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Specific Facts Must Be Alleged in Support of a Bad Faith Claim
Insurance Law Update
Appellate Court of Illinois, First District
In American Service Ins. Co. v. Franchini, ___ N.E.2d ___, 2009 WL 4893293 (Ill. App. Ct. December 15, 2009) the Illinois Appellate Court, First District, held that a party alleging “bad faith” must allege facts supporting such a claim, and may not merely assert in a conclusory fashion that the other party’s actions were “vexatious and unreasonable.”
American Service Insurance Company (ASI) issued an automobile policy to the insured for the policy period October 31, 2004 to October 31, 2005. In March 2005, the insured’s sister, driving the insured automobile, was in an accident, causing bodily injury to the other driver. Shortly thereafter ASI rescinded the policy on the ground that the insured failed to disclose in his application that his sister lived with him and frequently drove the automobile.
After the injured driver filed suit against the insured and his sister, ASI provided a defense to the insured but reserved the right to withdraw the defense if it were determined that the insured made material misrepresentations in the insurance application. ASI also sought a declaratory judgment that it had no duty to defend and the insured counterclaimed, alleging vexatious or unreasonable conduct by ASI in its defense, in alleged violation of Section 155 of the Illinois Insurance Code. The trial court granted ASI’s motion to dismiss because the counterclaim failed to allege specific facts establishing any vexatious or unreasonable conduct by ASI.
The Illinois Appellate Court affirmed. The court stated that ASI’s reservation of its right to rescind coverage on the basis of material misrepresentation did not equate to a denial of the duties to defend and indemnify, as the insured alleged. The court noted that ASI’s filing of a declaratory judgment on the question of fraud was precisely the action endorsed by the Illinois Supreme Court as the step that a responsible insurer should take. The Appellate Court added that “the allegations of vexatious and unreasonable conduct by ASI asserted by the insured’s counterclaim fell far short of the types of specific and egregious acts” that have in the past constituted bad faith.
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