Neither Insurer’s Arbitration Award Against Policyholder or Her Alleged Misrepresentations Precluded Trial Court’s Bad Faith Award

The Illinois First District Appellate Court, applying Illinois law, affirmed the lower court’s decision that an insured was entitled to attorney fees and penalties for its insurers’ failure to assert a bona fide defense for its denial of the insured’s claim.  The appellate court found that while the insurer may have reasonably believed that the insured concealed or misrepresented certain facts, the insurer did not present any evidence of fraud, and could not show that its denial of the claim was made in good faith, despite its initial success before an arbitrator.

Marietta Jones, purchased an auto insurance policy from American Family Mutual Insurance Company (“American Family”).  She later filed a claim under the policy after her vehicle was damaged, allegedly by arson.  Jones made several statements to American Family about the circumstances of the damage.  American Family investigated the loss and discovered that some of Jones’s statements were unsupported or contradicted by the results of its investigation.  American Family denied Jones’s claim, citing her concealment or misrepresentation of “material facts” as its reason for denial.

Jones filed a complaint against American Family alleging that American Family wrongfully denied her claim.  The case went to mandatory arbitration, and the arbitrator entered an award in favor of American Family. Jones rejected the arbitration ruling and the suit proceeded to a jury trial.  The jury returned a verdict for Jones, and in a post-trial motion Jones requested costs, penalties, and attorney fees under 215 ILCS 5/155, arguing that American Family’s denial of her claim was unreasonable and vexatious.  American Family argued that it denied the claim in good faith, stating that it reasonably believed that Jones made material concealments and misrepresentations.  American Family also cited the arbitrator’s award in its favor.  Jones’ post-trial motion was granted.

The appellate court noted that American Family had not included the transcript of the hearing in which the trial court awarded penalties and attorney fees, thus leaving the appellate court bound to presume that the trial court acted properly.  The appellate court also found that while Jones’s inconsistent statements “may have reasonably caused the defendant to pause, doubt, or investigate the matter further, it cannot be said that they created a bona fide defense warranting the denial of the plaintiff’s claim.”  Further, American Family presented no evidence of fraud. The appellate court found that simply pointing out concealments or misrepresentations on the part the insured and labeling them as “material” does not give the insurance company grounds to deny a claim; the concealments or misrepresentations must be connected to some legitimate grounds for claim denial.  Finally, the appellate court rejected American Family’s argument that the arbitrator’s award to American Family showed that American Family acted reasonably in denying the claim.  The appellate court reviewed the trial court’s decision for abuse of discretion, and while the arbitrator reached a different result than the jury, it did not follow that “no reasonable person would take the view adopted by the trial court,” and, thus, the judgement was affirmed.  Jones v. Am. Family Mut. Ins. Co. 2019 IL App (1st) 181077-U (Mar. 22, 2019) (Cunningham, Delort, Harris).