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Pleading Reliance in Unfair-Trade-Practice Claims Involving North Carolina’s Insurance Laws

Seven years ago, in Bumpers v. Community Bank of Northern Virginia, the Supreme Court of North Carolina held that a plaintiff who sues under N.C. Gen. Stat. § 75-1.1 based on a misrepresentation must show actual and reasonable reliance on the misrepresentation.

A recent decision by the North Carolina Court of Appeals confirms that Bumpers extends to misrepresentation-based section 75-1.1 claims premised on conduct that constitutes an unfair practice under North Carolina’s insurance laws. The decision suggests that when the violation of a statute automatically produces a section 75-1.1 violation—also called a per se violation—a showing of actual and reasonable reliance is required if the per se violation is based on a misrepresentation. The decision also reiterates that a plaintiff must show her own actual and reasonable reliance—not the reliance of a third party.

Coverage confusion

D C Custom Freight, LLC v. Tammy A. Ross & Associates, Inc. involves a freight-shipping and trucking company called D C Custom Freight, LLC that rents vehicles through both long- and short-term leases.

In 2017, Custom Freight hired an insurance agent to purchase commercial automobile coverage. To specify the type of coverage that it needed, Custom Freight gave the insurance agent a list of Custom Freight’s equipment and a copy of its prior insurance policy. In that policy, the long-term-leased vehicles were individually enumerated and covered for physical damage. The short-term-leased vehicles, however, were not listed or covered by the policy.

Custom Freight rented vehicles through a company called Rush. In 2017 and 2018, Rush’s insurer asked Custom Freight’s insurance agent for a certificate of insurance that showed Custom Freight’s liability-insurance limits and physical-damage deductibles for leased or rented vehicles. Both years, the insurance agent sent Rush’s insurer—but not Custom Freight—a certificate of insurance for Custom Freight. The certificates listed a deductible for “Specified Perils/Collision.”

In 2018, Custom Freight rented a truck from Rush on a short-term basis. The short-term rental agreement between Custom Freight and Rush required Custom Freight to provide collision insurance for the truck. A month later, the truck was damaged in a collision. Custom Freight submitted a claim to its insurance company, but the claim was denied because Custom Freight’s policy did not cover short-term rentals.

Custom Freight sued its insurance agent for multiple claims, including violations of section 75-1.1. The section 75-1.1 claim was predicated on N.C. Gen. Stat. § 58-63-15(1), which prohibits false and misleading statements about the terms of insurance policies. Custom Freight claimed that the insurance agent misrepresented what was covered under Custom Freight’s policy: the policy did not provide collision coverage for short-term rentals, but, according to Custom Freight, the certificates of coverage sent to Rush’s insurance company implied that Custom Freight carried coverage for short-term rentals. The Supreme Court of North Carolina has held that a violation of section 58-63-15(1) is an unfair or deceptive trade practice under section 75-1.1.

The trial court granted summary judgment for the insurance agent on all of Custom Freight’s claims.

Statutes creating per se theories do not override Bumpers.

The Court of Appeals affirmed.

First, the Court of Appeals concluded that the section 75-1.1 claim failed because Custom Freight had never seen the certificates of insurance—the sources of the alleged misrepresentations. Under Bumpers, Custom Freight could not show that it actually and reasonably relied on certificates that it had never seen.

Custom Freight pointed to a Court of Appeals decision called Cullen v. Valley Forge Life Insurance Co. In Cullen, the Court of Appeals held that reliance is not a requirement to show causation for a section 75-1.1 claim premised on a violation of section 58-63-15(1). Custom Freight argued that, although Cullen is a pre-Bumpers decision, Cullen controlled over Bumpers in this context because Bumpers did not involve the insurance industry.

The Court of Appeals disagreed, explaining that, “[r]ather than being distinguishable from Bumpers’ general rule that a showing of reliance on the part of the plaintiff is required, Cullen is in direct conflict with that rule.” Accordingly, the Court of Appeals interpreted Bumpers as overruling Cullen on whether reliance is required for a misrepresentation-based section 75-1.1 claim premised on a violation of section 58-63-15(1).

Third-party reliance doesn’t count.

Next, Custom Freight argued that, even if it did not directly rely on the insurance agent’s misrepresentations, the reliance of a third party—here, Rush’s insurer—could show causation for a section 75-1.1 claim. For this argument, Custom Freight relied on another pre-Bumpers Court of Appeals case called Ellis v. Smith-Broadhurst, Inc.

In Ellis, an insurance agent sued a competitor for sending a potential client a policy comparison that misrepresented the plaintiff’s policy. The Court of Appeals held that because there was some evidence that the client “continued to rely on the comparison made by the defendants” in making its decision, there was a genuine issue of material fact as to proximate cause.

The Court of Appeals rejected this argument, too, noting that “Ellis is either directly in conflict with Bumpers” or is “distinguishable from this case.”

The Court of Appeals explained that Bumpers is unequivocal in its language that “actual reliance requires that the plaintiff have affirmatively incorporated the alleged misrepresentation into his or her decision-making process.” Thus, Bumpers makes clear that only the plaintiff’s direct reliance is sufficient to state a misrepresentation-based section 75-1.1 claim.


D C Custom Freight confirms that Bumpers is not a context- or industry-specific precedent. Since Bumpers, a plaintiff who sues under N.C. Gen. Stat. § 75-1.1 based on a misrepresentation must show actual and reasonable reliance on the misrepresentation—even if the claim arises in a pervasively regulated area like insurance law.

D C Custom Freight is also a good reminder that a plaintiff cannot state a misrepresentation-based claim under 75-1.1 based on the reliance of another party. Bumpers makes clear that only the direct reliance of the plaintiff counts.

Custom Freight has filed a petition for discretionary review in the Supreme Court of North Carolina. We’ll follow the PDR closely to see if the Supreme Court weighs in on this case.

Author: Scottie Lee

October 20, 2020 Scottie Forbes Lee
Posted in  Misrepresentations Per Se Violations