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Martin v. State Farm Mutual Automobile Insurance Co.

March 25, 2004

[5] ADAM MARTIN AND MARISA MARTIN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, AN ILLINOIS CORPORATION, DEFENDANT-APPELLEE.



[6] Appeal from the Circuit Court of Cook County. No. 02 CH 8472 Honorable Thomas P. Quinn, Judge Presiding.

[7] The opinion of the court was delivered by: Justice Theis

[8]  Plaintiffs Adam and Marisa Martin filed an amended class action complaint against defendant State Farm Mutual Automobile Insurance Company (State Farm) arising out of its conduct in settling plaintiffs' third-party claim against its insured, Bruce Beebe. *fn1 Therein, plaintiffs pled various theories of recovery including violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 2000)), breach of contract, breach of a voluntary undertaking, common law fraud, and breach of a fiduciary duty. Plaintiffs also sought a declaratory judgment. Thereafter, State Farm filed a motion to dismiss the complaint pursuant to section 2-615 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-615 (West 2000)). The trial court granted the motion, dismissed the complaint with prejudice, and denied plaintiffs' motion for leave to replead.

[9]  On appeal, plaintiffs raise the following contentions: (1) the trial court erred in holding that State Farm did not owe plaintiffs a duty to disclose a potential claim for the diminished value of their vehicle; (2) the trial court erred in holding that plaintiffs failed to state a cause of action for breach of contract, common law fraud, breach of fiduciary duty, and breach of a voluntary undertaking where State Farm agreed to settle their property damage claim and assured them that they did not need to hire an attorney; and (3) the trial court erred in failing to allow plaintiffs to replead.

[10]   BACKGROUND

[11]   The following allegations form the basis of plaintiffs' amended complaint. On December 10, 2000, plaintiff Marisa Martin was involved in an automobile accident with Bruce Beebe. At the time of the accident, State Farm insured both Martin and Beebe under separate and unrelated automobile policies. Plaintiffs sought the repair of their vehicle under Beebe's insurance policy. Plaintiffs alleged that State Farm agreed to settle their property damage claim and that in the course of settlement negotiations, State Farm represented to them that because both parties were represented by State Farm, it would "take care of [plaintiffs'] claim without the need of [plaintiffs] retaining an attorney."

[12]   Plaintiffs alleged that notwithstanding the repairs made to their vehicle, the value of their car was materially diminished as a result of the accident. Plaintiffs further alleged that State Farm concealed the full extent of coverage to which plaintiffs were entitled by failing to disclose that they were entitled to additional compensation for the diminished value of their vehicle. As a result, plaintiffs alleged that they were injured.

[13]   Plaintiffs sought damages against State Farm based upon several theories of recovery, including breach of contract, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 2000)), common law fraud, breach of a voluntary undertaking, and breach of a fiduciary duty, and also sought a declaratory judgment. The trial court dismissed the amended complaint with prejudice, holding that there was no set of facts under which plaintiffs could state a cause of action. Thereafter, the trial court denied plaintiffs' motion to replead.

[14]   Plaintiffs now appeal from the dismissal of their amended complaint and the denial of their motion for leave to replead. They do not, however, raise any issues with regard to the denial of their declaratory judgment count or the consumer fraud count. Pursuant to Supreme Court Rule 345 (155 Ill. 2d R. 345), we have permitted the National Association of Independent Insurers to file a brief amicus curiae in support of State Farm.

[15]   ANALYSIS

[16]   A section 2-615 motion to dismiss challenges the legal sufficiency of the complaint. Chandler v. Illinois Central R.R. Co., 207 Ill. 2d 331, 348, 798 N.E.2d 724, 733 (2003). In reviewing a section 2-615 dismissal, a reviewing court must decide whether the allegations, construed in the light most favorable to the plaintiff, are sufficient to establish a cause of action upon which relief may be granted. Chandler, 207 Ill. 2d at 348, 798 N.E.2d at 733. However, a plaintiff cannot rely simply on mere conclusions of law or fact unsupported by specific factual allegations. Jackson v. South Holland Dodge, Inc., 197 Ill. 2d 39, 52, 755 N.E.2d 462, 471 (2001). A cause of action will be dismissed if it is clearly apparent from the pleadings that no set of facts can be proven which will entitle the plaintiff to recovery. Chandler, 207 Ill. 2d at 349, 798 N.E.2d at 733. Review of a section 2-615 dismissal is conducted de novo. Chandler, 207 Ill. 2d at 349, 798 N.E.2d at 733.

[17]   Underlying all of plaintiffs' legal theories is the allegation that State Farm owed them a duty to disclose their right to compensation for the diminished value of their car under Beebe's automobile insurance policy. Plaintiffs contend on appeal that this duty arises out of their contractual relationship with State Farm and from the representations State Farm made to them regarding the handling of their claim.

[18]   We begin our analysis with an examination of the relationship between the parties. According to plaintiffs' amended complaint, their relationship to State Farm is that of a third-party claimant to the extent that they sought payment for repair of their vehicle through State Farm pursuant to Beebe's policy of insurance. Generally, the negotiations conducted between a third- party claimant and a defending insurer are arm's length and adversary in nature. Accordingly, it is said that the negotiations do not give rise to a duty of good faith and fair dealing. Rather, the duty in the handling of claims is owed only to the insurance company's insured. Scroggins v. Allstate Insurance Co., 74 Ill. App. 3d 1027, 1029-32, 393 N.E.2d 718, 719-21 (1979); Yelm v. Country Mutual Insurance Co., 123 Ill. App. 2d 401, 404, 259 N.E.2d 83, 84 (1970).

[19]   The duty in this context stems from a covenant implicit in the provisions of the insured's contract that establishes the insurer as the authorized representative of the insured. To extend that duty to third-party claimants would place the insurer in the untenable position of owing a duty of good faith to both the insured tortfeasor and his adversary. Therefore, the duty does not extend to benefit an adversary third-party claimant. See Scroggins, 74 Ill. App. 3d at 1029-32, 393 N.E.2d at 719-21; 14 Couch on Insurance §198.18 (3d ed. 2003). Furthermore, courts have generally declined to recognize a special duty extending from the insurer to the third-party claimant even where the third-party claimant is also insured by the same insurer, the rationale being that the claimant remains in an adversarial position despite this coincidence. See, e.g., Myers v. State Farm Mutual Automobile Insurance Co., 950 F. Supp. 148, 151 (D. S.C. 1997); Herrig v. Herrig, 844 P.2d 487, 492 (Wyo. 1992); Chavez v. Chenoweth, 89 N.M. 423, 553 P.2d 703 (1976).

[20]   However, despite these well-settled principles of law, plaintiffs argue that because they had an insured-insurer relationship with State Farm, and because representations were made to them that State Farm would "take care of [plaintiffs'] claim without the need of [plaintiffs] retaining an attorney," the nature of their relationship with State Farm changed from an arm's length transaction to one in which a fiduciary ...


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