United States District Court, Northern District of Illinois, E.D
September 30, 1985
MICHAEL AND SHERI LANGENDORF, PLAINTIFFS,
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
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
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.
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
(h) refusing to pay claims without conducting a
reasonable investigation based on all available
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 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
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 plaintiffs. If, on a later motion,
Travelers wishes to argue that this sort of injury is not
recognized as a compensable consequential remedy, then the court
will consider arguments at that time.
The second possible interpretation of Count V is that the count
purports to state a claim under the tort of intentional
infliction of emotional distress. This interpretation cannot
survive Travelers' motion to dismiss because this court follows
the reasoning of Anderson v. Mutual of Omaha Insurance Co.,
594 F. Supp. 726 (S.D.Ill. 1984), where it was held that § 155 of the
Illinois Insurance Code preempts the tort of intentional
infliction of emotional distress resulting from an insurer's
outrageous delay in settling a claim.
Section 155 of the Illinois Insurance Code provides in relevant
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 attorneys 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 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.
Ill.Rev.Stat. ch. 73, ¶ 767. Anderson considered the effect of §
155 on the tort of intentional infliction of emotional distress
in light of the Illinois Supreme Court holding in Robertson v.
Travelers Insurance Co., 95 Ill.2d 441
, 69 Ill.Dec. 954,
448 N.E.2d 866
(1983). Robertson held that the provisions of the
Illinois Workmen's Compensation Statute barred tort claims for
intentional infliction of emotional distress which resulted from
an insurer's outrageous conduct in delaying the payment of a
worker's claim. The Illinois Supreme Court reasoned that the
legislature, anticipating that bad faith in delaying payments of
benefits would occur on occasions, provided a quick and readily
accessible method of resolving disputes over such delayed
payments. The court held that the term "vexatious", as used in
the statute, encompassed both ordinary and malicious delay,
thereby precluding any common law tort based on malicious delay.
Anderson analogized from the Illinois Supreme Court's
interpretation of the Workmen's Compensation Statute and held
that the terms "vexatious and unreasonable" as used in § 155 also
encompass ordinary as well as malicious delay, thereby preempting
the tort of intentional infliction of emotional distress from
delayed payments. Thus, to the extent that Count V attempts to
state a claim for the intentional infliction of emotional
distress, it is preempted by § 155 which provides the exclusive
remedy for that tort, and is therefore dismissed.
Even if Anderson did not, as a matter of law, bar the
Langendorfs from stating the common law tort of intention
infliction of emotional distress, this court would still dismiss
this interpretation of Count V because the count, on its face,
fails to allege the essential elements of a claim for emotional
distress. To state a cause of action for the tort of intentional
infliction of emotional distress, a plaintiff must allege facts
which demonstrate (1) that the defendant's conduct was extreme
and outrageous; (2) that plaintiff's emotional distress was
severe; and (3) defendant's conduct was such that defendant knew
that severe emotional distress would be certain or substantially
certain to result. Smith v. Metropolitan Life Insurance Co.,
550 F. Supp. 896, 901 (1982), citing Public Finance Corp. v. Davis,
66 Ill.2d 85, 4 Ill.Dec. 652, 360 N.E.2d 765 (1976).
The allegations in the Langendorfs' complaint do not meet the
first element of this tort because they do not describe conduct
on Travelers' part which is "so outrageous in character and so
extreme in degree as to go beyond all possible bounds of
decency." Restatement (Second) of Torts, § 46 comment d.
Essentially, the complaint here alleges nothing more than a
dispute regarding coverage of an insurance policy. To be sure,
that dispute may have caused the Langendorfs extreme grief. But
Travelers may honestly have believed that it had no obligation to
pay what the Langendorfs demanded, and the Langendorfs do not
allege otherwise anywhere in their complaint. In the absence of
an alleged breach by Travelers where Travelers knew that it had
an obligation to pay but nevertheless maliciously and
unjustifiably chose not to pay, this court cannot see how the
first element of the tort of intentional infliction of emotional
distress in this context can be satisfied.
The third and final interpretation of count V is that the count
purports to state a claim for the breach of the implied duty of
good faith and fair dealing and, as a result of the breach of
this duty, the Langendorfs have suffered severe emotional
distress. Before deciding whether plaintiffs' pleadings properly
allege the elements of the tort of breach of the duty of good
faith dealing, the court notes defendant's argument that this
tort, whatever its elements, is preempted by § 155 of the
Insurance Code. This court has recently held in Sheinfeld v.
American Family Mutual
Insurance Co., 624 F. Supp. 698 (1985), that § 155 only preempts
a recovery for punitive damages from a breach of that duty.
Therefore, the Langendorfs' claim for punitive damages is
dismissed. Their claim for compensatory damages, however,
survives Travelers' motion to dismiss if and only if the elements
of the tort are correctly alleged.
Courts have not been particularly clear about what is required
to state a claim for the breach of the duty of good faith
dealing. The duty was originally recognized in the context of a
"duty to settle" where an insurer has undertaken the defense of
a suit against the insured and the damages sought in the suit are
in excess of policy limits. In such a situation, the insurer
"cannot arbitrarily refuse a settlement within policy limits"
without being "guilty of bad faith in failing to effect a
settlement for a smaller sum." Krutsinger v. Illinois Casualty
Co., 10 Ill.2d 518, 141 N.E.2d 16 (1957).
The tort has also been recognized where the insurer, after
paying an insured for a loss incident to damaged property,
physically prevented the insured from getting an independent
appraisal of the property by hiding the damaged property. Hoffman
v. Allstate Insurance Co., 85 Ill.App.3d 631, 40 Ill.Dec. 925,
407 N.E.2d 156 (2d Dist. 1980). Hoffman referred to Ledingham v.
Blue Cross Plan for Hospital Care of Hospital Service Corp.,
29 Ill. App.3d 339, 350, 330 N.E.2d 540 (1975), which, while cited by
the Illinois Supreme Court with approval in Kelsay v. Motorola,
Inc., 74 Ill.2d 172, 187, 23 Ill.Dec. 559, 566, 384 N.E.2d 353,
360 (1978), did not clearly spell the elements that constitute
the tort of bad faith. Ledingham did, however, suggest that false
statements and maliciousness were needed. 330 N.E.2d at 549.
This case is different from Hoffman and Krutsinger because here
the Langendorfs are claiming that the simple breach of contract
itself amounted to a breach of the duty of good faith dealing.
Hoffman and Krutsinger involved conduct, other than a refusal to
pay on a contract, which injured the plaintiffs. In Hoffman, the
plaintiff was prevented from confirming whether the contract
payment was legitimate. In Krutsinger, the defendant paid on the
contract but caused the plaintiff to pay a third party more than
it should have had to. Therefore, this court must determine
whether a mere breach of contract payment terms, as is all that
has been alleged here, is enough to amount to the tort of bad
faith dealing, or whether more is required. In doing so, the
court bears in mind that 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, 102, 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 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).
The case authority appears to suggest that a mere innocent
breach of contract — where the party in breach innocently, albeit
erroneously, believes that he has no obligation to pay — is not
sufficient to state a claim under the tort of the duty of good
faith dealing. Florsheim v. Travelers Indemnity Co.,
75 Ill. App.3d 298, 310, 30 Ill.Dec. 876, 886, 393 N.E.2d 1223, 1233
(1st Dist. 1979). Instead, at least two further elements must be
alleged. First, the insurer must have known it was liable on the
contract but nonetheless refused to pay. See Barr v. Safeco
Insurance Co. of America, 583 F. Supp. 248, 259 (N.D.Ill. 1984);
UNR Industries, Inc. v. Continental Insurance Co., 607 F. Supp. 855
(N.D.Ill. 1984) (allegations of insurers misleading the
insured as to the availability of full indemnification under the
the insurer must also know that if it did not pay on its policy,
substantial damage and injury would likely befall the insured.
See Barr v. Safeco Insurance Co., 583 F. Supp. at 259; Urfer v.
Country Mutual Insurance Co., 60 Ill.App.3d 469, 17 Ill.Dec. 744,
376 N.E.2d 1073 (4th Dist. 1978).
Here, the Langendorfs have failed to allege at least the first
of these two elements. Nowhere in their complaint have they
claimed that Travelers knew it was liable on the contract but
nevertheless refused to pay. The Langendorfs allege only that
"Travelers imposed an interpretation of the policy to place a
$50,000.00 limit on the benefits payable." Complaint at ¶ 12.
Absent an allegation to the effect that Travelers knew that its
interpretation was wrong, the first element of the bad faith tort
cannot be gleaned from this complaint.
The second element of the tort has been more successfully
alleged, albeit in conclusory form. In paragraph 16 of the
complaint, the Langendorfs state that Travelers' denial of the
claim "was reasonably calculated to cause" the Langendorfs severe
emotional distress. This suggests that Travelers knew that
nonpayment would cause the Langendorfs great injury. While the
form of this allegation may be too conclusory to survive a motion
to dismiss, the court need not decide this because the first
element of the tort is totally absent.
In sum, Count V is dismissed to the extent that it attempts to
state a claim for the tort of breach of the duty of good faith
dealing. Even if both elements of that tort were stated, the
prayer for punitive, though not compensatory, damages would be
preempted by § 155. Count V is fully dismissed to the extent that
it states a claim for the intentional infliction of emotional
distress. The only way in which Count V survives under the
complaint as it is now written is as a claim for consequential
damages arising from the breach of contract. Because this issue
has not been argued, this court considers it unresolved.
Count VI alleges that as "a direct and proximate result of"
Travelers nonpayment "plaintiffs have been injured in their
credit standing and reputation, which was previously excellent,
due to suit for collection and reporting of debts to credit
agencies and bureaus." Complaint at ¶ 15. Similar to its analysis
of Count V, the court perceives two possible interpretations of
this count. First, it purports to state another consequential
damage from the breach of contract, and second, it purports to
state another injury incurred as a consequence of the breach of
the duty of good faith and fair dealing.
As to the first interpretation, the court once again simply
states that the issue has not been argued, and reserves for
another day decision on whether loss of credit can be recovered
as a consequential damage to the breach of an insurance contract
in the context of this case.
On the second interpretation, the court finds that the
Langendorfs have failed to allege either of the two elements of
the tort of bad faith dealing identified in the court's
discussion of Count V. Specifically, the Langendorfs do not
allege in any fashion, conclusory or otherwise, that Travelers
knew of its liability on the contract or that Travelers knew that
a loss of credit would result from nonpayment of the claim. Even
if the insurance company is to be put on constructive notice that
nonpayment leads to a credit loss, an issue which the court does
not now decide, the absence of an allegation of Travelers'
subjective knowledge of liability is fatal to this count, as it
was to Count V. However, as in the case of Count V, if the
Langendorfs had properly alleged the elements of the tort, then
the court would follow its holding in Sheinfeld v. American
Family Mutual Insurance Co. and allow the Langendorfs to seek
compensatory damages arising out of that breach, but not punitive
In accordance with the qualifications noted above, the court
grants defendant's motion to dismiss Counts II, V, and VI.
It is so ordered.
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