What Is The Time for Responding to a Defense Tender?
Insurers must acknowledge with reasonable promptness pertinent communications with respect to claims, 215 Ill. Comp. Stat. 5/154.6(b), but there are no regulations, statutes or case law defining “reasonable promptness.”
Insurers must affirm or deny coverage of claims within a reasonable time and shall pay covered claims or provide written explanation for a denial within 30 days of affirmation or determination of liability. Ill. Admin. Code tit. 50, § 919.50(a).
Does Reserving Rights Create a Conflict of Interest?
The potential for conflict exists when the interests of the insurer and the insured are not aligned. Clemmons v. Travelers Ins. Co., 430 N.E.2d 1104, 1109 (Ill. 1981). If it appears that factual issues will be resolved in the underlying suit that would allow insurer-retained counsel to “lay the groundwork” for a later denial of coverage, then there is a conflict between the interests of the insurer and those of the insured. Clemmons v. Travelers Ins. Co., 430 N.E.2d 1104, 1109 (Ill. 1981).
Does a Reservation of Rights Create Additional Duties?
When an insurer believes that the policy does not cover the underlying claim, the insurer may not refuse to defend the insured, and must either defend the suit under a reservation of rights, or seek a declaration of no coverage. Peerless Enterprise, Inc. v. Kruse, 738 N.E.2d 988, 999 (Ill.App. 2 Dist., 2000).
What Must Be Done If A Conflict of Interest Exists?
Where there is a conflict of interest, the insurer cannot fully represent the interests of the insured, and may not undertake the defense of the insured itself. Santa’s Best Craft, L.L.C. v. Zurich Am. Ins. Co., 941 N.E.2d 291, 294 (Ill. App.2010).
If defense counsel would have the opportunity during the litigation to develop facts in a way that removes the case from the scope of coverage, then the insured is not required to accept the defense in the underlying suit. Clemmons v. Travelers Ins. Co., 430 N.E.2d 1104, 1109 (Ill. 1981). In that case, the insured is entitled to select counsel of its choosing at the insurer’s expense. Clemmons v. Travelers Ins. Co., 430 N.E.2d 1104, 1109 (Ill. 1981)
Who Is Responsible for Fees of Independent Counsel?
The insurer, who satisfies its obligation to defend by reimbursing the insured. Clemmons v. Travelers Ins. Co., 430 N.E.2d 1104, 1109 (Ill. 1981).
What Are Independent Counsel’s Obligations?
No cases found.
What Settlement Duties Exist?
No cases found.
What Actions May Result in a Claim for Bad Faith?
An insured may recover damages from an insurer if the insurer disputes the amount of the loss payable on a claim, delays settling a claim, or refuses to provide coverage and the insurer’s action or delay was unreasonable and vexatious. 215 Ill. Comp. Stat. § 5/155.
Examples of vexatious and unreasonable delay or action include: failure to adequately investigate a claim or denial of the claim without adequate supporting evidence; failure to evaluate a claim objectively; interpreting policy provisions in an unreasonable manner; making
unreasonably low settlement offers; relying on misrepresentations in the insurance application which are very minor or where the insurer’s agent knowingly filled out the application falsely; and abusive or coercive practices designed to compel compromise of a claim. Emerson v. American Bankers Ins. Co., 585 N.E.2d 1315, 1320-1321 (Ill. App. Ct. 1992).
This statutory cause of action preempts an insured’s cause of action against an insurer for breach of the duty of good faith and fair dealing. Buais v. Safeway Ins. Co., 656 N.E.2d 61, 64 (Ill. App. Ct. 1995).
In addition to costs and attorneys fees, a prevailing insured may also recover an amount not to exceed any one of the following: (a) 25% of the amount which the trier of fact finds the party is entitled to recover under the policy, exclusive of costs; (b) $60,000; and (c) the excess of the amount which the trier of fact finds the insured is entitled to recover, exclusive of costs, over the amount, if any, which the insurer offered to pay in settlement of the claim before the action. 215 Ill. Comp. Stat § 5/155.
An insured may also have a cause of action pursuant to the Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat.§ 505/1 et seq. An insurer can be held liable under the Act for deception in the adjustment of a claim. Elder v. Coronet Ins. Co., 558 N.E.2d 1312 (Ill. App. Ct. 1990).
An insured may assert a cause of action against an insurer that has failed to act in good faith in responding to a settlement offer. Cramer v. Ins. Exchange Agency, 675 N.E.2d 897 (Ill. 1996).
Are Attorney’s Fees Recoverable in Insurer-Insured Dispute?
An insured is allowed to seek attorney’s fees for an insurer’s vexatious and unreasonable delay in claims handling. 215 Ill. Comp. Stat 5/155(1).
Under the Consumer Fraud Act, insureds can recover “actual economic damages or any other relief which the court deems proper,” including “reasonable attorney’s fees and costs to the prevailing party” and punitive damages. 815 Ill. Comp. Stat. § 505/10; Smith v. Prime Cable of Chicago, 658 N.E.2d 1325 (Ill. App. Ct. 1995).
Are Punitive Damages Recoverable in Insurer-Insured Dispute?
See above. Additionally, an insurer that fails to settle a bad faith claim may be liable for punitive damages if the insurer acted with “utter indifference and reckless disregard for its policyholder’s financial welfare” O’Neill v. Gallant Ins. Co., 769 N.E.2d 100 (Ill. App. Ct. 2002).
Alternative Coverage Options
When coverage under the policy is at issue, an insurer cannot just refuse to defend the insured, instead it must either defend the suit under a reservation of rights or seek a declaratory judgment that there is no coverage. Allianz Ins. Co. v. Guidant Corp., 839 N.E.2d 113 (2005).
Such an action should not be decided prior to the adjudication of the underlying lawsuit where the issues to be decided in both cases are substantially the same. Allianz Ins. Co. v. Guidant Corp., 839 N.E.2d 113 (2005).
Relevant Statutes
Declaratory Judgment – 735 Ill. Comp. Stat. § 5/2-701.
“No action or proceeding is open to objection on the ground that a merely declaratory judgment or order is sought thereby. The court may, in cases of actual controversy, make binding declaration or rights, having the force of final judgments, whether or not any consequential relief is or could be claimed . . .
Declarations of rights, as herein provided for, may be obtained by means of pleading seeking that relief alone, or as incident to or part of a complaint, counterclaim or other pleading seeking other relief as well, and if a declaration of rights is the only relief asked, the case may be set for early hearing as in the case of a motion…”
Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat.§ 505/1 et seq.