Insurance Bad Faith Demand Letter - Illinois

INSURANCE BAD FAITH DEMAND LETTER

State of Illinois — Vexatious and Unreasonable Delay / 215 ILCS 5/155

[LAW FIRM LETTERHEAD]

SETTLEMENT COMMUNICATION — NO PRIVILEGE OR ADMISSIBILITY CONCLUSION IS STATED
TIME-LIMITED DEMAND

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
Article No.: [____________________________]
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[INSURANCE COMPANY FULL LEGAL NAME]
[________________________________]
[________________________________]
[CITY], IL [ZIP]

Attention: [________________________________], [________________________________]
Re: FORMAL BAD FAITH / VEXATIOUS DELAY DEMAND PURSUANT TO 215 ILCS 5/155
Insured: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Type of Claim: [________________________________]
Policy Limits: $[________________________________]
Amount in Dispute: $[________________________________]
Response Deadline: [__/__/____] at 5:00 p.m. Central Time

Dear [________________________________]:

I. INTRODUCTION AND NATURE OF DEMAND

This office represents [________________________________] ("our client") in connection with a claim under the insurance policy issued by [________________________________] ("the Company"), Policy No. [________________________________] ("the Policy"), arising from a loss that occurred on [__/__/____].

This letter constitutes a formal demand for the policy benefits identified below and notice that the sender may request relief under 215 ILCS 5/155 if an action on the policy becomes necessary and the statutory conditions are proved.

The Company had an obligation to promptly, fairly, and honestly evaluate and pay this claim. Instead, the Company has [☐ denied without reasonable basis / ☐ unreasonably delayed payment / ☐ systematically undervalued the claim / ☐ misrepresented policy provisions / ☐ conducted a sham investigation]. This conduct has caused our client substantial harm beyond the unpaid policy benefits, including [________________________________].

This demand expires at 5:00 p.m. Central Time on [__/__/____]. That is a sender-selected offer deadline, not a fixed Illinois statutory demand period. If the claim is not resolved, counsel will reassess any action on the policy and any ancillary Section 155 request.

II. CURRENT ILLINOIS SECTION 155 AND REGULATORY FRAMEWORK

A. Section 155 Is Not a Standalone Claim

Becker-Othman v. State Farm Mutual Automobile Insurance Co., 2026 IL App (1st) 250037, ¶¶ 31-38, confirms that Section 155 does not create a standalone cause of action. A claimant must succeed in an action on the policy; an out-of-court payment or resolution of the amount owed is not by itself success in such an action. Any independently supported claim must be analyzed on its own elements rather than labeled categorically preempted or preserved by this form.

B. The Vexatious and Unreasonable Standard

Under 215 ILCS 5/155, if the action described by the statute exists and the court finds the insurer's action or delay 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 one of the three amounts listed in Section 155(1)(a)-(c).

215 ILCS 5/155(1).

C. Claim-Specific Showing

The sender must identify the action-on-policy theory, the exact policy provision, the amount due, the insurer's stated basis, any genuine coverage or valuation dispute, and the evidence said to make the insurer's action or delay vexatious and unreasonable. Labels such as “lowball,” “sham,” or “stonewalling” are not substitutes for those facts.

D. Penalty Structure Under 215 ILCS 5/155

The statute permits an additional amount not exceeding any one of three ceilings:

This form does not state that the court automatically selects the largest or smallest figure, that $60,000 caps every possible calculation, or that any award is guaranteed.

E. Prerequisite: Prevailing on Breach of Contract

A claimant must succeed in the action on the policy before obtaining Section 155 relief. Becker-Othman, 2026 IL App (1st) 250037, ¶¶ 31-38.

F. 215 ILCS 5/154.6 — Unfair Claims Practices (Regulatory Context)

215 ILCS 5/154.6 specifies acts that constitute "improper claims practices" when committed in violation of 215 ILCS 5/154.5. These acts include:

(a) Knowingly misrepresenting relevant facts or policy provisions;
(b) Failing to acknowledge pertinent communications with reasonable promptness;
(c) Failing to implement reasonable standards for prompt investigation and settlement;
(d) Not attempting in good faith to effectuate prompt, fair, and equitable settlements when liability is clear;
(e) Compelling policyholders to litigate by offering substantially less than amounts ultimately recovered.

Critical limitation: Sections 154.5 through 154.7 and Part 919 are regulatory and create no private cause of action. Becker-Othman, 2026 IL App (1st) 250037, ¶¶ 40-45. This form does not state that a regulatory issue automatically proves Section 155 relief.

G. Illinois Administrative Code, Title 50, Part 919

Section 919.50(a) provides these general standards:

Part 919 has additional claim-type-specific provisions. Do not import a deadline from a life/health or private-passenger-auto rule into another claim.

III. POLICY INFORMATION

A. Policy Details

B. Coverage Analysis

The Policy covers [________________________________]. The loss clearly falls within the Policy's insuring agreement and [☐ no exclusion applies / ☐ the exclusion asserted by the Company does not apply because [________________________________]].

The Company [☐ initially acknowledged coverage / ☐ denied coverage from the outset / ☐ accepted coverage but disputes the amount]. Having [accepted / denied] coverage, the Company has taken the following position: [________________________________].

This position is incorrect and unreasonable because:

1. [________________________________]
2. [________________________________]
3. [________________________________]

IV. FACTUAL BACKGROUND

A. The Underlying Loss

On [__/__/____], [________________________________]. [DETAILED NARRATIVE: ________________________________].

B. Chronological Timeline of Claims Handling and Bad Faith Conduct

V. SPECIFIC BAD FAITH CONDUCT

The Company's conduct in handling this claim has been vexatious and unreasonable under 215 ILCS 5/155 for the following specific reasons:

A. Unreasonable Delay

☐ Failure to affirm or deny within a reasonable time: The Company received the completed claim materials on [__/__/____] and did not affirm or deny liability until [__/__/____]. The claim-specific reason this period was unreasonable is: [________________________________].

☐ Failure to pay determined, undisputed amount within 30 days: After affirming liability on [__/__/____], the Company failed to tender the determined and undisputed amount of $[____________] to the known payee within 30 days, as required by § 919.50(a).

☐ Protracted investigation without justification: The Company has been investigating this claim since [__/__/____] — a period of [____] months — without a legitimate basis for the delay. [DESCRIBE: ________________________________].

☐ Repeated requests for information already provided: The Company has repeatedly requested documentation that was already provided, as a delay tactic. Specifically: [________________________________].

B. Inadequate and Pretextual Investigation

☐ Failure to conduct a fair and objective investigation: The Company's investigation was designed to reach a predetermined conclusion. Specifically: [________________________________].

☐ Hired a biased expert: The Company retained [________________________________] to conduct a [________________________________] inspection. This expert's findings contradict the physical evidence and are inconsistent with [________________________________].

☐ Ignored contrary evidence: The Company disregarded the following evidence that supports our client's claim: [________________________________].

☐ Refused to consider insured's expert / contractor: The Company rejected the findings of [________________________________] without adequate explanation, despite their qualifications and documented methodology.

C. Grossly Inadequate Settlement Offers

The Company's settlement history demonstrates a pattern of bad faith:

The Company's offers represent only [____]% of the documented claim value, with no credible evidentiary or legal basis for the shortfall. This is precisely the type of conduct that triggers Section 155 liability — forcing the insured to litigate to recover what is obviously owed.

D. Misrepresentation of Policy Provisions (215 ILCS 5/154.6(a))

The Company has misrepresented the following Policy provisions to our client:

☐ Misrepresented the scope of coverage by stating [________________________________], when in fact the Policy provides [________________________________].
☐ Misrepresented an exclusion by claiming it applies to [________________________________], when the exclusion's plain language is limited to [________________________________].
☐ Misrepresented applicable Illinois law by stating [________________________________].

E. Failure to Communicate (215 ILCS 5/154.6(b))

☐ The Company failed to acknowledge with reasonable promptness the following pertinent communications: [________________________________].
☐ The Company's adjuster, [________________________________], failed to return [____] telephone messages left by our client between [__/__/____] and [__/__/____].
☐ For this first-party [☐ denial / ☐ lower offer], the Company failed to provide the written explanation required by § 919.50(a)(1) within 30 days after completing its investigation and liability determination.

F. Compelling Litigation (215 ILCS 5/154.6(e))

The Company's consistent offers of $[____________] against a documented claim of $[____________] are not the product of a legitimate valuation dispute. They are designed to compel our client to choose between accepting a grossly inadequate payment and incurring the expense of litigation. This is the classic vexatious conduct that Section 155 was enacted to deter and punish.

VI. DAMAGES

A. Contract Damages (Policy Benefits)

B. Consequential Damages

Illinois courts recognize consequential damages in breach of insurance contract cases where the damages were foreseeable at the time of contracting and flow naturally from the breach:

[DESCRIBE CONSEQUENTIAL DAMAGES IN DETAIL: ________________________________]

C. Section 155 Ceiling Worksheet—Not an Award Prediction

Assuming our client prevails at trial on a judgment of $[____________]:

The statute says the additional amount may not exceed any one of these amounts. This worksheet does not choose the controlling ceiling or predict that the court will make an award.

D. Attorney Fees Under Section 155

Section 155 permits the court to allow reasonable attorney fees if its conditions are met. Fees incurred to date: $[____________], supported by [BILLING RECORD / DECLARATION / OTHER: __________________].

E. Punitive Damages

Do not request punitive damages merely by relabeling the Section 155 conduct. Include another claim and punitive-damages request only if counsel separately verifies every element and remedy against current controlling law: [CLAIM / AUTHORITY / FACTS: __________________].

VII. DEMAND FOR PAYMENT

We hereby demand that the Company tender, by [__/__/____] at 5:00 p.m. Central Time, the sum of $[________________________________], as follows:

This demand does not include a predicted Section 155 award. State in a separately reviewed settlement instrument exactly which policy claims, fee requests, and potential Section 155 relief are released or reserved.

VIII. SETTLEMENT CONDITIONS

In addition to the monetary payment, our client requires:

☐ Written confirmation that all claims arising from this loss are fully resolved
☐ Correction or withdrawal of any adverse information reported by the Company to industry databases (ISO ClaimSearch or similar)
☐ Withdrawal of any reservation of rights or coverage defense asserted in the Company's correspondence dated [________________________________]
☐ [________________________________]

IX. TIME-LIMITED NATURE OF THIS DEMAND

THIS DEMAND EXPIRES AT 5:00 P.M. CENTRAL TIME ON [__/__/____].

This deadline is genuine and will be enforced. After expiration:

1. This offer will be withdrawn and our client will no longer consider the amount demanded herein as an acceptable settlement.

2. After confirming jurisdiction, venue, parties, policy conditions, and limitations, counsel may file an action on the policy seeking:
   - Full policy benefits and consequential damages
   - Any attorney fees, costs, and additional amount the court may allow under 215 ILCS 5/155
   - Other relief only under separately identified authority

3. Complaint will be filed with the Illinois Department of Insurance, Consumer Division, 320 W. Washington Street, Springfield, IL 62767; (217) 782-4515; insurance.illinois.gov, asserting violations of 215 ILCS 5/154.6 and Ill. Admin. Code tit. 50, pt. 919.

4. Public record: Litigation filings are public records in Illinois. The Company should consider the reputational and regulatory implications of forcing this matter into court.

X. DOCUMENT PRESERVATION NOTICE

This letter constitutes formal notice to immediately preserve — and not destroy, overwrite, alter, or delete — all documents and electronically stored information (ESI) related to this claim, including without limitation:

☐ The complete claim file in all versions (drafts, supplements, closings, reopenings)
☐ All internal emails, texts, instant messages, and voicemails regarding this claim
☐ All adjuster notes, diary entries, activity logs, and field inspection reports
☐ All photographs, videos, drone footage, and imaging
☐ All estimates, appraisals, and valuation reports
☐ Reserve information and all reserve change authorization records
☐ All communications with outside experts, engineers, consultants, or IME physicians
☐ Claims handling guidelines, manuals, playbooks, and training materials applicable to this claim type
☐ Supervisor approvals, escalation records, and quality assurance / SIU reports
☐ Any coverage analysis, coverage opinion, or coverage recommendation memoranda
☐ All communications with reinsurers regarding this claim

Failure to preserve this information will be characterized as spoliation of evidence and will be brought to the attention of the court at the earliest opportunity.

XI. REGULATORY COMPLAINT NOTICE

Concurrent with or immediately following the filing of suit, we will file a formal complaint with the Illinois Department of Insurance documenting the following violations:

☐ 215 ILCS 5/154.6(a): Misrepresentation of policy provisions
☐ 215 ILCS 5/154.6(b): Failure to acknowledge pertinent communications with reasonable promptness
☐ 215 ILCS 5/154.6(c): Failure to adopt reasonable investigation standards
☐ 215 ILCS 5/154.6(d): Failure to attempt good faith settlement when liability is clear
☐ 215 ILCS 5/154.6(e): Compelling litigation by offering substantially less than owed
☐ Ill. Admin. Code tit. 50, § 919.50: Specific deadline violations documented above

Section 154.7 authorizes the Director, upon the findings and public-interest determination stated there, to issue charges and notice of an administrative hearing. This letter does not predetermine the agency's findings or remedy.

XII. CONCLUSION

The Company's handling of our client's claim is a textbook example of the conduct that 215 ILCS 5/155 was enacted to deter. The claim is meritorious. The documentation is comprehensive. The legal support is clear. There is no legitimate basis for the Company's continued refusal to pay the full amount owed.

We urge the Company to address the policy and record issues identified above. Any later request for attorney fees, costs, an additional Section 155 amount, or other relief will depend on the pleaded action and proof.

Please direct all responses to the undersigned at the contact information below.

Respectfully submitted,

[________________________________]

By: ___________________________________
[________________________________], Esq.
ARDC No.: [________________________________]
[________________________________]
[________________________________], IL [________]
Tel.: ([____]) [____]-[________]
Fax: ([____]) [____]-[________]
Email: [________________________________]

Counsel for [________________________________]

ENCLOSURES:

☐ Exhibit A — Policy Declarations Page and Relevant Endorsements
☐ Exhibit B — Claim Correspondence Chronology (indexed)
☐ Exhibit C — Proof of Loss / Supporting Documentation
☐ Exhibit D — Our Client's Expert / Contractor Report(s)
☐ Exhibit E — Photographs / Inspection Documentation
☐ Exhibit F — Insured's Settlement Demand History
☐ Exhibit G — Evidence of Bad Faith Conduct (specify: [________________________________])
☐ Exhibit H — [________________________________]

CC:

• [________________________________] (Client)
• Illinois Department of Insurance, Consumer Division, 320 W. Washington St., Springfield, IL 62767

ILLINOIS SECTION 155 / BAD FAITH LAW — QUICK REFERENCE

SOURCES AND REFERENCES

• 215 ILCS 5/155 (Vexatious Delay): https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=021500050K155
• 215 ILCS 5/154.6 (Unfair Claims Practices): https://www.ilga.gov/legislation/ilcs/documents/021500050K154.6.htm
• Ill. Admin. Code tit. 50, pt. 919 (Improper Claims Practice): https://www.ilga.gov/agencies/JCAR/EntirePart?titlepart=05000919
• Becker-Othman v. State Farm Mutual Automobile Insurance Co., 2026 IL App (1st) 250037
• Illinois Department of Insurance (IDOI): https://insurance.illinois.gov