When you purchase any type of insurance policy in Illinois, you’re paying for financial protection and security. In exchange, the insurance company agrees to compensate you per the terms of your policy in the event of a catastrophic event like a fire, death, disability, or car accident. You sleep easy at night knowing your family’s financial future is safe.
But what happens if your insurance company doesn’t hold up their end of the contract? What if they deny your claim outright—and you’re left to pick up the pieces financially?
Sometimes, an insurance company breaks the law when it denies a claim and refuses to pay benefits. In Illinois, insurers must uphold their duty of good faith and fair dealing according to the Illinois Insurance Code (215 ILCS 5). To summarize, an insurance company must put the interests of its policyholders above its own. When the insurer puts its interests first and therefore breaches this duty, it may be acting in bad faith.
If an insurance company acts in bad faith, you may have a claim against them. On this page, we discuss everything you need to know about these lawsuits. Keep reading to learn more about:
- How insurance works in Illinois.
- What is a bad faith insurance claim?
- The difference between first-party and third-party bad faith insurance claims.
- Types of compensation you can receive from an Illinois bad faith insurance lawsuit.
- How long you have to file a lawsuit to hold your insurer accountable.
How Insurance Works in Illinois
Americans pay insurance premiums every year to protect themselves if they’re suddenly disabled at work or hit by an uninsured motorist. In the United States, the insurance industry is a trillion-dollar giant. According to the Insurance Information Institute, the total net premiums written totaled $1.32 trillion in 2019.
An insurance company’s job is similar to a bank's. It collects premiums, holds them, and then distributes payment fairly and quickly to claimants who suffer covered losses. Most of the time, it works. As mentioned earlier, insurance companies have a duty of “good faith” when handling insurance claims. They must treat their policyholders reasonably and fairly. Because of this duty, insurers are obligated to investigate claims and consider equally reasons to pay and deny claims based on the evidence.
But insurance companies are corporations. Their top priority is to make more money than they pay out in claims. As bad faith insurance attorneys, we’ve seen several insurers deny claims and delay settlement, only to expose their insured’s personal assets down the road.
When this happens, insurance companies may be acting in “bad faith.” The policyholder may have a right to file a lawsuit against their insurer for compensation. We discuss the acts of bad faith to watch out for in the next section.
In Illinois, bad faith claims can happen under any type of insurance coverage, including:
- Auto insurance. Your auto insurance policy protects you from losing everything if you cause an accident or your car is stolen. You can buy several types of car insurance coverage under your policy, including liability, collision, comprehensive, and medical coverages. Illinois law requires that drivers purchase at least $25,000 in bodily injury coverage per person, $50,000 in bodily injury coverage per accident, and $20,000 in property damage coverage per collision. Drivers must also purchase uninsured/underinsured motorist bodily injury coverage for $25,000 per person and $50,000 per accident.
- Disability insurance. People purchase disability insurance to help pay the bills if they’re sick or injured and unable to work. Average disability insurance policies replace between 50 and 60 percent of your income. There are two types of disability insurance:
- Short-term disability: These policies typically kick in two weeks after a qualifying illness or injury. It pays for a portion of your income for a few months to a year.
- Long-term disability: This coverage begins after a 90-day waiting period. It can supplement part of your income for months, years, or until retirement.
- Health insurance. Health insurance policies offer peace of mind when a medical emergency strikes. Most policies cover the necessary treatment and medication your family needs to stay healthy. Once you hit your health plan’s deductible in a year, your insurance company will start paying on your behalf.
- Homeowners insurance. This type of coverage protects your financial assets in the event of a natural disaster, fire, theft, or personal injury on your property. You may be required to purchase specific coverages depending on where you live. For example, you may be required to purchase flood insurance if your home is located close to a river.
- Life insurance. If your family depends on you financially, you may consider purchasing a life insurance policy. Let’s say you passed away with a life insurance policy in force. Your family could claim your policy’s death benefit, which helps pay for future expenses like college tuition.
- Small business insurance. This type of insurance helps protect small businesses from unexpected costs and liabilities. Entrepreneurs in Illinois often purchase general liability, property, auto, and life insurance policies to keep their business safe.
- Renter’s insurance. If you rent, having renter’s insurance is a must. It protects your personal belongings in the event of a natural disaster or burglary.
What Are Bad Faith Insurance Claims?
Bad faith insurance claims arise when an insurance company breaks its promise to act in a “duty of good faith.” As a result, the policyholder can pursue compensation from the insurance company for acting in “bad faith.” In Illinois, only the insured or an assignee has a cause of action against an insurance company.
Bad faith claims do not discriminate. They can happen under any type of insurance policy, including auto, disability, and health insurance.
There are two types of bad faith insurance claims you should know about: first-party and third-party claims. Keep reading to learn more.
Understanding First-Party Bad Faith Insurance Claims
Only policyholders can bring first-party claims against an insurance company.
So, how do you know if an insurance company acted in bad faith?
First, per Section 155 of the Illinois Insurance Code, your insurer must have done one of the following:
- The insurance company disputed the amount of loss payable on a claim.
- The insurer delayed settling a claim.
- The insurance company refused to provide coverage.
- The insurer failed to properly communicate with you.
Second, the insurance company’s action or delay must have been “unreasonable or vexatious.”
What’s “unreasonable or vexatious” conduct in the eyes of Illinois law? It has to meet three conditions
- There was no dispute regarding the insurance coverage;
- An insurance company refused to evaluate, investigate, or discuss a claim; and
- The insurance company’s attitude toward its insured was “irritating, exasperating, and provoking.”
If both criteria apply to your situation, you may have a bad faith claim in Illinois.
Keep scrolling to learn more about the types of compensation available to you in first-party claims.
If you have any questions, we’re happy to speak with you. Fill out the form at the bottom of this page to get started.
How Third-Party Bad Faith Insurance Claims Work
Third-party bad faith insurance claims happen when a policyholder is sued by another party, and their insurance company steps in to defend them. While defending the policyholder in the lawsuit, the insurer must act in their insured’s best interests. However, it fails to do so and exposes their policyholder’s personal assets.
Here’s an example that we’ve seen happen. Let’s say Mary (the policyholder) blows through a stop sign in Chicago and hits Bob. Bob is transported to the hospital, where he’s treated for serious injuries to his spine and lower extremities. Soon after, Bob files a lawsuit in Cook County and names Mary as the defendant.
The plaintiff (Bob) offers to settle the car accident lawsuit for Mary’s policy limit of $300,000. Bob has over $750,000 in medical bills and will never walk again. However, Mary’s insurance company outright refuses to respond to the plaintiff’s reasonable offer of compromise. Instead, it delays settlement and waits for the other party to less for than the policy limit.
Before long, the lawsuit ends up in front of a Chicago jury. The jury listens to both sides as witnesses and experts take the stand. Ultimately, the jury awards Bob the plaintiff $1.25 million in monetary compensation for the damages he sustained as a result of the collision.
However, this award exceeds Mary’s policy limits of $300,000. Her personal assets have just been exposed. In this situation, Mary has the right to pursue a “failure-to-settle” bad faith insurance claim for the amount of the excess verdict. Her insurance company failed to settle the case before trial, despite fact that the plaintiff’s medical bills exceeded the amount of her policy limits. In short, Mary’s insurer failed to protect her financial assets.
You can also pursue a third-party claim against your insurance company if they mishandle a first-party bad faith claim. However, this doesn’t happen often.
ASSIGNMENT OF A BAD FAITH CLAIM IN ILLINOIS
Only a few states in America allow an injured third-party victim to file a bad faith lawsuit against the defendant’s insurance company. In Illinois, the policyholder can “assign” (or transfer) their right to pursue action against their insurance provider to the injured party.
In the example above, Mary (the policyholder) would exchange her rights to a bad faith claim with Bob the plaintiff, as long as Bob agrees not to execute judgment against Mary’s assets. This assignment can happen by a voluntary agreement between Mary and Bob. It can also be compelled by the court. After the assignment is complete, Mary (the third-party and injured driver) can now pursue a bad faith claim against Bob’s insurance company.
If you have been assigned a bad faith claim after an excess verdict, we can help. We’ve handled these types of claims in the past and successfully won on behalf of our injured clients. Call us today for a free consultation at (312) 578-9501.
What Benefits Can I Receive from an Illinois Insurance Bad Faith Lawsuit?
If you have a first-party bad faith claim against your insurance company, you may recover the following benefits:
- Your attorney’s fees;
- Any costs related to your case; and
- An additional award of up to $60,000.
In a third-party lawsuit, there are no limits to the amount you can be awarded. In a failure-to-settle claim, the policyholder typically recovers the amount of the excess verdict.
At the end of the day, the value of your case increases exponentially if you hire the right attorney. Our Illinois bad faith lawyers understand the stress you’re going through. We can help you navigate the situation, and take the stress of handling a bad faith claim off your shoulders.
How long do I have to file a bad faith insurance claim in Illinois?
You generally have two (2) years to file a bad faith claim in Illinois. The clock starts ticking from the date that the insurance company breached its duty of “good faith” or from the time when you discovered that coverage was denied.
It’s best to contact insurance bad faith lawyers like Shannon Law Group sooner rather than later. It sometimes takes months to investigate and prepare a bad faith lawsuit. Evidence supporting your claim may be harder to locate. So, don’t hesitate—contact us today.