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BAGCRAFT CORP. OF AMERICA v. FEDERAL INS. CO.

April 8, 1994

BAGCRAFT CORPORATION OF AMERICA, an Illinois Corporation, Plaintiff,
v.
FEDERAL INSURANCE COMPANY, a foreign corporation, and COMMERCIAL UNION INSURANCE COMPANY, a foreign insurance corporation, Defendants.


LINDBERG


The opinion of the court was delivered by: GEORGE W. LINDBERG

Plaintiff, Bagcraft Corporation of America, brings this action against defendants, Federal Insurance Company ("Federal Insurance") and Commercial Union Insurance Company ("Commercial Union"). Defendants issued insurance policies to plaintiff but a dispute arose when defendants allegedly failed to defend plaintiff in an administrative proceeding, a state court action, and a federal court action. These three complaints against plaintiff were brought by non-parties to the insurance contract who were seeking recovery from plaintiff of costs incurred in cleaning-up environmental damage. Thereafter, plaintiff initiated this action by filing a three-count complaint charging defendants with breach of contract (count I), bad faith (count II), and vexatious and unreasonable refusal to settle under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155 ("Section 155")(count III). Commercial Union has moved to dismiss count II of the complaint pursuant to rule 12(b)(6) of the Federal Rules of Civil Procedure. FRCP 12 (b)(6).

 Commercial Union has moved to dismiss count II on the ground that bad faith claims against insurers are preempted by Section 155. The statute states 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 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) $ 25,000;

 215 ILCS 5/155.

 There has been some disagreement over the preemptive scope of Section 155 and the Illinois Supreme Court has not yet settled the issue. Most of the reported cases address the issue of whether Section 155 preempts claims for compensatory damages or only claims for punitive damages. See, e.g., Bageanis v American Bankers Life Assurance Co. of Florida., 783 F. Supp. 1141, 1147 (ND Ill 1992)(discussing the split among the federal and state courts on whether Section 155 preempts claims for punitive and compensatory damages). However, another issue that has been litigated, and the issue raised by Commercial Union's motion, is whether Section 155 preempts claims when they are based upon a claim made by a non-party to the insurance contract against the insured. See Daubert Chemical Co. v CIGNA Property and Casualty Co., 1991 U.S. Dist. LEXIS 8335 (ND Ill 1991) (Section 155 preempts a bad faith claim against the insurer whether it is made directly by the insured or results from the insurer's handling of a dispute between the insured and a non-party to the insurance contract); National Union Fire Ins. v Continental Illinois, 673 F. Supp. 267, 270 (ND Ill 1987)(Shadur, J.)(Section 155 provides a remedy for unreasonable delays in settling claims made by the insured but does not preempt claims for unreasonable delays in settling claims made by a non-party to the insurance contract against the insured).

 The issue raised presents a question of Illinois state law. It is accordingly this court's duty to predict whether the Illinois Supreme Court would hold that Section 155 extends to an insurer's unreasonable delay or failure to settle with a non-party to an insurance policy who has brought claims against the insured. American Centennial Ins. Co. v American Home Assurance Co., 729 F. Supp. 1228, 1233 (ND Ill 1990). In making this determination, this court may consider all sources that help to reasonably predict what the Illinois Supreme Court would determine the law to be, including the language of the statute itself and relevant state and federal precedents. Bageanis v American Bankers Life Assurance of Florida, 783 F. Supp. 1141, 1147 (ND Ill 1992).

 In interpreting Section 155, the court must begin with a study of the statute's text and recognize that the fundamental goal of statutory interpretation is to ascertain the legislature's intent and give it effect. Harvey Firemen's Association v City of Harvey, 75 Ill. 2d 358, 389 N.E.2d 151, 27 Ill. Dec. 339 (1979); C.S. Johnson Co. v Champaign National Bank, 126 Ill. App. 3d 508, 510, 467 N.E.2d 363, 81 Ill. Dec. 663 (1984). The statute's actual words must be understood in their commonly accepted meaning unless the legislature has stated otherwise. Bowes v City of Chicago, 3 Ill. 2d 175, 201, 120 N.E.2d 15 (1954).

 Section 155 states that "in any action by or against a company . . . for an unreasonable delay in settling a claim" a court may allow attorney fees "plus an amount not to exceed any one of the" amounts listed in the statute as part of the "taxable costs" if "it appears to the court that such . . . delay is vexatious and unreasonable." 215 ILCS 5/155 (emphasis added). Plaintiff cites to a series of federal district court cases for the proposition that Section 155 applies only to actions involving unreasonable delay in settling claims of the insured against the insurer and not to actions involving unreasonable delay by the insurer in settling claims brought by non-parties to the insurance policy against the insured. See, e.g., National Union Fire Ins. Co. v Continental Illinois Corp., 673 F. Supp. 267, 270-72 (ND Ill 1987); Verlan Ltd. v John L. Armitage & Co., 695 F. Supp. 955, 957 (ND Ill 1988); Rush Presbyterian St. Luke's Medical Ctr. v Safeco Ins. Co., 722 F. Supp. 485, 490 (ND Ill 1989). However, this court finds no basis for such a distinction in the statute.

 Although the Seventh Circuit did not discuss Section 155's preemptive scope with respect to an insurer's failure to settle claims asserted against the insured by non-parties to the insurance contract, it nevertheless provides guidance as to the statute's preemptive scope. In Kush the court held that "any count alleging nothing more than the conduct proscribed by Section 155, is preempted by the statute" regardless of the legal theory asserted. Id at 1385 (quoting Combs v Insur. Co., 146 Ill. App. 3d 957, 962-63, 497 N.E.2d 503, 507, 100 Ill. Dec. 525 (1986). Thus, the Seventh Circuit, consistent with Section 155's language, applied Section 155's preemptive force very broadly. For example, the statute's silence as to the identity of the plaintiff was a justification the Seventh Circuit relied upon when it broadly read the statute to encompass a situation which the court felt was an attempt to circumvent the legislative policy. Kush at 1386. See also Mazur v Hunt, 227 Ill. App. 3d 785, 794, 592 N.E.2d 335, 341, 169 Ill. Dec. ...


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