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ABBOTT LABORATORIES v. GRANITE STATE INS. CO.

September 14, 1983

ABBOTT LABORATORIES, ET AL., PLAINTIFFS,
v.
GRANITE STATE INSURANCE CO., DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Abbott Laboratories and Abbott Laboratories International Company (collectively "Abbott" in the singular) has brought this four-count diversity action challenging the refusal by its insurer, Granite State Insurance Company ("Granite"), to indemnify Abbott for certain insured losses:

    1. Count I is a contractual claim for the amount
  due on the insurance policy.
    2. Count II is based on Illinois Insurance Code §
  155 ("Section 155"), Ill.Rev.Stat. ch. 73, § 767,
  which permits certain extraordinary costs to be taxed
  against an insurer that vexatiously and unreasonably
  refuses to pay: attorneys' fees plus an additional
  amount not to exceed any of the three ceiling amounts
  prescribed in Section 155.
    3. Count III purports to be a tort claim seeking
  compensatory and punitive damages for Granite's
  wilful refusal to pay — a breach of its duty of
  good faith and fair dealing towards insureds.
    4. Count IV characterizes Granite's assertedly
  vexatious and unreasonable refusal to pay as an
  "improper claims practice" proscribed by Illinois
  Insurance Code § 154.6 ("Section 154.6"),
  Ill.Rev.Stat. ch. 73, § 766.6, and seeks
  punitive damages under that provision.

Granite has now moved to dismiss Counts III and IV for failure to state a claim. For the reasons stated in this memorandum opinion and order, its motion is granted.

Count III

Granite contends Section 155*fn1 has displaced the common law tort remedy for vexatious delay asserted in Count III. As this Court explained in Evaluation Systems, Inc. v. Aetna Life Insurance Co., 555 F. Supp. 116, 120 (N.D.Ill. 1982), the Illinois Appellate Courts are sharply divided on that issue:

  Without even addressing the preemptive implications
  of the statutory remedy, the Fifth District Appellate
  Court recognized

  an independent tort action against insurers for
  breach of their implied duty of good faith and fair
  dealing. Ledingham v. Blue Cross Plan for Hospital
  Care, 29 Ill. App.3d 339, 330 N.E.2d 540 (5th Dist.
  1975). Ledingham has had a mixed reception in the
  other Illinois Appellate districts. Both the First
  and Third Districts have disapproved of Ledingham,
  concluding the original Section 155 foreclosed any
  judicial enhancement (via common law tort remedy) of
  recovery for vexatious delay. 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). Tobolt also found the
  1977 amendment to Section 155 (its current version)
  also manifested a legislative intent to preempt the
  field. However the Fourth District has endorsed the
  availability of Ledingham's tort remedy in cases to
  which the amended Section 155 cannot be retroactively
  applied (it has not yet ruled whether the present
  Section 155 has preemptive effect). Lynch v.
  Mid-America Fire & Marine, 94 Ill. App.3d 21, [49
  Ill.Dec. 567], 418 N.E.2d 421 (4th Dist. 1981). And
  the Second District has said a tort remedy for
  compensatory damages may lie despite Section 155.
  Hoffman v. Allstate Insurance Co., 85 Ill. App.3d 631,
  [40 Ill.Dec. 925], 407 N.E.2d 156 (2d Dist. 1980).

Employing the "Supreme Court-predictive" approach to the Erie problem posed by that split of authority, this Court's colleague Judge Marshall recently concluded Section 155 did not preempt the Ledingham tort. Kelly v. Stratton, 552 F. Supp. 641 (N.D.Ill. 1982). However, for the reasons expounded at length in Commercial Discount Corp. v. King, 552 F. Supp. 841, 847-52 (N.D.Ill. 1982), this Court perceives its Erie obligations differently. In this Court's view Erie (as amplified in Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941)) demands adherence to the Illinois "internal" choice of law rule that binds a state trial court to the decisions of the Appellate Court in its own district when the Appellate Courts diverge. In this case, this Court sits in the same position as a Cook County Circuit Judge in the First Appellate District, for the Illinois venue statute (Ill.Rev.Stat. ch. 110, § 2-101) would have permitted Abbott to sue Granite (a foreign corporation) in Cook County.*fn2 Consequently the position taken by the First Appellate District in Tobolt is dispositive here: Section 155 preempts any tort remedy for vexatious and unreasonable refusal to pay insurance proceeds. Count III must therefore be dismissed.

Count IV

Tobolt, 75 Ill. App.3d at 71, 30 Ill.Dec. at 834, 393 N.E.2d at 1181 also spells the demise of Count IV by refusing to find any private right of action for violations of Section 154.6:

  Plaintiffs cite the provisions of section 154.6 and
  its predecessor (Ill.Rev.Stat. 1977, ch. 73, par.
  766.6), defining ...

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