UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

TOPSAIL REEF HOMEOWNERS 

ASSOCIATION,

Plaintiff-Appellant,

v.

ZURICH SPECIALTIES LONDON, LIMITED,  No. 00-2115

a/k/a Zurich Re (U.K.) Limited;

ELLISTON,

Defendants-Appellees,

WARD THG,

Defendant. 

Appeal from the United States District Court

for the Eastern District of North Carolina, at Wilmington.

James C. Fox, District Judge.

(CA-98-48-7-F)

Argued: April 5, 2001

Decided: May 25, 2001

Before WILLIAMS, MICHAEL, and TRAXLER, Circuit Judges.

Affirmed by unpublished per curiam opinion. 

COUNSEL

ARGUED: Jesse Thomas Cox, Jr., COX & ASSOCIATES, Wrightsville Beach, North Carolina, for Appellant. Douglas McCorkle Mar-
tin, Rebecca Bartholomew Wofford, POYNER & SPRUILL, L.L.P.,

Charlotte, North Carolina, for Appellees. 

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c). 

OPINION

PER CURIAM: 

Topsail Reef Homeowner’s Association (Topsail) initiated this

civil action against Zurich Specialities (Zurich), an insurer, and Elliston, an independent consulting firm, for damages arising out of

Zurich’s breach of an insurance policy. Following a jury trial in the

United States District Court for the Eastern District of North Carolina,

Southern Division, the jury awarded Topsail $362,853.60 in damages.

Topsail appeals from the district court’s orders granting summary

judgment as to Zurich and Elliston on Topsail’s unfair and deceptive

trade practices claims, dismissing Elliston as a defendant to the

action, granting summary judgment in favor of Zurich as to Topsail’s

bad faith refusal to settle claim, and denying Topsail’s motion for a

new trial on the contract claim. Finding no reversible error, we affirm.

I.

A.

Because this is an appeal from an entry of summary judgment, we

accept the facts as alleged by Topsail as true and view the permissible

inferences to be drawn from the underlying facts in the light most

favorable to Topsail, the nonmoving party. See Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). On May

4, 1996, Topsail renewed its insurance policy with Zurich, whereby

Topsail Reef Condominiums, a beach-front condominium consisting

of eight multi-unit residential buildings, was insured against losses

resulting from wind and wind-driven rain in amounts up to $4.4 mil2 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
lion per occurrence. On July 12, 1996, Hurricane Bertha struck Topsail Island, resulting in damage to Topsail Reef Condominiums. After

receiving a property loss notice from Topsail, Zurich retained WardTHG (Ward) as a claim adjuster. On September 20, 1996, Topsail

submitted a proof of loss claim to Zurich for approximately two million dollars. On the same day, Zurich agreed to pay the total amount

of the claim, and checks totaling that amount were issued within

seven days. 

On August 23, 1996, Topsail contracted with Hale Construction

(Hale) to perform the restoration work. On September 6, 1996, while

repairs from Hurricane Bertha were still in progress, Hurricane Fran

struck Topsail Island, resulting in additional damage to Topsail Reef

Condominiums. Zurich retained Ward to adjust this loss and

instructed Ward to avoid duplicate payments for repairs that Zurich

had already paid but had not yet been completed after Hurricane Bertha and before Hurricane Fran. To that end, in November of 1996,

Ward began preparing an estimate of the scope of loss for the combined damage resulting from Hurricanes Bertha and Fran. At the same

time, Hale began preparing its own estimate for Topsail’s use. Ultimately, Hale estimated approximately $500,000 more in hurricanerelated damage than did Ward. 

On March 25, 1997, Zurich hired Elliston to monitor the claim process. Elliston, in turn, hired Loss Control Recovery (LCR) to represent Zurich in the claim adjustment process. Zurich then arranged for

LCR, Ward, Topsail and Hale to meet on April 8, 1997 for the purpose of reconciling the differences in estimates. 

On May 29-30, 1997, Ian Scott, a representative of Zurich, visited

Topsail’s representatives to discuss the claim adjustment process.

During this visit, Scott asked Ward to withdraw from the claim

adjustment process due to Topsail’s concerns regarding Ward’s

adjustment of the loss. Scott authorized Topsail to negotiate with Hale

as to the scope and amount of repairs and to work with LCR to reconcile the differences between the estimates and to submit a final claim

to Zurich. 

On June 11, 1997, Topsail submitted to Zurich an incomplete handwritten claims summary, purportedly based upon a reconciliation of

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 3
the draft Ward estimate and the Hale estimate.1

 Topsail’s claims summary of June 11, 1997 provided for an initial claim for both hurricanes of $3,823,201. 

On August 28, 1997, Topsail submitted a claims summary that

included most of the supplemental items that were excluded from the

June 11th summary. In the August summary, Topsail added the supplemental claims to the $3,823,201 figure from the June 11th summary, subtracted the two million dollars that had already been paid for

Hurricane Bertha, and arrived at an ultimate claim of $2,274,245.90

for losses related exclusively to Hurricane Fran.2 Thus, for the combined damage resulting from Hurricanes Bertha and Fran, Topsail

sought over four million dollars. 

On September 19, 1997, Elliston responded on behalf of Zurich to

Topsail’s submitted claims summaries by disputing various portions

of the claims summaries as including repairs outside the scope of the

insurance policy. First, Elliston noted that Topsail had not properly

reconciled the Ward and the Hale estimates. Additionally, Elliston

contended that the submitted claims summary included non-hurricane

related damage. Elliston also requested documentation for specific

line items and specifically informed Topsail that it could not finalize

the claim until Topsail provided Zurich with the contracts that Topsail

entered into with Hale. Finally, Elliston deducted amounts for duplications between the two hurricanes and for unreasonable prices. Elliston attached an interim proof of loss in the amount of $162,607.38,

which represented the undisputed amount Zurich owed to Topsail

without further documentation. 

On September 29, 1997, Topsail’s president sent Elliston a letter,

in which Topsail refused to provide the requested documentation and

information, noting that all documentation previously had been provided. Topsail also refused to address Zurich’s other outlined concerns. 

1The June 11th summary did not include estimates for electrical

repairs, walkways, painting, or power washing. 

2The August summary was not a finalized claim, in that it provided

that unspecified costs were excluded from the submitted claims summary

and would be submitted at a later date. 

4 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
B.

On February 24, 1998, Topsail initiated suit against Zurich, Ward,

and Elliston in the North Carolina General Court of Justice, Superior

Court Division.3 Topsail alleged bad faith refusal to settle and unfair

and deceptive trade practices arising out of Zurich’s failure to pay the

full amount of the Hurricane Fran claim, as submitted by Topsail in

its June and August claims summaries. The case was removed to the

United States District Court for the Eastern District of North Carolina

pursuant to diversity jurisdiction. 

On May 28, 1999, Zurich and Elliston jointly moved for summary

judgment on all claims. On October 13, 1999, following status and

settlement conferences, the district court granted summary judgment

in favor of Zurich and Elliston on the bad faith refusal to settle and

unfair and deceptive trade practices claims, but it permitted Topsail

to amend its complaint to allege a breach of contract claim against

Zurich. The district court also dismissed Elliston from the suit. 

Topsail filed an amended complaint, alleging only a breach of contract claim against Zurich arising from Zurich’s alleged breach of the

insurance policy. A jury trial commenced on April 4, 2000, and Topsail sought monetary damages in the amount of $723,707.4

 On April

10, 2000, the jury returned a verdict finding Zurich liable for breach

of the insurance policy, but it awarded Topsail only about half the

amount sought, $361,853.50. On April 20, 2000, Topsail moved for

a new trial on the issue of damages. On May 2, 2000, Topsail moved

to vacate the district court’s previous order granting summary judgment in favor of Elliston and Zurich on the unfair and deceptive trade

practices claim and the bad faith refusal to settle claim. On July 12,

2000, the district court denied Topsail’s motions. On August 11,

2000, Topsail filed a notice of appeal with this Court. 

3Ward was voluntarily dismissed from the suit prior to trial. 

4Prior to trial, Zurich had made payments over time to Topsail totaling

$3,645,877.58. As previously noted, Zurich paid Topsail approximately

two million dollars for damages related to Hurricane Bertha. Zurich also

paid Topsail the following interim amounts: $950,000 in May 1997,

$375,000 in August 1997, $162,607.38 in November 1997, and

$208,742.00 in April 1998. 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 5
On appeal, Topsail alleges that the district court erred by granting

summary judgment in favor of Zurich and Elliston as to Topsail’s

unfair and deceptive trade practices claim, by granting summary judgment in favor of Zurich and Elliston as to Topsail’s bad faith refusal

to settle claim, and by excluding evidence related to Topsail’s alleged

authority to settle its own claim. We address each argument in turn.

II.

Topsail first contends that the district court erred by entering summary judgment in favor of Zurich as to Topsail’s claim that Zurich

violated North Carolina’s version of the Unfair and Deceptive Trade

Practices Act (UDTPA). See N.C. Gen. Stat. § 75-1.1 (1999). The district court granted summary judgment in favor of Zurich because it

held that, as a matter of law, the facts alleged by Topsail failed to

establish the essential elements of an unfair and deceptive trade practices claim. We review de novo the district court’s grant of summary

judgment. Henson v. Liggett Group, Inc., 61 F.3d 270, 274 (4th Cir.

1995). 

To establish a claim under the UDTPA, Topsail must show: (1) an

unfair or deceptive act or practice, (2) in or affecting commerce, and

(3) which proximately caused injury to plaintiffs. See N.C. Gen. Stat.

§ 75-1.1(a); First Atl. Mgmt. Corp. v. Dunlea Realty Co., 507 S.E.2d

56, 63 (N.C. App. 1998). The determination of whether an act or

practice is an unfair or deceptive practice is a question of law for the

court. See Ellis v. Northern Star Co., 388 S.E.2d 127, 131 (N.C.

1990). The terms "unfair" and "deceptive" were defined by the North

Carolina Supreme Court in Johnson v. Phoenix Mut. Life Ins. Co., 266

S.E.2d 610 (N.C. 1980), overruled on other grounds by Myers v.

Chapman, Inc. v. Thomas G. Evans, Inc., 374 S.E.2d 385, 391-92

(N.C. 1988):

What is an unfair or deceptive trade practice usually

depends upon the facts of each case and the impact the practice has in the marketplace. . . . The concept of "unfairness"

is broader than and includes the concept of "deception." A

practice is unfair when it offends established public policy

as well as when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.

6 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
Id. at 621 (citations omitted). 

Topsail points to three types of conduct to argue that material

issues of fact exist as to whether Zurich violated the UDTPA. As discussed below, however, the evidence with respect to each of Topsail’s

allegations does not support a finding that Zurich’s actions in negotiating the claim settlement with Topsail were in any way inherently

unfair, unscrupulous, immoral, or otherwise injurious to consumers.

Therefore, the district court did not err by resolving Topsail’s

UDTPA claim in favor of Zurich as a matter of law. 

A.

Topsail first argues that Zurich, through Elliston, misrepresented

the deductible due under the policy in violation of N.C. Gen. Stat.

§ 58-63-15(11)(a) (providing that misrepresentation of pertinent facts

or insurance policy provisions relating to coverage constitutes an

unfair and deceptive trade practice).5

Topsail’s insurance policy contains a schedule of insured values

that are used to calculate the deductibles. The schedule provides that

the deductible is 2% of the value of the building. It establishes a value

of $500,000 per building; there are eight buildings, which makes the

deductible $10,000 per building or $80,000 per occurrence. 

Contrary to this schedule, Elliston informed Topsail that the

deductible per occurrence was $150,000. Elliston’s mistake in computing the deductible derived from a memorandum from Topsail’s

insurance agent, Jardine Southern Risk, in which Jardine noted that

the deductible was calculated using the total insured value of each

building, including excess values. Attached to the memorandum was

a Building Schedule, which set forth the total insured values, including excess values, of each building. It establishes a value of over

5N.C. Gen. Stat. § 58-63-15(11) defines unfair or deceptive acts in the

context of insurance. Committing any form of conduct listed therein "operates as a per se instance of unfair or deceptive trade practices under

§ 75-1.1." Murray v. Nationwide Mut. Ins. Co., 472 S.E.2d 358, 363

(N.C. App. 1996). 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 7
$900,000 per building, making the deductible approximately $18,000

per building or $150,000 per occurrence. 

As Zurich concedes, Elliston’s computation of the deductible pursuant to the Jardine memorandum was erroneous because the Building Schedule attached thereto was not part of the insurance policy.

Zurich argues, however, that the facts underlying the misrepresentation compel the conclusion that the misrepresentation was the result

of a reasonable misunderstanding and was not intentionally deceitful.

We agree. 

We note that, according to North Carolina law, a negligent misrepresentation as to a policy term is sufficient to establish an UDTPA

claim, and good faith or ignorance of falsity is not a defense to an

action under § 75-1.1. Forbes v. Par Ten Group, Inc., 394 S.E.2d 643,

651 (N.C. App. 1990) ("That defendants may have made these misrepresentations negligently and in good faith, in ignorance of their falsity, and without intent to mislead, affords no defense to an action

under [the UDTPA]."); see also Pearce v. American Defender Life

Ins. Co., 343 S.E.2d 174, 180 (N.C. 1986) ("[E]ven a truthful statement may be deceptive if it has the capacity or tendency to deceive.").

Furthermore, any alleged contributory negligence by Topsail in failing to correct Elliston’s mistaken belief as to the deductible calculation is irrelevant in an action under the UDTPA.6 Winston Realty

Co., Inc. v. G.H.G., Inc., 331 S.E.2d 677, 680-81 (N.C. 1985). Nevertheless, a reasonable, non-negligent misunderstanding regarding a

policy term is insufficient to ground an UDTPA claim. Cockman v.

White, 333 S.E.2d 54, 55 (N.C. App. 1985); cf. Olive v. Great American Ins. Co., 333 S.E.2d 41, 46 (N.C. App. 1985) (holding that no tortious conduct occurred when the insurer’s interpretation of the policy

term was "neither strained nor fanciful, regardless of whether it was

correct"). 

6On several occasions, Elliston made clear to Topsail that it was relying upon the Jardine memorandum and Building Schedule for its deductible calculations. Zurich argues that Topsail was partially to blame for

the misunderstanding because Topsail failed to correct Zurich’s computation of the deductible and failed to provide a correct Building Schedule.

8 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
The Jardin memorandum explicitly provided that the deductible

was to be calculated using the excess values, and the Building Schedule established the relevant values. Topsail does not refute that the

Jardine memorandum and Building Schedule were reasonable bases

to rely upon in calculating the deductible. Nor does Topsail allege

facts which, if true, would permit an inference that Elliston’s computation of the deductible was otherwise deceitful or unfair. Additionally, Topsail was not harmed by the misrepresentation. Thus, the

district court was correct in determining that, as a matter of law, this

misrepresentation is insufficient to establish an UDTPA claim. 

B.

Topsail next argues that a material issue of fact exists as to whether

Zurich failed to negotiate the settlement of the claim in good faith,

thereby precluding summary judgment in favor of Zurich as to its liability under the UDTPA. In Gray v. North Carolina Ins. Underwriting

Ass’n, 529 S.E.2d 676 (N.C. 2000), the North Carolina Supreme

Court held that an insurance company violates the UDTPA by "[n]ot

attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear." Id.

(quoting N.C. Gen. Stat. § 58-63-15(11)(f)). 

Although Topsail contends that Gray controls our resolution of this

issue, a brief discussion of Gray illuminates why it is inapplicable. In

Gray, the insurer issued a commercial windstorm and hail policy of

insurance covering the Tower Circle Motel, which was located in the

Village of Burton on Hatteras Island. The policy insured the Tower

Circle Motel against windstorm and hail damage but not against damage arising from flooding or rain. 

On August 31, 1993, Hurricane Emily struck the Outer Banks and

caused extensive damage to Hatteras Island, including the Tower Circle Motel. Plaintiffs timely filed a claim under their policy with the

insurer for the wind damage to their property. The insurer’s claim

adjuster estimated the amount of damage caused to the insured property by wind. The claim adjuster’s estimates later were corroborated

in large part, but the insurer refused to pay the claim. See id. at 678-

79. Under these facts, the North Carolina Supreme Court held that liability was clear and that the insurer acted in bad faith by "arbitrarily"

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 9
refusing to pay the claim based upon its claim adjuster’s estimates.

See id. at 683-84. 

Unlike in Gray, Zurich reasonably questioned the validity of Topsail’s estimates because those estimates were not substantially corroborated and did not accurately represent hurricane damage. First,

Topsail improperly reconciled the Hale and Ward estimates. Ward’s

estimate had been $3.7 million, whereas Hale’s had been $3.8 million.

Topsail took the Ward benchmark and added to it costs for repairs

that were included in the Hale estimate but were excluded from the

Ward estimate. Throughout the claim monitoring process, LCR made

Topsail aware that this method of reconciling the Ward and Hale estimates was in dispute. Additionally, Zurich reasonably believed that

Topsail submitted duplicate claims by inserting charges for line items

that were also included in the benchmarked estimate. For example,

the adjuster’s benchmark included charges for wallpaper seam repairs

and cleaning carpets. Topsail then submitted itemized claims for wallpaper seam repairs and cleaning carpets, totaling $18,473.30. Further,

Topsail failed to provide Zurich with the contracts that Topsail signed

with Hale, which Zurich informed Topsail were necessary to finalize

the claim. Finally, Topsail failed to provide Zurich with additional

documentation, as was requested by Zurich. 

Zurich’s agents were involved with the claim adjustment process

and advised Topsail as to Zurich’s position regarding these issues

throughout Topsail’s negotiation with Hale, but Topsail ignored their

concerns and input. Moreover, by returning a verdict awarding half

of the amount of damages sought by Topsail, the jury rejected Topsail’s contention that Topsail’s estimate of damage represented a reasonable scope of hurricane-related repairs. The jury’s verdict

demonstrates that Topsail’s claim was never substantially corroborated but instead was substantially undermined. Because Zurich had

reasonable bases to challenge the validity of Topsail’s submitted

claim, Gray is not controlling.7 Accordingly, drawing all inferences

7Gray is further distinguishable because Zurich paid Topsail’s initial

claim and continued to make interim payments, even though liability was

not clear, whereas in Gray, the insurer "arbitrarily" selected an estimate

that was more than a third less than what its adjuster recommended and

refused to pay anything on the claim unless the policy holder accepted

the lesser offer as a full settlement of its claim under the policy. See Gray

v. North Carolina Ins. Underwriting Ass’n, 529 S.E.2d 676, 679 (N.C.

2000). 

10 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
in favor of Topsail, as we must, Topsail has failed to demonstrate a

material issue of fact as to whether Zurich complied with its obligation to attempt in good faith to effectuate a prompt, fair, and equitable

settlement of Topsail’s claim, which was reasonably in dispute.8

C.

Finally, Topsail argues that Zurich violated the UDTPA by engaging in conduct that "amounts to an inequitable assertion of its power

or position." (Appellant’s Br. at 13) (citing Petersen v. State Employees Credit Union, 115 Bank. Rep. 873 (Bankr. M.D. N.C. 1990)).

Topsail argues that because it was "powerless" against Zurich, as its

insurer, Zurich engaged in unfair and deceptive trade practices by

rejecting the claim submitted by Topsail in an attempt to force Topsail to settle for less than it was due under the insurance policy. As

noted above, Zurich had valid, reasonable bases for challenging the

claim submitted by Topsail. Additionally, Topsail is incorrect to

assert that the amount it claimed in damages is an amount it was owed

under the policy; the jury verdict discredits this assertion. Topsail

points to no evidence demonstrating that Zurich believed the claim to

be valid but disputed it for the purpose of forcing Topsail to settle for

less than what was owed under the policy. In fact, the interim payments made by Zurich, totaling over three million dollars, directly

refute Topsail’s contention that Zurich was inequitably denying payments for the purpose of forcing an unfair settlement. In short, even

after having the benefit of a full trial, Topsail provides no support for

the proposition that Zurich acted in an inequitable manner throughout

8As an alternative argument, Topsail contends that Zurich’s removal of

Ward as the claim adjuster demonstrates Zurich’s failure to negotiate the

settlement in good faith. The record reflects that Topsail removed Ward

because there was a breakdown in the negotiations process between Topsail, Hale, and Ward, particularly regarding the payment for electrical

repairs. In an effort to expedite the claim process, Zurich asked Topsail

whether it would be amenable to working with Hale and LCR, without

the assistance of Ward, to finalize the claim. Topsail agreed. Thus, the

only inference to be drawn from the removal of Ward and the provision

of LCR to assist Topsail in finalizing the claim is that Zurich was making

a good faith effort to resolve the claim process in as equitable and

prompt a manner as was feasible. Accordingly, the removal of Ward and

provision of LCR does not provide a basis for an UDTPA claim. 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 11
the claim settlement process. Thus, the UDTPA claim against Zurich

fails as a matter of law. 

III.

We turn next to Topsail’s argument that the district court erred by

granting summary judgment in favor of Elliston on the UDTPA

claim. The district court held that Topsail’s UDTPA claim against

Elliston failed as a matter of law because Topsail failed to allege facts

that, if true, would support an UDTPA claim against Elliston.9

In support of the UDTPA claim against Elliston, Topsail points to

the following conduct: (1) Elliston first recommended to Zurich that

Zurich dispute Topsail’s submitted claim; (2) Elliston recommended

that Zurich pay less than Topsail requested as an interim payment;

and (3) Elliston misrepresented facts to Zurich when it disavowed

Topsail’s authority to adjust its own claim in the manner Topsail felt

was appropriate. We address each of Topsail’s allegations in turn. 

A.

Elliston hired LCR to monitor the claim process and to help Topsail adjust the claim in a reasonable manner. The correspondence

between LCR, Elliston, and Zurich indicates that Topsail was dis9As an alternate rationale for denying Topsail’s UDTPA claim against

Elliston, the district court held that, because Elliston was hired by Zurich

and reported only to Zurich, Topsail failed to establish that Elliston owed

Topsail a duty, which the district court held was a necessary element of

an UDTPA claim. North Carolina has not addressed whether, absent a

contractual relationship, a duty is required to establish an UDTPA claim.

Nor has North Carolina defined the extent of the commercial relationship

necessary to sustain an UDTPA claim. North Carolina cases exist in

which the plaintiff asserts an UDTPA claim against the claim adjuster,

which if proper, would militate against the district court’s alternate holding, but North Carolina courts have never ruled on the propriety of doing

so. Anderson v. Gooding, 265 S.E.2d 201, 202 (N.C. 1980); Lee v. Mut.

Comty. Savings Bank, 525 S.E.2d 854, 855 (N.C. App. 2000). Thus, we

decline to affirm on this aspect of the district court’s reasoning and

instead leave the issue for the North Carolina courts to resolve in another

case. 

12 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
missing outright LCR’s advice concerning the adjustment of the

claim. LCR outlined various areas in which it believed Topsail’s

claim to be excessive and informed Topsail that it considered Topsail’s estimate excessive by as much as ten percent, to no avail. Based

upon its belief that Topsail’s figures were excessive and Topsail’s

utter failure to respond to Elliston’s concerns, Elliston presented

Zurich with the option of disputing Topsail’s claim. As part of the

report outlining Zurich’s options with respect to what LCR and Elliston considered an excessive claim, LCR advised Zurich that the decision as to whether to dispute the claim should be based upon "a

review of previous actions including timeliness of adjuster’s estimate,

past verbal agreements, vested authority to settle the claim, the 3.7

million dollar benchmark estimate, the percentage complete[d] of

repairs, holdback depreciation, verification of repairs, and the methodology used to arrive at the current dollar value of the claim." (J.A.

at 241.) 

As the district court noted, the outlined conduct demonstrates only

that LCR and Elliston were fulfilling the duties that they were hired

to fulfill in monitoring the claim process in a professional, fair manner. Nothing in the correspondence indicates that Elliston, through

LCR, acted deceitfully or otherwise unfairly by recommending to

Zurich that Topsail’s claim was not valid.10 Instead, the facts compel

the conclusion that Elliston reasonably believed Topsail’s claim to be

excessive and recommended that Zurich dispute the submitted claim

on that basis. Additionally, by setting forth factors for Zurich to

weigh in deciding whether to dispute the claim, LCR reasonably indicated that the decision of whether to accept or reject Topsail’s figures

ultimately rested with Zurich and should be based upon factors within

the knowledge and discretion of Zurich. Because LCR and Elliston

acted professionally, fairly, and in a non-deceitful manner in advising

Zurich throughout the claim adjustment process, their recommendation that Zurich dispute Topsail’s claim does not provide a basis for

Topsail’s UDTPA cause of action. 

10Elliston’s misrepresentation as to the deductible is an insufficient

basis for an UDTPA claim for the reasons given in Section II.A. 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 13
B.

Topsail next relies upon a letter sent by Elliston to Topsail on July

30, 1997, in which Elliston recommended that Zurich make an interim

payment of less than the amount requested by Topsail. The July 30

letter states as follows: 

Attached is Tom Crim’s request for an interim payment of

$500,000. We believe this request is excessive considering

we intend to put together a reasonable figure for the entire

job within a couple weeks. I would think the less money

they have in hand the more receptive they may be to

promptly arrive at a final number less the supplements.

(J.A. at 1386.) 

Topsail argues that the July 30 letter indicates an intent to deprive

Topsail of a fair settlement by withholding funds. To the contrary,

Elliston reasonably noted its belief that $500,000 was an excessive

interim payment, in light of the fact that Topsail had already submitted its June claims summary at the time it requested this interim payment and the final claim settlement was expected within two weeks.

Additionally, to the extent that this letter indicates that Elliston was

attempting to negotiate a lower settlement, it was reasonable to do so,

insofar as Elliston was not attempting to deprive Topsail of an amount

that Topsail was rightfully due under the policy. Rather, as noted

above, Elliston had reasonable bases to believe that Topsail was not

entitled to the excessive claim it was seeking. Therefore, the July 30

letter does not provide support for an UDTPA claim. 

C.

Finally, Topsail contends that Elliston misrepresented facts in an

attempt to persuade Zurich to dispute Topsail’s claim. On September

12, 1997, after the Zurich representative who had been primarily

responsible for the Topsail claim retired, Elliston sent a letter to the

replacement representative in which Elliston briefly summarized the

background of the Topsail claim. In the letter, Elliston stated, "[Topsail] admittedly declared they were given the vested authority by Mr.

14 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
Ian Scott to act as the adjuster on the job. This perception is not correct." (J.A. at 1383.) Topsail argues that this is a clear misrepresentation, in light of previous letters in which Elliston had recognized

Topsail’s authority to adjust its own claim. On June 23, 1997, Elliston

sent a letter to Zurich stating, "The second general issue is that [Topsail] informed [LCR] that you vested him full authority to adjust the

claim. This in effect strips us of any authority to override [Topsail]

and [the] instructions to the contractor." (J.A. at 1374.) On July 11,

1997, Elliston sent a letter to Zurich stating that LCR and Elliston,

"agree that the full control of this claim rests with [Topsail] and the

contractor." (J.A. at 1366.) 

To the extent a discrepancy exists between the June, July, and September letters that renders the September letter misleading, the misleading statement is insufficient to ground an UDTPA claim against

Elliston because there is no evidence that Topsail was damaged by

this misleading statement. See, e.g., Burgess v. Busby, 544 S.E.2d 4,

11 (N.C. App. 2001) (noting that, to establish a prima facie UDTPA

claim, the plaintiff must show that the act or practice "proximately

caused actual injury to them"). No evidence exists indicating that

Zurich relied upon Elliston’s statement as its basis for disputing Topsail’s claim. In fact, when read in conjunction with the entire correspondence regarding the Topsail claim, it is simply implausible to

contend that this one statement induced Zurich to dispute the claim.

Accordingly, we affirm the district court’s entry of summary judgment in favor of Elliston, as well as the district court’s consequent

dismissal of Elliston from the case. 

IV.

Topsail next challenges the district court’s entry of summary judgment in favor of Zurich as to Topsail’s bad faith refusal to settle

claim. To establish a claim for bad faith refusal to settle, Topsail must

show: (1) "a refusal to pay after recognition of a valid claim; (2) bad

faith; and (3) aggravating or outrageous conduct." Lovell v. Nationwide Mut. Ins. Co., 424 S.E.2d 181, 184 (N.C. App. 1993). Because

Topsail has failed to provide evidence to support any of these elements, we affirm the district court’s entry of summary judgment in

favor of Zurich. 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 15
Topsail argues that the claim for damages submitted to Zurich on

June 17, 1997 represented an "undisputed portion" of its claim and

that Zurich’s refusal to pay constituted a refusal to pay after recognition of a valid claim. (Appellant’s Br. at 15.) In support of this position, Topsail relies almost exclusively on the alleged authority Zurich

vested in it to adjust the claim, contending that the vested authority

establishes that the claim submitted to Zurich was "undisputed" and

"valid" as a matter of law. 

Topsail states that it had been vested with authority to "negotiate

with the contractor and reconcile the remaining differences in the two

estimates and submit the claim" for payment. (J.A. at 16.) Accepting

these facts as true, Zurich authorized Topsail to adjust its own claim

but did not state that it would waive its right to approve the final submission.

11 Thus, the fact that authority was vested in Topsail to adjust its

own claim does not in any way demonstrate that the submitted claim

was undisputed or otherwise presumptively valid. To the contrary, all

of the evidence demonstrates that the submitted claim legitimately

was in dispute.12

11Topsail notes that the insurance policy provides that "[t]he Company

shall pay all adjusted claims within 30 days after presentation and

acceptance of proof of loss at the office of the Company." (Appellant’s

Br. at 19-20) (emphasis added). Thus, the insurance policy itself provides

that an adjusted claim is not binding on the company until the company

accepts the submitted claim. Moreover, during trial, Topsail admitted

knowing that Zurich retained the ultimate authority to approve the submitted claim. Accordingly, Topsail’s assertion that its alleged authority

to adjust the claim compels the conclusion that the submitted claim was

valid is belied by the insurance policy and by Topsail’s own admissions.

12As the district court noted, Zurich acted reasonably and in good faith

by giving Topsail the opportunity to negotiate its final claim submission

with Hale. By giving Topsail this opportunity, however, Zurich could not

have intended to cede its ability to avoid payment on a grossly excessive

or otherwise improper claim. Instead, Zurich assumed that Topsail would

negotiate in good faith with the advice and input of Zurich’s representatives, making the claim submission go along more smoothly. When Topsail refused to heed the advice and input of Zurich’s representatives and

instead submitted a claims summary with miscalculations and other

excessive figures, Topsail cannot validly complain about Zurich’s refusal

to pay immediately the submitted amount. 

16 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
Throughout the claim negotiation process, Zurich, through LCR,

made Topsail aware that its use of the benchmark was in dispute and

that LCR perceived its claim as excessive. In its written response to

Topsail’s claims summaries, Zurich clearly indicated that it disputed

the validity of various aspects of Topsail’s claim. As noted above

with respect to Topsail’s UDTPA causes of action, Zurich had valid

reasons for questioning the validity of the claim. Because Zurich had

legitimate reasons to question the validity of Topsail’s submitted

claim that were made known to Topsail from the first of Zurich’s correspondence and during Topsail’s negotiations with Hale, Topsail can

point to no evidence that supports its conclusion that Zurich ever recognized its claim summaries as valid. As noted by the district court,

Topsail "failed to forecast evidence tending to show that Zurich ever

recognized a valid claim. Rather, plaintiff’s evidence at trial was to

the effect that Zurich, upon Elliston’s advice, deemed plaintiff’s claim

figures to be excessive and therefore not valid." (J.A. at 1440.)13

Nor can Topsail point to evidence supporting the other two elements of a bad faith refusal to settle claim. Bad faith means "not

based on honest disagreement or innocent mistake." Dailey v. Integon

Gen. Ins. Corp., 331 S.E.2d 148, 155 (N.C. App. 1985). Aggravated

conduct is defined to include "fraud, malice, gross negligence, insult

. . . willfully, or under circumstances of rudeness or oppression, or in

a manner which evinces a reckless and wanton disregard of the plain13Topsail contends that Zurich’s failure to respond to its June claims

summary until September 19, 1997 constituted "a refusal to pay after recognition of a valid claim." (Appellant’s Br. at 20.) This contention is

erroneous for a number of reasons. First, as noted above, Zurich never

recognized a valid claim. Additionally, Zurich continued to correspond

with Topsail throughout the months of June through August, until Zurich

completed its claim analysis in September. On July 24, 1997, Topsail’s

president indicated that Elliston had informed him that it was in the process of putting together final figures for the Topsail claim. On August 21,

1999, Elliston updated Topsail on the status of the claim, and informed

Topsail that its final figures for the claims summary would be completed

in a few weeks. Moreover, Zurich continued to authorize interim payments to Topsail while it was in the process of finalizing the claim. Thus,

Topsail’s intimation that Zurich failed to communicate with Topsail for

three months, thereby indicating Zurich’s refusal to pay after recognizing

the validity of the claim, is contrary to the record. 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 17
tiff’s rights." Id. at 154. As was established in Olive v. Great American Ins. Co., 333 S.E.2d 41 (N.C. App. 1985), when an insurer denies

a claim because of a legitimate, "honest disagreement" as to the validity of the claim, the insurer is entitled to judgment as a matter of law

because the plaintiff cannot establish bad faith or any tortious conduct

on the part of the insurer. Id. at 46 (holding that summary judgment

is appropriate in favor of the insurer on a bad faith refusal to settle

claim when coverage issue was reasonably in dispute). Here, Topsail’s claim was reasonably in dispute. Thus, Topsail’s allegations fail

as a matter of law to establish bad faith or aggravating conduct.

Accordingly, the district court did not err by granting summary judgment in favor of Zurich on Topsail’s bad faith refusal to settle claim.

V.

Finally, Topsail challenges the district court’s exclusion of evidence of Topsail’s authority to adjust its own claim to prove its damages resulting from Zurich’s breach of the insurance contract. The

district court found that the evidence was inadmissible because it is

irrelevant to the issue of damages. We review the district court’s decision to exclude evidence for an abuse of discretion. See United States

v. Hassouneh, 199 F.3d 175, 182 (4th Cir. 2000). 

The insurance policy establishes that Topsail is entitled to coverage

on the reasonable costs of repairs resulting from hurricane-related

damage. Assuming Topsail’s allegations about its authority are true,

the authority vested in Topsail did not change the scope of the insurance policy’s coverage. Thus, the authority was completely irrelevant

to the jury’s determination of the damages resulting from the breach

of the insurance policy. Because Topsail’s authority to adjust its claim

is irrelevant to the amount for which Zurich was liable under the

insurance policy, the district court did not abuse its discretion by

excluding this evidence.14

14Moreover, the district court offered Topsail every opportunity to

explain a legal theory under which the alleged authority vested in Topsail

by Zurich would be relevant to the alleged breach of contract, but Topsail was unable to do so. For instance, the issue of authority could have

been relevant to an estoppel or reliance claim, insofar as Topsail may

18 TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON
VI.

Because Topsail is unable to establish the prima facie elements of

its UDTPA claims and its bad faith refusal to settle claim, the district

court did not err by entering summary judgment against Topsail.

Moreover, the district court did not abuse its discretion by excluding

evidence of Topsail’s authority to adjust its own claim. Accordingly,

the judgment of the district court is affirmed. 

AFFIRMED

have entered into contracts with Hale relying upon the authority vested

in them by Zurich to do so. As the district court noted, however, the only

contracts that Topsail produced between Hale and Topsail were signed

before the alleged vesting of authority; therefore, Topsail could not

establish an estoppel claim even after extensive prodding by the district

court. 

TOPSAIL REEF HOMEOWNERS v. ZURICH SPECIALTIES LONDON 19