Based on the complaint and exhibits in Wake County Superior Court case 26CV035241-910, which the Town of Lake Lure produced to Lake Lure Insider in response to a public records request; the Town's 2024-25 policy declarations and property schedule; and Town Council minutes, packets and storm-recovery updates. The lawsuit was first reported by Annie Dance at Cops & Congress. This is Part 2 of our series on the suit; Part 1 was written before the Town produced the complaint.

LAKE LURE, N.C. — Less than three months after Hurricane Helene, the Town of Lake Lure's finance director told Town Council that a $2.5 million insurance check had arrived, news the minutes describe as "great news." Now the insurance pool that wrote the check says the Town was never owed that money, and it is asking a Wake County judge to order it returned.

The Interlocal Risk Financing Fund of North Carolina, which is run by the N.C. League of Municipalities, sued the Town and Sedgwick Claims Management Services on Sept. 17. Sedgwick is the Memphis-based adjuster the Fund hired after the storm. The Fund alleges Sedgwick wrongly placed damaged Town property in a flood zone the policy covers, and that the Town has not repaid the money. These are the Fund's allegations. No court has ruled on them. The Town has declined to comment.

What the suit says

The complaint seeks $2.5 million plus interest from Dec. 9, 2024, the date the Fund says it paid the Town, along with attorney's fees and a jury trial. It also asks the judge to impose a "constructive trust," meaning an order that the Town hold the money, and anything traceable to it, for the Fund.

Against the Town, which joined the pool in 2005, the Fund pleads breach of the Interlocal Agreement and of the policy, money paid by mistake, and unjust enrichment. Against Sedgwick, it pleads breach of contract and indemnification. It argues the Town cannot claim governmental immunity because keeping the money is a proprietary, not governmental, function outside the Town's statutory powers.

The complaint does not accuse the Town or any Town official of fraud, misrepresentation or bad faith. Its claims against the Town, including payment by mistake and unjust enrichment, do not depend on any wrongdoing by the Town.

The money, in the Town's own records

The Town's records show the payment arrived. A Dec. 12, 2024 Town update listed insurance proceeds as "Up to $5,000,000" with "50% has been approved for release." At the Dec. 16 council meeting, the minutes say, then–Finance Director Stephen Ford, who handled the claim for the Town, reported "some Great news today with a 2.5 million dollar check from insurance came in. It will be deposited immediately."

The Town's Feb. 25, 2025 revenue report showed $2,655,751 in other revenues in its Helene recovery fund. That is consistent with the payment, though the report does not itemize it.

How the Fund says it happened

The Town's flood coverage was capped at $5 million, and only for property in FEMA flood zones B, C or X. The flood endorsement, a public exhibit, excludes property located "either wholly or partially" in zones such as A and AE. The Fund called in Sedgwick on Oct. 4, 2024, a week after the storm.

According to the complaint:

• Oct. 23, 2024: Sedgwick's first report put $14,867,001.50 of flood damage in Zone X, a covered zone. Sedgwick told the Fund the Town had about $15 million in covered damage and recommended it pay the full $5 million.
• Nov. 6: Sedgwick's executive adjuster told the Fund that the Town's building damage alone would likely exceed the flood limit.
• Nov. 21: A second report recommended a large advance plus a formal partial denial of flood damage outside the covered zone.
• Dec. 9: The Fund paid the Town $2.5 million, half the limit.
• Dec. 31: A third report cautioned that its building estimate was incomplete because most items were still being repaired, and warned that much of the loss would fall outside the covered flood zone.
• Jan. 27, 2025: A fourth report recommended paying the remaining $2.5 million.
• Feb. 4: Fund staff found Sedgwick had placed one of the properties in the wrong flood zone, sent a photo and a FEMA flood map, and were told the question would be whether the Town had been overpaid.

Sedgwick was removed from the file days later, the complaint says. An independent expert then concluded the properties were not in covered zones, and the Fund demanded the money back. The Fund filed suit about 19 months after the February discovery.

What the sealed exhibits show

The Fund asked the court on Sept. 17 for permission to file the complaint and 10 of its 13 exhibits under seal, according to its motion. The motion says the seal is meant to last only until Sedgwick says whether it considers anything confidential, and that the Fund itself does not believe the documents contain confidential information. As of Oct. 16, the court file shows no ruling. Lake Lure Insider received the complaint and all 13 exhibits from the Town through a public records request. We describe the sealed exhibits here but do not publish them.

The complaint does not say which property Sedgwick put in the wrong flood zone. The exhibits do. In a Feb. 4, 2025 email, a League claims adjuster identified Site 003, Building 003: the hydroelectric generating equipment at the Town's power station at the base of the dam. He wrote that it appeared to sit in FEMA Zone AE and put its estimated damage at $3,129,378. He said the only thing that might save it from exclusion was that a small brick building there appeared to be elevated.

The Town's property schedule values that equipment at $12.5 million. The policy's property form excludes the dam itself and its flow-control structures, as Part 1 reported.

The exhibits also raise questions about how the payment was decided:

• Basis for the payment. When the Fund paid on Dec. 9, the only documented estimate, dated Dec. 17, was an $8,395.24 gazebo repair. Sedgwick's January report said its estimate was prepared to reach the payment limit and should not be treated as all-inclusive.
• Who held authority. The complaint says the Fund relied on Sedgwick. But Sedgwick's reports state that it had no coverage or settlement authority and that all determinations were reserved to the League. After a Nov. 20 conversation with League staff, a Sedgwick adjuster wrote that her team would stop work on flood items it knew were excluded and speed up estimates of covered items to show the limit would be used up.
• How much is at stake. Sedgwick's adjuster replied that removing the power-station building would bring the claim under the $5 million limit. She did not say what the Town should have been paid.

What the Town has said

The Town has said little publicly. Minutes of an April 6, 2026 storm-recovery meeting, five months before the suit, say: "Legal disputes with insurance complicate available funds, with about $100,000 paid but contested regarding additional payments." It is not clear whether that refers to the same dispute. On Sept. 23, six days after the suit was filed, Council went into closed session "in regards to Second Mountain LLC and Interlocal Risk Financing Fund, NC," according to draft minutes. Its Oct. 13 meeting ended in a closed session "for Attorney Client Privilege or Legal Claims," per the agenda.

Lake Lure Insider asked the Town on Oct. 14 for its insurance claim and payment records. On Friday, Town Manager Olivia Stewman sent the complaint and two policy documents. "The Town has also received your separate public records request related to this matter and is currently reviewing it," she wrote. "As this matter remains pending, I decline to provide additional comment."

As of Oct. 16, the court file shows no answer from either defendant. Answers are due around Oct. 24 for the Town and Oct. 28 for Sedgwick unless the deadlines are extended. Lake Lure Insider has sent written questions to the Town, the League and Sedgwick, and will update this story if they respond.

What is still unknown

• Which properties, and how much. The complaint says more than one property was put in the wrong flood zone and demands the full $2.5 million. The expert's report is not public, so it is unclear how much of the payment the Fund says was unearned. Part 1 reported that FEMA's flood map places Town Hall in Zone AE. The exhibits do not name Town Hall as one of the properties the Fund says was mapped wrongly.
• Where the money went. The Town's January 2025 update reported a "$1.3 million insurance payment received for damage to Town Hall," which does not match the complaint's single $2.5 million payment. The constructive-trust claim makes the payment's path matter.
• What it means for FEMA. The Town's FEMA reimbursements for its storm damage may depend on insurance proceeds. How repaying $2.5 million would affect them has not been explained.
• Proof of loss. A draft sworn proof of loss for $5 million was prepared in November 2024. Whether anyone at the Town signed it, and what figures it relied on, is not in the documents.
• What the Town knew, and when. The exhibits do not show whether the Town saw Sedgwick's December 2024 warning about covered zones, or when it first learned the payment might be contested.
• Notice to the public. Whether and when the Town received the Fund's repayment demand, and what the council was told in open session, are not public.

Nothing in the Town records and documents reviewed by Lake Lure Insider shows Town staff or council members acting improperly. But many of the records that would answer these questions have not been produced.

Read the Documents

Court filings, hosted on this site:

• Plaintiff's motion to seal, Sept. 17, 2026
• Plaintiff's index of exhibits, Sept. 17, 2026
• Exhibit C: Lake Lure Resolution No. 05-07-12C and the Interlocal Agreement (2005)
• Exhibit D: IRFFNC Building and Personal Property Coverage Form (PR-01, 07/2024)
• Exhibit E: IRFFNC Flood Coverage Endorsement
• N.C. eCourts portal (search case 26CV035241-910)

Town of Lake Lure records:

• Storm recovery minutes, Apr. 6, 2026
• Council briefing records, December 2024, from the Jan. 22, 2025 packet
• Oct. 13, 2026 Council packet

Last updated: 2026-10-16