The Evolving Landscape of North Carolina Insurance Litigation: What Insurers Need to Know

North Carolina insurance litigation continues to evolve in ways that materially affect insurers, claims professionals, and defence counsel. Several developments that have emerged or accelerated over the past year are reshaping claims evaluation, coverage analysis, litigation strategy, and risk management. Among the most significant are the implementation of recent uninsured and underinsured motorist (UM/UIM) reforms, a series of policyholder-friendly coverage decisions, increased attention to bad-faith and unfair and deceptive trade practices claims, the emergence of cyber coverage disputes as a mainstream litigation issue, and ongoing legislative activity that could further alter the insurance landscape.

For carriers operating in North Carolina, these developments are interconnected. Expanded UM/UIM exposure creates additional opportunities for first-party disputes. Judicial decisions emphasising broad coverage interpretations and scrutiny of exclusions increase the difficulty of obtaining favourable coverage rulings. At the same time, plaintiffs are increasingly pairing coverage disputes with allegations of bad faith and violations of the North Carolina Unfair Claims Settlement Practices Act and North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), thereby creating significant extra-contractual exposure. Meanwhile, cyber-related claims continue to emerge as a growing source of both first-party and third-party litigation.

From a defence perspective, the most actionable topics currently confronting insurers and defence firms are:

• the impact of UM/UIM reforms;
• defending bad-faith and UDTPA claims;
• cyber claims;
• receiverships;
• the use of out-of-state tactics; and
• navigating North Carolina’s increasingly policyholder-friendly approach to insurance coverage disputes.

Understanding these developments and adjusting claims and litigation practices accordingly can help insurers reduce risk while positioning themselves more effectively in future disputes.

Trend one: UM/UIM litigation is reshaping auto insurance defence

Among all recent developments, the continuing impact of North Carolina’s UM/UIM reforms may have the most immediate and widespread effect on automobile insurers and defence counsel.

The reforms apply to policies issued or renewed after 1 July 2025, and have already begun influencing claim valuation and litigation strategy. The changes significantly expand the practical availability and scope of UM and UIM coverage while increasing potential exposure in serious injury cases.

Key statutory changes

Several aspects of the reforms are particularly significant. First, North Carolina’s minimum liability limits increased from USD30,000/USD60,000 to USD50,000/USD100,000. This change alone has implications for both claims evaluation and settlement negotiations. Second, UM and UIM coverage have become broader and more readily available. Prior restrictions that limited recovery have been reduced, including set-offs, creating greater opportunities for insureds to pursue additional compensation through their own policies. Third, the reforms are expected to increase the number of disputes between insureds and their own carriers. Historically, many automobile claims focused primarily on liability issues involving third parties. Expanded UM/UIM exposure, however, places insurers in a position where they are more likely to become direct litigation adversaries of their own policyholders.

Litigation and claims implications

The practical effect of these changes is likely to be substantial. Claims professionals should anticipate higher settlement demands and increased claim values, particularly in catastrophic injury and significant damages cases. Broader coverage availability creates additional sources of recovery, which naturally influences plaintiffs’ expectations regarding settlement. Defence counsel should likewise expect increased litigation involving UIM claims. Questions involving policy interpretation, coverage limits, offsets, and stacking are likely to become recurring subjects of litigation.

In addition, carriers may face heightened scrutiny regarding their claims-handling practices. Because UM and UIM claims often place a carrier in an adversarial role against its own insured, communications, investigations, and decision-making processes may be examined more closely than in traditional third-party liability disputes.

Strategic considerations

The reforms underscore the importance of disciplined claims management. Coverage positions should be documented carefully. Claims evaluations should be supported by clearly articulated reasoning. Adjusters and defence counsel should anticipate future challenges regarding claims-handling practices and ensure that claim files reflect a thorough and consistent evaluation process.

Most importantly, carriers should recognise that disputes arising under UM/UIM coverage increasingly have both contractual and extra-contractual dimensions. A disagreement over claim value can quickly evolve into a broader challenge regarding the insurer’s conduct throughout the adjustment process.

Trend two: bad-faith and UDTPA claims continue to expand insurer exposure

While contractual coverage disputes remain significant, many defence practitioners view bad-faith and UDTPA claims as an even greater source of potential exposure. Several factors contribute to the growing focus on bad-faith and UDTPA litigation. Plaintiffs’ attorneys are increasingly scrutinising claims-handling practices and insurer communications. Allegations that once may have been framed solely as breach-of-contract disputes are now frequently accompanied by claims asserting bad faith, unfair settlement practices, or unfair and deceptive conduct. The potential incentives are obvious. Extra-contractual claims create opportunities for enhanced damages, attorneys’ fees, and other forms of relief that can substantially increase litigation exposure.

Current litigation efforts often focus on allegations involving:

• bad-faith refusal to settle claims;
• improper or inadequate investigations;
• unreasonable delays;
• deficient claims communications;
• challenges to coverage determinations;
• alleged violations of statutory claims-handling obligations; and
• UDTPA claims tied to insurer conduct during the adjustment process.

Although not every disagreement gives rise to bad-faith liability, plaintiffs increasingly attempt to characterise routine claim disputes as evidence of broader misconduct.

For insurers, documentation remains the most effective defence. Detailed claim notes establish the adequacy of an investigation and the reasoning behind coverage decisions and adjustment activities. Clear explanations of claim determinations can help demonstrate that decisions were made reasonably and in good faith.

Consistency is equally critical. Defence counsel frequently encounter situations in which communications made during claim adjustment are later compared against positions taken during litigation. Any inconsistency can become a focal point for plaintiffs seeking to support extra-contractual allegations. Carriers should also evaluate potential bad-faith exposure early in the life of a claim. Identifying areas of concern before litigation arises allows insurers to address potential weaknesses and develop a coherent defence strategy.

Trend three: cyber coverage disputes have become a mainstream litigation concern

Only a few years ago, cyber claims were often viewed as a specialised area affecting a relatively small segment of the insurance market. That perception is rapidly changing. North Carolina practitioners increasingly recognise cyber coverage as a major emerging practice area.

Insurers increasingly encounter claims involving:

• ransomware incidents;
• business interruption losses;
• data breach response expenses;

• privacy-related exposures; and
• third-party liability claims arising from cybersecurity events.

These claims present coverage questions that often require both close policy interpretation and technical factual analysis.

Cyber-related claims often involve substantial losses, complex causation issues, and significant investigations. Unlike traditional property losses, cyber claims may implicate multiple categories of damages simultaneously. Questions regarding business interruption, expenses incurred in responding to security incidents, third-party liabilities, and policy interpretation frequently arise within the same claim. As these disputes continue to grow, insurers should expect increased litigation surrounding cyber-specific policy language and coverage triggers.

Trend four: receiverships are creating new avenues for pursuing bad-faith claims

Another developing issue that insurers and coverage counsel should monitor is the increasing use of receiverships as a mechanism for pursuing insurance-related causes of action, including bad-faith and unfair claims practices claims.

Historically, insurers often viewed disputes with insureds as limited to policy benefits and traditional coverage litigation. Increasingly, however, plaintiffs and judgment creditors are exploring alternative methods to pursue insurer-related claims following significant verdicts, judgments, or insolvency events. One such mechanism is the appointment of a receiver to investigate and prosecute claims that may belong to an insured or an insured entity. See Haarhuis v Cheek, 820 S.E.2d 844 (N.C. App. 2018).

In a receivership setting, a court-appointed receiver may be authorised to marshal assets and pursue claims belonging to the receivership estate. Depending on the circumstances and the scope of the receivership order, those claims may include causes of action arising from an insurer’s handling of coverage, settlement opportunities, defence obligations, or other aspects of the insurer-insured relationship.

As a practical matter, receivers often have incentives that differ from those of the original insured. A receiver’s obligation is to maximise recovery for the benefit of creditors and other interested parties. As a result, receivers may aggressively investigate potential claims against insurers and challenge coverage positions or claims-handling conduct that previously went unchallenged.

The growing use of receiverships creates several practical considerations for insurers and defence counsel. First, insurers should anticipate increased scrutiny of claim files, coverage analyses, reservation-of-rights letters, and settlement communications when a receiver becomes involved. Second, disputes that initially appear to concern only contractual coverage issues may evolve into broader allegations involving bad faith, unfair claims practices, or alleged failures to settle within applicable limits. Third, receivers may pursue claims that an insured previously declined to assert, creating additional litigation exposure years after the underlying coverage dispute arose.

Although receivership-driven insurance litigation remains less common than traditional coverage and bad-faith disputes, it represents a potentially significant source of future exposure. As policyholders, creditors, and plaintiffs continue to explore creative recovery avenues following large losses and judgments, insurers should expect increased attention to whether receivers can pursue claims relating to coverage decisions, defence obligations, settlement opportunities, and alleged bad-faith conduct.

Trend five: out-of-state bad-faith tactics are increasingly appearing in North Carolina claims

In addition to the rise of traditional bad-faith and UDTPA allegations, North Carolina insurers are increasingly encountering litigation and claims-handling tactics imported from jurisdictions that historically have been more receptive to expanded bad-faith theories. Plaintiffs’ counsel with multi-state practices, national referral relationships, or experience in plaintiff-friendly bad-faith jurisdictions are increasingly utilising strategies that are not traditionally recognised or commonly employed in North Carolina insurance litigation. While the legal viability of many of these tactics remains uncertain under North Carolina law, their growing use is creating additional pressure on claims professionals, adjusters, and defence counsel.

One of the most significant recent developments is the increased use of time-limited settlement demands. In many jurisdictions, plaintiffs create bad-faith exposure by presenting settlement demands with short response deadlines and detailed conditions for acceptance. Although North Carolina has not traditionally developed bad-faith jurisprudence around time-limited demands to the extent seen in some other jurisdictions, insurers are nevertheless seeing these demands with greater frequency. Plaintiffs may use the failure to respond or even a response requesting an extension to gather additional information to establish a narrative of unfair claim settlement practices.

These tactics, when used in conjunction with receiverships as explained above, can serve as an end run around the established prohibition on third-party or assigned claims for bad faith.

Trend six: North Carolina courts continue to favour policyholders in coverage litigation

In addition to statutory developments, insurers must contend with a judicial landscape that continues to generate concerns among insurance professionals and their counsel. Recent decisions have reinforced a trend toward policyholder-friendly interpretations of coverage provisions, particularly in all-risk policies. The continuing impact of North State Deli v Cincinnati Insurance and subsequent decisions demonstrates the willingness of North Carolina courts to closely examine exclusions and interpret ambiguities in favour of insureds.

The continuing significance of coverage interpretation principles

Courts continue to construe ambiguities against insurers. When policy language can reasonably support multiple interpretations, policyholders often receive the benefit of the broader reading. Courts are also scrutinising exclusions closely. Insurers seeking to avoid coverage through exclusionary language face significant challenges when policy provisions are unclear or susceptible to competing interpretations.

For carriers relying on all-risk policy language, the implications are particularly important. Cases continue to demonstrate a willingness to interpret coverage grants broadly while requiring exclusions to be applied narrowly.

The Wake Chapel decision

The Fourth Circuit’s decision in Wake Chapel Church v Church Mutual, No 25-1485, 2026 U.S. App. LEXIS 4956 (4th Cir. Feb. 19, 2026) represents a significant development in this area. The Fourth Circuit reinforced North Carolina’s policyholder-friendly approach by concluding that, within the context of the all-risk policy at issue, an exclusion must be the sole cause of loss to defeat coverage. While each coverage dispute remains fact-specific and policy-dependent, the decision highlights the challenges insurers may face when relying on exclusions in situations involving multiple contributing causes.

The practical effects of these decisions extend beyond individual cases. First, summary judgment may become more difficult to obtain in certain coverage disputes. If courts are increasingly willing to identify ambiguity or factual questions regarding causation and exclusions, dispositive motions become less predictable. Second, reservation-of-rights letters assume even greater importance. Because coverage disputes frequently turn on nuanced policy language, insurers must articulate potential coverage defences carefully and comprehensively. Third, coverage opinions require robust documentation. Claims professionals and coverage counsel should ensure that their analyses address not only the applicability of exclusions but also potential counterarguments that policyholders may assert.

Although insurers should not assume that every coverage dispute will be resolved in favour of policyholders, recent decisions suggest that courts remain focused on longstanding interpretive principles that often create challenges for carriers. The result is an environment in which careful policy drafting, thorough coverage analysis, and detailed documentation become increasingly important components of risk management and litigation strategy.

Conclusion

North Carolina’s insurance litigation environment continues to evolve in ways that create new opportunities for policyholders and new challenges for insurers. For insurers and defence counsel, the common theme running through these developments is the need for disciplined documentation, thoughtful coverage analysis, proactive claims management, and continuous monitoring of legal developments. Carriers and defence teams that adapt to expanded UM/UIM exposure, extra-contractual pleading strategies, receivership-driven claims, cyber coverage disputes, and policyholder-friendly coverage decisions will be best positioned to manage risk, defend claims, and navigate the next generation of North Carolina insurance litigation.