Under Illinois bad faith insurance law, a policyholder whose insurer delays or denies a claim without a legitimate reason can seek penalties, attorney fees, and costs under Section 155 of the Illinois Insurance Code. Illinois does not recognize a standalone tort for first-party insurer bad faith. Instead, Section 155 attaches to your underlying lawsuit against the insurer and lets the court punish conduct it finds “vexatious and unreasonable.” That framework shapes what you can recover, how you have to prove your case, and what the insurer can raise in response.
How Section 155 Works
Section 155 is not a lawsuit you can file on its own. It has to be attached to an underlying action against the insurer over policy liability or the amount owed on a loss.1Illinois General Assembly. 215 ILCS 5/155 The statute covers first-party disputes: claims you bring under your own policy for losses like fire damage, theft, health care costs, or life insurance benefits. Courts describe it as an “extracontractual remedy” that goes beyond breach-of-contract damages to penalize insurers whose conduct crosses from reasonable disagreement into obstruction.2Justia. Employers Insurance of Wausau v. Ehlco Liquidating Trust
Section 155 also blocks common law bad faith tort claims in the first-party setting. The Illinois Supreme Court held in Cramer v. Insurance Exchange Agency that “the tort of bad faith is not a separate and independent tort action that is recognized in Illinois.”3Justia. Cramer v. Insurance Exchange Agency If your insurer wrongly denied a homeowner’s claim, your remedy runs through Section 155 rather than a common law bad faith tort. One carve-out matters: if you can prove the elements of a separate independent tort like fraud, that claim survives preemption.
What Counts as Vexatious and Unreasonable
“Vexatious and unreasonable” is the standard, and it does a lot of work. A simple mistake or honest coverage disagreement usually will not meet it. Courts look for something worse than negligence: a pattern of delay, an inadequate investigation, or a refusal to explain the reasoning behind a denial.1Illinois General Assembly. 215 ILCS 5/155
Illinois courts typically weigh several factors:
- Whether the insurer actually investigated the claim or issued a denial based on incomplete information.
- Whether the insurer kept you informed or let weeks pass without an update.
- Whether the insurer’s reading of the policy was defensible or stretched exclusions past their plain meaning.
- Whether the insurer complied with the claims handling rules in Part 919 of the Illinois Administrative Code.
Part 919 gives that last factor teeth. It prohibits practices like marking a payment “final” when the policy limit has not been paid and no legitimate dispute exists, requiring proof of loss faster than the policy allows, and demanding polygraph examinations.4Illinois General Assembly. Illinois Administrative Code – Part 919 Evidence that an insurer violated one of those regulations strengthens a Section 155 claim considerably.5Illinois Courts. Chapter 710.00 Liability Insurance – Bad Faith
What You Can Recover
A finding that the insurer’s conduct was vexatious and unreasonable unlocks three categories of recovery on top of whatever the policy itself owes.
Attorney Fees and Costs
The court can award reasonable attorney fees and litigation costs as part of taxable costs. Without fee-shifting, many policyholders could not afford to challenge a wrongful denial at all. The fee award sits separately from the penalty cap below.1Illinois General Assembly. 215 ILCS 5/155
Statutory Penalty
The court can also impose a penalty that cannot exceed whichever of these amounts the court selects:
- 60% of the amount the court or jury finds you are entitled to recover, excluding costs.
- $60,000 as a flat ceiling regardless of the underlying claim size.
- The difference between what you ultimately recover and whatever the insurer offered to settle before you filed suit.
The court picks one. It is a cap, not a guaranteed award, and the options are not cumulative.1Illinois General Assembly. 215 ILCS 5/155 On a large claim where the insurer offered nothing pre-suit, the third option can produce a penalty well past $60,000. On a smaller claim, the 60% figure might beat the flat cap. Courts have discretion to pick whichever fits.
Policy Benefits and Consequential Damages
You still recover the full amount owed under your policy through the underlying breach-of-contract action. If the insurer’s delay caused additional financial harm, such as interest on loans you had to take out or the cost of temporary housing while a homeowner’s claim sat unresolved, those consequential damages may also be recoverable depending on the facts.
First-Party vs. Third-Party Bad Faith
This distinction changes the legal landscape. Section 155 governs first-party claims, meaning disputes between you and your own insurer about coverage or payment under your policy. Third-party bad faith is a different scenario: your liability insurer refuses to settle a claim brought against you by someone else, exposing you to a judgment above your policy limits.
Third-party bad faith is not preempted by Section 155. The Illinois Supreme Court has kept the two contexts separate, recognizing that a policyholder facing excess liability from an insurer’s wrongful refusal to settle has no adequate remedy under the statute.6Illinois Courts. O’Neill v. Gallant Insurance Co. In that setting, the insurer’s duty to give your interests at least equal weight to its own is an implied covenant in the liability policy, and breach can support a tort action.5Illinois Courts. Chapter 710.00 Liability Insurance – Bad Faith Punitive damages are potentially available in third-party bad faith cases. They are not available in first-party disputes governed by Section 155.
How Insurers Defend These Cases
Insurers have several established defenses, and courts take them seriously. The vexatious-and-unreasonable standard already builds in a buffer for good-faith disagreements.
Bona Fide Coverage Dispute
The strongest defense is showing a genuine dispute existed over whether the policy covered the loss. Ambiguous policy language, conflicting facts about how a loss occurred, or legitimate questions about an exclusion can all support this defense. A reasonable disagreement about coverage does not become bad faith just because the insurer ultimately loses. A bona fide dispute is not a blank check, though. The investigation and communication still have to be reasonable.
Policyholder Non-Compliance
Insurers can defend by showing the policyholder failed to meet obligations under the policy: timely notice of the loss, cooperation with the investigation, submission of required documentation. If the insured’s own breach materially impaired the insurer’s ability to evaluate or pay the claim, a bad faith allegation can fail.
Reasonable Conduct on the Information Available
Documentation carries this defense. An insurer that can produce claim notes, correspondence, expert evaluations, and a clear rationale for the coverage decision is in a much stronger position than one that issued a bare denial letter. Courts evaluate the insurer’s conduct based on what it knew when it decided, not what emerged later in litigation.
Advice of Counsel
Reliance on legal advice is not a standalone defense so much as evidence of reasonableness. An insurer that retained counsel to analyze a difficult coverage question and followed that advice is harder to characterize as vexatious, particularly when the legal issue was genuinely close.
Filing a Complaint With the Illinois Department of Insurance
Court is not the only option. The Illinois Department of Insurance takes consumer complaints against insurers at no cost. You can file online through the IDOI Help Center, which asks you to create an account and pick a complaint category such as auto, home, property, health, life, annuity, or workers’ compensation.7Illinois Department of Insurance. IDOI Help Center Paper forms are available for mailing as well.
An administrative complaint will not get you Section 155 penalties or damages. Only a court can award those. But a Department investigation can push the insurer to revisit a denial, and a finding of improper claims practices can become useful evidence if you later sue. For smaller claims where litigation costs would swallow the recovery, the administrative route can be the more practical choice.
Deadline to Sue
Illinois courts treat Section 155 claims as subject to the five-year catch-all limitations period for civil actions under 735 ILCS 5/13-205, not the two-year period for statutory penalties, on the reasoning that Section 155 is not classified as a “statutory penalty” for limitations purposes despite its penalty features. You generally have five years from when the vexatious conduct occurs. Attaching the Section 155 request to a timely-filed policy action is the safer approach, since waiting near the deadline creates risk that the underlying contract claim runs into its own limitations problem depending on policy terms.
Anchor Cases to Know
Cramer v. Insurance Exchange Agency (1996) is the foundational Illinois Supreme Court decision. The court held that Section 155 preempts common law bad faith tort claims for first-party insurance, that bad faith is not recognized as an independent tort in Illinois, and that separate tort actions like fraud survive preemption only when the plaintiff proves elements distinct from vexatious delay.3Justia. Cramer v. Insurance Exchange Agency
Employers Insurance of Wausau v. Ehlco Liquidating Trust (1999) confirmed that Section 155 provides an extracontractual remedy and that penalties are appropriate when an insurer acts vexatiously and unreasonably in refusing to defend or indemnify.2Justia. Employers Insurance of Wausau v. Ehlco Liquidating Trust
Golden Rule Insurance Co. v. Schwartz (2003) addressed how an insurer’s investigation process bears on bad faith. The court signaled that thorough documentation and consistent communication with the policyholder weigh heavily in the insurer’s favor.8Justia. Golden Rule Insurance Co. v. Schwartz
O’Neill v. Gallant Insurance Co. kept third-party bad faith outside Section 155 preemption, holding that a liability insurer’s wrongful refusal to settle exposes it to tort liability, including potential punitive damages, because the policyholder facing an excess judgment has no adequate remedy under the statute.6Illinois Courts. O’Neill v. Gallant Insurance Co.