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IMPEX SHRIMP & FISH v. AETNA CAS. AND SUR.

June 14, 1985

IMPEX SHRIMP & FISH COMPANY, PLAINTIFF,
v.
THE AETNA CASUALTY AND SURETY COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Grady, Chief Judge.

MEMORANDUM OPINION

This case is before us on the motion of defendant Aetna Casualty and Surety Company (`Aetna') to dismiss Counts III, IV and V of plaintiff's complaint. For the reasons given below, Aetna's motion is granted in part and denied in part.

BACKGROUND

Impex Shrimp and Fish Co., Inc. (`Impex') is an Illinois corporation engaged in the business of selling seafood products. Defendant Channelwise International Company (`Channelwise') is a Taiwanese exporter of seafood products. Impex claims that it negotiated a sales contract with Channelwise in which Channelwise agreed to sell 1055 cases of shrimp of a certain size for $88,345.00. Originally, Impex was going to require that it not pay Channelwise until the Federal Drug Administration (`FDA') had accepted the shrimp as meeting United States health standards. Based upon representations made by Channelwise and Aetna, however, to the effect that Aetna had previously insured Channelwise's shrimp and would promptly pay a claim should the FDA reject the shrimp, Impex agreed to pay Channelwise before FDA acceptance, provided that Channelwise insure the shrimp for 110 per cent of the price paid by Impex.

Pursuant to this contractual agreement and communications made among Impex, Channelwise and Aetna, Aetna issued an insurance policy for the shrimp in the amount of $97,190.00, payable to Impex. Impex claims that under this policy Aetna was to pay for any loss of the shrimp, including rejection by the FDA.

Impex claims that prior to shipment of the shrimp from Taiwan, Aetna's agent inspected this shrimp and issued a Survey Report stating that Channelwise had frozen 1055 cases of shrimp of the type and weight specified in the contract. The shrimp were then shipped to Impex. At Impex's Illinois place of business, the shrimp were inspected and eventually rejected by the FDA because they apparently had not been frozen properly. Impex had paid Channelwise the contract price, but Aetna has refused to pay Impex under the insurance policy.

Aetna admits that Impex contracted with Channelwise, that it issued an insurance policy covering the shrimp specified in the contract, and that the FDA rejected the shrimp. It has refused to pay because it claims that the shrimp covered by the policy are not the shrimp rejected by the FDA. Aetna also claims that Impex violated various terms and conditions of the insurance policy, thus barring Impex from recovering.

The three counts of Impex's complaint which Aetna seeks to dismiss are Count III, in which Impex seeks compensatory and punitive damages for Aetna's misconduct under Ill.Rev.Stat. ch. 73, ¶ 766.6; Count IV, a claim under the Illinois Consumer Fraud and Deceptive Business Practices Act (`Consumer Fraud Act'), Ill.Rev.Stat. ch. 121 1/2, ¶¶ 261 et seq.; and Count V, based upon equitable estoppel.

DISCUSSION

        Count III — Tortious Refusal to Pay Under ¶ 766.6
  Aetna claims that Ill.Rev.Stat. ch. 73, ¶ 767 preempts all tort
claims based upon an insurance company's bad faith refusal to pay
a claim. Aetna also argues that ¶ 766.6 does not give rise to a
private cause of action. Since Impex claims damages under ¶ 767
in Count II of its complaint, Aetna argues that Count II
encompasses Impex's total possible relief for any refusal to pay
(aside from the amount specified in the insurance policy).

Aetna is correct that ¶ 766.6 does not give rise to a private cause of action. Van Vleck v. Ohio Casualty Insurance Co., 471 N.E.2d 925, 128 Ill.App.3d 959, 84 Ill.Dec. 159 (3d Dist. 1984); Hoffman v. Allstate Insurance Co., 85 Ill.App.3d 631, 40 Ill.Dec. 925, 407 N.E.2d 156 (2d Dist. 1980). The only method by which an insured can obtain damages caused by an insurer's bad faith refusal to pay is to sue under ¶ 767, which plaintiff has done in Count II. Because there is no statutory or common law cause of action for an insurer's bad faith refusal to pay outside of ¶ 767, Count III fails to state a claim and must be dismissed.

We have held that ¶ 767 preempts common law causes of action on four previous occasions: Zakarian v. The Prudential Insurance Co. of America, 626 F. Supp. 420 (N.D.Ill. 1984) (Grady, J.); Tramm Investment Corp. v. Great Southwest Insurance Co., No. 81 C 1851, Memorandum Op. (N.D.Ill. Feb. 15, 1983) (Grady, J.) [available on WESTLAW, 1983 WL 1568]; Bank of Naperville v. Merrimack Mutual Fire Insurance Co., No. 81 C 774, Memorandum Op. (N.D.Ill. Oct. 28, 1983) (Grady, J.) [available on WESTLAW, 1982 WL 1581]; Hyler v. Prudential Insurance Co. of America, No. 79 C 2507, Memorandum Op. (N.D.Ill. Aug. 3, 1982) (Grady, J.) [available on WESTLAW, 1982 WL 1582]. Recent case law supports our ruling on this issue. See, e.g., Anderson v. Mutual of Omaha Insurance Co., 594 F. Supp. 726 (S.D.Ill. 1984).

Even if ¶ 767 did not preempt common law causes of action, or only preempted punitive and not compensatory damages, see UNR Industries, Inc. v. Continental Insurance Co., 46 B.R. 430 (N.D.Ill. 1984), Count III still fails to state a claim because Illinois common law does not provide for a cause of action for bad faith refusal to pay under the circumstances of this case.

The Illinois case cited for recognition of a common law action for had faith refusal to pay is Ledingham v. Blue Cross Plan Hospital Care, 29 Ill.App.3d 339, 330 N.E.2d 540 (5th Dist. 1975).*fn1 See, e.g., Bart Co. v. Safeco Insurance Co. of America, 583 F. Supp. 248, 256 (N.D.Ill. 1984). In Ledingham, the court found a cause of action because `[i]n the life and health insurer-insured relationship there is a duty upon both parties to act in good faith.' Ledingham, 29 Ill.App.3d at 350, 330 N.E.2d at 548. Nothing in Ledingham supports an expansion of its holding to business insurance relationships such as the one here. As ...


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