If your insurer denied a valid claim, dragged out payment for months, or refused a fair settlement within the policy limits, you may be dealing with “bad faith” insurance. Every insurance policy carries a duty of good faith and fair dealing, and when a company puts its own bottom line ahead of that duty, Illinois law gives injured people and policyholders ways to push back. Here is how bad faith works in Illinois, what the law lets you recover, and when it is worth talking to a lawyer.
What “Bad Faith” Insurance Means
Bad faith is more than a denied claim or a disagreement over value. It happens when an insurer handles a claim unreasonably and without a legitimate basis, ignoring the facts, the medical records, or the plain terms of its own policy. A single slow check is not bad faith. A pattern of stalling, lowballing, or manufacturing excuses to avoid paying what is owed can be.
The core idea is simple. You paid premiums and held up your end of the contract. In exchange, the insurer promised to investigate, communicate, and pay covered claims fairly and on time. When it breaks that promise in an unreasonable way, it can be on the hook for more than just the original claim amount.
First-Party vs. Third-Party Bad Faith
Bad faith shows up in two very different situations, and the rules are not the same for each.
First-party bad faith involves your own insurance company. If you file an uninsured or underinsured motorist claim, a medical-payments claim, or a property claim and your insurer unreasonably denies, delays, or underpays it, the dispute is between you and the company you pay.
Third-party bad faith involves the at-fault person’s insurer. When their insurance company has a chance to settle a claim against its policyholder within the policy limits and unreasonably refuses, it can expose that policyholder to a judgment far larger than the coverage. That failure is where much of Illinois bad-faith law comes from.
Common Signs an Insurer May Be Acting in Bad Faith
Insurers rarely announce that they are cutting corners. Watch for a pattern of conduct such as:
- Denying a clearly covered claim without a real reason
- Dragging out the claim with repeated requests for paperwork you already sent
- Failing to investigate the facts before saying no
- Offering far less than the claim is reasonably worth, hoping you give up
- Misrepresenting what the policy actually covers
- Refusing a reasonable settlement offer inside the policy limits
One of these in isolation may have an innocent explanation. Several together, especially when the insurer will not explain itself in writing, is a signal worth taking seriously.
Illinois’ Bad-Faith Remedy: Section 155
Illinois handles insurer misconduct differently than many states. Rather than a broad common-law tort for first-party bad faith, the main statutory remedy lives in the Illinois Insurance Code. When an insurer’s delay, denial, or refusal to settle a claim is “vexatious and unreasonable,” a court may award you your attorney fees, court costs, and extra damages (215 ILCS 5/155).
Those extra damages are capped by reference to three figures: 60% of the amount you are found entitled to recover, $60,000, or the difference between what you ultimately recover and what the insurer offered to pay before suit. The statute sets a ceiling rather than an entitlement, so a court can award less than the cap or nothing extra at all. The point is to make it expensive for a company to sit on a valid claim and force policyholders to sue for money they were already owed. The court, not a jury, decides whether conduct crossed the line into vexatious and unreasonable, and that finding is highly fact-specific.
Section 155 provides a remedy on top of the contract; it does not create a separate cause of action by itself. In practice that means a Section 155 claim usually rides along with a breach-of-contract claim over the underlying coverage. It also crowds out the alternative. In Cramer v. Insurance Exchange Agency, the Illinois Supreme Court held that Section 155 preempts a standalone tort claim for first-party bad faith, so allegations of unreasonable and vexatious conduct on their own will not support a separate tort. What survives preemption is a genuinely independent tort with its own elements, such as fraud.
The Insurer’s Duty to Settle Within Policy Limits
On the third-party side, Illinois recognizes a common-law duty to settle. An insurer must act in good faith when a claim is brought against its policyholder, both before and after a lawsuit is filed. Under the Illinois Supreme Court’s decision in Haddick v. Valor Insurance, that duty arises once a third party makes a claim against the insured and there is a reasonable probability both of a finding of liability against the insured and of a recovery above the policy limits. A formal within-limits settlement demand is powerful evidence, and it is what most failure-to-settle cases are built on, but the duty does not sit dormant until one arrives. An insurer that sees a clear-liability, serious-injury claim has an obligation to act in good faith before a demand ever lands on the adjuster’s desk.
When those conditions line up and the insurer unreasonably refuses to settle, it can be responsible for the excess judgment, meaning the amount of the verdict that goes beyond the coverage it could have paid to close the case. This is why an insurer that gambles by rejecting a reasonable within-limits offer takes on real risk, and why accident victims and insureds alike pay close attention to how settlement demands are handled.
What You Can Recover
What is on the table depends on which kind of bad faith is involved. In a first-party dispute, a successful claim can recover the policy benefits that were wrongfully withheld, plus attorney fees, costs, and the additional statutory damages allowed under Section 155. In a third-party failure-to-settle case, the insurer may be responsible for the excess judgment entered against its policyholder above the policy limits.
Every case is different, and no result is guaranteed. Past outcomes never promise a future one. What the law does provide is leverage: an insurer that knows a policyholder can pursue fees and extra damages has a strong reason to treat claims fairly the first time.
Protecting Your Claim
If you suspect an insurer is acting in bad faith, documentation is your best friend. Keep every letter, email, and denial, note the dates of phone calls and what was said, and save your policy and claim paperwork. Put important requests in writing so there is a clear record. Bad-faith cases turn on whether the insurer’s conduct was reasonable, and a paper trail is often what proves it was not.
Watch the calendar as closely as the correspondence. A first-party claim against your own insurer is a contract claim, and Illinois auto and property policies routinely shorten the deadline to sue to as little as one or two years from the loss, well short of the ordinary limitation period for a written contract. That contractual clock is paused from the date you file your proof of loss until the date the insurer denies the claim in whole or in part (215 ILCS 5/143.1), but it starts running again on denial. Uninsured and underinsured motorist coverage often adds its own deadline for demanding arbitration. Read the policy early, because a stalling insurer benefits from every month you spend negotiating. An experienced Illinois personal-injury lawyer can review that record, deal with the insurer directly, and pursue the added remedies the law allows.
Frequently Asked Questions
What is bad faith insurance?
Bad faith insurance is when a company handles a claim unreasonably and without a legitimate basis, such as denying a covered claim, stalling payment, failing to investigate, or refusing a fair settlement within policy limits. It goes beyond an honest disagreement over value.
How do I prove an insurance company acted in bad faith in Illinois?
You generally need to show the insurer owed benefits or had a duty to settle, and that its conduct was unreasonable and, for statutory penalties, vexatious. Evidence usually includes the policy, claim correspondence, denial letters, and a timeline of delays or shifting explanations.
What can I recover in an Illinois bad-faith claim?
Under 215 ILCS 5/155, a court may award attorney fees, costs, and extra damages of up to the greatest of 60% of what you are entitled to recover, $60,000, or the amount your recovery exceeds the insurer’s offer. The statute sets a ceiling, not a guaranteed award. In a third-party failure-to-settle case, the insurer may owe the excess judgment above policy limits.
What is the difference between first-party and third-party bad faith?
First-party bad faith is a dispute with your own insurer over benefits you are owed. Third-party bad faith involves the at-fault party’s insurer unreasonably refusing to settle a claim against its policyholder within the policy limits, exposing that person to a larger judgment.
If an insurance company is denying, delaying, or refusing to pay what you are owed after an injury, you do not have to fight it alone. Contact 844-SEE-MIKE for a free, no-pressure consultation. We handle Illinois car accident, truck accident, and workers’ compensation claims on a contingency basis, which means you pay nothing unless we recover money for you. This article is general information, not legal advice.
