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Tips for Avoiding First-Party “Bad Faith” in Illinois

Illinois does not recognize bad faith as an independent tort. In the first-party context, bad faith is a purely statutory construct which hinges upon whether an insurer’s conduct was “vexatious and unreasonable.” Section 155 of the Illinois Insurance Code (215 ILCS 5/155) provides the exclusive remedy[1] for bad faith conduct by an insurer and also preempts other causes of action that at their core constitute a breach of good faith and fair dealing.[2] Section 154.6 of the Illinois Insurance Code (215 ILCS 5/154.6) enumerates 18 improper claim practices. Although these practices are not dispositive of a Section 155 claim, a court may properly consider the enumerated actions when determining whether an insurer’s conduct was vexatious and unreasonable.[3] As a result,

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Recent Bad Faith Cases Regarding Reasonableness of Medical Treatment

In two recent cases, the courts showed substantial deference to patients’ treating physicians in determining the reasonableness of medical treatment. This deference appears to reflect a reluctance of courts to decide what healthcare is appropriate for a patient. In Peterson v. Western National Mut. Ins. Co., 946 N.W.2d 903 (Minn. 2020), the policyholder was involved in a low-speed automobile accident. Following the accident, she sought treatment from a chiropractor for body aches and headaches. She entered into a settlement with the other driver and her insurer also paid her policy’s no-fault benefits. For two to three years following the accident, the insured underwent various treatments for her headaches. Eventually, she tried Botox injections, which she found effective. The insured’s treating

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Claims Handling: Questions Are the Answer

The key issue in insurance bad faith litigation is whether the claims professional reasonably handled the claim. Throughout the claims-handling process, the claims professional should constantly ask him-or-herself whether the investigation is sufficient to support a coverage determination and how someone might challenge that determination. By asking and answering those questions, the claims professional can be confident in his or her coverage determination. And to ensure that the claims professional’s analysis is not lost, his or her file should contain the evidence necessary to fully explain any such determination. About The Authors

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Defending Institutional Bad Faith Claims, Part III – Proof by Other Claims

In Part I of this series, we explored the differences between institutional and non-institutional bad faith. For claims of institutional bad faith, plaintiffs often attempt to demonstrate a pattern and practice by offering evidence of claims of other policyholders. Unlike claims of institutional bad faith premised on the insurer’s policies and procedures, “other claims” allegations do not require knowledge of the insurer’s motives or internal programs, but instead rely on evidence of repeated behavior to make the threshold showing of bad faith. When a plaintiff attempts to offer specific factual allegations relating to other policyholders in order to demonstrate a general business practice, the relevant inquiries relate to any actual similarities between the claims and the threshold at which the

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Defending Institutional Bad Faith Claims, Part II – Focusing on Plausibility

In Part I of this series, we discussed institutional bad faith and best practices for insurers to minimize the risk of these costly and intrusive lawsuits. In Part II, we will focus on cutting discovery off at the pleadings—by narrowing the plaintiff’s claim, you limit the scope of relevance in discovery. Under Federal Rule of Civil Procedure 26(b), “[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case….” Plaintiffs often allege institutional bad faith by providing a small amount of information pertaining to the company at large, and then making significant inferences and conclusions and offering those inferences as factual allegations. A skilled attorney can

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Defending Institutional Bad Faith Claims, Part I – A Primer on Institutional Bad Faith

Broadly speaking, there are two types of bad faith claims that may be alleged against an insurance company—traditional or non-institutional bad faith, and institutional bad faith. For the former, a policyholder would seek to hold an insurer liable for its acts or omissions that directly and adversely affected the policyholder. For example, in the third-party context, a policyholder may file a bad faith claim against its insurer if the insurer failed to settle a lawsuit against the policyholder within policy limits and a judgment is entered against the policyholder in excess of policy limits. Institutional bad faith, in contrast, goes beyond a single policyholder. In claims of institutional bad faith, the plaintiff or plaintiffs will attempt to demonstrate a company

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Form and Substance: The Importance of Conducting a Proper Investigation of First-Party Claims Under California Law

A bad faith claim against an insurer often focuses as much on the process of a claims investigation as it does on the substance of a claims decision itself. If the coverage decision was wrong (but not unreasonable), and the investigation was thorough, there may be liability for breach of contract, but there is a reduced risk of liability for bad faith. In contrast, if the coverage decision was wrong, and the insurer also failed to investigate the claim properly, there is a heightened risk of bad faith. Because of this, a proper investigation of the claim is vital to preventing (or defeating) an insured’s bad faith claim. Egan v. Mutual of Omaha Insurance Company, 24 Cal.3d 809 (1979), is

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Massachusetts: Third-Party Claim Handler Made Reasonable, Prompt Efforts to Settle Nursing Home Liability Claim, and Therefore Was Not Liable For $14 M Excess Verdict

On March 18, 2019, the First Circuit Court of Appeals affirmed a decision holding that Sedgwick Claims Management Services made reasonable and prompt efforts to settle a nursing home liability claim, and therefore was not liable for a $14M excess verdict despite the fact that the highest pretrial offer Sedgwick made was for $250,000. Calandro v. Sedgwick Claims Management Services, Inc. 2019 WL 1236927, ___ F.3d ___ (2019). In a colorful appellate decision notable for its loquaciousness, the First Circuit observed, “every case has its twists and turns, and an insurance carrier is not to be held to a duty of prescience.” In reaching its decision, the Court further observed that “perfection is not the standard” to demonstrate good faith

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Georgia Supreme Court Spares Insurance Company from a $5.3 Million Bad-Faith Verdict

Last week, the Georgia Supreme Court confirmed that an insurance carrier’s duty to settle a claim against its policyholder arises only after an injured claimant presents a “valid offer” to settle within policy limits. In First Acceptance Insurance Company of Georgia v. Hughes,[1] the Court found that, because the letter presented to First Acceptance by the injured parties’ counsel was not a time-limited settlement demand, First Acceptance’s failure to respond before the injured parties withdrew their offer did not constitute negligence or a bad faith failure to settle the claim within policy limits. In 2008, First Acceptance’s policyholder caused a multi-car crash killing the policyholder and injuring five others, including Julie An and her 2-year-old daughter. The policy had the

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QUITE THE SPLIT: LOUISIANA THIRD CIRCUIT COURT OF APPEAL APPLIES TEN-YEAR PRESCRIPTIVE PERIOD TO CONTRACT-BASED BAD FAITH CLAIMS

In a surprising decision on rehearing, on February 4, 2019, a panel of the Louisiana Third Circuit Court of Appeal reversed itself and held that bad faith claims arising out of an insurance contract are subject to a ten-year prescriptive period rather than a one-year prescriptive period.[1] Fils v. Starr Indemnity & Liability Company, — so. 3d — (La. App. 3rd Cir. 5/9/2018)(on r’hrg), centered on the timeliness of the plaintiff’s bad faith claims against his uninsured motorist carrier. Dissatisfied with the $45,000 that his UM carrier had tendered following a motor vehicle accident on August 28, 2013, the policyholder filed suit against the insurer for additional benefits the day before the expiration of the two-year prescriptive period applicable to

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Avoiding Insurance Bad Faith
Cozen O’Connor represents insurance clients in jurisdictions throughout the U.S. against statutory and common law first- and third-party extracontractual claims for actual and consequential damages, penalties, punitive and exemplary damages, attorneys’ fees and costs, and coverage payments. Whether bad faith claims are addenda to a broader coverage matter or are central to the complaint, Cozen O’Connor attorneys know how to efficiently respond to extracontractual causes of action. More
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