Under North Carolina law, "a bad faith claim may proceed even where it is determined that the underlying contract was not breached." Duke Univ. v. Endurance Risk Sol's Assur. Co., No. 5:20-CV-672-BO, 2021 WL 2345014, at *4 (E.D.N.C. June 8, 2021).
Under the North Carolina Unfair Trade Practices Act, a "mere breach of contract" does not state a claim, but if "a breach of contract claim is 'surrounded by substantial aggravating circumstances,'" there might be an unfair and deceptive trade practice claim under the North Carolina statute. Duke University v. Endurance Risk Solutions Assurance Co., 2021 WL 2345014, at *4.
The federal court denied the insurance carrier's motion to dismiss a bad faith claim and a UTPA claim in this case accordingly.
In this ruling, North Carolina law is bucking the apparent trend to anchor bad faith claims to coverage. But -- buttressed by this ruling (pun intended) -- why would bad faith be anchored to coverage if, for example, the complaint is divorced from coverage considerations, such as when the parties instead dispute the carrier's conduct in failing to settle a covered claim?
This case apparently concerned something different from settling an underlying liability claim. This case apparently concerned instead an insured's claim to be reimbursed for covered defense expenses. But even in this case, the insured's complaint stated a claim for bad faith. How much stronger should the case be for stating a claim for bad faith divorced from a coverage claim, in a case where there is no coverage dispute but there is a dispute about failure to settle covered claims?
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