In an unpublished decision applying Illinois law, a federal court has held that a bad faith claim must be dismissed where the complaint alleged neither a breach of the insurance policy nor a failure to negotiate settlement in good faith. Cushman & Wakefield, Inc. v. Illinois Nat’l Ins. Co., 2015 WL 2259647 (N.D. Ill. May 11, 2015). The court also found that a claim against an excess insurer for breach of contract was not viable when the insured failed to plead the breach of a specific policy provision.

The insured was retained by a client to provide real estate appraisals for loans made to developers of residential communities. The insureds were sued when several of the loans went into default. The primary insurer, which provided coverage to the insured from 2009 to 2013, first accepted the lawsuits as multiple claims under separate policy periods. As additional lawsuits were filed, the primary insurer changed its position and asserted that all of the claims related to the first claim filed in 2009. The excess insurer disagreed and took the position that the claims triggered multiple policy years. The insured filed coverage litigation to resolve the issue, and the excess insurer filed a motion to dismiss the causes of action against it.

The court first denied the excess insurer’s motion to dismiss the insured’s claim for declaratory judgment regarding the excess insurer’s duty to defend. According to the court, although the insured did not allege that the primary policy would be exhausted if the underlying litigation triggered only a single policy year, the primary insurer alleged in its counterclaim that it had already paid more than its limit in the relevant policy year. The court opined that, as a result, the case presented a controversy that warranted jurisdiction under the Declaratory Judgment Act because the excess policy would be implicated if the court ultimately determined that the underlying claims triggered only a single policy year. But the court found that the declaratory judgment count regarding the excess insurer’s duty to indemnify a particular claim was not ripe for review because the claim had not yet been resolved and the insured did not plead facts that indicated injury was probable.

The court dismissed the insured’s breach of contract claim, which asserted that the excess insurer delayed in taking a coverage position on the related claims issue, because the insured failed to plead that the excess insurer had breached any particular policy provision. The court also dismissed the bad faith claim, opining that under Illinois law, the implied covenant of good faith and fair dealing is a rule of contractual construction and not a stand-alone obligation. The court noted that Illinois courts had permitted stand-alone claims for insurer bad faith “only in the narrow context of cases involving an insurer’s obligation to settle with a third party who has sued the policyholder.” The court therefore dismissed the bad faith claim because the insured alleged neither a breach of any particular contractual obligation nor a failure to negotiate settlement in good faith.