Court Finds No Bad Faith Remedy in the Absence of Contract Breach

By Don R. Sampen, published, Chicago Daily Law Bulletin, September 5, 2023

The 1st District Appellate Court recently reaffirmed that section 155 of the Illinois Insurance Code, 215 ILCS 5/155, does not create liability but merely provides an extracontractual remedy for an insurer’s unreasonable and vexatious conduct.

The case is Moles v. Illinois Farmers Insurance Co., 2023 IL App (1st) 220853 (Aug. 9). The insured, Diana Moles, was represented by the Pappas Law Group LLC of Chicago. Farmers was represented by Foran Glennon Palandech Ponzi & Rudloff P.C. of Chicago.

Moles was involved in an automobile accident in July 2016 and sought underinsured coverage from her insurer, Farmers. She eventually demanded $460,000 in coverage, while Farmers offered only $126,500. Moles rejected that offer, and the parties engaged in discovery in anticipation of arbitration.

She brought suit against Farmers in 2018, alleging one count for breach of contract and a second count for bad faith under Section 155 of the Illinois Insurance Code. That section allows an insured to recover from the insurer up to $60,000 plus attorney fees, where the insured has brought suit against an insurer regarding liability or amount owed and demonstrates unreasonable or vexatious delay by the insurer.

The trial court dismissed the contract count because the arbitration process was still ongoing when she filed suit. The Section 155 claim was stayed pending arbitration.

In October 2019, the parties settled the underinsured claim for $340,000 without arbitration. Moles at that time released Farmers from all claims for injuries relating to her accident. The release, however, said nothing about the Section 155 claim.

Farmers then moved to dismiss that claim, which the trial court denied, whereupon the parties filed cross-motions for summary judgment. Moles argued that Section 155 sanctions were necessary, among other reasons, due to Farmers’ delay tactics, while Farmers contended that Moles could not pursue a stand-alone Section 155 claim. Relying on Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (1996), the trial court agreed with Farmers and granted Farmers’ motion. Moles took this appeal.

Analysis

In an opinion by Justice Rena Van Tine, the 1st District affirmed. She observed that, under Cramer, for an insured to recover sanctions under Section 155, the insured must succeed in an action on the policy. The statute thus does not create a cause of action but presupposes a pending lawsuit for breach.

In this case, Moles had brought suit for breach of contract, but that claim was dismissed, never reinstated, and the parties subsequently settled. Van Tine wrote that, because the Section 155 claim was not connected to any extant action on the policy, Moles could not recover Section 155 sanctions.

Van Tine noted the three types of situations where Section 155 relief was possible: (1) where the issue is the insurer’s liability to pay the loss, (2) where the issue is the amount of the payment, and (3) where the insurer has unreasonably delayed a settlement. Section 155 therefore does not serve as the basis for initiating a new cause of action, but contemplates there is first an award of contractual damages following a trial.

Because Moles did not prevail on her breach of contract claim here, the Section 155 claim never came into play.

The court therefore affirmed the judgment in favor Farmers.

Key Point

For recovery of a Section 155 remedy, an insured must prevail on a breach of contract claim against the insurer.