No Bad-faith Claim Available for Underinsured Motorist Benefits

By Don R. Sampen, published, Chicago Daily Law Bulletin, April 1, 2025

The 7th U.S. Circuit Court of Appeals, construing Illinois law, recently held that an insured has no statutory bad-faith claim against an insurer for an arguable bad-faith delay in the payment of underinsured motorist benefits.

The case is Wolf v. Riverport Insurance Co., No. 24-2010. The insured, Suzanne Wolf, was represented by Dunn Harrington Trial Lawyers of Chicago. Traub Lieberman Straus & Shrewsberry LLC of Chicago represented the insurer, Riverport.

Wolf suffered multiple injuries in a crash with an underinsured motorist. The collision occurred while Wolf was on the job for the YMCA of Metropolitan Chicago. She received benefits under her employer’s general commercial liability policy and her personal automobile policy. She also sought recovery from Riverport, her employer’s automobile carrier, for underinsured motorist benefits.

The Riverport policy provided $1 million in underinsured motorist benefits, but Wolf and Riverport disagreed over the value of her claim. Riverport offered $100,000, but Wolf demanded the full policy limit.

The parties eventually agreed to arbitrate, and four years from the time of the accident, the arbitration panel found damages for Wolf of $905,000, which Riverport paid, less payments she previously received. She then brought this action under 215 ILCS 5/155(1), claiming Riverport had exercised bad faith in unreasonably delaying payment.

Riverport moved for judgment on the pleadings, which the district court allowed, and Wolf brought this appeal.

Analysis

In an opinion by Judge Amy St. Eve, the 7th Circuit affirmed. She initially observed that Section 155 imposes certain penalties against an insurer when it, among other things, delays in settling a claim and the delay is vexatious and unreasonable. That section, however, under Illinois law, does not create a cause of action but supplements the remedies otherwise available in an action for breach of contract, breach of the duty to settle or commission of another tort.

The question then arose, wrote St. Eve, whether Riverport’s negotiation breached some obligation under the policy. She observed that Riverport’s refusal to pay could constitute a breach, but by the time Wolf brought suit, the insurer had already paid.

St. Eve then turned to the implied covenant of good faith and fair dealing. She noted that covenant typically is imposed to assure that a party to a contract vested with broad discretion exercises that discretion in a manner consistent with the reasonable expectations of the parties.

Wolf argued Riverport did, in fact, have broad discretion to investigate and settle claims, including her underinsured motorist claim. It therefore, according to Wolf, was obligated to exercise that discretion reasonably.

St. Eve pointed out, however, that the section of the policy giving Riverport discretion to investigate and settle had to do with the duty to defend an insured against the third-party claims of others. It did not have anything to do with underinsured motorist benefits, which are in the nature of a first-party insurance claim.

St. Eve found that due process for that kind of claim vests Riverport with the right to defend itself and control its own defense, as distinct from an insured’s defense. Under those circumstances, an insured has a contractual remedy for a refusal to pay or an indefinite payment delay by Riverport without needing to resort to the implied covenant of good faith and fair dealing.

The contractual remedy is to sue for breach of contract for proceeds due under the policy. In support, St. Eve cited Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (1996), which refused to recognize an extra-contractual statutory remedy for first-party claims made by a policyholder, because a policyholder under a first-party policy does not need a new cause of action to protect it from insurer misconduct.

In sum, St. Eve found that Riverport did not have an implied contractual obligation to investigate and settle a claim against it for underinsured motorist benefits because Wolf’s remedy, as in other first-party actions, was to bring suit for proceeds owing under the policy.

The 7th Circuit therefore affirmed in favor of Riverport.

Key Point

A Section 155 claim for bad faith by an insurer does not apply for an insured seeking to enforce a first-party obligation against the insurer, such as for underinsured motorist benefits.