The North Carolina Court of Appeals recently analyzed whether interlocutory orders are nonetheless ripe for review due to the “duty-to-defend substantial right exception” to North Carolina’s general prohibition against appellate review of interlocutory orders. Radiator Specialty Co. v. Arrowood Indem. Co., 800 S.E.2d 452 (N.C. Ct. App. 2017).
A manufacturer of products containing benzene and asbestos was sued in product liability cases. In a subsequent coverage action, the trial court entered orders concerning the rights and obligations of various insurers of the manufacturer. The manufacturer appealed certain of these orders concerning when certain umbrella policies are triggered, how costs are allocated among various policies, and when policies are deemed exhausted. An exception to the bar against interlocutory appeals allows an insured to seek interlocutory review of an order that grants partial summary judgment in favor of an insurer on the issue of whether the insurer is obligated to defend an underlying action. It was created because when an insurer denies coverage, an insured is faced with the unappetizing decision of settling as quickly as possible, filing a declaratory judgment action, or defending the suit without help from the insurer. That exception was at issue.
The North Carolina Court of Appeals held that the exception did not apply because the manufacturer could not identify with certainty the practical effect of applying any order by the trial court and the extent to which such order would actually impact its right to a defense if not immediately appealed. The court offered three rationales for its conclusion. First, the manufacturer’s claim for a defense was not rooted in a specific underlying action, but rather in a number of unspecified claims, such that harm could not be identified with particularity. Second, the manufacturer could not show how the trial court’s orders would force the manufacturer to settle quickly, bring a declaratory judgment action, or leave it unable to defend itself. Lastly, the manufacturer failed to demonstrate how the trial court’s orders affecting when umbrella policies were triggered, how costs were allocated among policies, and how their exhaustion was calculated, would meaningfully interfere with its right to a defense.