A recent First District decision attempts to clarify what constitutes vexatious conduct when an insurance company denies coverage.
In Dominick’s Finer Foods v. Indiana Ins. Co., 2018 IL App (1st) 161864, the Appellate Court held an insurer who denies coverage when there is a “bona fide” dispute does not violate Section 155 of the Illinois Insurance Code. The case involved a woman who was shot to death at a Dominick’s parking lot in Chicago.
Dominick’s landlord was insured via a commercial general liability (CGL) insurance policy from Netherlands Insurance Company that listed Dominick’s as an additional insured.
The decedent’s estate sued the grocery store and Dominick’s tendered its defense and sought indemnification from Netherlands. Netherlands denied coverage, and Dominick’s filed a declaratory judgment action seeking a determination that Netherlands was obligated to defend and indemnify. Dominick’s also alleged Netherlands acted vexatiously and unreasonably.
Both parties filed motions for summary judgment and the trial court entered judgment in favor of Netherlands, finding it had no duty to defend and indemnify. It also held the Section 155 claim was time-barred.
Dominick’s appealed, arguing Netherlands owed a duty to defend based on policy language that coverage would be provided for liability “arising out of premises.”
Netherlands countered the phrase “arising out of the premises” means losses occurred due to some defect in the premises and, because no such defect was alleged, the policy did not cover the loss.
The Appellate Court went into great detail about the insurer’s duty to defend and indemnify an insured. After analyzing the relevant policy language, the Court held that Netherlands owed Dominick’s a duty to defend and indemnify pursuant to the policy language. The Court reversed summary judgment in favor of Netherlands and remanded the case for the entry of summary judgment in favor of Dominick’s on the issues of both the duty to defend and the duty to indemnify
However, the Court affirmed the trial court’s granting of summary judgment in favor of Netherlands on the claims under section 155 of the Illinois Insurance Code, which provides for sanctions against an insurance company which acts in bad faith. Even though the Court ultimately disagreed with the insurers’ interpretation of the insurance policy, the Court did not find Netherlands’ position unreasonable.
Pursuant to Section 155 of the Illinois Insurance Code, when an insurance company‘s conduct is vexatious and unreasonable, a court may require the company to pay the insured’s attorney fees, other costs, plus an amount not to exceed any one of the following amounts:
- 60% of the actual damages suffered;
- $60,000; or
- the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action.
215 ILCS 5/155.
The Dominick’s decision is instructive because Courts in Illinois have not defined vexatious and unreasonable conduct. Deverman v. Country Mut. Ins. Co., 56 Ill. App. 3d 122, 124, 371 N.E.2d 1147, 1149 (1977). While there is no single controlling factor to determine whether an insurance company’s conduct was vexatious or unreasonable, courts tend to look at the totality of the circumstances and determine each matter on its own merits.
In examining the circumstances, courts consider various factors such as: “the insurer’s attitude, whether the insured was forced to file suit to recover, and whether the insured was deprived of the use of its property.” Cook ex rel. Cook. v. AAA Life Ins. Co., 2014 IL App (1st) 123700, ¶ 48, 13 N.E.3d 20, 37. It is well settled in Illinois that an insurer does not act vexatiously and unreasonably when (1) there is a bona fide dispute concerning the scope and application of insurance coverage; (2) the insurer asserts a legitimate policy defense; (3) the claim presents a genuine legal or factual issue regarding coverage; or (4) the insurer takes a reasonable legal position on an unsettled issue of law.” P & M/Mercury Mechanical v. West Bend Mut. Ins., 483 F. Supp. 2d 601, 604 (N.D. IL 2001). Citing Citizens First National Bank of Princeton v. Cincinnati Ins. Co., 200 F. 3d 1102, 1110 (7th Cir. 2000).
The holding in Dominick’s falls directly within the well-established caselaw in Illinois that a bona fide dispute obviates any penalties under Section 155, even if the insurer is ultimately wrong as a matter of fact or law.