Captive insurer can't shake $116 million bad faith claims, court rules
A court ruled a captive insurer accused of stalling a $116 million claim to protect its parent's sale cannot escape bad faith liability.
The ruling, handed down on March 3, 2026 by a North Carolina business court, also dismissed the underlying breach of contract claim after finding the firm failed to satisfy a required condition in its own policies before filing suit. The case raises uncomfortable questions about how far an insurer can go in delaying a claim – and what happens when a policyholder simply refuses to cooperate with an investigation.
The dispute centers on a series of specialty insurance policies that Watts Guerra LLC, a Puerto Rico-based limited liability company, purchased to protect a bet it made on mass tort litigation. In September 2021, the firm invested in a portfolio of lawsuits managed by a New York law firm, a collection of cases valued at more than $340 million. To hedge its exposure, Watts Guerra paid $7 million for twelve $10 million policies from Series 1 of Oxford Insurance Company NC LLC, a special-purpose captive insurer licensed in North Carolina. The coverage was straightforward in concept: if the firm's return on the portfolio fell short of $120 million by September 2024, Oxford would pay the difference. The firm ultimately received only about $2 million, leaving a potential claim of more than $116 million on the table.
What followed, according to the lawsuit, was a prolonged effort by Oxford to avoid paying. Watts Guerra alleged that as early as spring 2024 – months before the policy expiration date – Oxford's reinsurer warned the firm that Oxford had no intention of paying any claim, because its parent company, Accession Risk Management Group, was pursuing a sale and did not want a massive payout clouding its books. A credit rating agency around the same time flagged financial difficulties at Oxford, noting its growing exposure to large financial guarantee and judgment preservation policies – exactly the type of product at issue here.
Meetings followed. Watts Guerra alleged that a lawyer working for Accession told the firm outright that Oxford would refuse to pay and threatened to rescind the policies entirely. In October 2024, the reinsurer's manager again reportedly told the firm's principal that Oxford would deny any claim filed. At another meeting days later, Oxford and Accession representatives allegedly asked the firm to hold off on filing a claim while parties explored whether a third party might purchase the firm's interest in the litigation portfolio instead. That deal never materialized – Watts Guerra alleged that Oxford refused to provide the assurances the prospective buyer needed.
Watts Guerra filed its first claim on November 29, 2024, seeking approximately $118 million. Oxford acknowledged the claim and, two weeks later, sent a detailed request for documents. Watts Guerra agreed to withdraw the first claim and enter negotiations, but alleges Oxford was simply running out the clock. Multiple delay tactics followed, including involvement of yet another outside company tasked with exploring a potential acquisition of the portfolio. That effort also fell apart, with the outside company allegedly telling Watts Guerra that Oxford was uncooperative and the deal was not feasible.
At Oxford's urging, the firm agreed to wait until April 2025 to refile, then agreed to another extension through June 16, 2025. In June 2025, Oxford's general counsel allegedly told the firm it would not pay the claim in full. On June 10, 2025 – six days before the extended deadline – an insurance brokerage announced it would acquire Accession. On June 16, 2025, Watts Guerra filed its second claim, this time for approximately $116 million, reflecting additional proceeds received from the litigation portfolio in the interim. Oxford responded about a week later with the same document requests it had sent after the first claim.
Watts Guerra refused to answer them - and that refusal became the central problem in its breach of contract case.
The policies required the firm, once a shortfall occurred, to complete Oxford's claim forms and provide documentation of its loss. They also contained a broader provision requiring the firm to submit all other information reasonably requested by Oxford as part of the claims investigation, with carve-outs protecting legally privileged or confidential materials. The firm argued this broader catch-all should be read narrowly – essentially limited to the same category as the specific documents already listed, like claim forms and loss statements. The court disagreed.
The court found that reading the provision so narrowly would render it meaningless. It also noted that the policies contained a separate obligation for the firm to preserve evidence of loss, which would serve little purpose if Oxford had no right to review that material. The court read the provision to mean the firm had to produce any information Oxford reasonably and in good faith requested in order to investigate the claim. Since Watts Guerra had declined to provide anything beyond what it considered the minimum, the court found it had not satisfied the conditions required to sue on the contract — at least not yet. The breach of contract claim was dismissed without prejudice, meaning the firm can refile it.
The bad faith claims are a different story. The court found that Watts Guerra had alleged enough to let those proceed, particularly given the pattern of alleged delay tactics stretching back more than a year before the second claim was even filed. Under North Carolina law, an insurer can face liability for bad faith conduct during the claims process even if it ultimately pays the claim – the question is whether the delays were motivated by bad faith rather than legitimate dispute. The court found the allegations plausible enough to survive dismissal, noting that the alleged strategy of dragging out the process to protect a parent company's acquisition prospects was precisely the kind of conduct the law is designed to address.
The unfair trade practices claims also survived, clearing a legal hurdle Oxford had raised. Oxford argued it was exempt from North Carolina's Insurance Unfair Trade Practices Act because it operates as a captive insurer. The court acknowledged the exemption but found it did not shield Oxford from the state's broader unfair trade practices law. The court relied on established precedent holding that conduct constituting unfair claims settlement practices – such as failing to investigate claims properly or not attempting in good faith to settle when liability is reasonably clear – is inherently unfair regardless of whether the specific insurer is covered by the insurance-specific statute. The claims survived on that basis.
