Patrick F. Nugent | Bad Faith Sentinel | February 13, 2019
Propitious, LLC owns a two-story building and leased the first floor of the property to Connacht, LLC, which used the space to operate a restaurant and sports bar. Propitious insured the property under a policy issued by Badger Mutual Insurance Company; Connacht insured the restaurant and sports bar under a policy with Society Insurance. In December of 2016, there was an incident in which multiple water pipes burst on the second floor and caused damage to the property and Connacht’s restaurant and sports bar on the first floor. Following an investigation of the damage by each of the parties, Society tendered payment to Connacht for some of the damaged items, but declined to cover other items that it viewed as permanent parts of the building and believed should be covered by Badger. Propitious, for its part, submitted a claim to Badger for damages to the property. Badger tendered payment for some of the loss, but it also assigned a portion of the coverage responsibility to Society. Society denied responsibility for the amount claimed by Badger. After unsuccessful efforts to reach agreement on the disputed coverage issues, Propitious and Connacht filed suit against Badger and Society asserting several claims, including a statutory bad faith claim Connacht brought against Society. Society moved to dismiss the bad faith claim (among others not discussed here).
The court dismissed the bad faith claim without prejudice in Propitious, LLC, et al. v. Badger Mutual Insurance Company, et al., No. 18 CV 1405 (N.D. Ill. Feb. 7, 2019). The statutory bad faith claim was brought under § 155 of the Illinois Insurance Code, which “allows for an award of attorney fees and costs for an insurer’s ‘unreasonable and vexatious’ refusal to comply with its policy obligations” (quotations omitted). “However, if a bona fide coverage dispute exists, an insurer’s delay in settling a claim will not be deemed vexatious or unreasonable for purposes of section 155 sanctions” (quotations omitted). The court rejected Society’s argument that a heightened pleading standard applied to Connacht’s bad faith claim, but accepted Society’s argument that Connacht failed to state a statutory bad faith claim. “Although Connacht alleges that Society has not paid all it is owed under the policy, it fails to plead sufficient facts that show Society wrongfully and unreasonably refused to comply with its policy obligations.” Rather, “the complaint reveals that Society participated in discussions to attempt to resolve the coverage dispute, investigated Connacht’s claim, including retaining a third-party adjuster to evaluate the damage to the audiovisual equipment, and made payments for those damages that it determined were covered under the policy in excess of $142,000” (citations omitted). In addition, the court ruled that “because a bona fide coverage dispute exists regarding which items are covered under the policy, Society’s actions cannot be considered ‘vexatious or unreasonable’ under § 155.” Thus, the court concluded that Connacht failed to state a statutory bad faith claim against Society and dismissed the claim without prejudice.