A federal judge in North Carolina recently examined a reinsurance policy provision excluding loss “resulting from any claim for . . . any actual or alleged lack of good faith or unfair dealing in the handling of any claim or obligation under any insurance contract.” The case involved a request for coverage under a reinsurance policy for a lawsuit filed by a doctor against his medical malpractice carrier, the reinsured. The doctor, against whom an excess verdict had been entered, asserted a number of causes of action including bad faith refusal to settle within the policy limit. The reinsurer filed a motion for summary judgment arguing that there was no coverage for the doctor’s lawsuit based on the exclusion mentioned above because all potential loss resulted from the reinsured’s alleged lack of good faith in refusing to settle the underlying matter within the underlying policy limit. Applying North Carolina law, the court agreed with the reinsurer, concluding that all the causes of action alleged a single course of conduct involving a lack of good faith in refusing to settle within the limit. Because all potential loss “resulted from” and was “inextricably intertwined” with the bad faith allegations, the reinsurer had no duty to defend or indemnify.

Greenwich Ins. Co. v. Medical Mutual Ins. Co. of North Carolina, No. 5:14-cv-295 (USDC E.D.N.C. Jan. 27, 2015).