Ellis v. Metropolitan Property & Liability Insurance

600 F. Supp. 1 (1982)

Robert Lee ELLIS and Joyce Ann Ellis, Plaintiffs,
v.
METROPOLITAN PROPERTY AND LIABILITY INSURANCE COMPANY, an insurance corporation, Defendant.

Civ. No. 82-4287.

United States District Court, S.D. Illinois, Benton Division.

October 22, 1982.

Mitchell, Brandon & Schmidt, Carbondale, Ill., for plaintiffs.

Russell F. Watters, Brown, James, Rabbitt, Whaley, McMullin & Pitzer, Belleville, Ill., for defendant.

ORDER

FOREMAN, Chief Judge.

Before the Court is defendant's Motion to Dismiss or in the Alternative Strike Count III of Plaintiffs' Complaint. Count III alleges that defendant unreasonably refused to pay plaintiffs' insurance claim and therefore breached "the duty of good faith and fair dealing." Defendant denies that such a cause of action exists. At issue is whether there exists in Illinois a tort action for breach of the duty of good faith and fair dealing against an insurance company.

The Illinois Supreme Court has not yet resolved this issue; the districts are anything but unanimous. This Court, faced with an unsettled state law question, must anticipate how the Illinois Supreme Court would resolve the conflict. Eckenrode v. Life of America Insurance Co., 470 F.2d 1, 3 (7th Cir.1972); Strader v. Union Hall, 486 F. Supp. 159, 161 (N.D.Ill.1980). Also, it is recognized that when "a higher federal court has expounded the law of the state on a particular point, a lower court will follow that decision in the absence of an authoritative state decision." 1A P12 Moore's Federal Practice Section 0.309[2] at 3124 n. 23.

It is arguable that this Court is bound by the Seventh Circuit's determination in Eckenrode that "insurance contracts are subject to the same implied conditions of good faith and fair dealing as are other contracts." Id. 470 F.2d at 5. In the Court's opinion, it is not so bound. As the Court in Strader recognized, the Eckenrode decision,

addressed the issue of recovery for intentional infliction of emotional harm under Illinois law. It was in that context that the court found an implied duty of good faith and fair dealing; nowhere in the opinion is it suggested that breach of the duty would give rise to a separate tort action in which punitive damages would be available. Thus, the Court does not consider Eckenrode controlling on this issue.

Strader, supra, 486 F.Supp. at 162-63 n. 5. Since no higher federal court interpretation of this issue is available, the Court must anticipate how the Illinois Supreme Court would rule.

The Court believes the Illinois Supreme Court would not recognize an independent tort action for breach of the duty of good faith and fair dealing. Illinois already has a statutory provision that allows the Court to tax as costs reasonable attorneys fees and other amounts when it finds the insurance company's failure to settle or delay in settling is "vexatious and unreasonable." Ill.Rev.Stat. ch. 73, Section 767. The Court agrees with the better reasoned lower state court decisions, which hold that it would be inappropriate for the judiciary to supplement this statutory scheme.

In Ledingham v. Blue Cross Plan for Hospital Care, 29 Ill.App.3d 339, 330 N.E.2d 540 (5th Dist.1975), the Fifth District found for the first time that the insurer-insured relationship gives rise to an implied duty of good faith and fair dealing, the breach of which creates both contract and tort liability. Presumably, this is the case upon which plaintiffs rely for their Count III. See also Robertson v. Travelers Insurance Company, 100 Ill.App.3d 845, 56 Ill. Dec. 222, 427 N.E.2d 302 (5th Dist.1981). That ruling has been vigorously attacked by other districts.

The Court in Debolt v. Mutual of Omaha, 56 Ill.App.3d 111, 13 Ill. Dec. 656, 371 N.E.2d 373 (3rd Dist.1978), affirmed the dismissal of the plaintiff's count requesting punitive damages for the breach of the duty of good faith and fair dealing. In so ruling, the Court reasoned that the Illinois legislature created the remedy for an insured who encounters an unreasonable and vexatious insurance company. Ill.Rev. Stat. ch. 73, Section 767. Consequently, the Court stated that "[w]here the legislature has provided a remedy on a subject matter we are not only loath but in addition harbor serious doubts as to the desirability and wisdom of implementing or expanding the legislative remedy by judicial decree." Debolt, supra, 371 N.E.2d at 377. The Court relied on two Illinois Supreme Court cases finding that a legislatively fashioned remedy could not be supplemented or altered by judicial fiat. Cunningham v. Brown, 22 Ill. 2d 23, 174 N.E.2d 153 (1961) (Common law theory against tavern owners was not recognized because the Illinois Dram Shop Act provided the sole remedy); Hall v. Gillins, 13 Ill. 2d 26, 147 N.E.2d 352 (1958) (The $25,000 limitation of recovery in a wrongful death action is not unconstitutional because of the right of recovery itself was created by the legislature in the first instance).

In addition, the Debolt Court recognized flaws in the reasoning used in Ledingham. First, the reliance in Ledingham on Nevin v. Pullman Palace Car Co., 106 Ill. 222 (1883) was misplaced. In Nevin, the plaintiff and his family was denied use of a berth in a sleeping car without justification. The Supreme Court allowed a tort remedy against the defendant as a supplement to the contractual remedy. The Debolt Court was not persuaded that the Nevin decision supported the fashioning of a tort against an insurance carrier who refuses to pay policy benefits. In Nevin, the contractual remedy would be the price of the train tickets; against the insurance company, the contractual remedy would be the amount expected under the terms of the policy. The factors warranting a supplemental remedy in Nevin simply are not present in the context of an unreasonable or vexatious insurance company. Debolt, supra, 371 N.E.2d at 376-77.

Second, the Ledingham decision improperly relied upon several California cases as authority for an award of punitive damages for a breach of good faith and fair dealing on the part of an insurer. California has no provision comparable with Ill. Rev.Stat. ch. 73, Section 767. "It could well be argued that the rationale the California courts is that absent a statutory remedy punitive damages will be allowed to an aggrieved party who has been mistreated by an insurer." Debolt, supra, 371 N.E.2d at 378.

Finally, the reasoning in Ledingham is particularly suspect because it fails to acknowledge the existence of Ill.Rev.Stat. ch. 73 Section 767, a statute specifically tailored to remedy unreasonable and vexatious conduct. This Court agrees with Debolt that Section 767 "is highly significant in that it provides a remedy for an insured and thereby attempts to keep him harmless resulting from misconduct of his insurer. It may well be that the statutory remedy should provide greater relief but we hold that to be a matter for legislative determination." Debolt, supra, 371 N.E.2d at 378.

Other districts have joined in the criticism of Ledingham. Hoffman v. Allstate Insurance Company, 85 Ill.App.3d 631, 40 Ill. Dec. 925, 407 N.E.2d 156 (2d Dist.1980); Tobolt v. Allstate Insurance Co., 75 Ill. App. 3d 37, 30 Ill. Dec. 824, 393 N.E.2d 1171 (1st Dist.1979); Urfer v. Country Mutual Insurance Co., 60 Ill.App.3d 469, 17 Ill. Dec. 744, 376 N.E.2d 1073 (4th Dist.1978) (concurring opinion). The only difficulty is in determining the scope of preemptive impact of Section 767.

Citing Tobolt, Urfer, and Debolt, the Court in Hoffman found that Section 767 indeed preempted recovery of punitive damages for unreasonable and vexatious conduct by an insurer. However, the Court found that the statute "on its face, does not preempt a plaintiff's right to claim compensatory damages for a breach of good faith and fair dealing." Hoffman, supra, 407 N.E.2d at 159. However, the reasoning behind the Tobolt and Debolt decisions and the concurrence in Urfer is that Section 767 preempts an independent tort altogether, regardless of whether punitive and compensatory damages are demanded. In fact, the Tobolt Court applied the preemption analysis and dismissed a count demanding punitive and compensatory damages. The rationale behind the Tobolt, Debolt, and Urfer is that Section 767 preempts the judicial fashioning of an independent tort action for breach of the duty of good faith and fair dealing. Allowing compensatory but not punitive damages is inconsistent with this rationale. The Court agrees with the statement in Hamilton v. Safeway Insurance Company, 104 Ill. App. 3d 353, 60 Ill. Dec. 97, 432 N.E.2d 996, 999 (1st Dist.1982) that by "enacting section [767] the legislature preempted the field of remedies available to an insured who has difficulty with an unreasonable and vexatious insurance company."

Finally, this Court's conclusion that Section 767 preempts plaintiff's theory in Count III is supported by the decision in Strader v. Union Hall, Inc., 486 F. Supp. 159 (N.D.Ill.1980). Weighing the Ledingham, Tobolt, and Debolt decisions, the Court found preemption of an independent tort action and stated: "[T]he Court does not believe the Illinois Supreme Court would recognize an independent tort action for breach of the duty of good faith and fair dealing." Strader, supra, 486 F.Supp. at 162. The Court agrees.

Accordingly, defendant's Motion to Dismiss or in the Alternative Strike Count III is hereby GRANTED. Count III is hereby DISMISSED.

IT IS SO ORDERED.