Under North Carolina law, insurers may not engage in certain prohibited practices. Chapter 58 of the North Carolina General Statutes enumerates these practices.

There is no private right of action under these parts of chapter 58 themselves. Even so, a number of court decisions hold that the acts barred by chapter 58 are, more or less automatically, a violation of section 75-1.1.

A decision from late 2013, Guessford v. Pennsylvania National Mutual Casualty Insurance Co., No. 1:12CV260, 2013 WL 5708053 (M.D.N.C. Oct. 18, 2013), shows the careful attention that an insurance company must pay to avoid liability under section 75-1.1.

Under the insurance statutes, an insurer must explain its settlement position to its insured.

Mr. Guessford had a car crash while he was driving his employer’s car. His lawyer filed a claim on his employer’s auto insurance policy; that policy had a $1 million limit. Mr. Guessford demanded arbitration to put a value on his claim.

Before arbitration, the insurer offered $525,000 to settle. The insurer’s lawyer made this offer to Mr. Guessford’s lawyer. The insurer’s lawyer gave Mr. Guessford’s lawyer only the $525,000 number, with no additional explanation.

Mr. Guessford rejected the settlement. At arbitration, he received a valuation greater than $525,000.

Can you spot the section 75-1.1 violation?

Under section 58-63-11(n), an insurer must provide “a reasonable explanation of the basis in the insurance policy” for denying a claim or for making a settlement offer. The insurer in Guessford violated this rule—even though Mr. Guessford had a competent lawyer, and even though the insurer extended the offer to that lawyer.

Based on this violation, the court granted offensive summary judgment to Mr. Guessford on his claim for violation of section 75-1.1.

What damages does an insured suffer based on an unexplained settlement offer?

The Guessford insurer had a reasonable follow-up question: What damages did Mr. Guessford actually suffer based on the violation (that is, the unexplained status of the settlement offer)?

This question had major significance in the case. Mr. Guessford argued that his single damages should be measured by the entire policy limit—here, $1 million—that his insurer allegedly withheld. Applying the treble-damages rule for claims under section 75-1.1, he sought to have this figure trebled to $3 million.

Before this damages issue could play out, however, the case settled.

Note the role of per se violations of section 75-1.1.

Although Guessford ended with a whimper, it illustrates a broader point: Businesses need to know when a violation of a statute or another source of law automatically—that is, without any further showing—produces a section 75-1.1 violation. This theory is called a per se violation of section 75-1.1.

Matt Sawchak has an article on per se violations coming up in the September 2014 North Carolina Law Review. Our blog, in future posts, will explore per se theories under section 75-1.1 from time to time.

As Guessford shows, what amounts to an innocuous statutory violation can open the doors to a world of treble damages—indeed, treble damages of uncertain size.