Bad Faith and Unfair Trade Practices Claims Against Insurers in North Carolina: What Policyholders Need to Know

You find yourself on the receiving end of a demand, a lawsuit, or a loss. You did everything right. You paid your premiums on time. You filed your claim promptly. You cooperated with the investigation. And yet, your insurer denied your claim or offered a fraction of what you believe your policy provides, with no explanation of how the policy justifies its response.

For many North Carolina business policyholders, this experience is more than a contractual dispute. It may be evidence of bad faith (i.e., a failure by the insurer to deal fairly and honestly with the very people it contracted to protect). North Carolina law provides meaningful remedies when insurers cross that line, including the possibility of treble damages where there are unfair and deceptive trade practices involved and attorneys’ fees.

Despite the importance of these remedies, many business policyholders do not fully understand when an insurer has acted in bad faith, what legal tools are available to them, or how to build a case strong enough to withstand an insurer’s inevitable push to characterize its conduct as a mere good-faith coverage dispute. This article provides a practical overview of bad faith and unfair trade practices claims against insurers in North Carolina, the legal standards that apply, and what policyholders should know to protect their rights.

Two Paths to Accountability: Statutory and Common Law

North Carolina provides two separate legal frameworks for holding insurers accountable for bad faith: one statutory and one rooted in common law. A policyholder may pursue claims under either or both, though where both are available, the policyholder must ultimately elect one avenue of recovery.

1. The Statutory Path: Unfair and Deceptive Trade Practices and Unfair Claim Settlement Practices

The primary statutory remedy for policyholder bad faith claims in North Carolina runs through two interconnected statutes: the Unfair Claim Settlement Practices Act and the Unfair and Deceptive Trade Practices Act.

The Unfair Claim Settlement Practices Act defines fourteen specific practices that constitute unfair methods of competition or unfair and deceptive acts in the business of insurance. The practices most relevant to coverage disputes include:

• Misrepresenting pertinent facts or policy provisions relating to the coverage at issue;
• Failing to acknowledge and act reasonably promptly on claims;
• Failing to adopt and implement reasonable standards for prompt investigation;
• Refusing to pay claims without conducting a reasonable investigation based on all available information;
• Failing to affirm or deny coverage within a reasonable time after proof-of-loss statements have been completed. Not attempting in good faith to effectuate prompt, fair, and equitable settlements where liability has become reasonably clear;
• Compelling a policyholder to institute litigation to recover amounts due under a policy by offering substantially less than the amounts ultimately recovered;
• Attempting to settle a claim for less than the amount to which a reasonable person would have believed they were entitled; and
• Failing to promptly provide a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the denial of a claim or the offer of a compromise settlement.

Although the Unfair Claim Settlement Practices Act does not itself create a private cause of action, North Carolina courts have held that its violation may be pursued under the State’s Unfair and Deceptive Trade Practices Act. In some circumstances, a violation of the Unfair Claim Settlement Practices Act can automatically establish a violation of the Unfair and Deceptive Trade Practices Act as a matter of law. This is significant because the Unfair and Deceptive Trade Practices Act provides for treble damages, meaning the court can award three times the actual damages proven and attorneys’ fees. These remedies go well beyond what is available in a simple breach of contract action, and they serve as a powerful deterrent against insurer misconduct.

The standard for a Unfair and Deceptive Trade Practices claim is whether the insurer’s conduct had a tendency or capacity to deceive, offended established public policy, or was immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers. This is a broader standard than intentional fraud, and it does not require proof that the insurer acted with malicious intent. A pattern of unreasonable conduct such as delay without explanation, denial without investigation, and lowball offers without justification can be sufficient.

2. The Common Law Path: Breach of Good Faith and Punitive Damages

Separate from the statutory framework, North Carolina courts have recognized a common law duty of good faith and fair dealing that is implied in every insurance contract. An insurer breaches this duty when it refuses to pay benefits after receiving and recognizing a valid claim, or when it fails to give due regard to the insured’s interests in exercising the insurer’s right to settle a claim against its insured (due regard does not mean the insurer must give more weight or consideration to the insured’s interests than its own).

To recover under common law bad faith, the policyholder must typically show something more than a simple denial of coverage. Courts have generally required evidence of “aggravating” or “outrageous” conduct behavior that goes beyond a good-faith disagreement over whether a claim is covered. This may include a refusal to investigate, a refusal to reconsider a denial in light of new information or controlling legal authority, a pattern of delay tactics, or destruction of evidence.

The remedy for common law bad faith can include punitive damages. While punitive damages are not subject to the same trebling formula as Unfair and Deceptive Trade Practices damages, they can be substantial.

North State Deli and Its Aftermath: A Case Study in Policyholder Remedies

The 2024 North Carolina Supreme Court decision in North State Deli, LLC v. Cincinnati Insurance Co. and the litigation that followed provide a timely illustration of how bad faith and Unfair and Deceptive Trade Practices claims operate in practice.

In North State Deli, the State’s Supreme Court found that an all-risk commercial property policy with no virus exclusion provided coverage for business interruption losses caused by COVID-19 government shutdowns. The decision was a significant victory for policyholders and a direct rejection of the insurance industry’s position that virus-related losses could not constitute “physical loss or damage” under an all-risk policy.

What happened next is instructive. After North State Deli was decided, policyholders whose identical claims had been previously denied by the same insurers returned to court. In Durham Wood Fired Pizza Co. LLC v. Cincinnati Insurance Co. (M.D.N.C. 2025), a federal court allowed restaurants to amend their complaints to include allegations related to Cincinnati’s continued denial of coverage constituting a breach of the implied covenant of good faith and fair dealing and a violation of the State’s Unfair and Deceptive Trade Practices Act.

The case points to an important principle: an insurer’s initial denial of coverage may be reasonable at the time it is made, but the insurer’s obligation may not end there. An insurer that refuses to revisit its position in light of subsequent legal developments, particularly a decision from the state’s highest court interpreting the very policy language at issue, may cross the line from good-faith disagreement into bad faith.

What Constitutes “Good Faith” and What Crosses the Line

Not every coverage denial is bad faith. Insurance companies are entitled to investigate claims, apply policy language, and reach coverage conclusions that the policyholder disagrees with. The existence of a genuine coverage dispute does not, by itself, establish bad faith. The line is crossed when the insurer’s conduct reflects something more than an honest disagreement.

Indicia of bad faith include:

• Denial without investigation. An insurer that denies a claim based on a blanket company-wide policy —without conducting an individualized investigation of the specific claim — is vulnerable to a bad faith challenge.
• Unreasonable delay. An insurer that fails to acknowledge claims promptly, fails to communicate with the policyholder, or allows a claim to languish for months without action may be engaging in unfair claim settlement practices.
• Denial without explanation. North Carolina regulations require that a claim denial be in writing and cite the specific policy provisions or legal basis relied upon. A vague or conclusory denial does not satisfy this requirement.
• Failure to reconsider in light of new information. As the post-North State Deli cases demonstrate, an insurer that refuses to revisit a denial when presented with new facts or controlling legal authority may be acting in bad faith.
• Lowball offers. An insurer that offers to settle a claim for substantially less than the claim is reasonably worth knowing that the policyholder may lack the resources to litigate may be compelling litigation in violation of the statute.
• Inconsistent positions. An insurer that takes one position during the claims process and a different position in litigation or that applies one standard to some claims and a different standard to others may be acting in bad faith.

Practical Guidance for Policyholders

If you believe your insurer is not handling your claim fairly, there are steps you can take to protect your rights and build a record that supports a potential bad faith claim.

• Document everything. Keep a detailed log of all communications with the insurer, including dates, times, and the substance of every conversation. Follow up phone calls with written correspondence confirming what was discussed. Preserve all documents the insurer sends you, including denial letters, reservation of rights letters, and correspondence from adjusters.
• Put the insurer on notice. If you believe the denial or the offer is unreasonable, say so in writing. Identify the specific policy provisions you believe support coverage and the specific facts that the insurer appears to be ignoring. Demand a written explanation of the insurer’s position that cites specific policy language and legal authority.
• Do not accept a lowball offer under pressure. An insurer may offer a fraction of what a claim is worth and characterize the offer as a “courtesy” or “good faith” payment. You are not obligated to accept. A premature settlement may waive your right to pursue additional amounts, including bad faith and extra-contractual remedies.
• File a complaint with the North Carolina Department of Insurance. The NCDOI accepts complaints from policyholders and can investigate unfair claim settlement practices. While a complaint to the NCDOI does not substitute for a lawsuit, it creates an additional record of the insurer’s conduct and may prompt the insurer to reconsider its position. Understand though that NCDOI’s role is not to act as an arbiter of whose coverage position is correct.
• Engage experienced policyholder counsel. Bad faith claims against insurers are fact-intensive and require careful documentation. An attorney who regularly represents policyholders can evaluate whether the insurer’s conduct crosses the line and can help you build a record that supports a statutory or common law bad faith claim if litigation becomes necessary. Critically, a Unfair and Deceptive Trade Practices claim allows for the recovery of attorneys’ fees, which may make it economically feasible to invest in challenging an insurer’s unreasonable conduct even when the underlying claim amount might not justify litigation on its own.

The Stakes Are Real For Both Sides

Bad faith and Unfair and Deceptive Trade Practices claims fundamentally change the economics of a coverage dispute. In a simple breach of contract case, the most the policyholder can recover is the amount owed under the policy plus interest. In a bad faith case, the insurer faces treble damages, punitive damages, and attorneys’ fees potentially transforming a six-figure coverage dispute into a seven-figure liability.

For business policyholders, this means that a well-documented bad faith case provides significant leverage. For insurers, it means that the decision to deny or underpay a claim carries risks that extend far beyond the policy limits. And for both sides, it means that the manner in which the claims process is conducted, the promptness of investigation, the reasonableness of communication, the specificity of denial explanations, and the willingness to reconsider in light of new information — matter as much as the ultimate coverage determination.

Ward and Smith’s Insurance Counseling and Recovery Team represents business and professional policyholders in bad faith, UDTP, and insurance coverage disputes throughout North and South Carolina. If you believe your insurer is not treating your claim fairly, our Team can help you evaluate your rights and pursue the remedies the law provides.

© 2026 Ward and Smith, P.A. For further information regarding the issues described above, please contact Amy H. Wooten or Hannah M. Daigle.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.