The Law of Bad Faith Insurance Claims in Indiana and Illinois

The Law of Bad Faith Insurance Claims in Indiana and Illinois

Bad faith on the part of insurance companies does happen in Indiana and Illinois, but it is not always as easy to prove a bad faith case here as it may be in other states. See, e.g., Asmat, D. P. and Tennyson, S. (2014), Does the Threat of Insurer Liability for “Bad Faith” Affect Insurance Settlements?. Journal of Risk and Insurance, 81: 1–26. doi: 10.1111/j.1539-6975.2012.01499.

1. Illinois Bad Faith Insurance Claims: Statutes Define Insurance Bad Faith

For instance, in Illinois there is a specific set of statutes (see, e.g., 215 Ill. Comp. Stat. 5/155 (”Section 155”)), that determines the rights and remedies for victims of bad faith actions by an insurance company where the carrier drags its heels about settling the case.

This law covers bad faith insurance cases that arise in Illinois. There is not a separate common law tort claim for insurance bad faith in Illinois because the Illinois legislature has acted to create laws that control this issue. See, Cramer v. Insurance Exchange Agency, 675 N.E.2d 897, 174 Ill. 2d 513, 221 Ill. Dec. 473 (1996).

This law includes a provision that allows for attorneys’ fees to be paid by the insurance company who has been found guilty of bad faith in refusing to settle in order to help victims of bad faith get justice (by making the bad faith carrier pay their legal expenses as part of the award). See, Cramer at pp. 520-521.

Section 155 states, in part, that:

(1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts:
(a) 60% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs;
(b) $60,000;
(c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action.

If the harmed accident victim does not properly file his bad faith insurance claim in accordance with the Illinois bad faith claims laws, then he will likely face a successful motion by the insurance carrier to have the case dismissed “for failure to state a claim.” See, Powell v. American Service Ins. Co., 7 N.E.3d 11 (Ill. App. Ct. 2014).

2. Indiana Bad Faith Insurance Claims: Court Precedent Establishes a Duty

Indiana does not have a set of specific laws that govern insurance company bad faith situations. Instead, the collected court cases of Indiana (called “case precedent”) provide guidance on how someone can seek justice against an insurance carrier who has been guilty of bad faith in the processing or payment of an accident claim.

Under Indiana law, insurance companies do have a duty to act in good faith with their insureds and policyholders. Bad faith by an insurance company can result in liability under Indiana state law in several ways. In the case of Erie Insurance Company v. Hickman, the Indiana Supreme Court holds that an insurance company will violate its legal duty of good faith when it fails to honor a claim presented to it with “no legitimate basis for denying liability.” Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind. 1993).

It also provides a partial list of bad faith examples:

[In] recognition of a cause of action for the tortious breach of an insurer’s duty to deal with its insured in good faith is appropriate, … we make these general observations. The obligation of good faith and fair dealing with respect to the discharge of the insurer’s contractual obligation includes the obligation to refrain from
(1) making an unfounded refusal to pay policy proceeds;
(2) causing an unfounded delay in making payment;
(3) deceiving the insured; and
(4) exercising any unfair advantage to pressure an insured into a settlement of his claim.

Insurance Bad Faith Cases Can Be Complicated

In any situation where there is an accident victim or his loved ones faced with demanding justice from a negligent defendant (or set of negligent defendants) and their insurance carriers, it is a David and Goliath situation. These insurance carriers are in the business of processing claims with the goal of keeping as much net revenue on the books for their shareholders as possible. It is true that hard fought settlement negotiations, particularly in serious injury cases or wrongful death matters, may happen with a fierce insurance defense lawyer and a stingy insurance company representative at the table without any bad faith at play.

However, there will be occasions when bad faith does happen. It can be tricky to spot, and hard to find victory when faced with a bad faith insurance carrier.

Anyone trying to settle an accident claim with an insurance carrier needs to be aware of this. Be careful out there!

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