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You are here: Home / Arbitration / Court Decisions / North Carolina Court Rules Reimbursement for Extracontractual Losses Discretionary

North Carolina Court Rules Reimbursement for Extracontractual Losses Discretionary

October 28, 2019 by Brendan Gooley

The Court of Appeals of North Carolina has concluded that the state’s Reinsurance Facility has discretion to approve or deny petitions from members for reimbursement for extracontractual losses and that members have no right to reimbursement for such losses under the governing statutory scheme. The decision relates to a significant bad faith case against Allstate.

Allstate issued an auto insurance policy to an insured and ceded the policy to the North Carolina Reinsurance Facility, a nonprofit entity that insures drivers whom insurers determine they do not want to insure individually. The insured subsequently struck a minor riding a bicycle, causing serious injury. The insured reported the accident to the Allstate agent who sold him the policy. She told him to call an Allstate phone number to report the accident, but he never did. Allstate received notice of the accident when it heard from counsel for the injured minor. It investigated and offered to tender the policy limit of $50,000, but the injury party rejected that offer. The insured stipulated to a $13.8 million judgment against him and assigned his claims against Allstate to the injured party. That party then sued Allstate for breaching its duty of good faith and ultimately received $11 million in a settlement after an adverse jury verdict.

Allstate sought reimbursement for the bad faith loss from the Reinsurance Facility. The Reinsurance Facility denied Allstate’s request, and Allstate appealed to the North Carolina Commissioner of Insurance. The Commissioner ordered the Reinsurance Facility to reconsider its denial. The Reinsurance Facility petitioned for judicial review, and the trial court affirmed the Commissioner’s decision.

The Reinsurance Facility then appealed to the Court of Appeals of North Carolina. The court reversed and remanded the trial court’s decision. Analyzing the plain language of the statute governing the Reinsurance Facility, the court concluded that the Reinsurance Facility was required to consider a petition for reimbursement and gave member insurers the right to receive reimbursement for contractual losses, but concluded that members had no right to reimbursement for extracontractual losses and that the Reinsurance Facility had discretion to approve or deny such petitions. Thus, the Reinsurance Facility was well within its statutory rights to deny Allstate’s petition for reimbursement.

The Supreme Court of North Carolina then denied Allstate’s petition for further review.

N.C. Reinsurance Facility v. Causey, 830 S.E.2d 850 (N.C. Ct. App. 2019), review denied, 832 S.E.2d 731 (N.C. 2019).

Filed Under: Arbitration / Court Decisions, Reinsurance Claims

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