Payment of an Appraisal Award Does Not Foreclose Insured’s Claim for Vexatious and Unreasonable Conduct in Illinois

Often an insurer will assert that their payment of an appraisal award has satisfied their obligation under the policy such that an action for “bad faith” cannot be brought. An insurer recently raised this issue in a motion to dismiss against our client arguing that the insured’s right to bring a claim for damages under section 155 of the Illinois Insurance Code for the insurer’s vexatious and unreasonable conduct was foreclosed by its payment of the appraisal award. In researching this issue in Illinois, it became clear that an insured may state a valid section 155 claim even when the disputed amount is paid in full prior to the commencement of litigation.¹

In McGee v. State Farm Fire and Casualty Company,² the Illinois Appellate Court for the Second District was faced with deciding whether an insured could maintain a section 155 claim (Vexatious and Unreasonable Conduct) following appraisal. The court in McGee concluded that the insured’s amended complaint was sufficient to state a cause of action where it alleged that the insurer had performed an inadequate investigation; refused to negotiate the claim in good faith; delayed the appraisal process by failing to agree upon an umpire; and delayed payment after completion of the appraisal process. The court in McGee expressly held that defendant’s submission of the claim to appraisal and subsequent payment, without more, were insufficient to defeat a claim under section 155.³

It is expected that in our case the court will follow this clear precedent established by the appellate court and allow our client’s section 155 claim to stand, as the insurer’s payment of the appraisal award, alone, should not preclude a claim for vexatious and unreasonable conduct where the insured has alleged the insurer grossly underpaid the initial claim as evidenced by an appraisal award that was more than ten times the initial payment; failed to conduct a full, fair and objective investigation; and failed to employ claim specialists with the appropriate background, training and experience.
___________________________
¹ See Calcagno v. Personalcare Health Management, Inc., 207 Ill.App.3d 493, 504 (4th Dist. 1991).
² McGee v. State Farm Fire and Casualty Co., 315 Ill.App.3d 673 (2d Dist. 2000).
³ Id. at 683.