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7 July 2000

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JUSTICE INGLIS delivered the opinion of the court:

Plaintiff, Jose Valdovinos, sued defendant, Gallant InsuranceCompany, for failing to settle a claim under plaintiff's automobileinsurance policy. The trial court awarded plaintiff $11,091 on theclaim but denied his petition for attorney fees and costs undersection 155 of the Illinois Insurance Code (Code) (215 ILCS 5/155(West 1998)). Plaintiff appeals, arguing that the trial courtabused its discretion when it denied his petition becausedefendant's failure to negotiate was vexatious and unreasonable.

At trial, plaintiff testified that, on September 10, 1997,defendant issued a policy to insure plaintiff's 1995 Cadillacagainst losses sustained in traffic collisions. Three days later, the car was severely damaged when plaintiff was involved in an autoaccident. On September 17, 1997, plaintiff filed a claim under thepolicy. In response to defendant's requests, plaintiff supplieddefendant with the accident report number, the bill of sale provinghe owned the car, and a recorded statement of plaintiff's accountof the accident. Plaintiff hired Joe Edgington, an independentappraiser, and he estimated that it would cost $11,591 to repairthe car. After plaintiff sent Edgington's estimate to defendant,defendant told plaintiff that it would process the claim. Plaintiff called defendant over 20 times but received no response. Early in November 1997, he borrowed money from friends and familyand paid $11,591 for the repairs. A few days later, defendant sentplaintiff a check for approximately $6,800, but plaintiff returnedthe check because it was inadequate. Plaintiff finally regainedthe use of his car more than 10 weeks after the accident.

Edgington testified that he estimated the cost of repairingplaintiff's vehicle. He used a labor rate of $36 per hour whencalculating the cost because that rate was reasonable under thecircumstances. Plaintiff could not obtain labor for only $24 perhour because that rate would be unprofitable for a repair shop inthe area. During 1996, defendant hired Edgington's appraisalcompany to estimate the cost of repairing several vehicles involvedin traffic accidents. Defendant repeatedly told Edgington that hiscompany provided an excellent appraisal service.

John Lanoue, one of defendant's claims adjusters, testifiedthat, although he was assigned to plaintiff's claim, he never spoketo plaintiff, Edgington, or plaintiff's attorney. Among Lanoue'sduties was the recording of correspondence between insureds anddefendant. One of defendant's field appraisers was directed toestimate plaintiff's repair costs, and Lanoue received the estimateon October 3, 1997. The appraiser completed a supplementalestimate two weeks later. Defendant never sent the appraisals toplaintiff or his attorney.

On November 6, 1997, defendant sent plaintiff a check for$6,814. The check did not cover the repair costs because defendantwas unwilling to replace the car's damaged aftermarket parts or topay $36 per hour for labor. Defendant never explained itssettlement offer to plaintiff. Lanoue also admitted that, underthe policy, defendant had no right to dictate where the repairswould be completed.

The trial court awarded plaintiff $11,091 on his insuranceclaim, concluding that "defendant really made no attempt toadjudicate the plaintiff's claim" as required under the policy. The court also noted that defendant failed to explain itssettlement offers or recommend a less expensive repair shop. Thecourt accepted plaintiff's assertion that he was frustrated bydefendant's failure to return his many telephone calls.

The trial court later heard plaintiff's petition for fees andcosts under section 155 of the Code. At the hearing, the partiesagreed to include the trial transcript in evidence. Plaintiff'sattorney testified that he billed plaintiff $8,670 for attorneyfees and costs incurred during the litigation. He introduced anitemized statement of the work that his firm completed. Defendantoffered no evidence to rebut plaintiff's calculation of the feesand costs.

Lanoue testified that, when an insured files a claim under arecently issued policy, defendant routinely investigates the claimfor fraud. In this case, defendant concluded that there was noevidence of fraud and that an investigation was unnecessary. Afterdefendant learned that plaintiff had retained an attorney, itincreased its settlement offer to $8,021. Defendant did notexplain the offer to plaintiff, and it made no other settlementoffers.

The trial court denied plaintiff's petition for fees undersection 155 but awarded plaintiff prejudgment interest from thedate he filed the complaint. A reviewing court should not reversea trial court's denial of attorney fees, costs, and the additionalstatutory amount unless the trial court abused its discretion. Marcheschi v. Illinois Farmers Insurance Co., 298 Ill. App. 3d 306,311 (1998). We agree with plaintiff that the trial court abusedits discretion when it declined his request under section 155 ofthe Code.

Section 155 of the Code provides in relevant part:

"(1) In any action by or against a company wherein thereis in issue the liability of a company on a policy or policiesof insurance or the amount of the loss payable thereunder, orfor an unreasonable delay in settling a claim, and it appearsto the court that such action or delay is vexatious andunreasonable, the court may allow as part of the taxable costsin the action reasonable attorney fees, other costs, plus anamount not to exceed any one of the following amounts:

(a) 25% of the amount which the court or jury finds suchparty is entitled to recover against the company, exclusive ofall costs;

(b) $25,000;

(c) the excess of the amount which the court or juryfinds such party is entitled to recover, exclusive of costs,over the amount, if any, which the company offered to pay insettlement of the claim prior to the action." (Emphasisadded.) 215 ILCS 5/155(1)(a) through (1)(c) (West 1998).

Our supreme court has noted that the purpose of section 155 isto provide a remedy for insurer misconduct:

" ' Although some companies are very liberal in thepayment of claims, this is by no means true of all. In theabsence of any allowance of attorneys' fees, the holder of asmall policy may see practically his whole claim wiped out byexpenses if the company compels him to resort to court action,although the refusal to pay the claim is based upon theflimsiest sort of a pretext. The strict limit on the amountallowable makes the section significant only for small claims. It should prove wholesome in its effect upon companiesunreasonably withholding payment of such claims. It isdoubtful if there are many judges who would allow such feeswhen the defense was bona fide although deemed inadequate.' " Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513, 520-21(1996), quoting H. Havinghurst, Some Aspects of the IllinoisInsurance Code, 32 Ill. L. Rev. 391, 405 (1937).

An insurer is not liable for attorney fees under section 155merely because it litigated, and lost, the issue of insurancecoverage. If the insurer is found to be vexatious and unreasonablein refusing to process a claim, however, section 155 authorizes thecourt to award fees and costs. Mobil Oil Corp. v. MarylandCasualty Co., 288 Ill. App. 3d 743, 751-52 (1997). A court shouldconsider the totality of the circumstances when deciding whether aninsurer's actions are vexatious and unreasonable. Factors toconsider are the insurer's attitude, whether the insured was forcedto sue to recover, and whether the insured was deprived of the useof his property. If a bona fide dispute existed regarding thescope of the insurance coverage, an insurer's delay in settling theclaim may not violate section 155. Mobil Oil Corp., 288 Ill. App.3d at 752.

In this case, plaintiff hired a professional appraiser whoestimated that the vehicle sustained $11,591 in damage. Aftersubtracting the deductible, plaintiff submitted a claim for$11,091, and defendant waited nearly two months before submittingan unexplained counteroffer of $6,814. Although the trial courtawarded plaintiff $11,091 plus interest, plaintiff incurredsubstantial litigation fees and costs and was deprived of the useof his vehicle. He was forced to borrow money to pay for therepairs and for alternative transportation. The legislatureenacted section 155 of the Code to address this scenario. Plaintiff saw his whole claim nearly wiped out by litigation expenses because defendant forced him to resort to legal action. See Cramer, 174 Ill. 2d at 520. There was no bona fide disputeover the cost of the repairs, and defendant's brief, initialinvestigation revealed that plaintiff's claim was not fraudulent.

In Myrda v. Coronet Insurance Co., 221 Ill. App. 3d 482(1991), the plaintiff filed a claim under his insurance policyafter he reported his car stolen. The plaintiff complied with theinsurer's demand that he complete a polygraph examination, and theinsurer denied his claim because it believed that the plaintifffailed the test. Myrda, 221 Ill. App. 3d at 485-86. The policelater discovered the badly damaged car and concluded that it had,in fact, been stolen. An arbitration panel awarded the plaintiff$7,625, including $925 for the insurer's "unreasonable action."Myrda, 221 Ill. App. 3d at 485. The insurer rejected the decisionand offered the plaintiff a $4,000 settlement. The plaintiffrejected the offer and the case went to trial.

The trial court concluded that the insurer's conduct wasvexatious and unreasonable because it offered no evidence tosupport its affirmative defense that the plaintiff "stole" his owncar to defraud the insurer. The plaintiff requested $15,233 inattorney fees, and the trial court concluded that all theattorneys' work was reasonable and necessary. Nevertheless, thetrial court awarded the plaintiff only $3,500 for his litigationexpenses. On appeal, this court noted that the trial court'sruling could not be reconciled with its factual findings absent animplicit holding that an insured may be penalized for rejecting anunreasonable settlement offer. We noted that section 155 of theCode is intended to discourage the insurer from using its superiorfinancial position to profit at the insured's expense. Myrda, 221Ill. App. 3d at 491. We concluded that the trial court abused itsdiscretion in awarding the plaintiff only $3,500 in fees, and weincreased the award under section 155 to $15,208. Myrda, 221 Ill.App. 3d at 491-92.

In this case, the trial court found that defendant made noattempt to settle the claim, and plaintiff introduced unrebuttedevidence of the litigation expenses he incurred. When it deniedplaintiff's request for fees, the trial court implicitly penalizedhim for rejecting defendant's unreasonable settlement offers. Weconclude that the trial court abused its discretion when it deniedplaintiff's petition. See Myrda, 221 Ill. App. 3d at 491.

Accordingly, we reverse the portion of the judgment of thetrial court denying count II of plaintiff's complaint for fees andpenalty pursuant to the Code. We also remand this cause and directthe trial court to award plaintiff an additional $8,670 forlitigation expenses he incurred as reflected by the unrebuttedevidence of reasonable fees and costs. The trial court is also todetermine and award the appropriate statutory penalty pursuant tosection 155 of the Code (215 ILCS 5/155 (West 1998)) and theadditional attorney fees plaintiff incurred in connection with thisappeal.

For these reasons, that portion of the judgment of the circuitcourt of Kane County denying count II of plaintiff's complaint forattorney fees and a penalty pursuant to the Code is reversed, andthe cause is remanded with directions. In all other respects, thejudgment is affirmed.

Affirmed in part and reversed in part; cause remanded withdirections.

THOMAS and HUTCHINSON, JJ., concur.