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Lawsuit over NHCS insurance coverage could get ‘complex business case’ status

The April, 26 filing from plaintiffs in the Michael Earl Kelly civil case, consenting to a Rule 2.1 motion.
Benjamin Schachtman
The April, 26 filing from plaintiffs in the Michael Earl Kelly civil case, consenting to a Rule 2.1 motion.

New Hanover County Schools is suing its four insurance providers over roughly $31 million in coverage to deal with the civil fallout from the crimes of former teacher Michael Earl Kelly. The case could now get a Rule 2.1 designation, meaning a single judge will oversee the whole process — which could help expedite the case and pave the way for a decision in the Kelly civil case.

The New Hanover County Board of Education is filing suit in Superior Court against four insurance carriers — the Netherlands Insurance, Peerless Insurance, Liberty Insurance, and Liberty Mutual Fire. John Does 1-14 – the survivors of former NHCS teacher Michael Earl Kelly’s alleged sexual abuse, are also named as ‘defendants’ — they aren’t being sued in the traditional sense, but they’re included because they have a vested interest.

Related: NHCS sues its insurance companies over $31 million in additional coverage in sexual abuse civil case

At issue is the difference between $4 million in coverage the insurance companies say is available and as much as $35 million in coverage the district believes should be provided if necessary.

Importantly, the board isn’t admitting guilt in this complaint, filed on October 27th, 2021 — but they are attempting to compel their insurance companies to define how much their policies would pay out to John Does 1-14 if there’s a possible settlement or if the district was found liable in a trial case.

Although it was filed after the Kelly civil case, both the John Doe plaintiffs and NHCS have an interest in NHCS’ suit against its insurance carriers being settled first — since a settlement or court-ordered damages would likely be held up by the disagreement over how much coverage is available, and mediation or other negotiations would likely hinge on how much NHCS could conceivably pay out.

The insurance case is complex, involving multiple policies from multiple insurance carriers, which could make it equally difficult for both plaintiffs and defendants to litigate if passed from judge to judge at each new hearing.

To that end, the Board requested that Paul Newby, Chief Justice of the Supreme Court of North Carolina, use his discretion to designate the case as an “exceptional” or “complex business case.” Newby can do this under Rule 2.1, a court procedure reserved for cases that are too complex to be handled by multiple judges; Cape Fear area residents may remember the complicated civil suit over the fate of H2GO, which involved multiple partners and complex legal arguments and was eventually designated a Rule 2.1 case.

Attorney Martin Ramey of the Rhine Law Firm, PC, part of the team representing the plaintiffs, confirmed that the plaintiffs agreed to the complex designation and recommended Superior Court Judge Phyllis Gorham — who is currently overseeing the Kelly civil case — to handle the insurance case.

The plaintiffs’ attorneys have not agreed to consolidate cases: their case against NHCS and NHCS’s case against its insurance carriers will remain as two separate cases. However, if Judge Gorham is appointed under Rule 2.1 she will hear both cases.

The attorneys from the Nexsen Pruet, PLLC lawfirm, representing the four insurance companies, have also consented to a Rule 2.1 designation — meaning there’s no opposition from any of the parties in the insurance case to a Rule 2.1 designation.

Ben Schachtman is a journalist and editor with a focus on local government accountability. He began reporting for Port City Daily in the Wilmington area in 2016 and took over as managing editor there in 2018. He’s a graduate of Rutgers College and later received his MA from NYU and his PhD from SUNY-Stony Brook, both in English Literature. He loves spending time with his wife and playing rock'n'roll very loudly. You can reach him at BSchachtman@whqr.org and find him on Twitter @Ben_Schachtman.