Two major insurance companies shouldn't be subject to North Carolina law in a dispute over a commercial property insurance policy they penned with a Tar Heel State-based retail outlet owner, one of the insurer's counsel told North Carolina's business court in a Wednesday hearing.

Tanger Properties LP's fight to recover tens of millions of dollars from Ace American Insurance Co. and Liberty Mutual Fire Insurance Co. over COVID-related losses can't be governed by the law in a state where just two of Tanger's 39 outlet centers are located, Liberty Mutual's counsel T. Nicholas Goanos of Butler Weihmuller Katz Craig LLP argued.

Instead, the court should look to Georgia state law, where the insurers contend the policy was delivered to Tanger's broker.

"The parties' expectation at the time of contracting was certainly not to have North Carolina law apply," Goanos told Judge Mark A. Davis.

Robert J. Gilbert of Latham & Watkins LLP, arguing for Tanger in the company's home city of Greensboro, countered that North Carolina law reigns supreme as it has an obvious "close connection" to the state.

Tanger was founded in North Carolina, is based in North Carolina and manages its locations and finances in North Carolina. A hypothetical multimillion-dollar loss at an out-of-state location, even if that location is owned by a subsidiary, hurts the parent company.

"They feel it directly because all revenue and loss is reported directly up the corporate entity," Gilbert said.

Tanger owns nearly 39 insured retail outlet locations in 20 states. In its March 2025 lawsuit, it alleged that Ace American and Liberty Mutual breached contractual obligations in denying coverage for COVID-19 era losses.

Under its commercial property insurance policies, Tanger said it suffered more than $50 million in losses in rental and business income due to government shutdowns, as well as the virus causing physical damage to its properties. The policies do not include a choice of law provision.

Georgia state law must govern the litigation because the Peach State is where the policy was delivered to Tanger's insurance broker, and that counts as the "last act," Goanos said. Under "lex loci contractus" — a widespread insurance contract principle — governing law is decided by where the last contract-binding act occurred.

Additionally, applying North Carolina state law would violate the insurer's due process rights, as it conflicts not only with Georgia law but with the law of nearly every other state housing Tanger locations, Goanos said.

"We don't just have a difference of opinion ... we have a difference between one state and all the others," he told Judge Davis.

By the time Tanger filed its lawsuit, 18 of the 20 states with its outlets had dismissed similar insurance suits on the basis that neither the presence of COVID-19 on property nor government orders counted as physical loss or damage to property, according to the insurers' joint motion to dismiss.

Notably, North Carolina is one of the two exceptions. In 2024, its supreme court ruled in North State Deli v. Cincinnati Insurance that the presence of COVID-19 and related government orders can cause "physical loss or damage" to property and trigger insurance coverage.

Contract law between North Carolina and other states is generally consistent, but insurers must now take a hard look at possible due process violations in light of North State Deli, Goanos said.

He added that the part of North Carolina state insurance law that circumvents the lex loci principle, Section 85-3-1 of the North Carolina General Statutes, exists only if there is a "close connection" between the state and insured's interest. No such connection exists, he said.

The insurers also disagree with Tanger that losses are interdependent, rather than independent.

"The policies are designed by their very terms to insure certain losses at their specific locations," Goanos said.

To Gilbert, the very inquiry into "close connection" is clear and answerable in applying North Carolina state law. Not only does Tanger run the business from North Carolina, but it had more than a million customers in the state during the insured period, according to court filings.

"The test is close connection, it's not the most connections ... it's not the plurality of connections," he said.

To the point of lex loci, Gilbert disagreed that the "last act" occurred in Georgia, instead contending that the policies were physically delivered to North Carolina. At the very least, there's still a dispute about just what counts as the last act, he said.

Additional counsel for Tanger, Robinson Bradshaw & Hinson PA's Richard C. Worf Jr., said the retail outlet has claims under North Carolina's Unfair and Deceptive Trade Practices Act and for a breach of the implied covenant of good faith and fair dealing.

Those violations arise from the insurers failing to reach out to revise the coverage denial in light of North State Deli, and not communicating to Tanger about it. Worf said he finds it hard to believe that Ace American and Liberty Mutual didn't know about North State Deli, considering it was a well-publicized case and big insurers were attuned to it.

When Tanger finally requested reconsideration of the coverage — after filing its lawsuit — Ace American said nothing and Liberty Mutual's response was "non-substantive" and spread out over litigation filings.

To not correct the obsolete coverage decision rendered those denials misrepresentations and deceptive, Worf told Judge Davis. To this day, Tanger is in the dark about why its coverage was denied.

Judge Davis noted that there remains an issue over whether North Carolina state law applies, and he asked why it's deceptive or unfair to litigate the issue rather than just "write the check." He added that Tanger put the insurers on notice of North State Deli only after filing its lawsuit.

An insurer's duties are not suspended by litigation, Worf said, nor can litigation filings satisfy a duty to respond in a timely way, in common-sense language.

"An insurer is simply not an ordinary litigant; they have duties under that statute that persist during litigation," he said.

To Goanos, Tanger would need to show egregious, unethical or unscrupulous conduct for those bad faith claims, and "that simply isn't present." There's no North Carolina law — assuming it applies — that a legal dispute creates a bad faith claim against the insurer, he said.

Judge Davis requested supplemental briefing related to the UDTPA and bad faith claims.

Tanger is represented by Robert E. Harrington, Richard C. Worf Jr. and Benjamin C. DeCelle of Robinson Bradshaw & Hinson PA, and Robert J. Gilbert and Samuel A. Barrows of Latham & Watkins LLP.

Ace American is represented by Jennifer K. Van Zant and Agustin M. Martinez of Brooks Pierce McLendon Humphrey & Leonard LLP, and Andrew Levine, Richard B. Goetz and Zoheb Noorani of O'Melveny & Myers LLP.

Liberty Mutual is represented by T. Nicholas Goanos of Butler Weihmuller Katz Craig LLP, and Melissa D'Alelio and Sandra Badin of Robins Kaplan LLP.

The case is Tanger Properties Limited Partnership v. Ace American Insurance Co. et al., case number 2025CVS5614, in the North Carolina Business Court.