Warner Robins, GA
Insurers owe their own policyholders fair dealing, and North Carolina punishes those that break it. But the rules about who can sue, and for what, surprise most injured people. Here is how bad faith works in North Carolina.
Also called: insurance bad faith, unfair claim settlement practices, bad-faith refusal to settle
An insurance policy is a promise to pay, and the law expects the insurer to keep it honestly. When an insurer denies a valid claim without investigating, sits on it for months, offers a fraction of what it knows the claim is worth, or misstates what the policy covers, that is bad faith. Most states punish it with damages beyond the policy limits, and North Carolina does too.
What surprises injured people is who may bring the claim. In North Carolina, the bad-faith remedies run from an insurer to its own insured. A person hurt by someone else’s negligence has no direct bad-faith claim against the at-fault driver’s insurer, no matter how badly that insurer behaves. The remedies do apply to your own insurer when it handles your uninsured motorist, underinsured motorist, MedPay, or collision claim. Joshua E. Palmer, Attorney at Law concentrates in personal injury law and sees both sides of that line regularly. This page explains what bad faith is, how North Carolina defines and punishes it, and what you can do about an at-fault insurer that stonewalls.
Bad faith is a breach of the duty of good faith and fair dealing that an insurer owes its policyholder. It is more than a disagreement about value. The insurer must investigate reasonably, decide promptly, communicate honestly, and pay what the policy requires. Bad faith is the refusal to do those things without a reasonable basis: denying a claim the insurer knows is covered, delaying payment to pressure a desperate policyholder, or offering far below the known value of the claim to force a lawsuit.
The consequence is exposure beyond the policy limits. A policyholder who proves bad faith may recover the amount owed under the policy plus additional damages, which is why the doctrine changes insurer behavior in the claims that trigger it.
North Carolina defines the conduct by statute. N.C. Gen. Stat. § 58-63-15(11) lists the unfair claim settlement practices, which include misrepresenting policy provisions, failing to acknowledge and act reasonably promptly on claim communications, refusing to pay without a reasonable investigation, not attempting in good faith to settle promptly and fairly when liability is reasonably clear, compelling the insured to sue by offering substantially less than the amount ultimately recovered, and failing to explain the basis for a denial or a compromise offer. The statute is written in terms of practices committed with such frequency as to indicate a general business practice, but North Carolina courts have treated an insurer’s violation of these standards toward its own insured as actionable through the unfair and deceptive trade practices act, N.C. Gen. Stat. § 75-1.1, which carries treble damages under N.C. Gen. Stat. § 75-16.
North Carolina courts have also recognized a common-law tort claim for an insurer’s bad-faith refusal to pay or settle its insured’s claim, which can support punitive damages when the conduct is aggravated. The critical limit is standing: these claims belong to the insured. A third-party claimant, meaning the person injured by the insured’s negligence, cannot sue the at-fault driver’s insurer for bad faith in North Carolina.
| First-party claim (your own insurer) | Third-party claim (the at-fault driver’s insurer) | |
|---|---|---|
| Examples | UM, UIM, MedPay, collision, health, disability | Your injury claim against the driver who hit you |
| Does the insurer owe you good faith? | Yes; it is your policy | No direct duty to you; its duty runs to its own insured |
| Bad-faith remedies available to you | § 58-63-15(11) practices enforced through § 75-1.1 with treble damages under § 75-16; common-law bad faith with possible punitive damages | None directly; leverage comes from a lawsuit against the driver and the insurer’s exposure to its own insured |
| Where contributory negligence fits | Your insurer can raise it, but must investigate reasonably and cannot use it as a pretext | The insurer will raise it aggressively; the remedy is winning the fault issue, not a bad-faith suit |
General rules. Whether a particular denial or delay rises to bad faith depends on the facts and the policy; confirm with an attorney.
An illustrative example: a driver in Wilmington is seriously hurt by an uninsured driver who ran a red light, with two independent witnesses. She submits a claim under her own $250,000 uninsured motorist coverage with the police report, witness statements, and $90,000 in paid medical bills. Her insurer takes no position for five months, then offers $20,000 and suggests she may have been speeding, with no evidence to support it. If she can show the insurer had no reasonable basis for the delay and the low offer, and that it used a baseless contributory negligence theory to avoid paying a claim whose liability was reasonably clear, she may have a claim under § 58-63-15(11) enforced through § 75-1.1, with the damages trebled under § 75-16, in addition to the UM benefits themselves. All figures are hypothetical.
Change one fact: the red-light runner was insured, and it is his insurer that delayed and lowballed. Now she has no bad-faith claim against that insurer. Her remedy is to file suit against the driver, prove fault and damages, and let the insurer’s exposure to its own insured for refusing a fair settlement do the work.
Because it defines the leverage available on each side of the claim. On a first-party claim, the threat of treble and punitive damages gives a policyholder real power against an insurer that delays or underpays, and it makes a documented, well-presented UM or UIM claim harder to stall. On a third-party claim, the absence of a direct bad-faith remedy means the at-fault insurer can behave badly toward the injured person at little direct cost, and it explains why those insurers so often lean on North Carolina’s contributory negligence rule: every claim denied on the theory that the injured person shared fault is a claim the insurer never has to price. The answer is not a bad-faith suit but a lawsuit against the driver that puts the fault question before a jury and the insurer’s refusal to settle before its own insured.
Understanding the line also prevents wasted effort. Time spent threatening the at-fault insurer with bad faith is time not spent proving the case. If you are dealing with an insurer that will not engage after a North Carolina car accident, the path forward is evidence and a filed complaint.
For your own insurer: document every communication, put the claim and its support in writing, give the insurer a clear deadline, and, if it still refuses without a reasonable basis, pursue the policy benefits and the statutory remedies together. A complaint to the North Carolina Department of Insurance can also prompt a response, although it is not a substitute for a lawsuit. For the at-fault driver’s insurer: stop negotiating with an adjuster who is not engaging, file the complaint before the three-year deadline, and let discovery and trial exposure move the number.
Joshua E. Palmer
Managing Partner · Joshua E. Palmer, Attorney at Law
Attorney Palmer concentrates in personal injury law and trained in North Carolina law at North Carolina Central University School of Law in Durham. This glossary explains the terms he uses with clients every day, in plain English and with the North Carolina rule that applies.
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Responsible attorney: Joshua E. Palmer, Managing Partner · 106 Moran Dr #5106, Bonaire, GA 31005 · (478) 887-3734. Attorney advertising. This page is general legal information about North Carolina law, not legal advice for your situation; contacting the firm does not create an attorney-client relationship.
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Each case is different. Any results, settlement figures, or benefit amounts described on this page depend on the specific facts of that case and do not guarantee or predict a similar outcome in yours. Statutes and benefit rates cited are current as of September 2026; confirm current law with an attorney before relying on it.