Illinois Bad Faith Insurance Laws: A Guide for Consumers

Dealing with insurance companies can be frustrating at the best of times. But when an insurer denies your claim unfairly or drags its feet paying what it owes, it goes beyond mere frustration. This type of misconduct is known as “bad faith”, and it’s illegal in Illinois.

If your insurance company has treated you unfairly, there are laws in place to protect your rights. This guide will explain what constitutes bad faith under Illinois law and what recourse you have against insurers who cross the line.

What is Bad Faith Insurance in Illinois?

Insurance companies have a legal obligation to deal fairly and in good faith with their customers. This duty of good faith applies in all states, but Illinois law lays out some specific practices that are considered bad faith.

According to Section 154.6 of the Illinois Insurance Code, any of the following acts by an insurer constitutes bad faith if done “without just cause”:

• Misrepresenting facts or policy provisions
• Failing to promptly acknowledge communications
• Failing to promptly investigate and settle claims
• Not attempting to settle claims where liability is clear
• Forcing customers to sue to get amounts clearly owed
• Engaging in practices generating excessive complaints or lawsuits
• Refusing to pay valid claims without investigation
• Failing to affirm or deny coverage within reasonable time
• Attempting to settle for less than a reasonable amount
• Altering applications without the customer’s knowledge
• Omitting which coverage a claims payment is for
• Delaying claims investigations or payments unnecessarily
• Failing to explain reasons for denying a claim
• Failing to provide claim forms promptly
• Using unlicensed repair shops for estimates and repairs
• Failing to pay taxes and fees on total loss claims
• Other equivalent acts

This law gives consumers specific protections against mistreatment by insurers. Bad faith puts profits over fair dealing, and that is against the law.

Examples of Bad Faith Practices

Knowing exactly what constitutes bad faith can help you identify it if you encounter it with your insurer. Here are some common examples:

• Lowball offers – Offering much less than your claim is worth to get you to take a low settlement

• Unnecessary delays – Dragging out the claims process for weeks or months to discourage you from pursuing compensation

• Denial without investigation – Refusing to pay a claim without even looking into it and requesting documentation

• No explanation for denials – Rejecting a claim without providing the specific reasons why

• Hiding policy provisions – Not informing customers about exclusions hidden in the fine print that apply to their claims

• Lying about policy terms – Making false statements about what a policy covers or does not cover

• Refusing to defend – Rejecting duty-to-defend claims even though the policy clearly requires it

• Failure to inspect – Declining to send an adjustor to assess damages before denying a claim

• Requiring excess documents – Demanding extensively duplicative records and forms not actually needed to process claims

If any of these unethical practices sound familiar, you may have a bad faith claim against your insurance company.

Steps to Take Against Bad Faith Insurance Practices

If you believe you are the victim of an insurer’s bad faith, there are steps you can take to protect your rights:

1. Review your policy terms – Make sure you understand exactly what coverage you have. Identify any exclusions used unfairly to deny your claim.

2. Gather evidence – Collect any documentation related to damages, claim denials, communications with adjusters, delays, lowball settlement offers, and other relevant evidence.

3. File an appeal – If your claim was denied, file an appeal requesting further review if possible. Getting a denial overturned is powerful evidence.

4. Complain to the DOI – File a complaint with the Illinois Department of Insurance documenting the insurer’s bad faith actions. This creates an official record.

5. Hire a bad faith insurance lawyer – An experienced attorney can best protect your rights against misconduct by an insurer. They have the expertise to identify bad faith, calculate damages, and litigate your claim if necessary.

Your Insurer’s Duties in Illinois

Illinois law is clear about what insurers must do to avoid acting in bad faith:

• Prompt investigation – Insurance companies must investigate claims promptly and thoroughly. Failure to inspect damages before denying a claim would likely constitute bad faith.

• Reasonable settlement offers – Insurers must make good faith efforts to settle valid claims fairly based on actual losses instead of making unjust lowball offers.

• Quick claim processing – Insurance companies cannot delay processing and payment of legitimate claims unnecessarily. Drawing out the claims process intentionally qualifies as bad faith.

• Transparency – Insurers must be transparent about policy terms. Hiding provisions that apply to your claim and misrepresenting what is covered is not permitted.

• Appeal reviews – If you appeal a claim denial, the insurance company must give your appeal proper consideration rather than rubberstamping the original decision.

By understanding exactly what your insurer is obligated to do under Illinois law, you’ll know when the company crosses the line into bad faith territory.

Case Study: Bad Faith in Action

To understand how damaging insurer bad faith can be to consumers, consider this real-life example:

Martha held a homeowner’s insurance policy that covered water damage, including from appliance failures like washing machine hoses bursting. One day, her washing machine hose burst, flooding her basement and causing $8,000 in damages.

She promptly filed a claim with all the required documentation. However, the insurance company immediately denied the claim based on a supposed “pre-existing wear and tear” exclusion Martha had never heard of.

The insurer refused to send an adjustor to actually inspect the basement’s damages. Repeated calls to the claims department resulted in no further investigation.

After six weeks the insurer made a final offer of just $1,500 to settle the claim and avoid litigation. Martha ultimately had to hire an attorney and sue her insurance provider, finally recovering $10,000 total a year later.

This case illustrates how an insurer’s bad faith actions – made-up exclusions, failure to inspect, unnecessary delays, a lowball offer – can seriously harm consumers.

Your Legal Options Against Bad Faith

If you believe your insurance company has acted in bad faith regarding your claim, you have powerful legal options including:

• Bad faith lawsuit – This allows you to sue your insurer for breach of contract and bad faith actions. You can recover additional damages beyond the wrongfully withheld policy benefits.

• DOI complaints – The Department of Insurance may penalize insurers for violating claims handling laws and bad faith practices.

• License revocation – In egregious or repeated cases of misconduct, an insurer could lose its license to operate in Illinois.

• Punitive damages – If the insurer’s conduct was truly malicious, grossly negligent or reckless, punitive damages may be awarded.

• Attorney’s fees – Customers wronged by an insurer’s bad faith often recover their attorney’s fees as part of a legal judgement.

Don’t assume you have to accept an insurer’s mistreatment. Under Illinois law you have rights. With help from an attorney, you can take legal action to remedy any bad faith actions taken against you.

Key Takeaways

Dealing with insurance issues can be infuriating under the best circumstances. When an insurer violates its duty of good faith, know that you are protected by laws that prohibit such unethical conduct.

Keep the following in mind if you suspect your insurer of bad faith:

• Specific actions considered bad faith are defined in Illinois insurance law

• Gather documentation and seek legal counsel at signs of misconduct

• File complaints and appeals to build your case against the insurer

• Don’t accept unreasonably small settlement offers

• Your insurance company can be sued and penalized for bad faith

Don’t let an insurer get away with denying you the coverage you paid for. Fight back against mistreatment and hold insurers accountable for bad faith actions. The law provides remedies to consumers victimized by such wrongdoing.