What is “Vexatious and Unreasonable” Conduct Under Illinois Bad Faith Law?

In Illinois, insurance companies must abide by the provisions of the Illinois Insurance Code, and in particular a section of the Code that prohibits unlawful claims practices.[1] 

Examples of improper claims practices include:

• Delaying investigation or payment without a valid reason;
• Intentionally underpaying a claim;
• Misrepresenting policy provisions; or
• Failing to properly communicate with claimants. 

If your insurance company violates one of these provisions, the insurance company may be subject to a claim for bad faith. 

How does Illinois define “vexatious and unreasonable” insurance conduct?

Under Illinois law, the right to recover for bad faith in first-party claims is limited.  The policyholder may be able to recover what they are entitled to under the policy through a declaratory judgment or breach of contract lawsuit against the insurer. 

If the insurance company’s conduct is “vexatious and unreasonable,” the policyholder may be able to recover reasonable attorneys’ fees, costs, and an additional amount up to $60,000 in a bad faith claim, pursuant to 215 ILCS 5/155. 

Illinois courts have not precisely defined “vexatious and unreasonable conduct”,[2] and whether an insurance company’s conduct meets the definition is determined by evaluating the “totality of circumstances.”[3] 

In making this examination, courts consider factors including “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.”[4]

A Case of “Vexatious and Unreasonable” Conduct in Illinois

In one case, a Safeway auto policyholder was struck by an uninsured driver. The policyholder filed a claim with Safeway under the uninsured motorist provision of his policy.  

Safeway flatly refused to investigate, discuss, or evaluate the claim, despite the absence of any legitimate dispute as to coverage.  Safeway ultimately forced its policyholder to take them to arbitration, resulting in a delay of over two-and-a-half years. 

The policyholder filed a claim pursuant to the Illinois Bad Faith Statute, but the trial court dismissed the case.  The appellate court reversed the decision, however.

The court found that when there is no dispute as to coverage and an insurer refuses to evaluate, investigate, or talk about a claim, and the attitude of the insurance company toward its insured is “irritating, exasperating and provoking,” the insured has the right to file a claim under the Bad Faith Statute for relief.[5] 

On the other hand, Illinois courts have found that an insurance company does not act vexatiously and unreasonably when they meet the following conditions

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.[6]

Questions? Contact us today.

If you have a question about insurance coverage or if you have been harmed by the wrongful conduct of an insurance company, you should contact the attorneys at Shannon Law Group. To get started, call us at (312) 578-9501 or fill out the form at the bottom of the page.

[1] 215 ILCS 5/154.6

[2] Deverman v. Country Mut. Ins. Co., 56 Ill.App.3d 122, 124 (1977)

[3] Buais v. Safeway Ins. Co., 275 Ill.App.3d 587, 593 (1st Dist. 1995); McGee v. State Farm Fire and Cas. Co., 315 Ill.App.3d 673 (2nd Dist. 2000); Norman v. Amer. Nat’l Fire Ins. Co., 198 Ill.App.3d 269 (5th Dist. 1990).

[4] Cook ex rel. Cook. v. AAA Life Ins. Co., 2014 IL App (1st) 123700, ¶ 48

[5] Buais, 275 Ill. App.3d at 593, McGee, 315 Ill.App.3d 673; Norman, 198 Ill.App 3d 269

[6] P & M/Mercury Mech. v. West Bend Mut. Ins., 483 F.Supp. 2d 601, 604 (N.D. IL 2001) citing Citizens First Nat’l Bank of Princeton v. Cincinnati Ins. Co., 200 F. 3d 1102, 1110 (7th Cir. 2000)