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September 25, 1985


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


This action on a casualty insurance contract, coupled with a claim for defamation and tortious breach of a duty to act fairly and in good faith, is before the court on a motion to dismiss Count IV of Plaintiff's Amended Complaint. Jurisdiction is predicated on the basis of diversity under 28 U.S.C. § 1332. Plaintiff Robert Scheinfeld is alleged to be a Texas resident, and defendant American Family Mutual Insurance Company is alleged to have been organized under Wisconsin law and to have its principal place of business there. It is apparent from the relief sought that the amount in controversy satisfies the jurisdictional requirement, though this is not expressly stated. For the reasons stated below, the court grants the motion.

For purposes of the present motion, the facts alleged in plaintiff's complaint are taken as true. In Count I, plaintiff alleges that on or about December 1982, American Family issued a two-year "Businessowners Package Policy" of insurance on Scheinfeld's business property. Plaintiff further alleges that on December 31, 1983, Scheinfeld's business office in Chicago, Illinois was burglarized, resulting in loss of property and business income; that these losses were insured against by American Family; that Scheinfeld performed all conditions precedent to performance of American Family's policy obligations; and that American Family breached the insurance contract by knowingly, willfully, and intentionally failing to pay the claim despite Scheinfeld's demands. Count I closes with a prayer for more than $17,983 in property and income loss, plus interest, costs, and attorney's fees.

Count II repeats the allegations of Count I, adding that American Family's "delay in responding" and "refusal to pay" constitutes "unreasonable and vexatious action within the meaning of" section 155 of the Illinois Insurance Code, Ill.Rev.Stat., ch. 73, ¶ 767. That section reads, in pertinent part:

  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:

(b) $5,000;

    (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.

Count II closes with a prayer for $17,983 plus interest, costs, and attorney's fees, as well as $10,000 "pursuant to" ¶ 767.

Count III repeats the allegations of the first two counts, adding that after Scheinfeld filed his policy claim, American Family employees, with reckless disregard for the truth, made defamatory statements about Scheinfeld, including statements that his community reputation was not good and that he was stealing goods and services from others. In Count III, plaintiff further alleges that American Family's statements damaged Scheinfeld's community reputation, resulting in lost business, expenditures to defend himself, and severe mental distress. Count III closes with a prayer for special, actual, and general damages, plus punitive damages in excess of $75,000, costs, and attorney's fees.

After being granted leave, Scheinfeld amended his complaint by adding a fourth count to allege a tortious breach of a "duty of good faith and fair dealing." Count IV repeats most of the allegations of Count I, including the allegation that American Family "knowingly, willfully and intentionally fail[ed] to pay plaintiff's claim." Count IV then alleges that "[t]he actions of [American Family] and its employees in its investigation and denial of plaintiff's claim have been wilful, reckless, unfair and in bad faith" as a direct and proximate result of which Scheinfeld "has been injured." Count IV closes with a prayer for $17,983 plus interest and costs, in addition to more than $100,000 in compensatory and more than $500,000 in punitive damages. The basis of American Family's motion to dismiss is that Count IV fails to state a cause of action under applicable Illinois law and that, even if such a claim is stated, Illinois law would limit Scheinfeld's damages to those recoverable under his contract of insurance and section 155 of the Illinois Insurance Code.

A motion to dismiss for failure to state a claim should be granted only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Haines v. Kerner, 404 U.S. 519, 520-21, 92 S.Ct. 594, 596, 30 L.Ed.2d 652 (1972) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). In deciding the motion, the court must presume all factual allegations of the complaint to be true and make all reasonable inferences in favor of the non-movant. 2A J. Moore, Moore's Federal Practice, ¶ 12.07[2.-5] (2d ed. 1985). Nonetheless, "conclusory allegations unsupported by any factual assertions will not withstand a motion to dismiss." Briscoe v. LaHue, 663 F.2d 713, 723 (7th Cir. 1981), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983). Because jurisdiction in this case rests solely on diversity of citizenship, the rule of Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) requires the court to apply state substantive law, which in this case is the law of Illinois.

American Family has argued that any recovery by Scheinfeld under a duty of good faith and fair dealing is limited to that allowed by section 155 of the Illinois Insurance Code, Ill.Rev.Stat., ch. 73, ¶ 767. In an earlier case, this court found the statutory remedies under section 155 to preempt any common-law recovery for an alleged breach of the duty of good faith and fair dealing in an insurer's conduct towards its insured. Shaw v. Equitable Life Assurance Society, No. 82 C 1421 (N.D.Ill. Oct. 29, 1982). Since then, two other judges of this district who had similarly held reconsidered the issue and have held that section 155 preempts punitive but not compensatory damages for cases alleging such a tort. UNR Industries, Inc. v. Continental Insurance Co., 607 F. Supp. 855 (N.D.Ill. 1984) (Hart, J.); Barr Co. v. Safeco Insurance Co., 583 F. Supp. 248 (N.D.Ill. 1984) (Moran, J.). Two other judges apparently adhere to the view that section 155 preempts all tort claims against an insurer predicated on a tortious refusal to pay. Aabye v. Security-Connecticut Life Insurance Co., 586 F. Supp. 5 (N.D.Ill. 1984) (Aspen, J.); Abbott Laboratories v. Granite State Insurance Co., 573 F. Supp. 193 (N.D.Ill. 1983) (Shadur, J.). One judge has declined to find that section 155 preempts any common-law remedies in tort at all. Roberts v. Western-Southern Life Insurance Co., 568 F. Supp. 536 (N.D.Ill. 1983) (Marshall, J.).

As noted by Judge Hart in UNR, 607 F. Supp. at 865, every Illinois Appellate Court addressing the issue has agreed that § 155 of the Illinois Insurance Code preempts a punitive damage award for an insurer's bad faith and unfair dealing in refusing to settle a claim. Fisher v. Fidelity & Deposit Co. of Maryland, 125 Ill.App.3d 632, 80 Ill.Dec. 880, 466 N.E.2d 332 (5th Dist. 1984); Kinney v. St. Paul Mercury Insurance Co., 120 Ill. App.3d 294, 75 Ill.Dec. 911, 458 N.E.2d 79 (1st Dist. 1983); McCall v. Health Care Service Corp., 117 Ill.App.3d 107, 72 Ill.Dec. 640, 452 N.E.2d 893 (4th Dist. 1983); Hoffman v. Allstate Insurance Co., 85 Ill.App.3d 631, 40 Ill.Dec. 925, 407 N.E.2d 156 (2d Dist. 1980); Debolt v. Mutual of Omaha, 56 Ill.App.3d 111, 13 Ill.Dec. 656, 371 N.E.2d 373 (3d Dist. 1978). Under this court's Erie obligations, the uniform result adopted by these decision cannot be disregarded absent "persuasive data that the highest court of the state would decide otherwise." West v. AT & T, 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940), quoted in ...

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