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North Carolina Court of Appeals reverses $29 mn judgment against Penn National Insurance

North Carolina Court of Appeals reverses $29 mn judgment against Penn National Insurance

The North Carolina Court of Appeals overturned a $29 mn judgment against Penn National Security Insurance Co., ruling the insurer did not breach its duties to defend or settle in a wrongful death claim.

The appeals court based its decision on a “fellow employee” exclusion in Penn National’s commercial auto policy and relevant case law, as outlined in its Dec. 17 opinion.

The case involved two employees of a kitchen design firm. In August 2017, one employee, Luis Ortez, caused a distracted-driving accident that killed a co-worker.

The firm notified Penn National that both parties were employees and filed workers’ compensation claims on their behalf.

In March 2018, the estate of the deceased filed a wrongful death lawsuit. A court awarded $9.5 mn in damages but did not explicitly confirm both parties were co-workers. Instead, it cited Pleasant v. Johnson, a precedent allowing litigation against co-workers for “willful, wanton, and reckless negligence.”

Claims Against Penn National

After the 2018 verdict, both Ortez and the estate sued Penn National, alleging it breached its duties to defend and settle. They also accused the insurer of violating the Unfair and Deceptive Trade Practices Act. A lower court ruled in favor of Ortez, ordering Penn National to pay the $9.5 mn judgment. The court trebled the damages, resulting in a total of $28.94 mn.

The appeals court clarified that the Pleasant precedent permits claims between employees only for intentional acts. Ortez could therefore be held personally liable.

The ruling stated, “A ‘Pleasant claim’ addresses liability among co-workers and does not involve the employer or insurer for acts categorized as intentional torts or ‘willful, wanton, and reckless’ acts.”

The court also held that the “fellow employee” exclusion in the policy shields insurers and employers from liability for such claims. Requiring Penn National to defend Ortez would undermine the exclusion’s purpose, which limits coverage for employment-related negligence.

Settlement Offer Controversy

In April 2019, Penn National agreed to a $30,000 settlement with the estate, which included a provision not to enforce judgment against Ortez.

The estate required payment by the following Monday after offering the settlement late on a Friday. Penn National delivered the check one day late, leading the plaintiff to withdraw the offer and file a breach of duty to settle claim.

The appeals court rejected the claim, stating that requesting a one-day extension for payment under a tight deadline did not demonstrate bad faith by Penn National.

This ruling relieves Penn National of the $29 mn judgment, affirming the limitations of liability under the “fellow employee” exclusion.

The North Carolina Court of Appeals is the state’s intermediate appellate court. Currently 15 judges hear cases in panels of three. The Court of Appeals reviews the proceedings that occurred in the trial courts for errors of law or legal procedure; it decides only questions of law – not questions of fact. The role of the Court of Appeals is to decide if the trial court correctly applied the law, or if there was prejudicial error in the conduct of the trial.

The majority of cases appealed from the Superior and District courts in civil and criminal cases are heard by the Court of Appeals. One major exception is capital murder appeals in which the death penalty was imposed; these appeals go directly to the Supreme Court of North Carolina. In addition, direct appeals from certain of the state’s administrative agencies are heard by the Court of Appeals.

Judges of the Court of Appeals are elected and serve eight-year terms. A Chief Judge for the North Carolina Court of Appeals is designated by the Chief Justice of the Supreme Court of North Carolina. Cases are heard by a panel of three judges with the Chief Judge being responsible for assigning members of the court to the five panels. Review of a decision of the Court of Appeals is limited to those cases accepted by the Supreme Court.