Illinois Insurance Bad Faith Demand Letter

ILLINOIS INSURANCE BAD FAITH DEMAND LETTER

SENT VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED

AND REGULAR U.S. MAIL

DATE: [__/__/____]

TO:
[________________________________]
[Insurance Company Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]

ATTENTION: Claims Manager / Bad Faith Claims Unit

FROM:
[________________________________]
[Attorney Name / Law Firm Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]
[________________________________]
[Telephone Number]
[________________________________]
[Email Address]

RE: FORMAL BAD FAITH DEMAND LETTER PURSUANT TO 215 ILCS 5/155

Insured: [________________________________]

Claimant: [________________________________]

Claim Number: [________________________________]

Policy Number: [________________________________]

Date of Loss: [__/__/____]

Type of Loss: [________________________________]

Policy Type: ☐ Homeowners ☐ Auto ☐ Commercial Property ☐ Life ☐ Health ☐ Disability ☐ Other: [________________]

I. INTRODUCTION AND PURPOSE

This letter constitutes a formal demand for payment of all benefits owed under the above-referenced insurance policy, together with notice that your company's continued vexatious and unreasonable delay exposes it to significant liability under 215 ILCS 5/155 (Section 155).

Illinois provides the following statutory remedies for vexatious delay:

• Reasonable attorney's fees and costs
• Additional damages in an amount not to exceed any one of: (a) 60% of the amount which the court or jury finds the complainant is entitled to recover, (b) $60,000, or (c) the excess of the amount recovered over the amount the insurer offered to settle prior to the action, plus attorney fees and costs

Your company's handling of this claim has been vexatious and unreasonable, and our client is prepared to pursue all available remedies under Section 155 if this matter is not resolved promptly.

II. ILLINOIS BAD FAITH LAW - 215 ILCS 5/155 (SECTION 155)

A. The Statute

Section 155 of the Illinois Insurance Code (215 ILCS 5/155) provides:

"In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any of the following amounts:
(a) 60% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs;
(b) $60,000;
(c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action."

B. Section 155 is the Exclusive Remedy

In Cramer v. Insurance Exchange Agency, 174 Ill.2d 513 (1996), the Illinois Supreme Court held that Section 155 pre-empts common law tort claims for breach of the implied duty of good faith and fair dealing against insurers. Section 155 provides the sole basis for policyholders to recover extracontractual damages.

C. Elements Required for Section 155 Recovery

To recover under Section 155, the insured must prove:

1. Action on the Policy: There must be a pending lawsuit for breach of the insurance contract. Section 155 does not create an independent cause of action but rather provides an extracontractual remedy. Moles v. Illinois Farmers Insurance Co., 2023 IL App (1st) 220853.

2. Vexatious and Unreasonable Conduct: The insured must prove that the insurer's delay or denial was both vexatious AND unreasonable.

D. What Constitutes "Vexatious and Unreasonable"

Conduct is vexatious and unreasonable when:

• The insurer disputes or refuses to pay without a bona fide defense
• The insurer delays settlement without legitimate reason
• The insurer forces the insured to litigate when there is no genuine dispute

Conduct is NOT vexatious and unreasonable when:

• There is a bona fide dispute over the existence or extent of liability
• The insurer has a reasonable basis for its position, even if ultimately unsuccessful

E. Key Case Law

• Millers Mutual Insurance Ass'n of Illinois v. House, 286 Ill. App. 3d 378 (5th Dist. 1997) - Failure to tender undisputed portion of claim was vexatious
• Moles v. Illinois Farmers Insurance Co., 2023 IL App (1st) 220853 - Section 155 does not create liability but provides extracontractual remedy
• Cramer v. Insurance Exchange Agency, 174 Ill.2d 513 (1996) - Section 155 is exclusive remedy

III. FACTUAL BACKGROUND

A. The Insured and Policy Information

Named Insured(s): [________________________________]

Policy Number: [________________________________]

Policy Period: [__/__/____] to [__/__/____]

Policy Type: [________________________________]

Coverage Limits:

• Coverage A (Dwelling/Property): $[________________________________]
• Coverage B (Other Structures): $[________________________________]
• Coverage C (Personal Property): $[________________________________]
• Coverage D (Loss of Use): $[________________________________]
• Liability Coverage: $[________________________________]
• Medical Payments: $[________________________________]
• Uninsured/Underinsured Motorist: $[________________________________]
• Other Applicable Coverage: $[________________________________]

Deductible: $[________________________________]

Premium Paid: $[________________________________]

B. The Loss Event

Date of Loss: [__/__/____]

Time of Loss: [________________________________]

Location of Loss: [________________________________]

Description of Loss Event:

[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]

C. Claim Submission and Response

Date Claim Reported: [__/__/____]

Method of Reporting: ☐ Telephone ☐ Online ☐ Written ☐ Agent

Claim Number Assigned: [________________________________]

Initial Adjuster Assigned: [________________________________]

Date Adjuster Contacted Insured: [__/__/____]

Date of Initial Inspection: [__/__/____]

D. Documentation Submitted

The following documentation was timely provided to support this claim:

☐ Completed proof of loss form, dated [__/__/____]
☐ Police report / Fire report / Incident report, dated [__/__/____]
☐ Photographs and/or video documentation
☐ Repair estimates from licensed contractors
☐ Medical records and bills
☐ Receipts and invoices for damaged property
☐ Inventory of damaged/destroyed items
☐ Examination under oath transcript, dated [__/__/____]
☐ Expert reports (specify): [________________________________]
☐ Other documents: [________________________________]

E. Timeline of Claim Handling

IV. COVERAGE ANALYSIS

A. Applicable Policy Provisions

The policy at issue provides coverage for the type of loss that occurred. Specifically:

Insuring Agreement: [________________________________]
[________________________________]
[________________________________]

Relevant Coverage Provisions:
[________________________________]
[________________________________]
[________________________________]

B. Coverage Clearly Applies

Based on the policy language and the facts of this loss:

1. The loss occurred during the policy period
2. The loss was caused by a covered peril
3. The property/person is a covered interest under the policy
4. The insured complied with all policy conditions
5. No exclusions apply to bar coverage
6. The damages claimed are within policy limits

C. No Bona Fide Coverage Defense Exists

Your company has cited the following basis for denial or limitation:

Cited Basis: [________________________________]

Why No Bona Fide Defense Exists:
[________________________________]
[________________________________]
[________________________________]

There is no genuine dispute regarding coverage. Your company's position is not supported by the policy language or the facts.

V. IDENTIFICATION OF VEXATIOUS AND UNREASONABLE CONDUCT

A. Your Company's Conduct is Vexatious and Unreasonable

Your company's handling of this claim is vexatious and unreasonable because:

☐ Denial Without Bona Fide Defense
Your company denied coverage when no reasonable basis exists:
[________________________________]
[________________________________]

☐ Unreasonable Delay
Your company has unreasonably delayed payment without legitimate reason:
[________________________________]
[________________________________]

☐ Failure to Pay Undisputed Amounts
Your company has failed to pay amounts that are clearly owed:
[________________________________]
[________________________________]

☐ Forcing Litigation When No Genuine Dispute
Your company has forced the insured to litigate despite no genuine dispute:
[________________________________]
[________________________________]

☐ Inadequate Investigation
Your company failed to conduct a thorough and fair investigation:
[________________________________]
[________________________________]

☐ Lowball Settlement Offer
Your company made unreasonably low settlement offers:
[________________________________]
[________________________________]

☐ Failure to Communicate
Your company failed to communicate adequately with the insured:
[________________________________]
[________________________________]

☐ Other Vexatious Conduct:
[________________________________]
[________________________________]

B. Violations of 215 ILCS 5/154.6 (Unfair Claims Settlement Practices)

Your company has also violated Illinois's Unfair Claims Settlement Practices statute:

☐ Misrepresenting pertinent facts or policy provisions relating to coverages at issue
☐ Failing to acknowledge and act reasonably promptly upon communications
☐ Failing to adopt and implement reasonable standards for prompt investigation
☐ Refusing to pay claims without conducting a reasonable investigation
☐ Failing to affirm or deny coverage within a reasonable time
☐ Not attempting in good faith to effectuate prompt, fair settlements
☐ Compelling insureds to institute litigation to recover amounts due
☐ Other violations: [________________________________]

C. Common Examples of Vexatious Conduct in This Case

1. Inaction:
[________________________________]
[________________________________]

2. Poor Communication:
[________________________________]
[________________________________]

3. Unsupported Denial:
[________________________________]
[________________________________]

VI. DAMAGES UNDER 215 ILCS 5/155

A. Contract Damages - Policy Benefits Owed

Coverage A - Property Damage:

• Replacement Cost / Actual Cash Value: $[________________________________]
• Less Depreciation (if ACV): $[________________________________]
• Less Deductible: $[________________________________]
• Net Amount Due: $[________________________________]

Coverage D - Loss of Use:

• Amount Incurred: $[________________________________]
• Amount Due: $[________________________________]

Medical Expenses:

• Past Medical Expenses: $[________________________________]
• Future Medical Expenses: $[________________________________]
• Total Medical: $[________________________________]

Lost Wages / Income:

• Past Lost Wages: $[________________________________]
• Future Lost Wages: $[________________________________]
• Total Lost Wages: $[________________________________]

Other Contract Damages:

TOTAL CONTRACT DAMAGES: $[________________________________]

B. Section 155 Damages

Option (a) - 60% of Recovery:

• Amount Entitled to Recover: $[________________________________]
• 60% Penalty: $[________________________________]

Option (b) - $60,000 Maximum:

• $60,000

Option (c) - Excess Over Pre-Suit Offer:

• Amount Entitled to Recover: $[________________________________]
• Your Company's Pre-Suit Offer: $[________________________________]
• Excess: $[________________________________]

Maximum Section 155 Damages: $[________________________________]
(Greater of options (a), (b), or (c))

C. Attorney's Fees and Costs

Attorney's Fees Incurred to Date: $[________________________________]

Estimated Additional Fees if Litigation Required: $[________________________________]

Costs Incurred: $[________________________________]

D. Summary of Damages

VII. SETTLEMENT DEMAND

A. Time-Limited Demand

This constitutes a TIME-LIMITED SETTLEMENT DEMAND pursuant to Illinois law.

DEMAND AMOUNT: $[________________________________]

This demand includes:

• Policy benefits owed: $[________________________________]
• Interest to date: $[________________________________]
• TOTAL DEMAND: $[________________________________]

Note: If payment is made before suit is filed, Section 155 penalties will NOT be sought.

B. Deadline for Response

THIS DEMAND EXPIRES ON: [__/__/____] at 5:00 PM Central Time

You have [____] days from the date of this letter to:

1. Tender payment in the full amount demanded; OR
2. Provide a written, substantive response with a reasonable counteroffer supported by specific policy language and factual basis.

C. Terms of Settlement

Upon receipt of the demanded amount, our client agrees to:

☐ Execute a full release of all claims arising from this loss
☐ Not pursue Section 155 penalties
☐ Not pursue attorney's fees beyond reasonable amounts incurred
☐ Maintain confidentiality regarding settlement terms
☐ Other terms: [________________________________]

D. Reservation of Rights

If this demand is not accepted within the time specified:

1. This offer is withdrawn and may not be accepted thereafter
2. Suit will be filed
3. SECTION 155 DAMAGES (up to 60%/$60,000) will be sought
4. FULL ATTORNEY'S FEES AND COSTS will be sought
5. This letter may be used as evidence of pre-suit offer under Section 155(c)

VIII. CONSEQUENCES OF NON-COMPLIANCE

A. Litigation

If your company fails to resolve this matter, our client will file suit in the appropriate Illinois court, asserting claims for:

1. Breach of insurance contract
2. Vexatious and unreasonable conduct under 215 ILCS 5/155
3. Section 155 damages
4. Attorney's fees and costs

B. Regulatory Complaints

Our client will also file complaints with:

• Illinois Department of Insurance
• National Association of Insurance Commissioners
• Any other appropriate regulatory bodies

C. Discovery

In litigation, we will pursue extensive discovery, including:

• Complete claims file and all related documents
• Internal communications regarding this claim
• Training materials and claims handling guidelines
• Similar claims handled by your company
• Depositions of all persons involved in handling this claim

IX. PRESERVATION OF EVIDENCE

LITIGATION HOLD NOTICE

This letter constitutes formal notice to preserve all documents and electronically stored information related to this claim, including but not limited to:

☐ Complete claims file
☐ All correspondence (internal and external)
☐ All emails, text messages, and other electronic communications
☐ Photographs, videos, and inspection reports
☐ Adjuster notes and diaries
☐ Expert reports and opinions
☐ Training materials and claims manuals
☐ Similar claims files for pattern evidence
☐ Financial records
☐ Personnel files of persons involved in claim handling
☐ All metadata associated with electronic documents

Failure to preserve this evidence may result in sanctions and adverse inference instructions at trial.

X. RESPONSE REQUIRED

Please direct your response to:

[________________________________]
[Attorney Name]
[________________________________]
[Law Firm Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]
[________________________________]
[Telephone]
[________________________________]
[Email]

We require a substantive response by [__/__/____].

XI. CONCLUSION

Your company's handling of this claim has been vexatious and unreasonable. There is no bona fide dispute regarding coverage, and your company has no legitimate basis for its position. Under Section 155, your company faces significant exposure for extracontractual damages up to 60% of the recovery or $60,000, plus attorney's fees.

We urge you to pay the claim in full to avoid litigation and Section 155 penalties.

This letter is written without prejudice to any rights, remedies, or defenses our client may have, all of which are expressly reserved.

We look forward to your prompt response.

Respectfully submitted,

________________________________________
[Attorney Name]
[Bar Number]
[Law Firm Name]

Date: [__/__/____]

VERIFICATION

STATE OF ILLINOIS
COUNTY OF [________________________________]

I, [________________________________], being duly sworn, state that I am the [________________________________] in the above-referenced matter, that I have read the foregoing Bad Faith Demand Letter, and that the facts stated therein are true and correct to the best of my knowledge, information, and belief.

________________________________________
[Signature]

Subscribed and sworn to before me this [____] day of [________________], 20[____].

________________________________________
Notary Public
My Commission Expires: [__/__/____]

EXHIBITS AND ATTACHMENTS

☐ Exhibit A: Copy of Insurance Policy
☐ Exhibit B: Proof of Loss / Claim Documents
☐ Exhibit C: Correspondence with Insurer
☐ Exhibit D: Denial Letter(s)
☐ Exhibit E: Supporting Documentation
☐ Exhibit F: Expert Reports
☐ Exhibit G: Damage Calculations
☐ Exhibit H: Medical Records (if applicable)
☐ Exhibit I: Photographs/Video Evidence
☐ Exhibit J: Other: [________________________________]

CERTIFICATE OF SERVICE

I hereby certify that on [__/__/____], a true and correct copy of this Bad Faith Demand Letter was served upon the above-named insurance company by:

☐ Certified Mail, Return Receipt Requested
☐ Regular U.S. Mail
☐ Overnight Delivery
☐ Hand Delivery
☐ Electronic Mail to: [________________________________]

________________________________________
[Attorney Signature]