Illinois Claims Compliance

a third-party claimant attempted to sue a liability insurer directly, citing violations of 215 ILCS 5/154.6 and 50 Ill. Adm. Code 919.50 and 919.80 .

the First District Appellate Court interpreted a cyber-event exclusion in a professional liability policy regarding a funds transfer fraud loss . The court applied standard principles of policy interpretation, looking at the underlying facts of the wire fraud to enforce the cyber exclusion as written, declining to rewrite the policy or invent new duties .

the insurer rejected a proof of loss and placed the claim in "abeyance" without providing a written explanation of a denial or a lower settlement offer. The Illinois Appellate Court affirmed that the insurer's failure to provide a reasonable written explanation upon disagreement was inconsistent with 50 Ill. Adm. Code 919.50.

the federal district court noted that while filing a declaratory action within four months is usually timely, delays stretching toward 7 to 12 months are often found to be unreasonable, triggering estoppel .

In Ehlco, the Illinois Supreme Court cemented the "general estoppel" rule . The court held that if an insurer takes the position that a complaint potentially alleging coverage is not covered, it cannot simply refuse to defend. It must either defend under a reservation of rights or seek a declaratory judgment .

. https://caselaw.findlaw.com/court/apl-crt-ill-fir-dis-thi-div/1933903.html

Known as the foundational case for "Peppers counsel" (the Illinois equivalent of Cumis counsel in California), this case involved an insured who shot a fleeing burglar . The underlying complaint alleged both intentional conduct and negligence . The insurer issued an ROR because the policy covered negligence but excluded intentional acts.

One of the seminal cases addressing an insurer's failure to communicate and update an insured is Mohr v. Dix Mut. Co. Fire Ins. Co., 143 Ill. App. 3d 989 (1986) . In Mohr, an insured suffered a first-party property loss and the insurer invoked the appraisal process. However, during the dispute, the insurer essentially went completely silent.

This principle is perfectly illustrated in Nine Grp. II, LLC v. Liberty Int'l Underwriters, Inc., 2020 IL App (1st) 190320 . In this case, a commercial insured sought coverage stemming from a business deal gone awry. The insurer denied coverage. The insured sued under Section 155, specifically alleging that the insurer had:

an insured attempted to sue for bad faith under Section 155, citing a delay in payment and referencing 50 Ill. Adm. Code 919.50 . However, the court ruled that because the liability and amount of loss were already settled via arbitration, the mere delay in cutting the check did not rise to the level of vexatious bad faith required by Section 155 .

and the Northern District of Illinois in Perma-Pipe, Inc. v. Liberty Surplus Ins. Corp. (2014)—held that a "nontrivial probability" of a verdict in excess of policy limits creates a conflict of interest .

This appellate decision is the leading authority on the content required in an Illinois ROR letter. The court ruled that "bare notice of a reservation of rights is insufficient" .

the Illinois Supreme Court ruled that coverage for malicious prosecution is triggered by the policy in place at the time of the wrongful prosecution, not the exoneration . Extrapolating this to cyber liability—where a data breach may occur in Year 1, but the lawsuit is filed in Year 3—insurers must be meticulous in their ROR letters regarding "prior knowledge" exclusions and retroactive dates .

the court held that where punitive damages are excluded under the policy and form a "substantial portion" of the potential liability, a conflict exists entitling the insured to independent counsel .