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ABBOTT LABORATORIES v. GRANITE STATE INS. CO.
September 14, 1983
ABBOTT LABORATORIES, ET AL., PLAINTIFFS,
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.
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
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.
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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