Five Important Lessons on North Carolina Insurance Law from New NCG, Inc., Part 2

Previously, we explained in Part 1, the facts behind New NGC, Inc. v. ACE American Insurance Co., et. al, 3:10-CV-00022-RLV-DSC, 2015 WL 2259172 (W.D.N.C. May 13, 2015), as well as its application of West American Insurance Co., Plaintiff, v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. App. 1991) and how coverage in a putative class action can be driven by unnamed class plaintiffs and is not limited exclusively to the named class representative.

The third major takeaway from New NGC is that while insurance companies often argue that their duty to defend is determined by the allegations in the Complaint, the North Carolina Supreme Court has stated unequivocally that an insurer’s duty to defend may still be found where the insurer “knows or could reasonably ascertain facts, that if proven, would be covered by the policy.” Waste Management of the Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d at 374, 379 (N.C. 1986). However, while the inverse of this proposition has not been addressed by the North Carolina state courts, it has been explicitly rejected by the Middle District of North Carolina in a decision in the Fourth Circuit Court of Appeals in St. Paul Fire and Marine Insurance Co. vs. Vigilant Insurance Company, 724 F.Supp. 1173, 1179 (M.D.N.C. 1989), aff’d. 919 F.2d 235 (4th Cir. 1990). In other words, the North Carolina courts will in all likelihood refuse to allow evidence outside the pleadings to negate allegations in the Complaint.

Fourth, the duty to defend only arises when the insurance company receives actual notice of the underlying action.

Fifth, a policyholder does not have to provide “specific citations to insurance policies and years of coverage for tender of notice to be proper as to the underlying claims” absent an express requirement in the policy. Memorandum and Order at 26. Instead, once notice of an underlying action is provided, it is up to the insurance company “to review the underlying suits and determine what obligations it may owe to [the policyholder]” under any and all actual policies issued by the [insurance company], whether cited by [the policyholder] or not.” Memorandum and Order at 26.

If you have questions about the scope of the duty to defend in North Carolina, please let us know.