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Kaniuk v. Safeco Insurance Co.

OPINION FILED APRIL 23, 1986.

ROBERT KANIUK ET AL., PLAINTIFFS-APPELLANTS,

v.

SAFECO INSURANCE COMPANY OF ILLINOIS, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Cornelius F. Dore, Judge, presiding.

JUSTICE WHITE DELIVERED THE OPINION OF THE COURT:

Plaintiffs Robert Kaniuk and Joseph Fisher sued defendant Safeco Insurance Company of Illinois (Safeco), alleging that Safeco refused to pay a valid claim on a policy of fire insurance. In count I of their complaint, plaintiffs sought a declaratory judgment that they had complied with the terms of the policy; in count II they sought contract damages and attorney fees; and in count III they sought exemplary damages of one million dollars for Safeco's bad-faith conduct. Safeco moved to dismiss count III with prejudice on the grounds that section 155 of the Illinois Insurance Code preempted the cause of action. (Ill. Rev. Stat. 1983, ch. 73, par. 767.) The trial court granted the motion and plaintiffs appeal. Counts I and II are not before this court.

• 1 According to section 155 of the Insurance Code:

"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 * * *, 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 amounts:

(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." (Ill. Rev. Stat. 1983, ch. 73, par. 767.)

Illinois courts have held that this section precludes the insured from claiming punitive damages beyond those provided by this section for an insurer's vexatious and unreasonable refusal to pay a claim. Kinney v. St. Paul Mercury Insurance Co. (1983), 120 Ill. App.3d 294, 458 N.E.2d 79; Hoffman v. Allstate Insurance Co. (1980), 85 Ill. App.3d 631, 634-35, 407 N.E.2d 156; Tobolt v. Allstate Insurance Co. (1979), 75 Ill. App.3d 57, 70, 393 N.E.2d 1171.

Plaintiffs contend that we should not follow the authorities cited above because in those cases, the courts did not apply the proper rule of statutory construction, stated in Kosicki v. S.A. Healy Co. (1942), 380 Ill. 298, 302, 44 N.E.2d 27:

"Where * * * a new remedy is given by statute, and there are no negative words or other provisions rendering it exclusive, it will be deemed to be cumulative only and not to take away prior remedies."

Plaintiffs maintain that this rule is applicable because the "prior remedy" of punitive damages for bad-faith refusal to pay an insurance claim was available at common law and the statute does not contain words which render it exclusive. Defendant responds first that there was no such remedy at common law.

The version of section 155 at issue in this case was enacted in 1977. In 1975, the Illinois Appellate Court for the Fifth District held that there was a cause of action in tort for an insurer's bad-faith refusal to pay a valid claim, and that punitive damages could be recovered for such conduct. (Ledingham v. Blue Cross Plan for Hospital Care of Hospital Service Corp. (1975), 29 Ill. App.3d 339, 350-51, 330 N.E.2d 540, rev'd on other grounds (1976), 64 Ill.2d 338, 356 N.E.2d 75.) That court did not consider the possible preclusive effect of the version of section 155 then in effect. We are aware of no other case prior to 1977 in which an Illinois court addressed the issue of whether an insured could recover punitive damages in excess of those allowed under section 155.

After the statute was revised in 1977, several Illinois courts considered the preclusive effect of the original statute which was in effect in 1975. The third district appellate court held that the original statute precluded recovery of punitive damages at common law for an insurer's vexatious refusal to pay (Debolt v. Mutual of Omaha (1978), 56 Ill. App.3d 111, 116, 371 N.E.2d 373), but the fourth district subsequently held that the earlier statute did not preclude such recovery. (Lynch v. Mid-America Fire & Marine Insurance Co. (1981), 94 Ill. App.3d 21, 25-26, 418 N.E.2d 421.) However, when the 1977 amendment was enacted, Ledingham was the only case which had addressed the issue, so for purposes of construing the legislature's intent, that case stated the common law. Thus, in interpreting the statute, we assume that there was a "prior remedy" in the form of a cause of action for punitive damages for an insurer's bad faith refusal to pay a claim.

However, even under the principles stated in Kosicki, the 1977 amendment precludes recovery because it contains "negative words or other provisions rendering it exclusive" (Kosicki v. S.A. Healy Co. (1942), 380 Ill. 298, 302, 44 N.E.2d 27). Under the 1977 amendment, plaintiff may recover an amount "not to exceed" $5,000 for vexatious and unreasonable conduct. That amount is allowed in addition to reasonable attorney fees and other costs, so it must be construed as punitive damages. This court has previously held that the 1977 amendment preempted a common law action for punitive damages, and it stated: "[W]e find expressly that this section of the Insurance Code is not ambiguous * * *." (Kinney v. St. Paul Mercury Insurance Co. (1983), 120 Ill. App.3d 294, 299, 458 N.E.2d 79.) We agree, and accordingly, we follow the line of the Illinois cases which have held that section 155 of the Insurance Code precludes a common law action for punitive damages for an insurer's bad faith refusal to ...


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