Seventh Circuit Affirms Judgment Dismissing Bad Faith Claim Without Viable Breach of Contract Claim

In Wolf v. Riverport Insurance Co., the Seventh Circuit Court of Appeals affirmed the dismissal of an insured’s bad faith settlement delay claim against her insurer after she attempted to recover under section 155 of the Illinois Insurance Code without a viable underlying breach of contract claim.

Wolf was injured in a car crash caused by an underinsured driver. After the crash, she exhausted the other driver’s liability policy ($100,000) and collected the policy limit from her own auto insurer ($150,000). Then she turned to Riverport, her employer’s commercial insurer, for underinsured motorist coverage. The Riverport policy had a $1 million limit.

After a four-year dispute, ending in arbitration, Wolf was awarded $905,000. Riverport paid the award, minus prior payments. Despite the arbitration award, Wolf then sued Riverport under section 155 of the Illinois Insurance Code, alleging Riverport delayed settlement in bad faith. Section 155 allows attorneys’ fees, costs, and statutory damages if an insurer vexatiously and unreasonably delays settlement.

Wolf argued that Riverport had an express or implied duty to investigate and settle her claim in good faith. As to the purported implied duty, the Seventh Circuit found that the implied covenant of good faith and fair dealing “operates as a rule of construction (not a source of independent duties) under Illinois law.” Applying Illinois law, courts have “construed the contract to oblige the party vested with contractual discretion ‘to exercise that discretion reasonably, with proper motive and in a manner consistent with the reasonable expectations of the parties.’”

As to the purported express duty, Wolf relied on language in the business auto coverage form, which states that Riverport “may investigate and settle any claim or ‘suit’ as [Riverport] consider[s] appropriate.” The court rejected Wolf’s interpretation out of hand:

Illinois law directs us to read contractual language in context, and in context, we conclude that the clause at issue grants Riverport this discretion as part of the right to defend insureds. That is, under the plain language of the policy, the right to defend insureds includes the right to investigate and settle claims, or to control the defense. The right to defend insureds does not apply in a suit by an insured against Riverport — so neither does the right to control the defense.

Wolf’s claim was a first-party claim, so there was no implied or express duty to settle in good faith. Absent a contractual duty, there was no breach. Therefore, reaffirming settled Illinois and federal precedent, the Seventh Circuit held there was no section 155 remedy:

Section 155 provides a remedy in a specified type of “action” (case); it does not create a cause of action; it presupposes rather than authorizes a suit. That is, section 155 supplements the remedies otherwise available in an action for breach of contract, breach of the tort-based duty to settle (inapplicable here), or another tort.

Because Wolf was already paid the underinsured motorist benefits and had no independent breach of contract claim against Riverport, the court found that she lacked “a viable legal theory to support her claim.” Even if Riverport’s conduct was purportedly problematic, the court correctly found there was no enforceable contractual duty obligating Riverport to settle in good faith.