2020 IL App (1st) 190320
Ill. App. Ct.2020Background
- Nine Group II (managed by SY Vegas/Silver/Young) sold its interest in N‑M Ventures II to F.P. Holdings via an original August 3, 2012 purchase agreement and a September 6, 2012 amended agreement; the August 24, 2012 email from minority member Blumenfeld’s counsel (Jones) warned of litigation if buyout terms were not resolved.
- A directors & officers (D&O) claims‑made policy issued by Liberty ran from August 27, 2012 to August 27, 2013 (i.e., began three days after the Jones email).
- Blumenfeld (B In It, LLC) sued Nine Group II and managers in Nevada on March 15, 2013; Nine Group II gave Liberty notice in March/April 2013.
- Liberty denied coverage in June 2013, citing (inter alia) that the claim arose before the policy period (the August 24 email), potential indemnity from FPH (no insured loss), applicable exclusions, and alleged application misstatements.
- Plaintiffs sued Liberty in Cook County (declaratory relief, breach of contract, and §155 bad‑faith). The trial court granted summary judgment to Liberty on the §155 bad‑faith count (denying §155 relief) and left the breach claim for later adjudication; plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Liberty’s denial constituted vexatious and unreasonable conduct under 215 ILCS 5/155 | Liberty’s delay, limited communication, and purportedly inadequate investigation made the denial vexatious and unreasonable | Liberty had a reasonable, arguable basis to deny coverage (coverage‑period/known‑loss, indemnity, exclusions, application answers), so no §155 liability | Held for Liberty: no §155 liability because a bona fide coverage dispute existed and denial was not vexatious or unreasonable |
| Whether a bona fide coverage dispute existed over when the claim was “first made” | The Nevada suit alleged post‑policy conduct tied to the amended agreement and thus fell within the policy period | The August 24, 2012 Jones email and the interrelated original/amended agreements reasonably supported the view the claim arose pre‑policy | Held for Liberty: bona fide dispute existed about whether the claim predated the policy, which defeats §155 relief |
| Whether Liberty’s investigation/communications were inadequate or violated its own 30‑day target | Guzman lacked independent recollection at deposition; plaintiffs contend contemporaneous process was faulty and communications insufficient | Contemporaneous emails, requests for documents, and telephone calls showed active investigation and communication with plaintiffs’ counsel; 30‑day benchmark is aspirational, not per se binding | Held for Liberty: investigation and communications were adequate as a matter of law given the complexity and bona fide dispute |
| Whether genuine issues of material fact precluded summary judgment on §155 | Plaintiffs say factual disputes (e.g., nature/timing of transactions, investigatory memory) preclude summary judgment | Cross‑motions frame the dispute as legal; existence of bona fide dispute and documentary record allow summary disposition | Held for Liberty: no genuine factual issue on §155 — bona fide dispute bars §155 damages even if breach claim remains viable |
Key Cases Cited
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90 (1992) (summary judgment standard; de novo review on appeal).
- Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (1999) (discusses standard of review for §155 rulings and exceptions where de novo review applies).
- McGee v. State Farm Fire & Casualty Co., 315 Ill. App. 3d 673 (2000) (defines §155 relief—insurer’s conduct must be vexatious and unreasonable).
- Green v. International Insurance Co., 238 Ill. App. 3d 929 (1992) (insurer not liable under §155 merely for unsuccessfully litigating a coverage dispute).
- West American Insurance Co. v. J.R. Construction Co., 334 Ill. App. 3d 75 (2002) (§155 factors and review standards).
- Norman v. American National Fire Insurance Co., 198 Ill. App. 3d 269 (1990) (example where inadequate investigation supported §155 award).
- Buais v. Safeway Insurance Co., 275 Ill. App. 3d 587 (1995) (excessive delay can support §155 relief when insurer knew it would be liable).
- Morris v. Auto‑Owners Insurance Co., 239 Ill. App. 3d 500 (1993) (bona fide coverage dispute precludes §155 sanctions).
- Kohlmeier v. Shelter Insurance Co., 170 Ill. App. 3d 643 (1988) (enumerates considerations in determining whether insurer’s conduct was vexatious and unreasonable).