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10/24/96 STEVEN CRAMER v. INSURANCE EXCHANGE AGENCY

October 24, 1996

STEVEN CRAMER, APPELLEE,
v.
INSURANCE EXCHANGE AGENCY ET AL. (ECONOMY FIRE & CASUALTY COMPANY ET AL., APPELLANTS).



The Honorable Justice Nickels delivered the opinion of the court. Justice Freeman, specially concurring. Justice Harrison, dissenting. Chief Justice Bilandic joins in this dissent.

The opinion of the court was delivered by: Nickels

JUSTICE NICKELS delivered the opinion of the court:

We consider here whether a plaintiff may pursue a common law fraud action arising from the purported cancellation of an insurance policy. In a complaint filed in the circuit court of Knox County, plaintiff, Steven Cramer, alleged that defendants, Economy Fire and Casualty Company and its claims examiner, engaged in fraud and deceptive practice with regard to the cancellation of his policy. Defendants filed a motion for summary judgment claiming that the suit was untimely, based on a one-year limitation provision contained in the policy. The circuit court construed the action as a common law fraud action and denied the motion for summary judgment.

The circuit court certified two questions for interlocutory appeal: (1) whether section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1994)) preempts a common law fraud cause of action against an insurance company for its alleged unreasonable conduct in denying an insurance claim; and (2) whether a limitation provision of an insurance policy which states that "no action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss" is applicable to a common law fraud cause of action against an insurance company for its allegedly unreasonable conduct in denying an insurance claim. The appellate court answered "no" to both questions and affirmed denial of summary judgment. 275 Ill. App. 3d 68, 655 N.E.2d 465, 211 Ill. Dec. 436. We granted defendants' petition for leave to appeal. 155 Ill. 2d R. 315. We reverse.

BACKGROUND

In 1991, plaintiff purchased a homeowner's insurance policy from the insurer and paid the premium. The policy covered plaintiff's personal property and was to run for one year from October 25, 1991, to October 25, 1992. Plaintiff's residence was later burglarized. The underlying dispute arises from the insurer's attempted cancellation of the policy. The insurer argues that it cancelled the policy before the burglary occurred. Plaintiff contends that he never received a notice of cancellation and that any purported cancellation is fraudulent.

Initially, we note that plaintiff raised allegations against two sets of defendants in the complaint: (1) the Insurance Exchange Agency and one of its employees, and (2) Economy Fire and Casualty Company and a claims examiner (collectively, insurer). Plaintiff sought $6,909 from the Insurance Exchange Agency and its employee. This $6,909 amount represents the total amount of plaintiff's loss. Plaintiff sought an additional $6,909 in damages from the insurer, which he labelled "double indemnity" damages.

With respect to the first set of defendants, we note that the Insurance Exchange Agency is an independent insurance agency and was initially involved with plaintiff's application for insurance. In the complaint, plaintiff alleged that the Agency and its employee engaged in negligence in connection with the issuance of his policy. Plaintiff alleged that they did not forward documentation that was needed to complete the application. These defendants, however, did not participate in the motion for summary judgment, which is the subject of this appeal. Because this appeal involves only the insurer, we do not discuss the allegations against these two defendants further.

With respect to the second set of defendants, plaintiff alleged that he never received a notice of cancellation from the insurer and was never informed that the policy was cancelled. Plaintiff claims that the insurer did not send a notice of cancellation at all. Plaintiff claims that the insurer is using this purported cancellation "with the expressed and intentional purpose to defraud Plaintiff out of his coverage which he was legally entitled to."

According to the insurer, on December 2, 1991, a notice of cancellation was sent to plaintiff. The policy was being cancelled because the insurer had been unable to obtain certain information from plaintiff. According to the insurer, the cancellation went into effect on January 6, 1992.

Three days later, on January 9, 1992, plaintiff's home was burglarized. Plaintiff sent his proof of loss statement to the insurer in May, showing a loss of $6,909. On May 22, 1992, the insurer denied the claim because the burglary had occurred three days after the policy was cancelled. Plaintiff's premium was refunded in June 1992. In October 1993, more than a year later, plaintiff filed this suit pro se.

The insurer moved for summary judgment. The insurer based its motion for summary judgment solely on the one-year suit limitation clause included in the insurance policy. This clause requires that any action on the policy be brought within one year after the date of loss. Plaintiff filed his action more than a year after the burglary and more than a year after his claim under the policy was denied. Thus, according to the insurer, an action alleging breach of the policy is untimely.

At the hearing on the insurer's motion for summary judgment the circuit court construed the complaint as stating a cause of action for fraud, rather than for breach of the policy. The court then found that the suit limitation clause contained in the policy applied only to actions on the policy and did not apply to common law fraud actions. The circuit court, however, gave defendants time to provide additional authority.

The insurer filed a supplement to the motion for summary judgment. It argued that, to the extent this action is a breach of contract action, it is precluded by the one-year limitation period provided in the policy. The insurer further argued that, to the extent the action is a tort action, it was barred by the preemptive effect of section 155 of the insurance Code. Essentially, section 155 provides a remedy to policyholders whose insurers engage in unreasonable and vexatious conduct when delaying payment or denying a claim. The circuit court rejected the insurer's arguments and denied summary judgment.

The appellate court affirmed. First, the appellate court considered the effect of section 155 on a common law fraud action. It held that section 155 does not preempt a common law action for fraud against an insurer for its unreasonable conduct in denying a claim. In reaching its decision, the court relied principally on decisions finding that section 155 does not preempt the tort of bad faith and unfair dealing.

Second, the appellate court considered whether the limitation provision in the policy barred a tort action relating to the policy. It found that a common law fraud action involving policy proceeds is collateral to an action for breach of contract. It held that the suit limitation provision in the policy applied only to actions on the policy and not to plaintiff's action in fraud. Accordingly, the appellate court affirmed the circuit court's denial of summary judgment, agreeing that plaintiff should be allowed to pursue his action.

ANALYSIS

The denial of summary judgment is an interlocutory order that is generally not appealable. Supreme Court Rule 308(a) allows appeal of an interlocutory order to the appellate court where "the order involves a question of law as to which there is substantial ground for difference of opinion and *** an immediate appeal from the order may materially advance the ultimate termination of the litigation." 155 Ill. 2d R. 308. The appellate court's decision may then be appealed to this court under Rule 315. 155 Ill. 2d R. 315.

The insurer argues that plaintiff has alleged nothing more than unreasonable and vexatious conduct in the complaint. The statute provides a remedy for such conduct. The insurer argues that the statute, in conjunction with a breach of contract action, provides the remedy for this conduct, not an independent tort action. According to the insurer, plaintiff's action is essentially a breach of contract action, which is barred by the limitation clause contained in the policy.

Much of the analysis of the circuit and appellate courts relies on cases involving the tort of bad faith and unfair dealing. Although the complaint is inartfully drafted, it could be construed as alleging bad faith and unfair dealing. Here, we examine how the analysis employed by the lower courts, including their reliance on cases involving the tort of bad faith, applies to the allegations raised in the instant complaint.

In part I, we examine the development of section 155. In part II, we consider the interaction of the statute with tort law. We hold that section 155 does not preempt a separate and independent tort action involving insurer misconduct. We also hold, however, that the tort of bad faith is not a separate and independent tort action that is recognized in Illinois. In part III, we consider the allegations raised in plaintiff's complaint. We find that the allegations in the complaint seek to state a cause of action for breach of the policy, which is barred by the suit limitation provision. Accordingly, the insurer is entitled to summary judgment.

I

Resolution of this appeal requires an examination of the statute. Section 155 provides:

"Attorney fees. (1) 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;

(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 ...


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