Seventh Circuit Holds Liability Carrier Did Not Act in Bad Faith by Paying Underinsured Motorist Benefits After Four Years of Negotiations

In Wolf v. Riverport Insurance Co., the Seventh Circuit Court of Appeals affirmed the district court’s holding, under Illinois law, that an underinsured motorist insurer did not breach its insurance contract, and no implied duty of good faith and fair dealing was implicated, where the insurer resolved the claimant’s claim for underinsured motorist benefits after negotiating with the claimant for four years.

The claimant suffered multiple pelvic fractures as a result of an auto accident with another vehicle. The claimant settled with the driver of that vehicle and then filed claims for underinsured motorist benefits with her personal automobile insurer and her employer’s general commercial liability insurer to cover the remainder of the losses. The claimant resolved both of those claims too, but in the case of the general commercial liability carrier, the resolution came after four years of negotiations that ended in arbitration.

The claimant filed suit against the liability carrier, alleging that, among other things, the carrier, under section 155 of the Illinois Insurance Code, failed to promptly respond to communications, delayed its investigation into her claim, attempted to settle her claim for an unreasonably low amount, forcing her to pursue arbitration, and delayed the arbitration, among other related conduct. The district court disagreed with the claimant and granted the liability carrier’s motion for judgment on the pleadings. The appeal followed.

The Seventh Circuit held that to obtain relief under section 155, a plaintiff must do more than merely allege facts showing that a carrier caused a “vexatious and unreasonable” delay in settling her claim. The Seventh Circuit directed that the plaintiff must also allege facts showing a plausible breach of a right conferred in the insurance contract itself. Thus, the Seventh Circuit explained: “This appeal turns on whether she has.” Thus, the Seventh Circuit set forth the inquiry as: did the liability carrier’s negotiation conduct, as alleged by the plaintiff in her complaint, plausibly breach some obligation under the policy?

The appellate court ruled no. The Seventh Circuit found that under the policy, the liability carrier provided underinsured motorist coverage to the claimant in exchange for premiums paid by her employer. If the carrier did not pay the claimant for covered losses that would have breached the contract, but by the time the claimant filed this suit, the carrier had paid the claimant. Thus, in order for the claimant to have a viable claim, the contract must therefore impose some other obligation on the carrier, which must have plausibly breached that obligation. The Seventh Circuit ruled that was simply not the case and similarly found that there was also no basis in the policy to invoke the implied covenant of good faith and fair dealing.