Earlier this year, we wrote about two cases that considered whether an assignee of insurance proceeds could maintain a section 75-1.1 claim against insurers. The North Carolina Business Court found that such an assignee could maintain the claim in Brakebush Brothers. The Fourth Circuit reached the opposite conclusion in Skyline Restoration.
Since our post, the Brakebush Brothers court has revisited the issue. Its new opinion is significant.
No Spring Chicken—The History of Brakebush Brothers
As a reminder, Brakebush Brothers involved a fire at a chicken-processing plant that resulted in tens of millions of dollars in damage; that is, more than just chicken feed. Coincidentally, the fire occurred while the plant was being sold by House of Raeford Farms to Brakebush Brothers. Under these circumstances, Raeford Farms tried to assign its rights to the insurance proceeds to Brakebush Brothers. Some insurers consented to this assignment. Others did not.
When the excess insurers failed to pay proceeds that Brakebush Brothers believed were due, Brakebush Brothers sued, bringing claims for breach of contract, bad faith refusal to settle, and unfair or deceptive trade practices. As we explained in our earlier post, the court denied the insurers' motions to dismiss the section 75-1.1 claims and allowed those claims to proceed.
Two important developments followed that decision. First, Brakebush Brothers sought to amend its complaint to add Raeford Farms as a plaintiff. Second, the excess insurers asked the court to reconsider its holding in light of the Fourth Circuit's Skyline Restoration decision.
The Chickens Come Home to Roost for the Excess Insurers
The court first addressed the effect of the amendment to add Raeford Farms as a plaintiff in the case. Brakebush Brothers sought to add Raeford Farms to address the court's holding that some of the rights to insurance proceeds had not been validly assigned from Raeford Farms to Brakebush Brothers.
Absent relation back, the court explained, any claims that Raeford Farms had against the excess insurers would be barred by the applicable statute of limitations. Brakebush Brothers and Raeford Farms argued that Raeford Farms' claims did relate back under Rule 17 because implicit in the court's holding was the notion that Raeford Farms was the “real party in interest.”
Finding state-court precedent on this subject to be rarer than hen's teeth, the Brakebush Brothers court turned to federal authority, including caselaw and the advisory committee notes to the federal analog to Rule 17. From these authorities, the court examined whether the addition of the new plaintiff was merely a “technical substitution” or the result of “bad faith” or a “deliberate or tactical strategy.” It also considered whether the excess insurers would be prejudiced by the relation back.
Ultimately, the court concluded that the amendment suggested no bad faith and would not prejudice the excess insurers. So, it permitted the relation back of Raeford Farms' claims—to the extent they mirrored the claims initially brought by Brakebush Brothers.
Don't Count Your Chickens Before They've Hatched
Brakebush Brothers' section 75-1.1 claim, however, would not fare as well. Although that claim had survived one pleadings-stage motion, the court reconsidered its reasoning in light of Skyline Restoration. The court called Skyline Restoration “helpful in its consideration of the unique issue presented here as to which—it bears repeating—no North Carolina court has previously had occasion to address.”
Following the Fourth Circuit's reasoning, the court held that “[a] ruling that Brakebush [Brothers] possess[es] standing to bring bad faith and UDTP claims against the Assigned Insurers under these circumstances would constitute a significant expansion of the existing law in North Carolina.” It granted the motion to dismiss Brakebush Brothers' section 75-1.1 claim.
The court cautioned that it might have reached a different result had Raeford Farms assigned the entire insurance contract (and not merely the right to insurance proceeds) to Brakebush Brothers.
No More Running Around Like a Chicken With Its Head Cut Off
The new Brakebush Brothers opinion reconciles the federal caselaw with the state caselaw on this important question about insurance assignees bringing section 75-1.1 claims. With this guidance, litigants have no excuse for running around like chickens with their heads cut off. And given the court's hint that an assignment of an entire insurance contract would present a different case, insureds and their assignees might do well to not to put all of their eggs in one basket by assigning merely the rights to proceeds.
The decision is also important because it illustrates the North Carolina courts' willingness to look to analogous federal law on matters of procedure—and persuasive federal reasoning on matters of first impression of North Carolina law.
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