State News : North Carolina

Written by: John Tomei

Originally appeared on Teague Campbell Dennis & Gorham website

Ordinarily, bad faith claims against insurance carriers are brought in the Superior Court in the General Courts of Justice in North Carolina. These claims are based upon the law of contracts and torts. The law provides that there is an implied covenant between an insured and a carrier for the carrier to act in good faith. A carrier’s failure to do so can subject that carrier to liability, including punitive damages. However, when dealing with workers’ compensation coverage and bad faith claims, other issues regarding jurisdiction and venue arise.

Specifically, who has jurisdiction over a claim asserted against a workers’ compensation insurance carrier for bad faith? Is it the North Carolina Industrial Commission or the Superior Court in the General Courts of Justice?

The general rule is that all claims arising from an employer’s or insurer’s processing and handling of a workers’ compensation claim fall within the exclusive jurisdiction of the Industrial Commission, regardless of whether the alleged conduct was intentional or merely negligent. Bowden v. Young, 762 S.E. 2d 622, 625 (N.C. Ct. App. 2015) While the North Carolina Workers’ Compensation Act provides the exclusive remedy for work-related injury matters, the Act has also been construed to give the Industrial Commission jurisdiction not only over those work-related injury claims but also any claims “ancillary” to the original injury—including those against insurance carriers. Ancillary claims have included those related to fraud, bad faith, civil conspiracy, unfair and deceptive trade practices, and intentional infliction of emotional distress. Johnson v. First Union Corp., 131 N.C. App 142, 144, 504 S.E. 2d 808, 810 (1998).

There are some rare exceptions to the general rule. Three of those exceptions include:

1. 1. After a complete Industrial Commission hearing and award of benefits to an employee from his sub-contractor employer, a subsequent action by an employee seeking a declaratory judgment of his rights with respect to an insurance agreement between a sub-contractor employer and its general contractor is beyond the scope of the “employer-employee” relationship ordinarily governed by the Act, and jurisdiction for that claim would lie with the Superior Court. Lowery v. Campbell, 185 N.C. App. 659, 649 S.E. 2d 453 (2007).
   2.  The Act does not confer upon the Commission expressly or by implication jurisdiction to determine, in a proceeding in which plaintiff asserts no claim against the insurance company, a plaintiff’s asserted right to reform a policy and to recover from the insurance company the amount of plaintiff’s award. Clark v. Gastonia Ice Cream Co., 261 N.C. App. 234, 134 S.E. 2d 254 (1964).
   3. If, after the Commission awards the injured worker benefits, an employer’s insurance company knowingly provides false information to police to frame him for insurance fraud, resulting in his arrest, incarceration, and indictment on felony charges, then the worker’s claims for malicious prosecution, abuse of process, and unfair and deceptive trade practices (“UDTP”) exceed the scope of the Act and are properly before the General Court of Justice. Seguro-Suarez v. Key Risk Insurance Co., 261 N.C. App 200 (2018).

There are pitfalls for the unwary in defending bad faith claims. When dealing with a bad faith claim in the context of a workers’ compensation insurance policy, it is important to be aware that the North Carolina Industrial Commission will likely have jurisdiction over those claims. Having attorneys who are experienced in dealing not only with coverage and bad faith claims, but also with appearing before the Industrial Commission, is vitally important in successfully defending these bad faith and other coverage-related matters.