Marcheschi v. Illinois Farmers Insurance Co.

FIRST DIVISION
AUGUST 3, 1998

No. 1-97-0273

ANGELO MARCHESCHI, JR.,

Plaintiff-Appellee and Cross-
Appellant,

v.

ILLINOIS FARMERS INSURANCE COMPANY,

Defendant-Appellant and Cross-
Appellee.)
)
)
)
)
)
)
)
)
)
)Appeal from the
Circuit Court of
Cook County

92 L 15843

Honorable
Ian Levin,
Judge Presiding.


JUSTICE O'MARA FROSSARD delivered the opinion of the court:
Plaintiff Angelo Marcheschi brought this action under
section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West
1996)) alleging that defendant Illinois Farmers Insurance Company
vexatiously and unreasonably refused to settle an uninsured
motorist claim arising from an automobile accident in which
plaintiff was injured. Defendant filed a motion to dismiss under
section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619
(West 1996)) based on its claim the appropriate statute of
limitations had expired. Defendant's motion was denied. In a
bench trial, the trial court awarded plaintiff $18,750 as
permitted by section 155, $8,075 in attorney fees related to the
arbitration of the uninsured motorist claim, and $7,968.75 in
prejudgment interest. The trial court denied plaintiff attorney
fees in the prosecution of the present action. From these
orders, defendant appeals and plaintiff cross-appeals.
The issues on appeal are: (1) whether the trial court
properly determined that section 155 of the Insurance Code is not
a statutory penalty to which a two-year statute of limitations
must apply; (2) whether the trial court correctly determined that
defendant unreasonably and vexatiously delayed the settlement of
plaintiff's uninsured motorist claim under section 155; and (3)
whether the trial court properly awarded prejudgment interest to
plaintiff. On cross-appeal, the issue is whether the trial court
acted within its discretion in awarding limited attorney fees to
plaintiff and in its denial of plaintiff's petition for fees in
the present action.
We answer the above in the affirmative and affirm the trial
court's decision on appeal.

FACTS
On December 22, 1992, plaintiff filed a complaint against
defendant seeking recovery under section 155 of the Insurance
Code based on defendant's refusal to settle his claim for
uninsured motorist benefits within the applicable policy limits.
Following the accident, which occurred on December 9, 1983,
defendant promptly paid plaintiff $25,000, which was the limit of
his uninsured motorist coverage. However, plaintiff was a member
of a class action lawsuit in which his insurance policy was
reformed and the uninsured motorist coverage limit was increased
from $25,000 to $100,000.
Following the class action, plaintiff demanded $75,000, or
the remainder of the policy limits from defendant. In August
1988, defendant offered $40,000 in settlement, and in December of
1988, plaintiff made a counteroffer of $40,000 plus prejudgment
interest. When defendant failed to accept this counteroffer, it
expired and plaintiff again made a demand for $75,000 plus
prejudgment interest. After plaintiff underwent a physical
examination, defendant made an offer of $50,000 on June 21, 1989,
which plaintiff declined. Testimony at trial indicated that,
shortly thereafter, defendant was given settlement authority in
the amount of $75,000, which was not extended to plaintiff prior
to arbitration.
The arbitration hearing took place on January 3, 1990. The
panel assessed plaintiff's damages in the amount of $215,000 and
found defendant liable for the $75,000 policy limit.
In his complaint, plaintiff sought to recover attorney fees
for the arbitration, arbitrator's fees and other litigation
expenses, prejudgment interest, and 25% of the difference between
the amount defendant offered in settlement and the amount
plaintiff recovered via arbitration pursuant to section 155.
In its answer, defendant admitted plaintiff was a member of
the class action, that the policy limits had been increased and
that plaintiff demanded $75,000. However, defendant sought to
strike a portion of the pleadings as being argumentative and
improperly pleading details of evidence. The answer also
admitted defendant had offered $40,000 on October 26, 1988, and
that following arbitration it promptly paid the remaining $75,000
to plaintiff. Defendant's answer denied breaching any duty to
plaintiff and denied liability under section 155.

ANALYSIS
I
Defendant first challenges the trial court's denial of its
section 2-619 motion to dismiss and asserts that plaintiff's
section 155 claim was a statutory penalty that was not brought
within the applicable two-year statute of limitations. Plaintiff
argues that relief under section 155 does not constitute a
"statutory penalty" for purposes of the two-year statute of
limitations set forth in section 13-202 of the Code of Civil
Procedure (735 ILCS 5/13-202 (West 1996)), and that the five-year
statute of limitations applicable to "all civil actions not
otherwise provided for" is appropriate in this case. See 735
ILCS 5/13-205 (West 1996).
A motion to dismiss under section 2-619 admits both the
truth of the facts alleged in support of the claim and the legal
sufficiency of the claim, but it raises an affirmative matter
which it asserts defeats the claim. Barber-Colman Co. v. A&K
Midwest Insulation Co., 236 Ill. App. 3d 1065, 603 N.E.2d 1215
(1992). Here that affirmative matter is the statute of
limitations.
The statute of limitations that defendant claims should
apply reads as follows:
"5/13-202. Personal injury - Penalty. Actions for
damages for an injury to the person, or for false
imprisonment, or malicious prosecution, or for a statutory
penalty, *** shall be commenced within 2 years next after
the cause of action accrued ***." 735 ILCS 5/13-202 (West
1996).
At issue in defendant's motion to dismiss is whether section 155
constitutes a "statutory penalty," as defendant contends, or a
remedial action, as plaintiff asserts. This is an issue of first
impression in Illinois; however, this court has previously
addressed the factors to be considered when determining whether a
statute constitutes a "statutory penalty" under Illinois law.
In McDonald's Corp. v. Levine, 108 Ill. App. 3d 732, 439 N.E.2d 475 (1982), the court addressed whether the "civil
remedies" provided for in the eavesdropping act (720 ILCS 5/14-1
(West 1996)) constituted statutory penalties for purposes of the
statute of limitations in section 13-202. The court found that
the statute did not contain a statutory penalty but a
codification of traditional common-law remedies. McDonald's, 108
Ill. App. 3d at 738. Although the statute at issue in McDonald's
and facts involved are not analogous to the case at bar, the case
provides important discussion of what constitutes a statutory
penalty, or a penal statute, and what constitutes a remedial
statute. The opinion contrasts the two types of statutes as
follows:
"A statute is a statutory penalty if it imposes
automatic liability for a violation of its terms and the
amount of liability is predetermined by the act and imposed
without actual damages suffered by the plaintiff.
[Citation.] A statute is remedial when it gives rise to a
cause of action to recover compensation suffered by the
injured person. [Citation.]" McDonald's, 108 Ill. App. 3d
at 738.
The court further noted that a statute is remedial and not
penal where it imposes liability only when actual damage results
from a violation. In such a case, liability is contingent upon
damage being proven by the plaintiff. Under a penal statute,
liability is not contingent but imposed automatically when a
violation of the statute is established. McDonald's, 108 Ill.
App. 3d at 738.
Applying the factors outlined in McDonald's, we agree with
the trial court's denial of defendant's motion to dismiss and
find that section 155 does not constitute a statutory penalty.
Therefore the two-year statute of limitations in section 13-202
does not apply.
First, section 155 does not impose automatic liability for a
violation of its terms. The statute reads as follows:
"155. Attorney fees. (1) 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
one of the following amounts:
(a) 25% of the amount which the court or jury finds
such party is entitled to recover against the company,
exclusive of all costs;
(b) $25,000;
(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." 215 ILCS
5/155 (West 1996).
It is important to note that the court has discretion whether or
not to assess the above attorney fees, costs and the additional
amount provided for, as the statute contains permissive rather
than mandatory language. The statute does not require the court
to provide such relief even in the face of the most unreasonable
and vexatious delay by an insurance company in settling a claim,
but permits the court to award such attorney fees, costs and the
additional amount to be assessed against the offending insurance
company at its discretion. Therefore, there is no automatic
liability under the statute as required for a statute to be
considered a statutory penalty under McDonald's.
The McDonald's court also states that a statute is a
statutory penalty if the amount of liability is predetermined by
the act and imposed without actual damages suffered by the
plaintiff. Again, under this prong of the McDonald's analysis
section 155 cannot be considered a statutory penalty. The amount
of attorney fees and costs that can be awarded is not
predetermined by the statute, and the additional amount is
limited, though not predetermined, by the statutory language.
Further, as noted by plaintiff, defendant would not even be
liable for the additional amount mentioned in the statute unless
the amount of plaintiff's proven damages exceeded the amount
defendant offered in settlement. Thus there can be no liability
under the statute without actual damages. The McDonald's court,
however, states a statute is a statutory penalty if liability can
be imposed without actual damages. This is not the case under
section 155.
Under section 155, there is no automatic liability of a
predetermined amount, and plaintiff must suffer actual damages in
order for defendant to be liable for the additional amount
mentioned in the act. This statute cannot therefore be
considered a penal statute under the McDonald's analysis.
Rather, it is remedial in nature, as liability is contingent on
damage being proven by the plaintiff. McDonald's, 108 Ill. App.
3d at 738.
Our conclusion that section 155 is not a statutory penalty
is supported by its legislative history and purpose. In Cramer
v. Insurance Exchange Agency, 174 Ill. 2d 513, 675 N.E.2d 897
(1996), the Illinois Supreme Court discussed the background of
section 155. The court noted that the statute "provides an
extracontractual remedy to policyholders whose insurer's refusal
to recognize liability and pay a claim under a policy is
vexatious and unreasonable." Cramer, 174 Ill. 2d at 520. Before
the statute was enacted, a policyholder's only recourse for such
conduct was to seek a breach of contract action to receive policy
proceeds, and attorney fees and punitive damages are generally
not available in breach of contract actions. Cramer, 174 Ill. 2d
at 520. The court noted that section 155 "created a limited
statutory exception to this rule." Cramer, 174 Ill. 2d at 521.
Though the supreme court noted the statute has expanded a
plaintiff's relief to include reasonable attorney fees, costs and
"a limited penalty," we do not believe the use of the word
"penalty" in this context brings the entire statute under the
realm of a statutory penalty for purposes of the two-year statute
of limitations. Indeed, the court explicitly noted that the
purpose of the statute was to provide "a remedy for insurer
misconduct." Cramer, 174 Ill. 2d at 520. We agree with the
court's analysis and find that it supports our determination that
section 155 is remedial, rather than penal, in nature.
Accordingly, we affirm the trial court's denial of
defendant's section 2-619 motion to dismiss and hold that section
155 does not constitute a "statutory penalty" for purposes of the
two-year statute of limitations in section 13-202 of the Code of
Civil Procedure.

II
Defendant next contends the trial court erred in finding
that defendant was vexatious and unreasonable in not offering the
remaining $75,000 in uninsured motorist coverage where the
plaintiff produced no testimony that he would have accepted this
amount in full settlement without payment of prejudgment
interest. Plaintiff counters that his demand for interest during
early negotiations did not relieve defendant of its duty to offer
the policy limits before the arbitration hearing.
In its ruling, the trial court noted that section 155 is not
implicated as long as there is a bona fide dispute about
coverage. See Bedoya v. Illinois Founders Insurance Co., 293 Ill.
App. 3d 668, 688 N.E.2d 757 (1997). The court determined there
was such a dispute until June 28, 1989, when defendant assessed
the liability at the remaining policy limits of $75,000 and
increased settlement authority to that amount. After that time,
the issue was resolved in favor of plaintiff and any further
delay in settling the claim became vexatious and unreasonable.
The court noted that because of this delay, plaintiff was "forced
to go through all the pre-trial discovery preparation, the
arbitration preparation and the arbitration itself." The
arbitration panel assessed plaintiff's damages at $215,000.
We reject defendant's contention that its failure to offer
the full coverage amount in settlement in a timely and reasonable
manner is excused by defendant's belief that plaintiff would not
have accepted the offer anyway. We find this argument
unconvincing for a number of reasons. Most significantly,
whether plaintiff theoretically would have accepted an offer that
did not include prejudgment interest is irrelevant because
defendant never made the offer of $75,000 to plaintiff before
subjecting plaintiff to unreasonable and vexatious delay. In
fact, defendant never offered $75,000 to plaintiff, either with
or without prejudgment interest, prior to arbitration. The trial
court found defendant's conduct to be unreasonable and vexatious
based on the failure to offer the $75,000 amount in a timely
manner.
In deciding whether an insurer is liable under section 155,
a trial court should consider the totality of the circumstances,
including the insurer's attitude. Buais v. Safeway Insurance
Co., 275 Ill. App. 3d 587, 656 N.E.2d 61 (1995). The trial court
did so in the present case and determined plaintiff established
unreasonable and vexatious delay.
A finding of vexatious and unreasonable conduct will not be
disturbed absent a showing of abuse of discretion. Ragan v.
Columbia Mutual Insurance Co., 291 Ill. App. 3d 1088, 684 N.E.2d 1108 (1997). After a careful review of the record, we find the
trial court's ruling is supported by the evidence and we affirm
the judgment of the trial court in favor of plaintiff.

III
Finally, defendant contends the trial court improperly
awarded plaintiff prejudgment interest in the amount of $7,968.75
pursuant to section 2 of the Illinois Interest Act (815 ILCS
205/2 (West 1996). Whether to award prejudgment interest is a
matter within the sound discretion of the trial court, and its
decision will not be reversed absent an abuse of discretion.
Gray v. Mundelein College, Nos. 1-97-0605, 1-97-0622 (May 6,
1998). In the present case, we do not find that the trial court
has abused its discretion in the award of prejudgment interest to
plaintiff.
Section 2 of the Interest Act provides, in relevant part,
"[c]reditors shall be allowed to receive at the rate of five (5)
per centum per annum for all moneys after they become due on any
bond, bill, promissory note, or other instrument of writing."
815 ILCS 205/2 (West 1996). The application of this statute to
insurance policies was discussed in Couch v. State Farm
Insurance Co., 279 Ill. App. 3d 1050, 1054, 666 N.E.2d 24 (1996).
"It is well established that an insurance policy is a
written instrument covered by this statute. [Citations.]
Accordingly, prejudgment interest may be recovered from the
time money becomes due under the policy [citations] or after
the lapse of a reasonable time for paying the amount due.
[citation]. The existence of a good-faith defense does not
preclude recovery of interest. [Citation.]" (Emphasis
omitted.) Couch, 279 Ill. App. 3d at 1054.
The Couch court noted that in order to recover for prejudgment
interest, the sum due must be liquidated or subject to an easy
determination by calculation or computation. Couch, 279 Ill.
App. 3d at 1054. Defendant argues that in the case at bar,
plaintiff's claim was not a matter of simple calculation. We
disagree.
The $75,000 needed to bring plaintiff's award up to the
policy limits is the liquidated amount of damages from which the
prejudgment interest can be easily calculated. Defendant claims
the award should be less because the trial court found defendant
did not "breach a duty to settle" the claim until June of 1989,
though the trial court awarded interest from January 1, 1988.
However, the fact that the amount of the award was in dispute
during this time does not preclude the trial court from awarding
prejudgment interest for that period. Central National Chicago
Corp. v. Lumbermens Mutual Casualty Co., 45 Ill. App. 3d 401, 359 N.E.2d 797 (1977).
We do not find the trial court abused its discretion by
awarding prejudgment interest to plaintiff, and we affirm the
trial court's decision.

IV
Plaintiff also presents a counterclaim, alleging that the
trial court erred in awarding fees in the underlying action that
were "less than the amount of attorney fees actually paid by
Marcheschi" and in denying plaintiff's petition for attorney fees
in the instant action.
On October 12, 1996, plaintiff filed a petition for attorney
fees in the underlying arbitration proceeding and in the instant
action, along with a motion for prejudgment interest. On October
24, 1996, plaintiff filed an amended motion asking the trial
court to reduce its October 10 award from $25,000 to $18,750,
consistent with the limitation in section 155. The trial court
granted the motion to amend the October 10 award and granted
plaintiff $8,075 in attorney fees for work conducted from June
28, 1989, to the date the arbitration award was recovered.
On December 12, 1996, the trial court entered a final
judgment order which maintained the award of limited attorney
fees, denied plaintiff's motion for attorney fees in the present
case, awarded prejudgment interest to plaintiff, and incorporated
various other orders awarding costs under section 155.
Plaintiff contends the trial court's decision to award
attorney fees only after the date it determined that defendant's
conduct became vexatious and unreasonable was in error. With
regard to the award of attorney fees under section 155,
considerable deference to the judgment and discretion of the
court must be given; an increase or decrease of a fee award will
be granted only if there has been a clear abuse of discretion.
Mobil Oil Corp. v. Maryland Casualty Co., 288 Ill. App. 3d 743,
681 N.E.2d 552 (1997). The award of attorney fees in the present
case certainly falls within this discretion.
As discussed above, section 155 permits the award of
attorney fees and other costs by the trial court, but does not
mandate such an award. It follows that the amount of the fees to
be granted is also not mandated and after a review of the
totality of the circumstances, the trial court clearly has
discretion to determine the appropriate amount.
Likewise, the trial court is vested with the discretion to
deny attorney fees for the instant action, and its determination
to deny plaintiff's petition for fees must be upheld accordingly.

CONCLUSION
We find that the trial court properly determined that
section 155 of the Insurance Code is not a statutory penalty and
that the two-year statute of limitations in section 13-202 does
not apply. We further find the trial court correctly determined
that defendant unreasonably and vexatiously delayed the
settlement of plaintiff's uninsured motorist claim under section
155 and that the award of prejudgment interest to plaintiff was
proper.
With regard to the cross-appeal, we find the trial court
acted within its discretion in its award of limited attorney fees
to plaintiff and in its denial of plaintiff's petition for fees
in the present action.
Accordingly, the decision of the trial court is affirmed.
Affirmed.
BUCKLEY, P.J., and GALLAGHER, J., concur.