Emotional Distress Damages in Property Insurance Claims: Are They Recoverable?

When navigating the aftermath of property damage, homeowners often not only face the physical loss of their property but also significant emotional distress. This stress can be exacerbated by the way an insurance claim is handled. In North Carolina, the question of whether emotional distress damages are recoverable under a legal theory of unfair handling of property insurance claims sometimes surfaces. Here, we explore the legal landscape surrounding these potential damages and whether they may be recoverable.

Economic Loss Doctrine

Under the economic loss rule, purely economic losses that arise out of a contractual relationship are ordinarily not recoverable. Economic loss refers to purely financial losses that can be measured on a balance sheet.  On the other hand, non-economic loss refers to items such as pain, suffering, and emotional distress.   While the economic loss doctrine would make it very difficult to recover emotional distress damages in the context of a breach of contract or common law bad faith refusal to settle claim, questions remain as to whether non-economic damages may be available for a Chapter 75 Unfair and Deceptive Trade Practices claim against an insurance company.

Understanding Chapter 75 Unfair and Deceptive Trade Practices Claims

A “[v]iolation of any form of conduct listed in [N.C. Gen. Stat] § 58-63-15(11) operates as a per se instance of an unfair and deceptive trade practice under N.C. Gen. Stat. § 75-1.1.” Lyon v. Serv. Team of Prof’ls (E. Carolina), LLC, 2019 N.C. App. LEXIS 359, at *13 (2019).

Further, unlike with a claim directly under N.C.G.S. § 58-63-15(11) by the Commissioner of Insurance, it “[is] unnecessary to determine whether the plaintiffs [] established that the acts occurred with such frequency as to constitute a general business practice,” but rather that one occurred only in a single instance. Country Club of Johnston Cty., Inc. v. U.S. Fid. Guar. Co., 150 N.C. App. 231, 244 (2002).

Additionally, where “an insurance company engages in conduct manifesting an inequitable assertion of power or position, that conduct constitutes an unfair trade practice,” separate and apart from any violation of N.C.G.S. § 58-63-15(11). Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1, 9 (1996).

Recovery of Emotional Distress Damages

“Unfair and deceptive trade practices and unfair competition claims are neither wholly tortious nor wholly contractual in nature and the measure of damages is broader than common law actions.” Sunbelt Rentals, Inc. v. Head & Engquist Equip., L.L.C., 174 N.C. App. 49, 620 S.E.2d 222, 231 (N.C. Ct. App. 2005). If a defendant is found to have violated N.C. Gen. Stat. § 75-1.1, a plaintiff demonstrating injury is entitled to actual damages and attorney’s fees.

Although caselaw regarding the availability of damages for emotional distress in the context of § 75-1.1 has been described as “unclear,” North Carolina Unfair Business Practice § 9.03 (2022), decisions from courts at both the state and federal level suggest that such damages may be available for a violation of the UDP. See, e.g., Barbour v. Fid. Life Ass’n, 361 F. Supp. 3d 565, 575 (E.D.N.C. 2019) (assuming without deciding that “strain and emotional distress” constitute damages under the UDP but finding that plaintiff failed to show actual reliance on alleged misrepresentations); Williams v. HomEq Servicing Corp., 184 N.C. App. 413, 646 S.E.2d 381, 388 (N.C. Ct. App. 2007); Love v. Pressley, 34 N.C. App. 503, 239 S.E.2d 574, 579, 583 (N.C. Ct. App. 1977) (finding damages for mental suffering resulting from defendant’s trespass and conversion were recoverable and properly trebled); Angell v. Allstate Prop. & Cas. Ins. Co. (In re Caceres), 2023 Bankr. LEXIS 697, *51-52 (North Carolina Middle Bankruptcy Court, February 27, 2023) (suggesting that emotional distress resulting to an insured from an unfair claims practice by an insurance carrier was recoverable).

Conclusion

In conclusion, North Carolina law recognizes the severity and potential unlawfulness of unfair claims handling practices, and the recovery of emotional distress damages under such a claim may exist. Property owners facing this situation should consult with legal professionals who work in insurance law to explore their specific circumstances and potential avenues for redress. It remains crucial for policyholders to understand their rights and the complexities of insurance claim laws in North Carolina to effectively navigate these challenging situations.