Environmental Hydrogeological Consultants, Inc. v. North American Risk Services, Inc.

• Court: Court of Appeals for the Fourth Circuit
• Decided: March 10, 2026
• Docket: 25-1409
• Status: Unpublished

Opinion

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UNPUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 25-1409

ENVIRONMENTAL HYDROGEOLOGICAL CONSULTANTS, INC.,

Plaintiff – Appellant,

v.

NORTH AMERICAN RISK SERVICES, INC.; RANDY SCROGGS,

Defendants – Appellees.

Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. Louise W. Flanagan, District Judge. (7:24-cv-00458-FL)

Argued: December 9, 2025 Decided: March 10, 2026

Before BENJAMIN and BERNER, Circuit Judges, and John A. GIBNEY, Jr., Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by unpublished opinion. Judge Gibney wrote the opinion, in which Judge Benjamin and Judge Berner joined.

ARGUED: Law Lamar Armstrong, III, THE ARMSTRONG LAW FIRM, PA, Smithfield, North Carolina, for Appellant. Steven Andrew Bader, CRANFILL SUMNER LLP, Raleigh, North Carolina, for Appellees. ON BRIEF: Christopher S. Edwards, WARD AND SMITH, P.A., Wilmington, North Carolina, for Appellant. Jennifer Welch, CRANFILL SUMNER LLP, Raleigh, North Carolina, for Appellees.

Unpublished opinions are not binding precedent in this circuit. USCA4 Appeal: 25-1409 Doc: 36 Filed: 03/10/2026 Pg: 2 of 11

GIBNEY, Senior District Judge:

On June 1, 2022, a hog waste leak began at a methane gas facility operated by

Legacy Biogas, LLC (“Legacy”). The leak threatened a nearby watershed. Legacy

promptly contacted the plaintiff-appellant, Environmental Hydrogeological Consultants,

Inc. (“EHC”), to conduct environmental remediation. Anticipating a costly cleanup,

Legacy also notified its environmental impairment insurer, Admiral Insurance

(“Admiral”), of the leak. Admiral assigned the claim to its third-party administrator,

defendant-appellee North American Risk Services, Inc. (“NARS”). In turn, NARS

assigned the claim to its employee, defendant-appellee Randy Scroggs (“Scroggs”).

That same day, Scroggs told Legacy that Admiral would pay the cleanup costs.

Legacy advised EHC of this, and the consultants began pumping hog waste out of Legacy’s

facility and a nearby creek. But Admiral never paid Legacy’s claim. EHC later sued both

NARS and Scroggs in North Carolina state court, alleging one count of negligent

misrepresentation regarding Scroggs’s assurances about Admiral’s payment.

The appellees removed the suit to the Eastern District of North Carolina and filed a

motion to dismiss for failure to state a claim. The district court granted the motion on the

grounds that the defendants owed no duty of care to the plaintiff under North Carolina law.

EHC appeals the district court’s grant of the motion to dismiss and contends that the court

incorrectly applied North Carolina law on the duty owed by an independent adjuster to a

claimant. Because the district court properly applied North Carolina law to the sole claim,

it correctly granted the motion to dismiss. We, therefore, affirm.

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I.

A.

Legacy operates a methane gas facility that uses anaerobic digestion in Fremont,

North Carolina. Parties’ Joint Appendix (J.A.) 6, 8.1 At the time of the hog waste spill,

Admiral insured Legacy on an “Environmental Impairment Liability Policy.” Id. at 7. This

policy provided coverage for cleanup costs and third-party liability claims arising out of

pollution events. Id.

On June 1, 2022, Todd Ballance, a “managing member” of Legacy, contacted the

state Division of Water Quality about a manure leak at Legacy’s facility. Id. at 9. Because

a watershed flows near the property, the state agency referred Mr. Ballance to the plaintiff

for remediation. Id. Mr. Ballance requested such assistance from EHC but asked that the

consultants refrain from working until he received Admiral’s approval for their services.

Id.; Appellant’s Br. 3–4.

Meanwhile, Deborah Ballance, a “member” of Legacy, submitted an incident report

about the leak to Admiral. 2 NARS received the claim as Legacy’s independent adjuster

and directed its employee, Scroggs, to contact the insured. J.A. 9. After a missed phone

call and an e-mail, both from Scroggs, Mrs. Ballance called the adjuster. Id. at 10. During

1 Anaerobic digestion generates biogas by breaking down organic matter, like manure, in an enclosed environment. Id. at 8. 2 J.A. 9. Specifically, Mrs. Ballance “submitted an incident report to Berkley Custom Insurance Managers,” which manages claims for the underwriter of Legacy’s policy. Id. The parties treat this report to Berkley as though Legacy notified Admiral directly, and the Court does the same. See, e.g., Appellees’ Br. 2; Appellant’s Br. 3. 3 USCA4 Appeal: 25-1409 Doc: 36 Filed: 03/10/2026 Pg: 4 of 11

their call, Scroggs advised Mrs. Ballance that Admiral would pay cleanup costs. Id.

Sometime after this conversation, Mr. Ballance informed EHC that Admiral had approved

the consultants’ services. Id. Legacy then retained EHC for environmental remediation.

Id.

EHC thus began its messy work in Fremont. Id. at 11; Appellant’s Br. 4. On June

6, 2022, Mr. Ballance updated Scroggs on EHC’s efforts, and the parties discussed costs.

J.A. 11. The next day, on June 7, EHC called Scroggs directly to ask about payment for

their services. Id.; Appellant’s Br. 4. Scroggs indicated he would follow up with EHC

once he heard back from Admiral, and he reiterated this position in a letter to the

consultants that day. J.A. 11–12; Appellant’s Br. 4–5.

On June 8, 2022, Scroggs sent a letter to Mrs. Ballance that stated Admiral would

pay cleanup expenses exceeding the policy’s “Self-Insured Retention,” analogous to a

deductible. J.A. 12. EHC submitted invoices for some of its work to Legacy on June 14,

2022, and to Scroggs on June 15, 2022. Id.; Appellant’s Br. 5. Hearing nothing from the

adjuster, EHC followed up on June 20, 2022. J.A. 12; Appellant’s Br. 5. Scroggs advised

that EHC’s invoice remained under examination. J.A. 13; Appellant’s Br. 5. EHC sent

Legacy a second invoice on June 27, 2022, and again contacted Scroggs about payment.

J.A. 13; Appellant’s Br. 5. Citing Admiral’s ongoing coverage review and Legacy’s hiring

of EHC, Scroggs instructed the cleanup crew to request payment from Legacy directly. Id.

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EHC continued seeking payment from Admiral and Legacy to no avail. Id. Admiral

never denied Legacy’s claim, but the insurer never paid it, either. 3

B.

EHC sued NARS and Scroggs in North Carolina state court for one count of

negligent misrepresentation based on Scroggs’s assertion, to Mrs. Ballance, that Admiral

would pay cleanup costs. J.A. 14–15; Appellant’s Br. 6. After removing 4 the case to

federal court, the defendants moved to dismiss the complaint for failure to state a claim.

J.A. 16; Appellant’s Br. 6. The district court applied North Carolina law and held that the

defendants, “as independent adjusters,” owed no duty of care to EHC. Accordingly, the

district court dismissed the one-count complaint in full. J.A. 26–27; Env’tal

Hydrogeological Consultants v. N. Am. Risk Servs., Inc. and Randy Scroggs, No. 7:24-cv-

458, 2025 WL 836586, at *5 (E.D.N.C. Mar. 17, 2025).

II.

Federal Rule of Civil Procedure 12(b)(6) permits dismissal of a complaint for failure

to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). This Court

reviews de novo a district court’s dismissal on these grounds. Misjuns v. City of

Lynchburg, 139 F.4th 378, 384 (4th Cir. 2025). In so doing, we must view the complaint

3 J.A. 13; Appellant’s Br. 5–6. In February 2024, Admiral sued Legacy for a declaratory judgment of non-coverage. J.A. 13–14, 22. EHC was also party to this separate suit. Id. at 22. The court entered default against Legacy on July 18, 2024. Id. 4 J.A. 1–3; see 28 U.S.C. §§ 1441, 1446. The lower court had diversity jurisdiction over the suit based on EHC’s North Carolina citizenship, the defendants’ Delaware and Florida citizenship, and the amount in controversy. See J.A. 2; 28 U.S.C. § 1332. 5 USCA4 Appeal: 25-1409 Doc: 36 Filed: 03/10/2026 Pg: 6 of 11

“in the light most favorable to the plaintiff,” and, accordingly, “accept[] as true all well-

pleaded allegations.” Id. (citing Franks v. Ross, 313 F.3d 184, 192 (4th Cir. 2002), and

Fed. R. Civ. P. 8(a)(2)). The Court need not, however, accept proffered legal conclusions

drawn from the facts, nor “unwarranted inferences, unreasonable conclusions, or

arguments.” Misjuns, 139 F.4th at 384 (citing Schatz v. Rosenberg, 943 F.2d 485, 489 (4th

Cir. 1991), and E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir.

2000)).

“As every first-year law student learns, the Erie doctrine provides that a federal

court sitting in diversity applies federal procedural rules and state substantive rules.”

Moreno v. Bosholm, 151 F.4th 543, 559–60 (4th Cir. 2025) (citing Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938)). The Court, therefore, must apply North Carolina

substantive law to evaluate whether EHC’s complaint adequately states a claim for relief

on the sole count of negligent misrepresentation.

But determining state law’s content can prove more challenging than 1L Civil

Procedure suggests. Of course, “the simplest way to discern state law is to follow a state

statute or a decision by the highest court of the state.” United States v. Little, 52 F.3d 495,

498 (4th Cir. 1995). Provisions in a state’s code or decisions from its highest court,

however, cannot answer every legally significant question. Lower state courts must fill the

remaining gaps in the legal canon. Accordingly, “when only a state intermediate appellate

court has ruled” on a matter, that decision is “datum” for ascertaining state law. Id. (citing

West v. Am. Tel. and Tel. Co., 311 U.S. 223, 237 (1940)). Indeed, a federal court must

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follow the decision of an intermediate state appellate court “unless there is ‘persuasive

data’ that the highest court would decide differently.” Little, 52 F.3d at 498 (emphasis

added) (citing Lynch v. Universal Life Church, 775 F.2d 576, 580 (4th Cir. 1985)

(“Ordinarily, a federal court should follow the decisions of the intermediate state court of

appeals.”)).

Under North Carolina law, “[t]he tort of negligent misrepresentation occurs when a

party justifiably relies to his detriment on information prepared without reasonable care by

one who owed the relying party a duty of care.” Dallaire v. Bank of Am., N.A., 760 S.E.2d

263, 267 (N.C. 2014) (quoting Raritan River Steel Co. v. Cherry, Bekaert & Holland, 367

S.E.2d 609, 612 (N.C. 1988)). Negligent misrepresentation, then, resembles ordinary

negligence, with the “key distinction” that negligent misrepresentation requires “proof not

merely of a breach of duty, but also the additional requirement that the claimant justifiably

relied to his detriment on the information.” Value Health Sols., Inc. v. Pharm. Rsch.

Assocs., Inc., 891 S.E.2d 100, 113 (N.C. 2023) (emphasis in original). Importantly, “[a]

party cannot establish justified reliance on an alleged misrepresentation if the party fails to

make reasonable inquiry regarding the alleged statement.” Dallaire, 760 S.E.2d at 267

(citing Pinney v. State Farm Mut. Ins. Co., 552 S.E.2d 186, 192 (N.C. Ct. App. 2001), disc.

rev. denied, 572 S.E.2d 788 (N.C. 2002)). But beyond this difference, the torts are

identical: both causes of action require a duty owed by the defendant to the plaintiff, the

defendant’s breach of which harmed the plaintiff. Compare Dallaire, 760 S.E.2d at 267

(reciting the elements of negligent misrepresentation), with Keith v. Health-Pro Home Care

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Servs., Inc., 873 S.E.2d 567, 574 (N.C. 2022) (identifying the elements of ordinary

negligence).

The North Carolina Supreme Court has not examined whether a duty of care exists

between an independent insurance adjuster and a claimant who is not an insured under the

applicable insurance policy. The North Carolina Court of Appeals, however, considered

this exact issue in Koch v. Bell, Lewis & Assocs., 627 S.E.2d 636 (N.C. Ct. App. 2006).

Koch, therefore, offers the “datum” of a state intermediate court ruling in the absence of

guidance from the highest court. See Little, 52 F.3d at 498.

Faced with a question of first impression, the Koch court rigorously analyzed cases

from other states that addressed an independent adjuster’s duty (if any) to a claimant

against an underlying insurance policy in a negligence action. 627 S.E.2d at 638–39. The

Court of Appeals determined that “a majority of jurisdictions have held that a negligence

claim cannot be brought against an independent insurance adjuster by a claimant,” whether

that claimant be a third party or the insured, and cited cases from both within and beyond

this Court’s territory in support. See, e.g., Charleston Dry Cleaners & Laundry v. Zurich

Am. Ins. Co., 586 S.E.2d 586 (S.C. 2003); Meineke v. GAB Business Servs., 991 P.2d 267

(Ariz. Ct. App. 1999). Further, the court noted that even the minority of jurisdictions that

have concluded an independent adjuster may be held liable for negligence “have held that

the independent adjuster owes the duty to the insured.” Koch, 627 S.E.2d at 638 (emphasis

in original). Accordingly, the Court of Appeals adopted the majority approach while

explicitly embracing “the same logic that compelled the . . . California Court of Appeals to

hold that there was no duty of an adjuster to the insured:”

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Imposing a duty [ ] would subject the adjuster to conflicting loyalties. Insurers and insureds often disagree as to coverage or the amount of loss. An adjuster cannot argue both sides of such disputes, any more than a lawyer can represent opposite sides in a lawsuit. An adjuster owes a duty to the insurer who engaged him. A new duty to the insured would conflict with that duty, and interfere with its faithful performance. This is poor policy.

Koch, 627 S.E.2d at 638–39 (quoting Sanchez v. Lindsey Morden Claims Servs., Inc., 84

Cal. Rptr. 2d 799, 802 (Ct. App. 1999)).

Though the North Carolina Supreme Court has not squarely addressed the question

presented in Koch, the highest court has substantively engaged with and relied on the case.

Cedarbrook Residential Ctr., Inc. v. N.C. Dep’t of Health & Human Servs. considered

whether a regulated entity is entitled to sue for negligence the agency responsible for

regulating it, pursuant to North Carolina’s State Tort Claims Act. 881 S.E.2d 558, 561–

62, 583–84 (N.C. 2022) (citing Koch, 627 S.E.2d at 638–39). The court held that the

Department of Health and Human Services did not owe the plaintiff, a residential living

facility, “a legally recognized duty sufficient to support a negligence claim.” Cedarbrook,

881 S.E.2d at 580. Finding otherwise, the court reasoned, would result in the “particularly

troubling” creation of conflicting duties, evidenced in “situations like this one, in which

the principal concern motivating the creation of the relevant regulatory regime was the

protection of the residents of adult care homes rather than the entities that own and operate

them.” Cedarbrook, 881 S.E.2d at 584 (emphasis added). In support, the court cited Koch

for “declining to recognize the existence of a duty between an insurance adjuster and a

claimant” because imposing such a duty would “subject the adjuster to conflicting

loyalties.” Cedarbrook, 881 S.E.2d at 583–84 (citation omitted). In other words,

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Cedarbrook cites Koch not in passing, but for a central principle that requires embracing

Koch’s main holding—suggesting that the Supreme Court approved the Court of Appeals’s

decision.

Again, this Court must follow the decision of an intermediate state appellate court

“unless there is ‘persuasive data’ that the highest court would decide differently”—but

here, Cedarbrook indicates that North Carolina’s highest court would decide identically

the question of whether a duty of care is owed by an insurance adjuster to a claimant. See

Little, 52 F.3d at 498 (citing Lynch, 775 F.2d at 580). We see no persuasive data to the

contrary. We conclude, therefore, that under North Carolina law, an independent insurance

adjuster owes no duty of care to a claimant against the underlying insurance policy. 5

This leaves us to evaluate the appellant’s sole claim, a single count of negligent

misrepresentation brought by a third-party claimant who is not the insured against an

independent insurance adjuster and its employee. The tort requires that NARS and Scroggs

owed EHC a duty of care. Dallaire, 760 S.E.2d at 267. North Carolina law instructs us

that no such duty exists. Koch, 627 S.E.2d at 638–39. Accordingly, EHC cannot sustain

a negligent misrepresentation action against NARS and Scroggs because the plaintiff has

5 That Koch addressed a pure negligence claim rather than a negligent misrepresentation claim does not alter the analysis. Both torts require a fundamental duty of care owed by the defendant to the plaintiff, regardless of the additional element of justifiable reliance required in the negligent misrepresentation context. See Value Health Sols., Inc., 891 S.E.2d at 113. 10 USCA4 Appeal: 25-1409 Doc: 36 Filed: 03/10/2026 Pg: 11 of 11

not pleaded—and indeed, cannot plead—a fundamental element of the claim. See Fed. R.

Civ. P. 12(b)(6).

Because the district court properly held that NARS and Scroggs owed no duty of

care to EHC under North Carolina law, it correctly granted the defendants’ motion to

dismiss for failure to state a claim. We decline to reach the merits of whether EHC

adequately pleaded justified and direct reliance, or whether North Carolina’s statute of

frauds bars EHC’s claim. Ruling on these questions would not change the outcome here.

III.

For the foregoing reasons, the district court’s decision dismissing EHC’s complaint

for failure to state a claim for negligent misrepresentation under North Carolina law is

AFFIRMED.