Contract – Unfair or Deceptive Trade Practices – Breach of Contract

Christmas v. Nationwide Mutual Insurance Co. (Lawyers Weekly No. 14-02-0719, 22 pp.) (James C. Fox, J.) 5:12-cv-00088; E.D.N.C.

Holding: Even though the mortgagee’s interest in this property was eliminated at the foreclosure sale, the plaintiff still had an insurable interest in this property, and the defendant breached its contract with plaintiff by not paying her for the fire damage to her house. To hold otherwise would allow the defendant to collect insurance payments on the property without paying for a valid claim.

Facts

Barbara Christmas, plaintiff, lost part of her house to a fire so she filed a claim with her insurer, the defendant, Nationwide. Nationwide examined the damage and determined the house was worth $94,842.88 and issued a check for that amount to the plaintiff and Financial Freedom. The plaintiff called Nationwide and asked it to remove Financial Freedom’s name from the check, which aroused Nationwide’s suspicion. It investigated and found out that the house was in foreclosure.

When Nationwide learned of the foreclosure, it stopped payment on the check to determine how the money should be distributed. Since the mortgage debt exceeded the replacement cost, Nationwide determined it did not owe the plaintiff anything for the house, because there was no insurable interest in it at the time of the loss. Nationwide also determined that it did not owe Financial Freedom for the loss, because it had eliminated its interest at the foreclosure sale. Nationwide did pay the plaintiff for her personal property and living expenses, but the living expenses payments stopped after seven months. At some point Nationwide informed the plaintiff she would not receive payment for the property so she sued for breach of contract and unfair and deceptive trade practices.
Breach of Contract

The Court finds that Nationwide breached the contract by not paying the plaintiff for the loss of her property. According to North Carolina law, in the event a mortgagee successfully bids the full amount of the mortgage debt at the foreclosure sale despite the fire damage, there is no “deficiency” it can collect from the insurance proceeds and its interest in the property is extinguished. Therefore, Financial Freedom’s interest in the property was extinguished by its own acts. The plaintiff had an insurable interest in the property at the time of her loss and that interest is not limited to the equity the plaintiff had in the house so Nationwide owed the plaintiff for the loss of property. To hold that Nationwide did not owe the plaintiff for the property would allow it to collect insurance payments, but avoid a valid claim. The Court grants summary judgment for the plaintiff on this claim.

Living Expenses

The Court holds Nationwide had paid approximately $22,986.07 out of the policy limitation of $34,225 in living expenses. Under the contract, living expenses are paid for “the shortest time required to repair or replace the damage or [to] permanently relocate.” This is not an indefinite time period. The contract also does not require the replacement value on the property to be paid before living expenses can be stopped. The plaintiff must show that seven months was not an adequate time for Nationwide to pay living expenses and she did not satisfy this burden. The Court grants summary judgment for Nationwide for this claim.

Unfair and Deceptive Trade Practices

The Court holds that a reasonable jury could not find that Nationwide violated North Carolina’s UDTPA. Upon receiving notice of the fire, Nationwide immediately investigated and provided the plaintiff with emergency funds to assist her with living expenses during the investigation. Under the personal property and living expenses policy provisions, the plaintiff (or vendors acting on her behalf) were paid approximately $91,600. Also, there is nothing in the record that shows Nationwide’s failure to pay the replacement cost of the property is anything, but an honest belief that it did not owe the money to the plaintiff. Thus, the Court grants summary judgment for the defendant for this claim.

Emotional Distress

In her summary judgment brief, the plaintiff argued she is entitled to damages for her emotional distress. Although emotional distress damages are available in a limited class of breach of contract actions in North Carolina, this is not one of those cases and therefore the request for emotional distress damages was denied by the court. The only issue left before the Court in this case is the amount of damages the plaintiff is entitled on her breach of contract claim.

The Court allows summary judgment for the defendant on the plaintiff’s claim under the (UDTPA) and deny defendant’s motion for summary judgment on the plaintiff’s breach of contract claim. The Court allows summary judgment on plaintiff’s breach of contract claim and deny the plaintiff’s motion for summary judgment for the UDTPA claim. The plaintiff’s motion to file evidentiary documents out of time is allowed, but her motion to deem statements admitted by Nationwide is denied. The plaintiff’s motion to exclude affidavit and testimony of the defendant’s experts is denied.