Illinois Bad Faith

Appellate Court permits broad discovery of Allstate regarding its bad faith and improper claims practice history and “other insured” information.

The plaintiffs, Valentine and Christina Zagorski, sued Allstate Insurance Co. in St. Clair County, Illinois, alleging vexatious bad faith, breach of contract and common law fraud in the handling of their homeowners’ fire insurance claim.  Allstate had denied the claim asserting that the plaintiffs had intentionally set the fire.

The plaintiffs served discovery on Allstate seeking whether it had paid bad faith attorney’s fees, costs, penalties or fines pursuant to Illinois’ bad faith statute, 215 ILCS 5/155, information about other suits against Allstate for denial of Illinois fire claims, and information about claims against Allstate made to the Illinois Department of Insurance alleging improper claims practices regarding a fire claim. Allstate refused to answer based on relevance, burden and harassment, and the trial court overruled its objections ordering it to respond.  The court also allowed limited interrogatories directed to Allstate’s attorney’s (Robert Brady) involvement in the claims-handling process to which Allstate had asserted attorney-client privilege.  The trial court also ordered Allstate to provide its fire claim policy manual, but did not order Allstate to provide other related documents regarding claims-handling procedures.  Finally, the trial court refused to order Allstate to produce information about how many times Allstate had been sued in Illinois in the last five years for its alleged refusal to pay a fire loss on the basis of relevance.

The court held Allstate in “friendly contempt of court” (civil) for its refusal to respond to the foregoing discovery, which was subject to interlocutory review.  It also imposed a $25 per day fine that was stayed pending appeal.  On appeal, Allstate argued to the Fifth District Court of Appeals that the trial court abused its discretion in permitting discovery regarding: 1) how many times in the last five years Allstate was cited by the Illinois Department of Insurance for vexatious claims practices; 2) how many time Allstate had been ordered to pay statutory penalties for vexatious conduct; and 3) Allstate’s involvement in the fire loss investigation.

The court reasoned that 215 ILCS 5/154.6 provides various examples of improper claims practices, and they can form the basis of a 155 bad faith claim.  One of the listed activities includes engaging in an activity that results in a disproportionate number of successful claims made to the Illinois Department of Insurance or lawsuits by individual claimants.  Thus, on the basis of relevance, the court affirmed the trial court’s ruling that Allstate had to produce its five year record of citations by the Director of Insurance for improper claims practices.  The appellate court also affirmed the trial court’s ruling that Allstate had to provide its five year record of statutory penalties in lawsuits for vexatious refusal to pay claims.

The appellate court reversed the trial court’s order that Allstate did not have to produce information about lawsuits against it in the last five years for failure to pay fire claims.  The court noted that the information was relevant, and relevance was the only argument that Allstate had asserted on appeal supporting its refusal to respond. The court upheld the trial court’s order to produce the fire policy manual, but reversed the trial court’s ruling ordering Allstate to produce other documents such as “guidelines, checklists, and procedure manuals regarding the handling of fire loss claims.” Finally, the court overruled the trial court’s order that Allstate’s attorney had to respond to limited discovery in relation to his involvement in the claims-handling process on the grounds of relevance.

The appellate court made clear that many of its rulings were based generally on the fact that on appeal Allstate had asserted only relevance as supporting its refusal to respond, despite having made much broader objections at the trial court. At length, the appellate court criticized and warned against over-broad assertions of non-meritorious objections in the discovery process.

The appellate court stated that it “share(d) the trial court’s initial sense of impatience and irritation with Allstate’s challenges” to the discovery orders and characterized them as not presenting “unique or unsettled questions of law requiring interlocutory review.”  Nonetheless, it held that “it [would] not disturb the court’s finding that Brady and Allstate did not act in contumacious disregard of its orders” and vacated the order of contempt and monetary sanctions.  Zagorski v. Allstate Ins. Co., No. 5-14-0056 (Ill. App. Ct. May 16, 2016).

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