Ill. App. 1st Dist. / Bad Faith

Section 155 is a Fee-Shifting Provision – Not a Stand-Alone Cause of Action  

The Appellate Court of Illinois for the First District, in an opinion by Justice Van Tine applying Illinois law, affirmed the trial court’s holding that the plaintiff, Moles, was not entitled to relief for bad faith under section 155 of the Illinois Insurance Code because she did not prevail on any action under her automobile insurance policy issued by Illinois Farmers Insurance Company (“Farmers”). Accordingly, the Appellate Court confirmed that claims under section 155 cannot stand alone.  

The underlying dispute arose from an automobile accident from which Moles sought underinsured motorist coverage from Farmers. Moles sued Farmers for breach of contract, and she also sought bad faith damages under section 155 due to Farmer’s unreasonable and vexatious delay in payment. The trial court dismissed the breach of contract claim based on evidence that arbitration was ongoing. Following a settlement for the underinsured motorist claim, Farmers argued that Moles could not maintain a section 155 claim without a successful breach of contract claim and moved for a directed finding, which the trial court granted. On appeal, Moles contended that Illinois law allows a stand-alone section 155 claim. 

The Appellate Court disagreed with Moles, noting first that section 155 is an extracontractual remedy that does not create an independent cause of action. In Cramer v. Insurance Exchange Agency, the Illinois Supreme Court held that a plaintiff must succeed in “an action on a policy” to recover attorney fees, costs, and statutory damages from an insurer for bad faith under section 155. Moles’ breach of contract claim was an “action on the policy” because she alleged that Farmers breached its policy when it refused to participate in arbitration that the policy required. However, because that claim was dismissed, the Appellate Court found that Moles’ section 155 claim was not connected to any action on the policy. 

According to the Appellate Court, “[s]ection 155 does not create an action for unreasonable delay in settling a claim.  Rather, an action alleging unreasonable delay in settling an insurance claim is one of three types of lawsuits that trigger the application of section 155.” The Appellate Court determined that section 155 is essentially a fee-shifting provision that rewards a prevailing party for successful litigation. Thus, the Appellate Court held that Moles was not entitled to section 155 relief after her breach of contract claims were dismissed. Moles v. Ill. Farmers Ins. Co., 2023 IL App (1st) 220853 (Aug. 9, 2023).