A recent decision by United States District Court Judge Richard L. Voorhees in Charlotte, North Carolina, serves as a reminder of five rules followed by the North Carolina courts when determining an insurance company’s duty to defend. See New NGC, Inc. v. ACE American Insurance Co., et. al, 3:10-CV-00022-RLV-DSC, 2015 WL 2259172 (W.D.N.C. May 13, 2015) (“Memorandum and Order”).

In New NGC, the policyholder was one of the largest drywall manufacturers in the country.  It became a defendant in a number of individual actions and class actions around the country, which all generally claimed that New NGC’s products were defective, causing both property damage within buildings where the drywall was installed, as well as bodily injury to individuals complaining of respiratory illness and allergy-like symptoms.

The first major takeaway from this opinion is, not only is the North Carolina Court of Appeals’ 1991 decision in West American Insurance Co., v. Tufco Flooring East, Inc., 409 S.E.2d 692 (N.C. App. 1991) of questionable precedential value, but the attempt by the policyholder to argue that the pollution does not apply when the pollution arises out of the policyholders’ central business activity only applies, if at all, if the court determines that the pollution exclusion is ambiguous. [Tufco] was unusual in that the court found that the exclusion was ambiguous because of the “interrelationship between the completed operations coverage and the pollution exclusion clause.” Id at 697.

Second, this case is important because it explains that an insurance company may not focus exclusively on the allegations of the putative class representative in evaluating its duty to defend. Focusing solely on the named Plaintiff would “completely ignore the general notice pleadings standard of the Federal Rules of Civil Procedure as well as the underlying purposes of class action.” Memorandum and Order at 23.