United States District Court, Northern District of Illinois, E.D
January 11, 1984
WILLIAM W. AABYE, DAVID BENDER, GERALD P. CAMPAGNA, ROBERT C. CHRISTENSON, JOHN T. DOLBY, ALFRED B. HORN, FRANCIS A. KUNZ, RAYMOND A. MITCHELL, GEORGE E. MOEHLENHOF, CHARLES E. MURPHY, BERNARD A. POLEK, GARY L. PRIOR, MICHAEL E. REED, JERROLD RUSKIN, MELINDA A. SHERMAN, GEORGE A. STEPHEN, NATHAN B. SWIFT, JR., MAX WICZER, RALPH BENDER AND JOSEPH E. GORMAN, PLAINTIFFS,
SECURITY-CONNECTICUT LIFE INSURANCE CO., DEFENDANT.
The opinion of the court was delivered by: Aspen, District Judge:
MEMORANDUM OPINION AND ORDER
Plaintiffs sued Security-Connecticut Life Insurance Co.
("Security") for failure to pay a claim based upon an
insurance policy, for violations of Ill.Rev.Stat. ch. 73 § 767
and for violations of the Illinois Consumer Fraud Act,
Ill.Rev.Stat. ch. 121 1/2 § 261 et
seq. Jurisdiction is asserted pursuant to 28 U.S.C. § 1332, and
the amount in controversy is alleged to exceed $10,000.
Presently before the Court is Security's motion to dismiss the
second amended complaint. For reasons set forth below, the
motion to dismiss is granted in part and denied in part.
Leslie E. Wade ("Wade") applied for a one million dollar
life insurance policy from defendant in 1981 and 1982. Wade
signed the first part of an application on December 30, 1981,
and the second part on April 3, 1982. In 1982, Wade passed a
physical examination by Security's doctor. Security issued an
insurance policy on Wade's life in May, 1982. Wade assigned
the policy to plaintiffs as collateral for obligations on his
part totalling $463,200 plus fourteen percent interest and
certain expenses. Security was advised of and accepted the
assignment. Wade died on December 1, 1982, not having
satisfied his obligations to plaintiffs. Plaintiffs made a
claim against the insurance policy on Wade's life, but
Security refused to honor the claim, stating that an
investigation revealed "there was a substantial change in
health between the date of application, April 13, 1982, and
the date the policy was approved, delivered and the first
premium paid in May, 1982."*fn1
Plaintiffs assert that there was no substantial change in
Wade's health between the date of application and the date the
policy was approved, and that Security may not rely upon
"obscure provisions" in the life insurance application, which
had not been shown to Wade. Security's acceptance of premiums
and subsequent denial of coverage, according to plaintiffs,
violates Ill.Rev.Stat. ch. 73 § 767, Ill.Rev.Stat. ch. 121 1/2
§ 262, and constitutes bad faith and tortious conduct. Security
argues that plaintiffs, as assignees, lack standing to claim
relief for an alleged violation of Ill. Rev.Stat. ch. 73 § 767,
and that the denial of the claim is not actionable under the
aforecited statute. As to Count III, Security asserts that the
Consumer Fraud and Deceptive Business Practices Act does not
apply to an insurer's refusal to pay a claim. Count IV, which
sounds in outrageous conduct or unfair dealing, also fails to
state a claim under Illinois law according to Security.
When considering a motion to dismiss, the allegations of the
complaint must be viewed in the light most favorable to the
plaintiff; such allegations will be assumed to be true.
Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d
80 (1957). Motions to dismiss for failure to state a claim
should not be granted unless it appears from the complaint that
the plaintiff can prove no set of facts entitling him or her to
relief. Id. It is with these standards in mind that we consider
the present motion.
According to Ill.Rev.Stat. ch. 73 § 767,
§ 155. Attorney fees. In any action by or against
a company wherein there is in issue the liability
of a company on a policy or policies of insurance
or the amount of the loss payable thereunder, or
for an unreasonable delay in 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 one of the following
(a) 25% of the amount which the court or jury
finds such party is entitled to recover against
the company, exclusive of all costs;
(c) the excess of the amount which the court or
jury finds such party is entitled to recover,
exclusive of costs, over the amount, if any,
which the company offered to pay in settlement of
the claim prior to the action.
Whether an insurance company has acted vexatiously or
unreasonably in processing a claim is to be determined by a
court in its discretion. Howard Foundry Co. v. Hartford Fire
Insurance Co., 222 F.2d 767
(7th Cir. 1955), cert. denied,
350 U.S. 885
, 76 S.Ct. 137
, 100 L.Ed. 780 (1955); Smith v.
Metropolitan Life Insurance Co., 550 F. Supp. 896
, 898 (N.D.Ill.
1982). The totality of circumstances must be considered in
deciding this issue. Deverman v. Country Mutual Insurance Co.,
56 Ill.App.3d 122, 124, 14 Ill.Dec. 94, 96, 371 N.E.2d 1147
1149 (4th Dist. 1977).
Security relies upon language in the application and policy,
see note 1, supra, to support its refusal to pay plaintiffs'
claim. But plaintiffs' complaint asserts that there was no
substantial change in Wade's health between the date of
application and the date the policy was approved. As we have
previously observed, we must take as true plaintiffs' well-pled
allegations. Conley v. Gibson, supra. While the clause at issue
may be valid, Continental Illinois National Bank & Trust Co. v.
Columbian National Life Insurance Co., 76 F.2d 733, 735 (7th
Cir. 1935), Security's conduct may well have been vexatious and
unreasonable. But resolution of this question, which involves
factual matters, is not appropriate at the present stage of
this litigation. Such an inquiry is better suited to a motion
for summary judgment. See Smith v. Metropolitan Life Insurance
Co., 550 F. Supp. 896 (N.D.Ill. 1982). Accordingly, Security's
motion to dismiss Count II is denied.*fn2
The Consumer Fraud and Deceptive Business Practices Act is
to be liberally construed. Ill.Rev.Stat. ch. 121 1/2 § 271a.
Accordingly, the statute has been applied to insurance
companies. E.g., Fox v. Industrial Casualty Insurance Co.,
98 Ill. App.3d 543, 54 Ill.Dec. 89, 424 N.E.2d 839 (1st Dist.
1981). "Merchandise" under the act is defined to include
"services," Ill.Rev.Stat. ch. 121 1/2 § 261(b). As the court in
Fox observed, insurance is a service and insureds are consumers
for purposes of the statute. Id. at 546, 54 Ill.Dec. at 92, 424
N.E.2d at 842. To hold that assignees of an insured lack
standing to sue under the Consumer Fraud and Deceptive Business
Practices Act would contravene the broad mandate of the
statute. Additionally, it is settled that when a valid
assignment is effected, the assignee both acquires all of the
interest of the assignor in the property that is transferred
and stands in the shoes of the assignor. Stavros v. Karkomi,
39 Ill. App.3d 113, 123, 349 N.E.2d 599, 607 (1st Dist. 1976).
Accordingly, Security's motion to dismiss Count III is
Count IV avers that Security committed the tort of breach of
the duty of good faith and fair dealing. The court in
Ledingham v. Blue Cross Plan for Hospital Care, 29 Ill. App.3d 339,
330 N.E.2d 540 (5th Dist. 1975), rev'd in part, 64 Ill.2d 338,
1 Ill.Dec. 75, 356 N.E.2d 75 (1976), first recognized this
cause of action. In a previous opinion, we declined to follow
Ledingham. Strader v. Union Hall, Inc., 486 F. Supp. 159, 161-62
(N.D.Ill. 1980). We observed that other decisions, e.g., Tobolt
v. All State Insurance Co., 75 Ill.App.3d 57, 30 Ill.Dec. 824,
393 N.E.2d 1171 (1st Dist. 1979), which rejected the existence
of such a tort, represented a sounder interpretation of
Illinois law. Id. We see no reason to depart from our previous
treatment of this issue, and Count IV is therefore dismissed.
Accordingly, Security's motion to dismiss Counts I, II and
III is denied; its motion to dismiss Count IV is granted. It
is so ordered.*fn4