In a pro-policyholder ruling, the North Carolina Supreme Court recently held that a homeowner’s claims against an insurance agent for negligence and gross negligence, seeking punitive damages, survived a motion to dismiss based on the insurance agency’s course of dealing with the homeowner. The decision, Jones v. J. Kim Hatcher Insurance Agencies, Inc., et al., is a win for policyholders and demonstrates how the North Carolina Supreme Court is willing to balance the normal expectation that a person must read what he signs with an insurance agency’s role in inducing the policyholder to do otherwise.
In Jones, a North Carolina homeowner sued his insurance agent after being denied coverage for damage that Hurricane Florence caused to his home. Only after the coverage denial did the homeowner discover that his agent had materially misrepresented his property on his insurance application, omitting reference to a half-acre pond in front of the home and understating the property’s size by three acres. The homeowner had signed a blank insurance policy, relying on his agent to handle the application’s details, as the parties had done in a previous business dealing.
After the insurer denied coverage based on the alleged material misrepresentations, the homeowner sued the insurance agency, alleging, among other things, that the agency committed gross negligence and ordinary negligence for misrepresenting his property on his insurance application. The homeowner sought, among other relief, punitive damages. The agency moved to dismiss, arguing that the homeowner was contributorily negligent for the misrepresentations because he signed the application. The trial court agreed, dismissing the action, but the North Carolina Court of Appeals reversed the dismissal on the ordinary negligence claim.
The North Carolina Supreme Court affirmed the Court of Appeals’ reversal, holding that a “reasonable person could conclude” that the homeowner “acted with ordinary prudence” in trusting the agency to “carefully do as it promised”—fill out his insurance application—given the parties’ past business interactions and the agency’s “specific assurances.”[1] The agency could therefore not rely on a contributory negligence defense, and the homeowner’s gross negligence and negligence claims survived the motion to dismiss.
In so holding, the North Carolina Supreme Court reasoned that while a person has a duty to read a document before signing it, that duty does not apply when the person signing blind does so based on assurances from the other party that the representations contained in a document are accurate. This is a fact-specific inquiry. Here, the insurance agency had inspected and photographed the property instead of asking the homeowner questions about his home—a process the agency had followed when applying for a previous policy for the homeowner. Based on these past interactions, the North Carolina Supreme Court held that the homeowner acted reasonably in trusting the agency to fill out his insurance application accurately. As the Supreme Court put it, “if a customer can never trust their agent, what is the point of hiring the agent to begin with?”[2]
The Supreme Court further held that the Court of Appeals erred in affirming the trial court’s decision to dismiss the homeowner’s claim for punitive damages, holding that he sufficiently alleged “willful and wanton” behavior by the agency and thus stated a claim for punitive damages sufficient to survive dismissal at this stage. The homeowner alleged that the agency “knowingly mispresented basic information about [the] property” even after photographing and inspecting the land.[3] These allegations satisfied the standard for alleging punitive damages, which requires the existence of “aggravating factors,” including conduct that is “willful or wanton.”[4]
The North Carolina Supreme Court’s decision is an important victory for policyholders who rely on their agents to fill out their insurance applications. The decision does not mean, however, that customers should form a habit of signing applications without reviewing them just because an agent will submit the document; instead, customers should always read the application but know that if they do not and an insurer later points to an alleged misrepresentation in the policy application to deny coverage, that failure to read the application may not be fatal to a negligence claim down the road against the insurance agency that was asked to fill out the document on the policyholder’s behalf.
[1] No. 264A23 (May 23, 2025) (the “Op.”) at 3.
[2] Op. at 17.
[3] Op. at 21.
[4] Id.