In insurance coverage litigation, bad faith claims are somewhat common. Bad faith actions, under section 155 of the Illinois Insurance Code, provide a remedy to insureds for an insurance company’s vexatious and unreasonable refusal to honor its contract with the insured.
Section 155 provides:
- “(1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees.”
In determining whether bad faith applies, a court must consider the totality of the circumstances, including an insurer’s attitude, whether the insured was forced to sue to recover and whether the insured was deprived of the use of his or her property. Illinois Founders Insurance Co. v. Williams, 2015 IL App (1st) 122481 ¶31.
Courts can consider a number of factors in determining whether an insurance company’s actions constitute bad faith including 1) potential for an adverse verdict; 2) potential for damages in excess of policy limits; 3) refusal to negotiate; 4) communication with the insured; 5) adequate investigation and defense; and 6) advice of the insurance company’s own adjusters and defense counsel. O’Neill v. Gallant Insurance Co., 329 Ill.App.3d 1166, 1172, 769 N.E.2d 100 (2002).
How can a bad faith claim be defended? The insurer needs to show that any delay was not vexatious and unreasonable. This is generally a factually specific showing, numerous examples of which can be found in Illinois case law. Often times an insured will believe that an insurer has acted vexatiously and unreasonably when the insurance company has followed the law.
In addition, the insurance company can defend a bad faith claim by showing there was a bona fide dispute in coverage. However, just because there is a bona fide dispute to coverage does not give an insurance company carte blanche to mishandle or mismanage an insured’s claim.
A finding of bad faith can result in an insurance company paying damages, including attorney’s fees to the insured. Therefore, it is important to be knowledgeable of bad faith actions.
If you have questions about insurance coverage laws, contact Kelly Purkey