United States District Court, Northern District of Illinois, E.D
September 8, 1982
ALINE SMITH, PLAINTIFF,
METROPOLITAN LIFE INSURANCE COMPANY, DEFENDANT.
The opinion of the court was delivered by: Moran, District Judge.
MEMORANDUM AND ORDER
On November 9, 1978 Andrew Smith and plaintiff Aline Smith,
husband and wife, applied for and received a joint life
insurance policy issued by defendant Metropolitan Life
Insurance Company ("Metropolitan"). Less than one year later
Andrew Smith died in an automobile accident and plaintiff made
claim to Metropolitan for the proceeds allegedly due under the
policy. Before making payment Metropolitan conducted a routine
investigation which, they contend, disclosed that Andrew had
been hospitalized for cirrhosis of the liver and chronic
alcohol abuse. None of these conditions, nor the
hospitalization, was disclosed by the plaintiff or her husband
in the insurance application. On the basis of what defendant
depicts as a misrepresentation material to the risk assumed by
it in issuing the insurance policy, Metropolitan denied the
In response, Aline Smith brought suit against Metropolitan
in Circuit Court and defendant subsequently removed the suit
to this court. Plaintiff's complaint is in two counts. In
Count I plaintiff seeks recovery of the insurance proceeds
plus attorneys' fees and other costs under Section 155 of
Illinois Insurance Code, ch. 73, ¶ 767, Ill. Rev.Stat., § 1 et
seq., (1979), alleging that Metropolitan vexatiously and
unreasonably refused to pay the proceeds. In Count II,
plaintiff seems to allege that defendants breached a duty of
good faith and, in addition, intentionally inflicted emotional
distress on plaintiff.
Currently before the court is defendant's motion for partial
summary judgment on Count I and summary judgment on Count II.
Specifically, Metropolitan contends that as to Count I
plaintiff is not entitled to damages under § 155 of the
Illinois Insurance Code because there exists a bona fide
dispute between the parties and, thus, Metropolitan as a matter
of law did not act vexatiously and unreasonably. As for Count
II, plaintiff argues that no claim for breach of duty of good
faith has been made out, and moreover, if it was, that § 155
preempts the field of extra contractual damages. Finally,
Metropolitan contends that plaintiff has not stated a claim for
intentional infliction of emotional distress, nor is punitive
damages recoverable for such a tort.
I. Count I: Recovery of Damages under Section 155
Section 155 provides, inter alia, that
In any action by or against a company wherein
there is an issue of the liability of a company
on a policy or policies of insurance or the
amount of the loss payable thereunder, or for an
delay on 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 of the following amounts:
(a) 25% of the amount which the court or jury
finds such party is entitled to recover against
the company, exclusive of all costs [or]
(b) $5,000 . . . .
Whether an insurance company has acted vexatiously or
unreasonably in processing a claim is to be determined by the
court in its discretion. Howard Foundry Co. v. Hartford Fire
Insurance Co., 222 F.2d 767 (7th Cir.), cert. denied,
350 U.S. 885, 76 S.Ct. 137, 100 L.Ed. 780 (1955). Automotive Wholesalers
of Illinois v. National Union Fire Insurance Co., 501 F. Supp. 1205,
1210 (N.D. Ill. 1980). No single factor is determinative,
"rather, the totality of the circumstances, taken in broad
focus, will determine the matter." Deverman v. Country Mutual
Insurance Co., 56 Ill. App.3d 122, 14 Ill.Dec. 94, 96,
371 N.E.2d 1147, 1149 (4th Dist. 1977). See Fassola v. Montgomery
Ward Insurance Co., 104 Ill. App.3d 825, 60 Ill.Dec. 581, 586,
433 N.E.2d 378, 383 (3d Dist. 1982); Crest v. State Farm Mutual
Automobile Insurance Co., 20 Ill. App.3d 382, 313 N.E.2d 679,
684 (2d Dist. 1974). In support of their motion for summary
judgment, Metropolitan contends that because a bona fide
dispute exists between the parties defendant cannot be said to
have acted vexatiously and is therefore entitled to summary
judgment as a matter of law. In other words, defendant's
position is that even if a jury ultimately were to find that
the facts misrepresented in the Smith application were not
material, Metropolitan nonetheless acted in accord with
underwriting regulations, common sense and case law precedent
in denying the claim.
In opposition, plaintiff maintains that a decision at this
juncture would be premature. If further evidence reveals that
Metropolitan knew or should have known that the
misrepresentation was not material, then the misrepresentation
was not grounds for rescission and Metropolitan could be found
to have taken a vexatious and unreasonable position. Further,
plaintiff asserts that under Illinois law Metropolitan should
be estopped from relying on the misrepresentation to avoid
liability on the contract. According to plaintiff, Laura
Muller, the agent of Metropolitan who sold the policy, was
told by Andrew Smith at the time of application that he had
been hospitalized in 1975 for leg cramps. (Dep. of A. Smith,
pp. 57-59.) Nevertheless, "despite having been so put on
notice and informed, albeit in layman's terms, of the
deceased's medical history, Muller checked `No' in answer to
several questions regarding the deceased's medical history,
and further failed to note the fact of the disclosed
hospitalization in the prominent blank space provided for such
notation on the application form." Under Illinois law an
insurer who issues a policy with notice of an insured's
medical history is estopped from using that medical condition
to defeat plaintiff's claim. Moone v. Commercial Casualty
Insurance Co., 350 Ill. App. 328, 112 N.E.2d 626 (1st Dist.
1953). See National Discount Shoes, Inc. v. Royal Globe
Insurance Co., 99 Ill. App.3d 54, 54 Ill.Dec. 263,
424 N.E.2d 1166 (1st Dist. 1981).
Defendant, relying upon Muller's deposition, responds that
in fact the agent was never advised prior to the issuance of
the policy that Andrew Smith had been hospitalized in 1975.
Moreover, at best, plaintiff's evidence only supports an
inference that Muller was informed that Andrew was
hospitalized for leg cramps, not that he received medical
treatment for alcoholism and cirrhosis of the liver.
Viewing the facts in a light most favorable to the
plaintiff, this court finds that Metropolitan's refusal to pay
the insurance proceeds was in no way vexatious or
unreasonable. See Crest v. State Farm Mutual Insurance Co.,
supra, 313 N.E.2d at 684. Even if plaintiff were ultimately to
prevail on the merits of her claim it still could not be said
that the insurance company took a vexatious and unreasonable
position in rejecting the claim. Automotive Wholesalers
of Illinois v. National Fire Insurance Co., supra. Instead, all
the evidence adduced thus far supports the conclusion that
Metropolitan acted in good faith when it interpreted the
omission of medical information as a material representation
and in accordance with established practice rejected
Nor does Aline Smith's estoppel theory advance her cause.
There is no indication that the agent knew of the specific
medical condition which Metropolitan claims to constitute the
misrepresentation. Accordingly, defendant's motion for partial
summary judgment with respect to that part of Count I which
seeks damages under § 155 is granted.
II. Count II: Breach of Duty and Intentional Infliction of
Plaintiff alleges in Count II that defendant's failure to
honor the claim was wilful, wanton and malicious, and the
"natural and proximate result of which was to inflict severe
emotional distress upon the plaintiff." In its motion for
summary judgment defendant interprets the cryptic allegations
of Count II as attempting to state a claim for breach of duty
of fair dealing and for intentional infliction of emotional
distress, and plaintiff appears to accept these claims as the
basis of the count.
A. Breach of Duty of Good Faith and Fair Dealing
In moving for summary judgment Metropolitan contends that
§ 155 of the Illinois Insurance Code preempts the field of
extracontractual damages arising out of an insurer's alleged
bad faith refusal to settle a claim and, in any event, that
plaintiff's allegations fail to state a claim for tortious
conduct. Because we agree with the former argument it is not
necessary to determine whether plaintiff's allegations state a
Prior to 1975 and the Fifth District Appellate Court
decision in Ledingham v. Blue Cross Plan, 29 Ill. App.3d 339,
330 N.E.2d 540 (5th Dist. 1975), rev'd on other grounds,
64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75 (1976), Illinois
courts did not recognize a cause of action for punitive damages
arising out of a breach of contract. Wallace v. Prudential
Insurance Co., 12 Ill. App.3d 623, 629, 299 N.E.2d 344 (1973).
See Siegal v. Health Care Service Corp., 81 Ill. App.3d 784, 36
Ill.Dec. 899, 905, 401 N.E.2d 1037, 1043 (1st Dist. 1980). In
Ledingham the court recognized a duty of good faith and fair
dealing in the insured/insurer relationship and, relying on
California case law, held that where the conduct of the
insurance company in breaching this duty was outrageous,
punitive damages could properly be awarded.
"Illinois cases subsequent to Ledingham have either affirmed
its validity although denying its application in the particular
case, or questioned its reasoning while refusing to accept its
thesis." Siegal v. Health Care Service Corp., supra, 36
Ill.Dec. at 906, 401 N.E.2d at 1044. Several Illinois appellate
districts recently have determined that, at least with regard
to punitive damages, § 155 precludes recovery for breach of
duty of good faith. Hoffman v. Allstate Insurance Co., 85 Ill. App.3d 631,
40 Ill.Dec. 925, 407 N.E.2d 156 (2d Dist. 1980);
Tobolt v. Allstate Insurance Co., 75 Ill. App.3d 57, 30
Ill.Dec. 824, 393 N.E.2d 1171 (1st Dist. 1979); Debolt v.
Mutual of Omaha, 56 Ill. App.3d 111, 13 Ill.Dec. 656,
371 N.E.2d 373 (3d Dist. 1978). See Strader v. Union Hall, Inc.,
486 F. Supp. 159, 161-63 (N.D.Ill. 1980). "The rationale is that
the courts should not create by judicial fiat remedies in
addition to those already provided legislatively. Both courts
[in Tobolt and Debolt] observed that Section 155 of the
Illinois Insurance Code . . . confers upon an insured the right
to recover attorneys' fees if the court concludes that the
insurer's refusal to pay is vexatious or unreasonable." Strader
v. Union Hall, Inc., supra at 161. Where the legislature has
prescribed a remedy a court should "not only be loath" but in
addition should "harbor serious doubts as to the desirability
and wisdom of implementing or expanding the legislative remedy
by judicial decree." Debolt v. Mutual of Omaha,
supra, 13 Ill.Dec. at 660, 371 N.E.2d at 377. See also Urfer v.
Country Mutual Insurance Co., 60 Ill. App.3d 469, 17 Ill.Dec.
744, 376 N.E.2d 1073 (4th Dist. 1978).
In rejecting the Ledingham analysis these courts note that
the Fifth District decision nowhere discusses § 155, much less
its preemptive effect. Similarly, Ledingham's reliance on
California case law was deemed misplaced since California has
no statutory provision analogous to § 155 of the Illinois
Insurance Code. See Tobolt v. Allstate Insurance Co., supra, 30
Ill.Dec. at 833, 393 N.E.2d at 1180. This court therefore
concurs with the sentiments expressed by Judge Aspen that
"Tobolt and Debolt represent a more sound interpretation of
Illinois law than does Ledingham." Strader v. Union Hall, Inc.,
supra at 162. Accordingly, we find that at least with regards
to punitive damages § 155 preempts any common law cause of
Whether consequential damages may be awarded for breach of
duty of good faith and fair dealing presents a different
question. It can be argued that the justification for
preemption outlined above most directly applies when punitive
damages are sought, for the remedy provided by § 155 is in the
nature of a punitive damage remedy. Strader v. Union Hall,
supra at 162. Thus, one Illinois Appellate Court denied a
motion to dismiss a count for compensatory damages, since §
155, "on its face does not preempt a plaintiff's right to claim
compensatory damages for a breach of good faith and fair
dealing." Hoffman v. Allstate Insurance Co., supra, 85 Ill.
App.3d at 635, 40 Ill.Dec. 925, 407 N.E.2d 156.
The Tobolt court, however, rejected a distinction based on
the type of damages and held that in either case the
legislature preempted the field by enacting § 155. Tobolt v.
Allstate Insurance Co., supra. See Lynch v. Mid-America Fire &
Marine Insurance, supra. This court, faced with an unsettled
question of state law, must render a decision which it believes
the highest state court would issue if faced with identical
circumstances. Eckenrode v. Life of America Insurance, Co.,
470 F.2d 1, 3 (7th Cir. 1972). Accordingly, we find the detailed
analysis of Tobolt more persuasive than the conclusory
statements contained in Hoffman.
An insurance company that "unreasonably or vexatiously
delays" compensating beneficiaries necessarily acts in "bad
faith", the two phrases merely representing different
characterizations of the same concept. And § 155 permits
recovery of compensatory damages when it provides for an award
of withheld insurance proceeds as well as attorneys' fees and
other costs. At the very least, therefore, a tort action under
common law and a contract claim within the statutory framework
are totally duplicative. Further, the reasoning in Tobolt
concerning judicial reluctance to go beyond remedies provided
in a statute applies with equal force to both punitive and
"We are of the opinion that the legislature has
intended to provide a remedy to an insured who
encounters unnecessary difficulties with an
unreasonable and vexatious insurance company. The
insured can maintain an action on the contract
for recovery of withheld policy benefits and upon
proper finding by the court can be awarded
attorneys' fees in addition to all other costs.
Tobolt v. Allstate Insurance, supra, 75 Ill. App.3d 57, 30
Ill.Dec. 824, 832, 393 N.E.2d 1171
, 1179, quoting Debolt v.
Mutual of Omaha, supra. Accordingly, that part of Count II that
attempts to state a claim for breach of duty of good faith and
fair dealing is stricken. See Ernestrine Henke v. Travelers
Insurance Co. of Ill., No. 80 C 5068 (N.D.Ill. October 21,
B. Intentional Infliction of Emotional Distress
The tort of "outrage" or "intentional infliction of
emotional distress" was recognized two decades ago by the
Illinois Supreme Court in Knierim v. Izzo, 22 Ill.2d 73,
174 N.E.2d 157 (1961). "Although the Illinois Supreme Court has not
been presented with the issue, other tribunals in this state
have conceded, if occasionally only in dicta, that an insured
would be liable for its outrageous
conduct." Robertson v. Travelers Insurance Co., 100 Ill. App.3d 845,
849, 56 Ill.Dec. 222, 427 N.E.2d 302 (5th Dist. 1981). See
Eckenrode v. Life of America Insurance Co., supra; Bellmer v.
Charter Security Life Insurance, 105 Ill. App.3d 234, 61 Ill.
Dec. 34, 433 N.E.2d 1362 (4th Dist. 1982); Siegal v. Health
Care Service Corp., 81 Ill. App.3d 784, 36 Ill.Dec. 899,
401 N.E.2d 1037 (1980); Tobolt v. Allstate Insurance Co., supra;
Urfer v. Country Mutual Insurance Co., 60 Ill. App.3d 469, 17
Ill.Dec. 744, 376 N.E.2d 1073 (4th Dist. 1978); Debolt v.
Mutual of Omaha, 56 Ill. App.3d 111, 13 Ill.Dec. 656,
371 N.E.2d 373 (3d Dist. 1978).
To state a cause of action for the tort of intentional
infliction of emotional distress, plaintiff must allege facts
which demonstrate (1) that Metropolitan's conduct was extreme
and outrageous; (2) that plaintiff's emotional distress was
severe; and (3) Metropolitan's conduct was such that defendant
knew that severe emotional distress would be certain or
substantially certain to result. See Plocar v. Dunkin' Donuts
of America, 103 Ill. App.3d 740, 59 Ill.Dec. 418,
431 N.E.2d 1175 (1st Dist. 1981);
Public Finance Corp. v. Davis, 66 Ill.2d 85,
4 Ill.Dec. 652, 360 N.E.2d 765 (1976).
The undisputed facts in this case, however, clearly
demonstrate that as a matter of law Metropolitan's conduct
falls far short of "being so outrageous in character and so
extreme in degree as to go beyond all possible bounds of
decency." Restatement (Second) of Torts, § 46 comment d (1965).
See Strader v. Union Hall, Inc., 486 F. Supp. 159 (N.D.Ill.
1980); Plocar v. Dunkin' Donuts of America, supra; Milton v.
Illinois Bell Telephone Co., 101 Ill. App.3d 75, 56 Ill.Dec.
497, 427 N.E.2d 829, (1st Dist. 1981). And defendant's
allegation of malice or "evil motive" is also not, by itself,
sufficient to show the requisite degree of outrageousness.
In conclusion, defendant's motion for partial summary
judgment as to Count I and summary judgment on Count II is
A cause of action for recovery of the insurance proceeds
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