actual injury to the Plaintiff.” JTG Equip. & Supply, LLC v. EBay, Inc., 2015 NCBC LEXIS 9, at *19
(N.C. Super. Ct. Jan. 23, 2015).
94. Based on the Court’s careful reading of the Complaint, it concludes
that— for purposes of Rule 12(b)(6)— the allegations contained therein with regard
to this claim are sufficient to state a valid claim for relief. See Kielbania v. Indian
Harbor Ins. Co., 2012 U.S. Dist. LEXIS 127849, at *34 (M.D.N.C. Sept. 10, 2012) (“[A]
violation of Section 58-63-15(11) constitutes an unfair and deceptive trade practice in
violation of N.C. Gen. Stat. § 75-1.1 as a matter of law.”).
95. Therefore, the Excess Insurers’ motion to dismiss Brakebush’s UDTP
claim pursuant to Rule 12(b)(6) is DENIED.
4. Consequential Damages
96. The Excess Insurers also contend that Brakebush’s claim for
consequential damages should be dismissed because Brakebush “fail[ed] to plead that
defendants contemplated that they would have any liability to anyone other than
Raeford.” (ECF No. 43, at p. 20.)
97. The Court concludes that it is too early in this litigation to decide
whether Brakebush would be entitled to recover consequential damages if it
ultimately prevails in this action. Therefore, the Excess Insurers’ motion to dismiss
the claim for consequential damages is DENIED. C. Defendants’ Motion to Strike
98. The Excess Insurers have also moved to strike Brakebush’s claim for a
declaratory judgment pursuant to Rule 12(f) on the basis that declaratory relief will
be unnecessary in light of the Court’s resolution of the breach of contract claims. For
this reason, they contend, the declaratory judgment claim is merely redundant.
Brakebush disagrees, arguing that a declaratory judgment will assist in clarifying
the obligations of the various Excess Insurers.
99. The Court concludes that a declaratory judgment claim is an
appropriate mechanism for resolution of key disputes between the parties in this
case. Brakebush is seeking an adjudication regarding the various obligations under
eight different insurance policies. The issues upon which Brakebush seeks such
declaratory relief are distinct—at least in part—from the issue of whether a breach
of contract occurred.
100. Therefore, the Excess Insurers’ Motion to Strike is DENIED.
D. Brakebush’s Motion to Strike
101. Finally, Brakebush moves to strike certain portions of the Excess
Insurers’ reply brief based on its contention that they are in violation of Rule 7.7 of
the North Carolina Business Court Rules. Brakebush contends that the reply brief
goes beyond merely addressing arguments raised in its response brief and instead
improperly raises new issues. In the alternative, Brakebush requests leave to submit
a surreply brief. 102. The Court is satisfied that the parties have been given a full and fair
opportunity to brief all issues in this case, including the submission of supplemental
briefs subsequent to the filing of the Excess Insurers’ reply brief. The parties were
also afforded the opportunity to request an additional hearing in this matter, which
they declined.
103. Accordingly, Brakebush’s Motion to Strike is DENIED.
CONCLUSION
THEREFORE, it is hereby ORDERED that the parties’ pending motions are
GRANTED in part and DENIED in part, as follows:
1. Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1) against
Defendants Brit, Evanston, and Liberty is GRANTED, and all claims
against those Defendants are hereby DISMISSED without prejudice.
2. Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1) as to all claims
against Defendants Maxum, Ironshore, Novae, Hallmark, and Hudson is
DENIED.
3. Defendants’ Motion to Dismiss pursuant to Rule 12(b)(6) is DENIED as to
all claims against Defendants Maxum, Ironshore, Novae, Hallmark, and
Hudson.
4. Defendants’ Motion to Strike is DENIED.
5. Brakebush’s Motion to Strike is DENIED. SO ORDERED, this the 1st day of November, 2021.
/s/ Mark A. Davis Mark A. Davis Special Superior Court Judge for Complex Business Cases