The North Carolina Court of Appeals has reversed a $29 million judgment against Penn National Security Insurance Co., ruling that the insurer did not breach its duties to defend or settle in a wrongful death case involving two co-workers.
The December 17, 2024, decision centered on the “fellow employee” exclusion in the insurer’s commercial auto policy and interpretations of state law, according to a report by AM Best.
The case stemmed from a 2017 car accident involving two employees of a kitchen design firm. One employee, Luis Ortez, caused the accident while driving distracted, resulting in the death of his co-worker. The employer reported that both individuals were employees, and workers’ compensation claims were filed for each.
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In March 2018, the deceased employee’s estate initiated a wrongful death lawsuit, which led to a $9.5 million judgment against Ortez. Although the lawsuit did not explicitly state the employment relationship between the individuals, it referenced the Pleasant v. Johnson ruling, which allows lawsuits between employees for acts involving "willful, wanton, and reckless negligence."
Ortez and the estate later filed a suit against Penn National, alleging the insurer failed to defend and settle the case and violated the Unfair and Deceptive Trade Practices Act.
The trial court ruled in favor of Ortez, requiring Penn National to pay the $9.5 million judgment and tripling the damages under the statute, for a total of $28.94 million.
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The appellate court disagreed, finding that Pleasant v. Johnson applies narrowly to intentional tort claims between employees and does not implicate employers or their insurers.
AM Best reported the court held that Ortez could be personally liable but that Penn National was not obligated to defend him under the policy’s fellow employee exclusion. This exclusion, according to the court, limits coverage for incidents outside the scope of typical workplace negligence.
The court also reviewed a 2019 settlement offer, in which the estate proposed not to enforce the judgment against Ortez in exchange for $30,000. The offer required payment within one business day, but Penn National delivered the check one day late. The estate withdrew the offer and accused the insurer of bad faith. The appeals court concluded that the one-day delay did not constitute a failure to settle in good faith.
Penn National declined to comment on the ruling.
Does the court’s interpretation of liability exclusions and settlement obligations align with your understanding? Share your thoughts in the comments below.
