Category Archives: Bad Faith and Section 155

O’Connor v. Country Mutual Insurance Company – UIM Result That was More Than Double the Offer Was Not Evidence Per Se of Unreasonable and Vexatious Conduct

O’Connor v. Country Mutual Insurance Company, 2013 IL App (3d) 110870 (O’Brien)

Facts:  Plaintiff suffered a broken leg in a motor vehicle collision, incurring $24,000 in medical expenses.  She had a $250,000 UIM policy with the defendant with additional coverage for $10,000 in medical payments.  She obtained a recovery of $105,000 from the at fault driver and pursued her UIM claim.  She made an initial demand of $135,000 which represented the available coverage after reducing all set-offs applicable to the policy and then reduced her demand to $97,500.  The defendant evaluated the claim through two sets of attorneys, both in house and outside counsel, with a value of between $145,000 to $155,000.  The defendant’s attorney made a final offer of $40,000 prior to arbitration.  The arbitrators awarded the plaintiff $213,295, which after the set-offs were applied resulted in a net award of $98,295.  Defendant promptly paid the arbitration award.  Plaintiff then filed a  section 155 complaint seeking damages for unreasonable and vexatious delay in settling the case, citing the award of more than double the offer as evidence of unreasonable and vexatious conduct.  Plaintiff further cited provisions of section 154.6 relating to the lack of a manual for evaluating the claim as further evidence of unreasonable and vexatious conduct.  The trial court heard evidence from the defendants attorneys relating to their process  and rationale for evaluating the claim and found that the defendant had “fully engaged in attempting to present a bona fide defense” and ruled in favor of the defendant.  Plaintiff appeals the trial court’s ruling in favor of the defendant.

Holding:  (1) The arbitration award that was more than double the pre-arbitration offer, standing alone, did not establish that the offer was unreasonable and (2) the defendant presented sufficient evidence that it used reasonable standards in evaluating claims despite the absence of a manual for such evaluations.

Filed in Trial Book Under:  Bad Faith, Section 155

Commentary:  The mere fact that an insurance company got their evaluation wrong does not mean that their deficient offer is automatically unreasonable and vexatious.  I think that 155 claims are really designed for egregious circumstances, which is why the statute uses strong terms like “unreasonable and vexatious”.  Here, they just saw the claim differently than the plaintiff and she was right.

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Filed under Bad Faith and Section 155

Edwards v. State Farm Insurance Co. – Summary Judgment and Sanctions for Insured Based Upon Implied Waiver by Insurance Company of Policy Cancellation is Reversed and Remanded

Edward v. State Farm Insurance Co, 2012 IL App (1st) 112176 (Quinn)

Facts:  The plaintiff was insured by State Farm but permitted her policy to lapse on October 5, 2008 due to non-payment.  State Farm sent a notice 5 days later indicating that the policy would be cancelled effective October 23, 2008 if the premium was not paid by that time.  The notice specifically informed the plaintiff that there would be no insurance coverage between the date of the cancellation and the date of the reinstatement.  The plaintiff did not pay the premium by October 23, 2008 so the policy was cancelled for non-payment of premium.  The plaintiff was then involved in a car accident with an uninsured driver on November 20, 2008.  Two days later she called State Farm to inform them of the accident and to make payment on her premium.  Plaintiff was informed that the claims department would determine if it would provide coverage.  Without any assurance from State Farm on the issue of coverage the plaintiff sent a cyercheck for the premium but it failed to clear due to insufficient funds so she brought cash to her agent’s office and paid the premium in full on November 28, 2008, at which time her policy was reinstated.  On December 3, 2008 State Farm sent plaintiff a check for $96.65, which represented the pro-rate amount of the premium for the period of non-coverage from October 5, 2008 to November 28, 2008.  After State Farm denied coverage for her uninsured motorist claim, plaintiff filed a declaratory judgment action and filed a motion for summary judgment arguing that State Farm waived its right to enforce the cancellation when it accepted the late premium payment.  Plaintiff submitted evidence that the clerk at the State Farm agents office made comments about reinstatement that caused her to believe that coverage would be afforded for the accident, but State Farm asserted that the agents denied making such statements.  The circuit court awarded judgment in favor of the plaintiff and awarded $28,957.50 in attorneys fees, $361 in costs, and $50,000.00 in sanctions pursuant to section 155 of the Illinois Insurance Code and State Farm appealed.

Holding:  Summary judgment was improper because there were genuine issues of material fact regarding the plaintiff’s theory of implied waiver of the policy cancellation and there was no evidence o f vexatious conduct on the part of the insurance company to support a finding of fees, costs and sanctions pursuant to section 155.

Filed in Trial Book Under:  Insurance Coverage – Cancellation for Non-Payment; Section 155 of Insurance Code

Commentary:  This seems like a no brainer and a case that the plaintiff will likely lose on remand. First, if the circuit court was basing its decision on statements plaintiff claims to have been made by the clerk at the agents office, and that clerk denied making such a statement, then there were issues of fact that required a trial and summary judgment was not proper.  However, as the appellate court points out, it is questionable that an insurance agent’s clerk can bind the company to a coverage decision like this, particularly in light of the clear written notice that was sent to the plaintiff regarding the period of non-coverage once payment was made.  The bigger surprise here was the circuit court’s position on the section 155 sanctions.  The notice by the insurance company was clear that the coverage would not apply during the lag between cancellation and payment and, more importantly, the insurance company refunded the pro-rata portion of the premium for the uncovered period.  From the recitation of facts available in reading the opinion it appears as if the insurance company’s position is correct and there is no support at all for a finding of vexatious conduct.

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Filed under Bad Faith and Section 155, Insurance Coverage