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LANGENDORF v. TRAVELERS STATE INS. C0.

September 30, 1985

MICHAEL AND SHERI LANGENDORF, PLAINTIFFS,
v.
TRAVELERS STATE INSURANCE COMPANY, DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

Michael and Sheri Langendorf, plaintiffs, have brought this six-count diversity action challenging the refusal by its insurer, Travelers State Insurance Company ("Travelers") to pay health insurance benefits under a group insurance policy. Travelers is alleged to be organized under the laws of Connecticut, where it has its principal place of business. The Langendorfs are alleged to be residents of Illinois. The amount in controversy, exclusive of interest and costs, exceeds $10,000.00.

Plaintiffs have alleged the following facts which, for purposes of the present motion to dismiss, the court accepts as true. On September 16, 1983, Travelers issued a group insurance policy to the Oak Park Therapeutic School, Inc. Sheri Langendorf was a member of the group covered by this plan. On September 16, 1983, Sheri Langendorf gave birth to a daughter. Shortly thereafter she suffered severe complications due to her pregnancy which required extensive medical treatment. She was rehospitalized for approximately six months, incurring hospital and medical expenses of approximately $115,000.00. Pursuant to the insurance policy which provided for unlimited medical and hospital care benefits, the Langendorfs requested that Travelers pay the expenses of the hospital stay. Travelers stated they would pay only $50,000 of the expenses incurred, claiming there was a $50,000 limit on the benefits payable. The Langendorfs made further demands on Travelers for payment of the $65,000 balance, all of which have remained unfulfilled. Presently before the court is Travelers' motion to dismiss Counts II, V and VI of the complaint.

Count II

In Count II, the Langendorfs claim that Travelers' refusal to pay was an "improper claims practice" proscribed by Section 154.6 of the Illinois Insurance Code, Ill.Rev.Stat. ch. 73, ¶ 766.6. The Langendorfs urge that any conduct in violation of the practices described in § 154.6 entitles them to recover for their damages, costs, attorneys' fees and receive any other appropriate relief. In relevant part, the statute provides that:

  Any of the following acts by a company, if committed
  without just cause and [committed knowingly or
  frequently,] constitutes an improper claims practice:
  (d) Not attempting in good faith to effectuate
      prompt, fair and equitable settlement of claims
      submitted in which liability has become
      reasonably clear;
  (h) refusing to pay claims without conducting a
      reasonable investigation based on all available
      information.

Ill.Rev.Stat. ch. 73, ¶ 766.6.

Travelers argues that this count should be dismissed because § 154.6 provides no private right of action but simply defines those practices for which the Illinois Director of Insurance may issue a cease and desist order under § 154.8 of the Insurance Code, Ill.Rev.Stat. ch. 73, ¶ 766.8. The Illinois Supreme Court has not yet decided this issue. Under Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), in a diversity action, when the highest state court has not yet spoken on an issue, a federal district court is obligated to predict what that court would do if presented with the issue. See White v. United States, 680 F.2d 1156, 1161 (7th Cir. 1982); McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 661 (3rd Cir.) cert. denied, 449 U.S. 976, 101 S.Ct. 387, 66 L.Ed.2d 237 (1980); Barr Co. v. Safeco Insurance Co., 583 F. Supp. 248, 252 (N.D.Ill. 1984). Accordingly, the court observes that all Illinois appellate courts agree that § 154.6 provides no private right of action. It is a public remedy to be pursued only by the Director of Insurance. See, e.g., Tobolt v. Allstate Insurance Co., 75 Ill. App.3d 57, 30 Ill.Dec. 824, 393 N.E.2d 1171 (1st Dist. 1979); Hamilton v. Safeway Insurance Co., 104 Ill.App.3d 353, 60 Ill. Dec. 97, 432 N.E.2d 996 (1st Dist. 1982); Hoffman v. Allstate Insurance Co., 85 Ill.App.3d 631, 40 Ill.Dec. 925, 407 N.E.2d 156, appeal denied, 81 Ill.2d 602 (1980); Van Vleck v. Ohio Casualty Insurance Co., 128 Ill.App.3d 959, 84 Ill.Dec. 159, 471 N.E.2d 925 (3d Dist. 1984). Under these circumstances, the court finds itself compelled to adopt this view as it assumes the Illinois Supreme Court would follow the approach consistently taken by its appellate courts. See West v. American Telephone and Telegraph Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940) (Federal courts should not disregard uniform state appellate court results absent persuasive data that the highest state court would decide otherwise.)

The Langendorfs argue that this court should not conclude that the Illinois Supreme Court would in fact approve of the approach that its appellate courts have repeatedly taken. They argue that an implied private cause of action is maintainable under Sawyer Realty Group Inc. v. Jarvis Corp., 89 Ill.2d 379, 59 Ill.Dec. 905, 432 N.E.2d 849 (1982). In Sawyer, the Illinois Supreme Court recognized an implied private right of action for violations of the Brokers Licensing Act, Ill.Rev.Stat. ch. 111, ¶ 5701 et seq. Specifically, the court stated that Illinois "courts have continuously demonstrated a willingness to imply a private remedy where there exists a clear need to effectuate the purpose of an act." 89 Ill.2d 379, 389, 59 Ill.Dec. 905, 432 N.E.2d 849. Sawyer, however, is inapposite to the case here. As Sawyer itself stated, Illinois courts will imply a private right of action only where it is necessary to achieve the aims of the statute. Since the Insurance Code, in § 154.8, empowers the Director of Insurance to issue cease and desist orders against any insurer that commits an act proscribed by § 154.6, an implied private right of action is not necessary. See Abbott Laboratories v. Granite State Insurance Co., 573 F. Supp. 193, 196 (N.D.Ill. 1983); UNR Industries Inc. v. Continental Insurance Co., 607 F. Supp. 855 (N.D.Ill. 1984). The Langendorfs' suggestion that, to their knowledge, there are no reported cases brought by the Director of Insurance against insurers does not in itself suggest the public remedy is inadequate. Even if this lack of prosecution were true and without justification, it would seem to this court that the proper solution would be to replace the lax Insurance Director. While it might be easier on plaintiffs to ask this court to imply a private cause of action than to seek replacement of the director, the court has no power to do this in light of the consistent holdings of the Illinois appellate courts denying the private claim and the absence of any evidence that the Illinois legislature wanted the "private attorney general" concept extended to the Insurance Code. Accordingly, the court dismisses Count II.

Count V

Count V is somewhat difficult to evaluate on this motion to dismiss because of the way it is drafted and the way the parties have argued it. Taken at face value, the count alleges that Travelers' refusal to pay resulted in "numerous and repeated demands for payment from health providers" and caused the Langendorfs severe and extreme emotional distress and humiliation. Furthermore, Travelers' refusal to pay was "extreme and outrageous in that it was reasonably calculated to cause" the Langendorfs severe distress. As a result of the distress, the Langendorfs have suffered "loss of sleep, appetite, anxiety and distress."

The court perceives three possible interpretations of this count and will therefore assess the count's ability to survive the motion to dismiss under each interpretation. The first interpretation is simple: Travelers breached its contract with the Langendorfs by refusing to pay benefits when it was supposed to; the damages that the Langendorfs suffered include not merely the denial of the $65,000 contractual benefits, but also the consequential injury of emotional distress. The court does not now decide whether, under Illinois law, the consequential injury of emotional distress is compensable on an insurance contract claim. At this point, the court simply considers the contract-based consequential injury of emotional distress to have been well pled by the ...


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