A recent appellate decision out of Illinois demonstrates that an insurer’s bad faith is not necessarily limited to an outright refusal to pay; bad faith can also include a failure to pay within a reasonable amount of time.
As reported by The National Law Review, Rockford Mutual Insurance had paid about 90 percent of the claim filed by Charter Properties, Inc. Yet, plaintiff Charter was able to collect more than “$130,000 in statutory penalties, attorneys’ fees, and prejudgment interest” on its cause of action for bad faith.
The case arose out of the collapse of a restaurant building, which caused Charter, a commercial landlord, to lose rental revenue and incur reconstruction costs. The plaintiff and the insurer disagreed about the value of the claim. Rockford Mutual estimated its obligation to be about $1.1 million, while Charter sought about $600,000 more.
When the case went to trial, a jury thought Rockford’s payment was light by roughly $150,000. That result would indicate the parties had a reasonable disagreement about the value of the claim and that even though Rockford’s offer was inadequate, the insurer was closer to the actual value than the claimant.
There would be no case for bad faith if that’s all there was to the story. But, unfortunately, Rockford had dragged its feet for too long before coughing up the payment.
In Illinois, an insurance company is liable for bad faith if its behavior is “unreasonable and vexatious.” and Charter offered several facts to support a finding that Rockford acted unreasonably and vexatiously:
Rockford failed to meet the requirements of the Illinois Administrative Code that an insurer “affirm or deny liability on a claim within a reasonable time and to pay any undisputed portions within 30 days after that affirmation”.
- Six months after the collapse, Rockford disputed the amount of the claim and informed Charter it was holding the claim “in abeyance” pending the completion of its investigation.
- Twelve months after the collapse, work on the claim stopped without being completed
- An expert witness testified for Charter that Rockford had failed to determine liability and had improperly tried to shift the burden to the Charter.
In Illinois, a judge decides bad faith claims, which is a pretty good idea, given how average folks often feel about insurance companies. The trial court judge found sufficient evidence of bad faith to slap Rockford with the penalties mentioned above. Rockford appealed and lost again.
This case should serve as a warning to all insurers who too often figure that, as long as the ultimate payment is objectively fair, there’s no harm or foul for their previous foot-dragging. Wrong! When insurers fail to act within a reasonable time, they put their policyholders under additional financial strain, which can lead to preventable financial losses as well as unnecessary emotional stress.
Many jurisdictions recognize how anxiety over whether the insurer will meet its obligations can take a toll on the physical and emotional health of a policyholder. The fact that this was a business insurance policy does not make it any less “vexatious” for the very human stakeholders of the affected company. Insurers should heed this warning and improve their internal processes to better serve policyholders with valid claims they are legally bound to honor.
When an insurance company delays payment of a valid claim, policyholders suffer unnecessary financial losses and anxiety. If your insurance company has failed to honor your claim within a reasonable time, contact our firm for immediate assistance.