Bad Faith in Settlement
In O’Connor v. Country Mut. Ins. Co., Dorene O’Connor was injured in an automobile accident and sustained medical expenses. Country Mutual Insurance provide automobile insurance to O’Connor with a policy that included limits of $250,000 for underinsured motorist (UIM) coverage and $10,000 for medical payments coverage. Pursuant to the policy, Country Mutual paid the O’Connor the full $10,000 in medical payments coverage. She also received payout from the tortfeasors’ insurers. In November 2004, Country Mutual offered a settlement of $40,000 under the policy’s UIM provisions. O’Connor offered to settle her claim for $97,500. The parties failed to reach an agreement on a settlement amount under the UIM provisions and in December 2005 proceeded to arbitration as required by the policy. The arbitrators entered an award of $213,295 for O’Connor, subject to $115,000 in setoffs. County Mutual had to pay $98,295; it promptly paid the arbitration award and O’Connor deposited the check.
O’Connor filed a two- count complaint, seeking damages under section 155 of the Illinois Insurance Code (Code) (215 ILCS 5/155 (West 2002)). She alleged that (a) the arbitration award was more than twice Country Mutual’s offer, “raising an inference that the defendant failed and refused to evaluate and pay plaintiff’s claim * * * in an objectively reasonable sum prior to arbitration”; (b) Country Mutual gave insufficient deference to Plaintiff’s interests; and (c) Country Mutual failed to use any objective criteria in evaluating Plaintiff’s claim.
The court reviewed whether the conduct of the Country Mutual was vexatious and unreasonable when it settled the claim. The court explained that Section 155 is an extra-contractual remedy for policyholders available when an insurer’s refusal to pay a claim is vexatious and unreasonable. The purpose of the statute is to provide a remedy for insurer misconduct and to make actions by policyholders economically feasible. The key question in an action under section 155 is whether the conduct of the insurance company was unreasonable and vexatious. The relevant inquiry is whether the insurer had a bona fide defense to the insured’s claim. When an insurer presents a bona fide defense, a section 155 action cannot be maintained. Insurer’s lack of a manual or procedure for evaluating claims did not constitute an improper claims practice so as to establish that insurer’s conduct in settling insured’s UIM claim amounted to an unreasonable and vexatious refusal to pay a claim as required to entitle insured to statutory damages. The insurer employed a method for investigating and evaluating insured’s and other litigated claims, insurer’s attorneys explained steps they employed in valuing insured’s and other claims, and evidence was presented that insurer used reasonable standards for claims settlement and its witnesses were able to explain the basis of its proffered settlement.
Occonor v. County Mut. Ins. Co., 2013 IL App (3d) 110870, —N.E.2d—, 2013 WL 793131 Ill.App. 3 Dist., 2013.
