For years, the prohibition on assignment of bad faith claims has largely kept the time limited demand game out of North Carolina. A recent appellate decision, however, may change the playing field...
The case, Haarhuis v. Cheek, 820 S.E.2d 844 (N.C. App. 2018), involved an unfortunate motor vehicle accident where an intoxicated tortfeasor hit a pedestrian on the side of the road who subsequently died as a result of her injuries. Prior to filing suit, Plaintiff's counsel served a time-limited demand on tortfeasor's auto carrier in which Plaintiff agreed to release his claims against the tortfeasor in exchange for payment of the liability limits of $50,000 if payment was made within ten days. Plaintiff did not receive any response to the time-limited demand from the carrier or defense counsel within the ten-day window, and filed suit shortly thereafter.
The case proceeded to trial, and the jury entered a verdict against tortfeasor for $4.25 million in compensatory damages and $45,000 in punitive damages. Post-judgment collection efforts confirmed the tortfeasor was uncollectable.
Subsequently, Plaintiff moved for appointment of a receiver on the basis that tortfeasor possessed property in the form of unliquidated legal claims against her insurance carrier and assigned defense counsel for their actions in causing tortfeasor to be encumbered with a judgment of nearly $4.3 million (i.e., claims for bad faith against the carrier and malpractice against defense counsel). Plaintiff contended that tortfeasor was unwilling to pursue these claims, so a receiver should be appointed to pursue them on her behalf, primarily for the benefit of tortfeasor's judgment creditor, Plaintiff.
The trial court denied the motion, and the Court of Appeals unanimously reversed, based on a language of the receiver statute, and allowed the receiver to be appointed to pursue the bad faith claim against the liability insurer (and the malpractice claim against defense counsel). The case was subsequently appealed to the North Carolina Supreme Court who in May of this year declined to allow review.
The practical effect of this decision is to give a potential end run around the prohibition on assignment of bad faith claims in North Carolina. The well-settled rule in North Carolina is that there is no third-party bad faith except in extremely limited circumstances; however, this recent development creates a window for a third-party claimant to use a bad faith claim against a liability carrier. Where these time-limited demands have not been common before in North Carolina, carriers and defense counsel are already seeing an uptick in time-limited demands as a result of the Haarhuis decision.
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