Consumer Fraud, Bad Faith and Misrepresentation Claims Dismissed.    

In a first party property insurance case, Magistrate Judge Kim, Northern Dist., Eastern Div., IL, dismissed various causes of action including consumer fraud, misrepresentation and bad faith.   The Plaintiffs, Propitious, LLC (“Propitious”) and Connacht, LLC, (“Connacht”), sued Badger Mutual Insurance Company (“Badger”) and Society Insurance (“Society”), for coverage under two separate insurance policies for water damage to a building owned by Propitious and occupied by Connacht.  

Propitious owns a two-story building located at 2542-2548 North Southport Avenue in Chicago and was insured by Badger for property damage, lost rental income, and personal property included with the building.  Connacht, which leased the first floor of the property and operated the Crossing Tavern, was insured by Society for personal property and lost business income.  On December 16, 2016, multiple water pipes in the building burst causing damage to the property and its contents.  Due to the extensive damage sustained, Connacht suspended operations of the Crossing Tavern until the completion of the repairs.

Connacht submitted a loss claim to Society for $225,453 in damage to audiovisual equipment.  Society paid Connacht $25,000, covering primarily food, alcohol, and spice losses.  Society then estimated the damage to the audiovisual equipment to be $139,635 but asserted that because certain items were a permanent part of the building, $78,482 of the claimed damage were Badger’s responsibility.  Society paid Connacht an additional $42,546 representing what it claimed was the remainder of its responsibility for the damage to Connacht’s audiovisual equipment, food and alcohol.  Connacht objected and provided a revised damage estimate of $199,589 to Society.  In addition to property damage, Connacht’s damage consultant estimated Connacht’s business interruption losses for Crossing Tavern to be $1,455,087 over a 12-month period.  Society’s forensic accountant estimated Connacht’s lost business income as $74,595, which Society paid.

Propitious submitted a loss claim to Badger which estimated damage to the property at nearly $1,000,000.  Badger’s “Statement of Loss” estimated the damage as $306,969 and asserted that Society’s share was $199,617.  Badger then paid $246,016 to Propitious pursuant to its “Statement of Loss.”

After neither insurer would pay the $199,617, Propitious and Connacht sued Badger and Society.  Society moved to dismiss the consumer fraud, bad faith and misrepresentation claims.  The Magistrate Judge agreed with Society’s argument that Propitious could not maintain a misrepresentation claim against it because it was not an insured under the Society policy and, thus, Society did not have any obligation to Propitious with respect to claims-handling.  As to Connacht’s intentional misrepresentation claim, the Magistrate Judge found that Connacht had not sufficiently stated a claim for intentional misrepresentation under Illinois law.  The Magistrate Judge stated that while fraudulent or deceptive intent “may be alleged generally,” under Federal Rule of Civil Procedure 9(b), a plaintiff must plead the “circumstances” of the alleged fraud with “particularity.”  Thus, a plaintiff must plead “the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.”

The Magistrate Judge reasoned that Connacht had failed to allege what specific false statements Societymade to Connacht at the time of contracting.  Instead, Connacht described Society’s alleged subsequent mishandling of Connacht’s claim a year after purchase.  Thus, Connacht could not support an intentional misrepresentation claim.  The Magistrate Judge also held that Society’s alleged misrepresentation was not supported by any specific allegations of false statements.  The Magistrate Judge found that Connacht’s allegations went to its disagreement with Society’s interpretation of the policy, which was not sufficient to support an intentional misrepresentation claim.

Relying on similar rationale, the Magistrate Judge also found that Connacht had failed to state a claim for negligent misrepresentation.  “Because the dispute regarding what damages are covered under the Society policy also forms the basis of the negligent misrepresentation claim, this cause of action similarly fails because Connacht fails to plead any false statements of material fact made by Society.”  The cause of action was also barred by Illinois’ economic loss rule, also known as the Moorman doctrine, which “bars recovery in tort for purely economic losses arising out of a failure to perform contractual obligations.”

As to the consumer fraud claims, the Magistrate Judge found they were preempted by 215 ILCS 5/155 of the Illinois Insurance Code because they were “nothing more than a breach of contract claim.”  The consumer fraud claims relied on “the same factual foundation as their breach of contract claims. No distinct deceptive acts are alleged.”  The Magistrate Judge also stated that even if Propitious and Connacht were able to allege a consumer fraud cause of action, Propitious would still be barred from bringing the claim against Society because the plaintiff must be a “consumer” or satisfy the “consumer nexus” test, which requires the plaintiff to “have suffered damages resulting from conduct that is either directed toward the market or otherwise implicates consumer protection concerns.”  Propitious and Connacht conceded that Propitious was not a consumer because it is not Society’s insured, and they did not sufficiently allege that Society’s actions were directed toward the market. Finally, the Magistrate Judge dismissed Connacht’s bad faith claim reasoning that although Connacht alleged that Society had not paid all Connacht is owed under the policy, Connacht failed to plead sufficient facts that show Society wrongfully and unreasonably refused to comply with its policy obligations.  The Magistrate Judge held that there was no actionable bad faith claim because there was a “bona fide coverage dispute” between the parties as to which items were covered under the policy.  Propitious, LLC v. Badger Mut. Ins. Co., No. 18 CV 1405, 2019 U.S. Dist. LEXIS 19582 (N.D. Ill. Feb. 7, 2019).