The Argument for Applying North Carolina Rule of Evidence 414 in Federal Court

25 Feb 2021 9:30 AM | Lynette Pitt (Administrator)

The Argument for Applying North Carolina Rule of Evidence 414 in Federal Court with help from Sigmon v. State Farm Mut. Auto. Ins. Co.

by Austin Walsh, Hedrick Gardner Kincheloe & Garofalo, LLP

North Carolina Rule of Evidence Rule 414 is the law of the land – at least in North Carolina state court. The Rule has survived a constitutional challenge and, with only a minor setback in Sykes v. Vixamar, remains a powerful trial and discovery tool for the defense bar. But a question often posed is whether Rule 414 applies in federal court or in binding arbitration, such as for underinsured motorist (UIM) claims. The easy answer is “no,” but perhaps the 2019 case of Sigmon v. State Farm Mutual Auto Insurance Company from the United States District Court for the Western District of North Carolina provides a path to “maybe” (or even “probably”).

Rule 414

On June 16, 2011, House Bill 542 passed by a vote of 80-32 and became Session Law 2011-283, which Governor Bev Purdue signed into law eight days later on June 24, 2011. From S.L. 2011-283, evidence Rule 414 took effect on October 1, 2011, and limited the admissibility of medical expenses to “the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied.”i  Rule 414 has faced little scrutiny in the courts with disputes primarily arising from what constitutes relevant evidence of “the amounts actually necessary to satisfy” unpaid medical bills.ii  No state court has decided whether Rule 414 is substantive or procedural law and whether Rule 414 applies in federal court remains an open question.

Remember the Erie Doctrine?

The law school throwback Erie Doctrine mandates that a federal court sitting in diversity applies the substantive law of the state in which it sits but federal procedural law.iii  The Erie Doctrine “is rooted in part in a realization that it would be unfair for the character of result of a litigation materially to differ because the suit had been brought in a federal court.” iv  The Fourth Circuit has held that “although the Federal Rules of Evidence typically govern in diversity cases, ‘there are circumstances in which a question of admissibility of evidence is so intertwined with a state substantive rule that the state rule … will be followed in order to give full effect to the state’s substantive policy.’”v

As an example of procedural rules affecting substance, the U.S. Supreme Court has held that state tolling statutes, despite being squarely set within rules of procedure, are substantive  Federal Rules of Civil Procedure Rule 41 does not have the one-year saving provision that is found within N.C.’s Rule 41. The Western District held in Haislip v. Riggs that N.C.’s legislatively adopted Rule 41(a) was controlling in diversity cases as a matter of N.C. substantive law.vii  The Court in Haislip also reiterated the Fourth Circuit’s test for resolving the substantive vs. procedural problem:

1. If the state provision, whether legislatively adopted or judicially declared, is the substantive right or obligation at issue, it is constitutionally controlling.

2. If the state provision is a procedure intimately bound up with the state right or obligation, it is likewise constitutionally controlling.

3. If the state procedural provision is not intimately bound up with the right being enforced by its application would substantially affect the outcome of the litigation, the federal diversity court must still apply it unless there are affirmative countervailing federal considerations. This is not deemed a constitutional requirement but one dictated by comity.viii

Sigmon v. State Farm

Enter Sigmon v. State Farm. The Sigmon case is not about Rule 414. It is a personal injury, breach of contract, and insurance bad faith case brought by a third-party plaintiff against a tortfeasor’s insurer.ix  The plaintiff alleged injuries from a motor vehicle accident on 5/20/2016 from which she filed a claim with tortfeasor’s insurer, State Farm.x  In a subsequent lawsuit, Plaintiff’s theory against State Farm arose from the insurer at first accepting liability and paying the property claim before denying liability on the bodily injury claim.xi In denying cross motions for summary judgment, Judge Kenneth D. Bell allowed plaintiff’s claims against State Farm to proceed to trial.xii

In preparation for trial, State Farm filed a motion in limine pursuant to N.C. Rule 414 to exclude evidence of medical expenses other than amounts paid or actually necessary to satisfy the bill.xiii  Perhaps owing to Plaintiff’s admission that Rule 414 applied, Judge Bell granted State Farm’s motion with regard to past medical expenses and relegated to a footnote discussion on whether Rule 414 is substantive or procedural law.xiv  Judge Bell did not mince words and stated that “[t]he application of Rule 414 may affect the outcome of litigation and is substantive North Carolina law.” xv  Judge Bell cited two N.C. cases, first Hairston v. Harward for the N.C. Supreme Court’s treatment of the collateral source rule as substantive law and second, a footnote from Nicholson v. Thom, which recognized that Rule 414 abrogated the N.C. collateral source rule with regard to evidence of past medical expense.xvi

Will Sigmon Hold Up?

Although limited to a footnote within an order granting a motion in limine, Judge Bell’s statement that Rule 414 is substantive law is certainly strong enough to include in your next federal pre-trial motions. However, expect to see renewed constitutional challenges to Rule 414, perhaps again under Article IV, § 13(2), which gives the General Assembly the power to make rules for the trial courts, but sets limits to that power: “No rule of procedure or practice shall abridge substantive rights or abrogate or limit the right of trial by jury.” To the extent arguments against the initial constitutional challenges were that Rule 414 was primarily procedural, Judge Bell’s ruling flips the script and may result in the defense bar winning the federal court battle but losing the war.


N.C. Gen. Stat. § 8C-1, Rule 414 (2019).
ii See Nicholson v. Thom, 236 N.C. App. 308, 337, 763 S.E.2d 772, 791 (2014) (noting in dicta that Rule 414 abrogated the collateral source rule with regard to past medical expenses).
iii Erie R.R. v. Tompkins, 304 U.S. 64 (1938).
iv Hanna v. Plumer, 380 U.S. 460, 467 (1965).
Hottle v. Beech Aircraft Corp., 47 F.3d 106, 110 (4th Cir. 1995) (quoting DiAntonio v. Northampton-Accomack Memorial Hosp., 628 F.2d 287, 291 (4th Cir. 1980)).
vi Jinks v.Richland County, S.C., 538 U.S. 456, 463-65 (2003).
vii Haislip v. Riggs, 534 F.Supp. 95, 98 (1981).
viii Id.
ix. Sigmon v. State Farm Mut. Aut. Mobile Ins. Co., 5:17-CV-225-RJC-DCK, 2018 WL 3910836 *at 1 (W.D.N.C. July 24, 2018).
x Sigmon v. State Farm Mut. Aut. Mobile Co., et al., 5:17-CV-00225-KDB-DCK, 2019 WL 3928641.
xi Id.
xii Id. *at 4. (The Order is an interesting read for the effect of insurers changing liability positions mid-stream.)
xiii Sigmon v. State Farm Mut. Aut. Ins. Co., 5:17-CV-00225-KDB-DCK, 2019 WL 7940194, *at 1 (W.D.N.C. Nov. 14, 2019).
xiv Id. *at 2.
xv Id. *at n 1.
xvi Id. *at n 1.

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