995 F.3d 576
7th Cir.2021Background
- Creation Supply, Inc. (CSI) was insured by Selective; CSI faced an Oregon suit alleging copied products and sought defense under the policy; Selective refused to defend.
- Selective sued CSI in Illinois state court for a declaration it had no duty to defend; CSI settled the Oregon suit in 2013 for $0 plus an injunction.
- The Illinois courts later (2015) held Selective had a duty to defend, and (2017) awarded CSI $195,000 for pre-settlement expenses covered by the policy.
- CSI filed a federal suit alleging (Count I) a Section 155 violation (extracontractual damages for vexatious/unreasonable conduct) and (Count II) breach of contract; the district court later found for CSI on Section 155 after a bench trial and awarded $2,846,049.34.
- The district court entered a Rule 54(b) final judgment on the Section 155 claim; the breach-of-contract claim remains pending.
- Selective appealed the Section 155 award; the Seventh Circuit reviewed whether any of Section 155’s three threshold issues remained undecided and whether the award was permitted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 155 extracontractual damages were available here (statutory prerequisite) | Section 155 may be pursued alongside a breach-of-contract claim; need not be in the same action that decides duty to defend | Section 155 applies only when one of three issues remains undecided (insurer liability, amount owed, or unreasonable delay in settling a claim); none remain undecided here | Reversed: Section 155 unavailable because none of the three threshold issues remained undecided |
| Whether insurer’s liability under the policy remained undecided | CSI: the §155 claim can proceed even though duty was decided earlier; timing and context allow extracontractual relief | Selective: liability was finally adjudicated by Illinois appellate decision in 2015 | Held: liability was decided in 2015; this threshold is not met |
| Whether amount of loss payable under the policy remained undecided | CSI: seeks consequential/compensatory damages beyond policy limits; these can coexist with §155 claim | Selective: the Illinois Appellate Court fixed the amount owed under the policy in 2017 ($195,000); no unresolved policy amount remains | Held: amount payable under the policy was decided in 2017; threshold not met |
| Whether there was an unreasonable delay in settling a claim (versus delay in paying a judgment) | CSI: alleges Selective acted vexatiously by refusing to pay fees/expenses after being judicially determined to owe a duty to defend | Selective: allegations concern delay in paying a post-judgment obligation, not delay in settling an insurance claim as required by §155 | Held: conduct alleged was failure to pay a judgment, not delay in settling a claim; threshold not met; §155 inapplicable |
Key Cases Cited
- Neiman v. Econ. Preferred Ins. Co., 829 N.E.2d 907 (Ill. App. Ct. 2005) (Section 155 applies only where one of three issues remains undecided)
- Pryor v. United Equitable Ins. Co., 963 N.E.2d 299 (Ill. App. Ct. 2011) (insurer liability/amount issues resolved in arbitration foreclose §155)
- Cramer v. Ins. Exch. Agency, 675 N.E.2d 897 (Ill. 1996) (Section 155 provides extracontractual remedy for insurer misconduct; often accompanies breach claims)
- Mohr v. Dix Mut. Cnty. Fire Ins. Co., 493 N.E.2d 638 (Ill. App. Ct. 1986) (Section 155 limits remedy to cases involving one of three undecided issues)
- Hennessy Indus., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 770 F.3d 676 (7th Cir. 2014) (Section 155 is a remedy tied to an action; it does not create an independent cause of action)
- Estate of Price v. Universal Cas. Co., 750 N.E.2d 739 (Ill. App. Ct. 2001) (distinguishable example where §155 applied because issues remained open pending confirmation of arbitration award)
- Acheron Med. Supply, LLC v. Cook Med. Inc., 958 F.3d 637 (7th Cir. 2020) (standard of review for legal conclusions after bench trial)