Calcagno v. Personalcare Health Management, Inc.

• Decision Date: 17 January 1991
• Docket Number: 4-90-0147,Nos. 4-90-0128,s. 4-90-0128
• Citation: 565 N.E.2d 1330,152 Ill.Dec. 412,207 Ill.App.3d 493
• Parties: , 152 Ill.Dec. 412 John CALCAGNO and Lois Calcagno, Plaintiffs-Appellants, v. PERSONALCARE HEALTH MANAGEMENT, INC., Defendant-Appellee. John CALCAGNO and Lois Calcagno, Plaintiffs-Appellees, v. PERSONALCARE HEALTH MANAGEMENT, INC., Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1330

565 N.E.2d 1330

207 Ill.App.3d 493, 152 Ill.Dec. 412

John CALCAGNO and Lois Calcagno, Plaintiffs-Appellants, v. PERSONALCARE HEALTH MANAGEMENT, INC., Defendant-Appellee.

John CALCAGNO and Lois Calcagno, Plaintiffs-Appellees, v. PERSONALCARE HEALTH MANAGEMENT, INC., Defendant-Appellant.

Nos. 4-90-0128, 4-90-0147.

Appellate Court of Illinois,

Fourth District.

Jan. 17, 1991.

Robert G. Kirchner, Lerner & Kirchner, Champaign, for plaintiffs-appellants cross-appellees.

Joseph D. Pavia, Kirtley-Pavia-Marsh, A Professional Corp., Urbana, for defendant-appellee cross-appellant.

Presiding Justice LUND delivered the opinion of the court:

The principal issue in these consolidated appeals is whether an insurer who pays a claim prior to being sued for payment thereof may nevertheless be held liable for damages stemming from its unreasonable delay in settling the claim. We answer this question in the affirmative.

During the relevant time period, an infant daughter of plaintiffs John and Lois Calcagno required an apnea monitor. The Calcagnos are members of a health maintenance organization (HMO) of which defendant Personalcare Health Management, Inc. (Personalcare), is the administrator. In February 1989, the Calcagnos sought reimbursement for the apnea monitor, but Personalcare refused to pay their claim. The Calcagnos referred the matter to their attorney, who wrote Personalcare on March 7, 1989, requesting payment for the apnea monitor. Personalcare responded by stating that it denied coverage because the event which necessitated the apnea monitor took place before the effective date of coverage for the Calcagnos' daughter under Personalcare's HMO plan.

On June 13, 1989, Personalcare apparently agreed to have its grievance committee reconsider the Calcagnos' claim in an expedited manner. A hearing was held before the committee on July 18, 1989. In a letter dated August 7, 1989, one member of the grievance committee indicated that on the basis of the information presented at the hearing, he supported the Calcagnos' position, but felt that ideally, the hearing should be reconvened for the purpose of allowing the Calcagnos' attorney to question the physician who placed the Calcagnos' daughter on an apnea monitor.

On August 9, 1989, Personalcare advised the Calcagnos' attorney that it would pay their claim in full. The claim was paid on August 14, 1989.

On August 29, 1989, the Calcagnos requested an additional payment from Personalcare in the amount of $792, which represented the attorney fees they incurred in pursuing their claim for reimbursement for the apnea monitor. Not having received the additional amount requested, the Calcagnos filed a small claims complaint against Personalcare on September 7, 1989. The complaint requested damages in the amount of $2,500. The stated basis for this claim was Personalcare's "vexatious and unreasonable delay" in reimbursing the Calcagnos for the cost of the apnea monitor, "in violation of the Defendant's obligation to deal with Plaintiffs in good faith, and fairly, and/or its obligations under Section of the Insurance Code [ (Ill.Rev.Stat.1989, ch. 73, par. 767) ]."

In a bill of particulars filed October 16, 1989, the Calcagnos stated the following are the components of the damages requested in their small claims complaint: (1) attorney fees, costs, and expenses, including costs of copies of medical records, incurred in obtaining payment for the apnea monitor; (2) wages they lost and travel expenses they incurred as a result of attending the hearing before Personalcare's grievance committee; (3) "[p]rejudgment, statutory, interest on the Plaintiffs' claim for damages, as well as interest on the loss of use of funds, which were paid by the Plaintiffs to Pulmocare Medical Supply, Inc. [supplier of the apnea monitor], in order to avoid the institution of any collection action against [the Calcagnos]"; (4) damages for emotional distress, "including embarrassment, and harassment" suffered as a result of Personalcare's initial denial of the claim; (5) "[s]tatutory damages under Section of the Insurance Code [ (Ill.Rev.Stat.1987, ch. 73, par. 767) ]"; (6) punitive damages; and (7) attorney fees, costs, and expenses incurred in the present action. The Calcagnos stated that some of these damages are being sought in the alternative.

On October 20, 1989, Personalcare filed a section 2-619 (Ill.Rev.Stat.1987, ch. 110, par. 2-619) motion to dismiss the Calcagnos' complaint with prejudice. Personalcare stated that there had been no vexatious and unreasonable delay in payment of the Calcagnos' claim, and that the damages the Calcagnos sought could not be awarded under either common law or statutory cause of action theories. Personalcare subsequently agreed that the question of whether there had been an unreasonable and vexatious delay in payment could not be adjudicated in proceedings on a motion to dismiss, and the Calcagnos filed a response to the remaining portions of Personalcare's motion to dismiss on November 2, 1989.

In a memorandum opinion and order filed January 26, 1990, the circuit court held that the Calcagnos can maintain a statutory action against Personalcare pursuant to section 155 of the Illinois Insurance Code (Code) ( Ill.Rev.Stat.1987, ch. 73, par. 767) based on Personalcare's alleged vexatious and unreasonable delay in paying the Calcagnos' claim, notwithstanding the fact that Personalcare has already paid the entire amount of the claim. The court further held that the Calcagnos may recover as damages in such an action the attorney fees incurred in obtaining payment of the claim, even though it was not necessary for them to file suit in order to obtain payment. However, the court held that the Calcagnos cannot maintain a common law tort or contract action against Personalcare based on alleged vexatious and unreasonable delay in payment of their claim and dismissed with prejudice the Calcagnos' complaint to the extent it was premised on these theories. The circuit court included a Rule 304(a) (107 Ill.2d R. 304(a)) finding in its order with regard to the portion of the Calcagnos' complaint which it dismissed.

On February 8, 1990, the Calcagnos filed a notice of appeal from the portion of the circuit court order which held that they cannot sue Personalcare on common law tort or contract theories, docketed No. 4-90-0128. In the meantime, Personalcare filed a motion for a Rule 308 (107 Ill.2d R. 308) finding permitting it to file in this court an application for leave to appeal the portion of the circuit court order which held that the Calcagnos can maintain an action against Personalcare pursuant to section 155 of the Code, and the circuit court allowed this motion on February 14, 1990. The court stated the issue involved in Personalcare's Rule 308 application for leave to appeal is:

"Does Section 155 of the Illinois Insurance Code (Ill.Rev.Stats., Chapter 73, para. 767) authorize a cause of action for unreasonable delay in settling an insurance claim for the purpose of recovering attorney's fees and other costs incurred in settling the claim if all policy benefits are paid in full by the insurer before litigation commences[?]"

On March 15, 1990, this court allowed Personalcare's Rule 308 application for leave to appeal, docketed No. 4-90-0147. This court subsequently consolidated the Calcagnos' and Personalcare's appeals and granted Personalcare leave to have its appeal treated as a cross-appeal.

Central to the contentions of both the Calcagnos and Personalcare is section 155 of the Code, which presently reads in pertinent part:

"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." Ill.Rev.Stat.1987, ch. 73, pars. 767(1)(a), (1)(b), (1)(c).

In arguing that the circuit court erred in dismissing their complaint to the extent it requests damages based on common law theories, the Calcagnos assert that in every contract between an insurer and insured, there is an implied covenant of good faith and fair dealing. They further contend that an action for breach of this covenant sounds both in tort and in contract, and that both tort and breach of contract damages ordinarily are recoverable if a breach of this covenant is established. The Calcagnos maintain that the damages which they allegedly suffered as a result of Personalcare's failure to timely pay their claim are recoverable even under the more limited rules of liability which apply in breach of contract actions, since these damages were contemplated or could have been contemplated by the parties as resulting from Personalcare's failure to timely pay amounts due the Calcagnos under Personalcare's HMO plan.

The Calcagnos note that section 155 of the Code is generally applicable to HMOs. (Ill.Rev.Stat.1987, ch. 111 1/2, par. 1409A.) Acknowledging that there is a split of authority on the question, the Calcagnos contend that section 155 does not preempt a common law action against an insurer for breach of the implied covenant of good faith and fair dealing. The Calcagnos suggest that since proof of different facts may be necessary to establish a breach of the implied covenant of good faith and fair...