Propitious LLC et al v. Badger Mutual Insurance Company et al

Filing 58

MEMORANDUM Opinion and Order Signed by the Honorable Young B. Kim on 2/7/2019. (ma,)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PROPITIOUS, LLC and CONNACHT, )
)
LLC,
)
)
Plaintiffs,
)
v.
)
)
BADGER MUTUAL INSURANCE
)
COMPANY, a corporation, and
)
SOCIETY INSURANCE, a mutual
)
company,
)
)
Defendants.
)

No. 18 CV 1405

Magistrate Judge Young B. Kim

February 7, 2019

MEMORANDUM OPINION and ORDER
Plaintiffs Propitious, LLC (“Propitious”) and Connacht, LLC, (“Connacht”),1
both Illinois companies, bring this 18-count suit against Defendants Badger Mutual
Insurance Company (“Badger”) and Society Insurance (“Society”), both Wisconsin
companies, seeking to recover proceeds under two separate insurance policies for
water damage to a building owned by Propitious and occupied by Connacht. Before
the court is Society’s motion to dismiss Counts VI, VII, XIII, XV, and XVI of the
complaint with prejudice. For the following reasons, Society’s motion is granted to
the extent that the claims are dismissed without prejudice:
Background
The following facts are drawn from Plaintiffs’ amended complaint and are
presumed to be true for purposes of ruling on the current motion. Propitious owns a

1

Both Propitious and Connacht have one member, Cathal Ó Céidigh.

two-story building located at 2542-2548 North Southport Avenue in Chicago, Illinois
(“the Property”). (R. 36, First Am. Compl. ¶ 12.) Propitious insured the Property
under a policy issued by Badger, which provided coverage for property damage, lost
rental income, and personal property included with the building.

(Id., Ex. 1.)

Connacht leased the first floor of the Property, where it operated the Crossing Tavern,
a restaurant and sports bar. (Id. ¶¶ 13-14.) The Crossing Tavern was insured by
Society, which provided coverage for personal property and lost business income. (Id.,
Ex. 2.) On December 16, 2016, multiple water pipes burst in one of the second-floor
residential apartments, causing damage to the Property and its contents. (Id. ¶¶ 50,
56.) Connacht sustained extensive damage to its personal property and other assets
used in the operation of the Crossing Tavern. (Id. ¶ 64.) Connacht suspended
operations of the Crossing Tavern until repairs could be completed.

(Id. ¶ 61.)

Propitious notified Badger of the water damage to the Property, and Connacht
notified Society of the personal property damage and business interruption at the
Crossing Tavern. (Id. ¶¶ 62-63.)
Connacht, Society, Propitious, and Badger each investigated the damage
caused by the pipes bursting. (Id. ¶¶ 65-69, 157-65.) Following its investigation,
Connacht submitted a loss claim to Society totaling $225,453.11 for damaged
audiovisual equipment. (Id. ¶ 82.) On January 26, 2017, the parties met to jointly
discuss the damage to the Property and the Crossing Tavern and identified a
potential coverage dispute regarding which insurer, Badger or Society, would be
responsible for certain damaged items. (Id. ¶ 84.) That same day, Society paid

2

Connacht $25,000, which primarily covered food, alcohol, and spice losses. (Id. ¶ 121.)
Based on its investigation, Society estimated the damage to the audiovisual
equipment to be $139,635.17, but alleged that because certain items were a
permanent part of the building, $78,482 of that amount should be covered by Badger.
(Id. ¶¶ 101,112-16, 137-40, 148, 237.) On February 6, 2017, Connacht received a
letter from Society, which included a report detailing its investigation of the damage
to Connacht’s audiovisual equipment, various inventory reports for food and alcohol,
and a check for $42,546.49. (Id. ¶ 120.) In response, Connacht submitted a revised
damage estimate of $199,589.65 for the audiovisual equipment, and requested that
Society pay that amount as well as any other outstanding personal property claims.
(Id. ¶¶ 130-35, Ex. 9.)
Connacht also hired an accounting and consulting company to investigate its
business interruption claim. (Id. ¶ 204.) The consultant estimated the Crossing
Tavern’s business interruption losses to be $1,455,087 over a 12-month period based
on, among other things, the restaurant’s inability to increase its prices and to host a
series of sports-related events. (Id. ¶ 215.) Society hired a forensic accountant to
investigate Connacht’s business interruption claim, who valued Connacht’s lost
business income at $74,595, (id. ¶ 221), which Society has paid, (id. ¶ 315).
Propitious submitted a loss claim to Badger estimating damages to the
Property at nearly $1 million. (Id. ¶¶ 160-61.) On March 21, 2017, Badger sent
Propitious a “Statement of Loss” estimating the total damage to the Property to be
$306,969.61 and assigning coverage responsibility to Society for $199,617.45 based

3

on its investigation and damage estimates. (Id. ¶¶ 174-77.) The following week,
Badger sent Propitious a check for $246,016.76 as payment pursuant to the
Statement of Loss. (Id. ¶ 178.) Plaintiffs jointly wrote to their respective insurers,
informing them of the dispute between the insurers regarding which of them is
responsible for certain items and noting that Propitious’s contractor required a
$395,000 deposit to begin repairs. (Id. ¶ 179.) On March 30, 2017, Connacht sent
Society, at its request, Badger’s Statement of Loss. (Id. ¶ 182.) Society denied
responsibility for the amount claimed by Badger, noting that the items identified in
the statement are “‘fixtures, machinery, and equipment which are a permanent part
of the described building or structure as defined by the Badger Policy.’” (Id. ¶ 262.)
Plaintiffs repeatedly informed their respective insurers about the outstanding
coverage dispute regarding the $199,617.45 in damages. (Id. ¶ 184.) Both insurers
refused to pay any of the $199,617.45, and instead, maintained that the other insurer
is responsible for payment. (Id. ¶¶ 189-90.)
On February 23, 2018, Plaintiffs brought this action against Badger and
Society. (R. 1, Compl.) Society moves to dismiss Counts VI and XIII (consumer fraud
claims), Count VII (bad faith claim), and Counts XV and XVI (intentional and
negligent misrepresentation claims), asserting that the underlying allegations are
not only false, but also legally deficient. (R. 41, Def.’s Mot. at 1.) Society further
contends that the instant matter amounts to nothing more than an insurance
coverage dispute between the parties. (Id.) Plaintiffs maintain that they have alleged
sufficient facts to support their claims. (R. 50, Pls.’s Resp. at 3.)

4

Analysis
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. Hallinan
v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). A
complaint must provide “a short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The statement must give the
defendant “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). This standard “demands more than an unadorned, thedefendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). While “detailed factual allegations” are not required, “labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.” Twombly,
550 U.S. at 555. The complaint must “contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 570).

“‘A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.’” Mann v. Vogel, 707 F.3d
872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In applying this standard,
the court accepts all well-pleaded facts as true and draws all reasonable inferences
in favor of the non-moving party. Mann, 707 F.3d at 877.
A.

Misrepresentation Claims (Counts XV & XVI)
The court first addresses Society’s contention that Plaintiffs have not

adequately stated a claim for intentional or negligent misrepresentation. (R. 41,
Def.’s Mot. at 7-12.) Specifically, Society argues that Plaintiffs cannot maintain a

5

separate cause of action for misrepresentation where the facts allege a mere
insurance coverage dispute. (Id. at 11.) Society further argues that Propitious cannot
state a misrepresentation claim because it is not insured under the Society policy.
(Id.) Plaintiffs maintain that Society not only misrepresented the coverage offered by
its policy, but it also falsely claimed that Badger was the only insurer responsible for
providing coverage for certain damages. (R. 50, Pls.’s Resp. at 11.)
As an initial matter, because Propitious is not an assignee or an insured of the
Society policy, the court agrees with Society that it did not owe Propitious a duty in
handling Connacht’s claim, and thus, Propitious is precluded from suing Society in a
direct cause of action for misrepresentation. See Martin v. State Farm Mut. Auto.
Ins. Co., 348 Ill. App. 3d 846, 850 (2004) (holding that “the duty in the handling of
claims is owed only to the insurance company’s insured” and “does not extend to
benefit an adversary third-party claimant”). Accordingly, the court’s analysis will be
limited to whether Connacht has alleged sufficient facts to support its
misrepresentation claims against Society.
1.

Intentional Misrepresentation Claim (Count XV)

The court finds that Connacht has not sufficiently stated a claim for intentional
misrepresentation

under

Illinois

law.

The

elements

of

an

intentional

misrepresentation claim are as follows: “(1) a false statement of material fact; (2)
known or believed to be false by the person making it; (3) an intent to induce the
plaintiff to act; (4) action by the plaintiff in justifiable reliance on the truth of the
statement; and (5) damage to the plaintiff resulting from such reliance.”

6

Avon

Hardware Co. v. Ace Hardware Corp., 2013 IL App (1st) 130750, ¶ 15 (internal
citation omitted).

Additionally, Federal Rule of Civil Procedure 9(b) requires a

plaintiff who asserts a fraud claim to “state with particularity the circumstances
constituting fraud.” Fed. R. Civ. P. 9(b). Although fraudulent or deceptive intent
“may be alleged generally,” Rule 9(b) requires a plaintiff to describe the
“circumstances” of the alleged fraud with “particularity.” Id. Accordingly, a plaintiff
must include such information as “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,” Windy
City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 668
(7th Cir. 2008), or, to put it differently, the “who, what, where, when and how” of the
alleged misrepresentation, Bank of Am., N.A., v. Knight, 725 F.3d 815, 818 (7th Cir.
2013).
Connacht alleges that Society intentionally misstated or omitted information
regarding its insurance claims process to induce Connacht to purchase its insurance
policy. (R. 36, First Am. Compl. ¶¶ 402, 404.) Connacht further alleges that after
Connacht submitted its claim, Society misrepresented the damages covered under its
policy to induce Plaintiffs to seek coverage for the disputed items from Badger, even
though Society was responsible for providing coverage for these items. (Id. ¶¶ 402,
405.) However, Connacht fails to allege, as required under Rule 9(b), what specific
false statements Society made to Connacht when Connacht purchased the policy. See
Bank of Am., 725 F.3d at 818.

Instead, Connacht describes Society’s alleged

7

mishandling of Connacht’s claim nearly a year after it purchased the policy. But
under Illinois law, “in order to constitute fraud the representation must be an
affirmance of fact and not a mere promise or expression of opinion or intention; or in
other words ‘the fraud must be in the original contract or transaction and not in its
non-fulfillment.’” Zaborowski v. Hoffman Rosner Corp., 43 Ill. App. 3d 21, 23 (1976)
(quoting Luttrell v. Wyatt, 305 Ill. 274, 281 (1922)); LoggerHead Tools, LLC v. Sears
Holding Corp., 19 F. Supp. 3d 775, 782 (N.D. Ill. 2013). Therefore, any opinions,
promises, or statements of assurance made by Society regarding future insurance
claims, or its failure to perform, are not actionable under a theory of intentional
misrepresentation.
As to Connacht’s claim that Society misrepresented the damages covered
under its policy, again it fails to point to any specific false statements made by
Society. Connacht alleges that Society made numerous misrepresentations such as,
“[r]epeatedly telling Connacht . . . that Society had paid Connacht everything
Connacht was owed under the Society Policy” and “[t]elling Connacht . . . that Society
was responsible for Connacht’s electronics when, in fact, Society had no intention of
providing coverage for the Disputed Audio/Video Equipment.” (Id. ¶ 402.) Reviewing
the allegations in Count XV, it appears that Connacht merely disagrees with Society’s
interpretation of the policy terms and its opinion regarding what damages are
covered under the policy. Therefore, the court agrees with Society that Connacht’s
allegations amount to an insurance coverage dispute, which cannot form the basis of
an intentional misrepresentation claim. See, e.g., Ehrhart v. UNUM Life Ins. Co. of

8

Am., No. 99 CV 1340, 1999 WL 498597, at *3 (N.D. Ill. July 2, 1999) (holding that
“[a]n after-the-fact denial of coverage cannot give rise to the reliance required to
sustain a fraud claim”); Cramer v. Ins. Exch. Agency, 174 Ill. 2d 513, 528 (1996)
(rejecting the plaintiff’s fraud claim where “the complaint is barren of any allegations
of reliance” and the plaintiff “merely alleges that the insurer is lying after the fact to
avoid paying the claim”). Because Connacht’s allegations describe a coverage dispute,
a matter raised in the breach of contract claims in Counts III, IV, and V, Connacht
fails to state a cause of action against Society for intentional misrepresentation. See
Cramer, 174 Ill. 2d at 528 (“[A] separate tort claim is not necessary and is inapplicable
. . . because a contractual remedy is available to plaintiffs.”). Accordingly, the court
dismisses Plaintiffs’ intentional misrepresentation claim against Society.
2.

Negligent Misrepresentation (Count XVI)

Similarly, Connacht fails to state a claim for negligent misrepresentation.
(R. 41, Def.’s Mot. at 10.) “Negligent misrepresentation has essentially the same
elements, except that the defendant need not know that the statement is false; rather
his own carelessness or negligence in ascertaining the truth of the statement will
suffice.” Avon Hardware Co., 2013 IL App (1st) 130750, ¶ 15. Furthermore, a
plaintiff alleging negligent misrepresentation must allege that the defendant owed
him a duty to communicate accurate information. Id. 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.

9

Additionally, Connacht fails to sufficiently allege that Society had a duty to
communicate accurate information. Illinois’s economic loss rule, also known as the
Moorman doctrine, “bars recovery in tort for purely economic losses arising out of a
failure to perform contractual obligations.” Wigod v. Wells Fargo Bank, N.A., 673
F.3d 547, 567 (7th Cir. 2012) (citing Moorman Mfg. Co. v. Nat’l Tank Co., 91 Ill. 2d
69 (1982)). Thus, to state a cause of action for negligent misrepresentation under
Illinois law, a complaint must allege facts establishing that the defendants owed a
duty to communicate accurate information separate and apart from its contractual
obligations. See Catalan v. GMAC Mortg. Corp., 629 F.3d 676, 693 (7th Cir. 2011)
(explaining that “exceptions [to the economic loss doctrine] have in common the
existence of an extra-contractual duty between the parties, giving rise to a cause of
action in tort separate from one based on the contract itself”). Illinois courts have
recognized a duty to communicate accurate information in two circumstances: (1) “to
avoid negligently conveying false information that results in physical injury to a
person or harm to property”; and (2) “to avoid negligently conveying false information
where one is in the business of supplying information for the guidance of others in
their business transactions.” Brogan v. Mitchell Int’l, Inc., 181 Ill. 2d 178, 183-84
(1998).

Negligent misrepresentation actions are almost universally limited to

situations involving a defendant who, in the course of his business or profession,
supplies information for the guidance of others in their business relations with third
parties. Hoover v. Country Mut. Ins. Co., 2012 IL App (1st) 110939, ¶ 45.

10

Here Society’s actions did not cause Connacht physical injury or harm to its
property.

Connacht alleges that Society had a duty to communicate accurate

information regarding its policy coverage to avoid any additional property damage,
and it seeks to recover for “extensive clean-up and repairs to remove the mold from
the building” and “actual and consequential damages,” including lost business
opportunities and profits. (R. 36, First Am. Compl. at ¶¶ 424-25.) However, these
are the types of economic damages contemplated by the Moorman doctrine, and thus,
they are not recoverable in a negligence action. See Moorman, 91 Ill. 2d at 69
(defining economic loss as “damages for inadequate value, costs of repair and
replacement of the defective product, or consequent loss of profits—without any claim
of personal injury or damage to other property”). Furthermore, Society sold Connacht
insurance, but at no time was Society in the business of providing information to aid
Connacht in a business transaction with a third party. See Asad v. Hartford Life Ins.
Co., 116 F. Supp. 2d 960, 964-65 (N.D. Ill. 2000) (“According to Illinois law, insurance
carriers are not in the business of supplying information so have no duty to do so.”).
Therefore, contrary to Connacht’s assertion, any information provided by Society was
ancillary to the sale of insurance and cannot support a claim for negligent
misrepresentation. See Fox Assocs., Inc. v. Robert Half Int’l, Inc., 334 Ill. App. 3d 90,
94 (2002) (the negligent misrepresentation exception to the Moorman doctrine is not
applicable when the information supplied is “merely ancillary to the sale of a product
or service or in connection with the sale”). Accordingly, the court dismisses Plaintiffs’
negligent misrepresentation claim against Society.

11

B.

Consumer Fraud Claims (Counts VI & XIII)
Society next argues that Plaintiffs’ Illinois Consumer Fraud and Deceptive

Business Practices Act (“ICFA”) claims against Society are preempted by 215 ILCS
5/155 of the Illinois Insurance Code because Connacht alleges nothing more than a
breach of contract claim. (R. 41, Def.’s Mot. at 12.) Society further argues that Count
XIII must be dismissed because Propitious cannot state a claim against Society under
the ICFA as Propitious is not insured under the Society policy, and thus, is not a
consumer. (R. 55, Def.’s Reply at 11.) Plaintiffs respond that their ICFA claims are
supported with facts that are more than sufficient at this stage. (R. 50, Pls.’s Resp.
at 3, 7.)
To establish a violation of the ICFA, the plaintiff must allege “(1) a deceptive
act or practice, (2) intent on the defendant’s part that plaintiff rely on the deception,
and (3) that the deception occurred in the course of conduct involving trade or
commerce.” W. Howard Corp. v. Indian Harbor Ins. Co., No. 10 CV 7857, 2011 WL
2582353, at *3 (N.D. Ill. June 29, 2011) (citing Connick v. Suzuki Motor Co., 174 Ill.
2d 482, 501 (1996)). The Illinois Supreme Court has found, however, that “[a] breach
of [a] contractual promise, without more, is not actionable under the Consumer Fraud
Act.” See Avery v. State Farm Mut. Auto. Ins. Co., 216 Ill. 2d 100, 169 (2005). Thus,
when “breach of contract and Consumer Fraud Act counts rely on the same facts,” it
is clear that the consumer fraud claim “is merely a breach of contract count clothed
as a violation of the Consumer Fraud Act.” Sklodowski v. Countrywide Home Loans,
Inc., 358 Ill. App. 3d 696, 704 (2005); see Zankle v. Queen Anne Landscaping, 311 Ill.

12

App. 3d 308, 312 (2000) (“Were our courts to accept plaintiff’s assertion that promises
that go unfulfilled are actionable under the Consumer Fraud Act, consumer plaintiffs
could convert any suit for breach of contract into a consumer fraud action.”).
Furthermore, when a separate tort claim is essentially based on an insurer’s failure
to pay amounts purportedly owed under an insurance contract, such claims are
preempted by contractual remedies and those found in the Illinois Insurance Code.
215 ILCS 5/155; Young v. Allstate Ins. Co., 351 Ill. App. 3d 151, 171 (2004).
The court concludes that Plaintiffs fail to state a claim under the ICFA in
Counts VI and XIII. Plaintiffs allege that Society engaged in deceptive practices to
convince Connacht to purchase its policy and to seek reimbursement from Badger for
damages that were covered under the Society policy. (R. 36, First Am. Compl. ¶¶ 30708, 388.) Plaintiffs’ ICFA claims, however, rest on the same factual foundation as
their breach of contract claims.

No distinct deceptive acts are alleged.

See

Greenberger v. Geico Gen. Ins. Co., 631 F.3d 392, 399 (7th Cir. 2011) (affirming
dismissal of ICFA claim with prejudice where it duplicated contract claim); In re
Ventra Card Litig., No. 13 CV 7294, 2015 WL 1843044, at *4 (N.D. Ill. April 21, 2015)
(dismissing ICFA claims for “fail[ing] to allege any unfair or deceptive conduct
distinct from the alleged breach of a contractual promise”). Additionally, Plaintiffs
fail to satisfy the heightened pleading standard set forth in Rule 9(b), which requires
that circumstances of fraud be pleaded with particularity. See Pirelli Armstrong Tire
Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441 (7th Cir. 2011)
(stating that when an ICFA claim alleges deception, the heightened pleading

13

standard of Rule 9(b) applies). Moreover, the court agrees with Society that Plaintiffs’
ICFA claims are preempted by § 155 of the Illinois Insurance Code, which “provides
an extracontractual remedy to policyholders whose insurer’s refusal to recognize
liability and pay a claim is vexatious and unreasonable.” See Cramer, 174 Ill. 2d at
513; see also Frazin v. Paul Revere Life Ins. Co., No. 17 CV 2152, 2018 WL 1561732,
at *3 (N.D. Ill. March 30, 2018). Thus, the court dismisses Plaintiffs’ ICFA claims.
The court also notes that even if Plaintiffs had alleged facts sufficient to state
a claim under the ICFA, Society is correct that Propitious is precluded from pursuing
the claim in Count XIII. To bring an ICFA claim, a plaintiff must either 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.” MacNeil Auto. Prods., Ltd. v.
Cannon Auto. Ltd.,715 F. Supp. 2d 786, 792 (N.D. Ill. 2010). Plaintiffs concede that
Propitious is not a consumer because it is not Society’s insured, but incorrectly assert
that it meets the consumer nexus test. (R. 50, Pls.’s Resp. at 8-9.) In Count XIII,
Propitious describes Society’s alleged deceptive practices impacting itself and
Connacht. However, it does not allege that Society’s actions were in any way directed
toward the market. See Tile Unlimited, Inc. v. Blanke Corp., 788 F. Supp. 2d 734,
739-40 (N.D. Ill. 2011) (holding that the plaintiff did not allege defendants’ false
representations were directed toward the market generally when plaintiff alleged
only that the false representations were directed toward it and other tile installers).
Moreover, Propitious fails to allege that Society’s actions implicate consumer

14

protection concerns. See MacNeil Auto. Prods., 715 F. Supp. 2d at 792. Because
Propitious fails to plead the required nexus, it fails to state an ICFA claim against
Society.
C.

Bad Faith Claim (Count VII)
Finally, Society urges the court to dismiss Connacht’s bad faith claim under

§ 155 of the Illinois Insurance Code, arguing that it is insufficiently pled with
boilerplate, conclusory allegations that Society acted “wrongfully, vexatiously,
unreasonably and outrageously.” (R. 41, Def.’s Mot. at 14.) Connacht responds that
it has pled specific examples of bad faith on Society’s part, including Society’s refusal
to take steps to clarify the dispute between the insurers. (R. 50, Pls.’s Resp. at 6.)
Section 155 of the Illinois Insurance Code “allows for an award of attorney fees
and costs for an insurer’s ‘unreasonable and vexatious’ refusal to comply with its
policy obligations.” John T. Doyle Trust v. Country Mut. Ins. Co., 2014 IL App (2d)
121238, ¶ 28. However, “[i]f a bona fide coverage dispute exists, an insurer’s delay in
settling a claim will not be deemed vexatious or unreasonable for purposes of section
155 sanctions.” Statewide Ins. Co. v. Houston Gen. Ins. Co., 397 Ill. App. 3d 410, 426
(2009) (emphasis in original).
The court first rejects Society’s contention that Rule 9(b)’s heightened pleading
standard applies to Connacht’s bad faith claim. See Kennedy v. Venrock Assocs., 348
F.3d 584, 593 (7th Cir. 2003) (holding that Rule 9(b) applies only to claims of fraud
and mistake); Wheeler v. Assurant Specialty Prop., 125 F. Supp. 3d 834, 840 (N.D. Ill.
2015) (refusing to apply Rule 9(b) to the plaintiff’s bad faith claim although deception

15

was implicated in the pleading); GMP Techs., LLC v. Zicam, LLC, No. 08 CV 7077,
2009 WL 5064762, at *3 (N.D. Ill. Dec. 9, 2009) (finding bad faith allegations subject
to Rule 8(a)).
But the court accepts Society’s argument that Connacht fails to state a claim
for bad faith under § 155. Connacht alleges that Society violated § 155 when it failed
to pay all or part of its damage and/or lost business income claims, knowingly
misrepresented relevant facts, failed to communicate promptly or regularly, failed to
properly investigate Connacht’s claim, forced Connacht to litigate its rights under the
policy, and unreasonably delayed settling Connacht’s claim. (R. 36, First Am. Compl.
¶¶ 315-20.) Although Connacht alleges that Society has not paid all it is owed under
the policy, it fails to plead sufficient facts that show Society wrongfully and
unreasonably refused to comply with its policy obligations. See Emerson v. Am.
Bankers Ins. Co. of Fla., 223 Ill. App. 3d 929, 936 (1992) (holding that an insurer’s
mere refusal to pay claim does not constitute breach of duty of good faith and fair
dealing, but rather refusal to pay must be accompanied by “vexatious, unreasonable,
outrageous conduct”). Instead, the complaint reveals that Society participated in
discussions to attempt to resolve the coverage dispute, (R. 36, First Am. Compl.
¶ 165), investigated Connacht’s claim, including retaining a third-party adjuster to
evaluate the damage to the audiovisual equipment, (id. ¶ 67), and made payments for
those damages that it determined were covered under the policy in excess of $142,000,
(id. ¶¶ 120, 121, 315). Furthermore, because a bona fide coverage dispute exists
regarding which items are covered under the policy, Society’s actions cannot be

16

considered “vexatious or unreasonable” under § 155. See Citizens First Nat’l Bank of
Princeton v. Cincinnati Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000) (holding that
statutory penalties under § 155 “may not be awarded simply because an insurer takes
an unsuccessful position in litigation, but only where the evidence shows that the
insurer’s behavior was willful and without reasonable cause”).

Accordingly,

Connacht fails to state a § 155 claim against Society.
Conclusion
For the foregoing reasons, Society’s motion to dismiss is granted to the extent
that the court dismisses Counts VI, VII, XIII, XV, and XVI without prejudice.
ENTER:
____________________________________
Young B. Kim
United States Magistrate Judge

17