Elder v. Coronet Ins. Co.

• Decision Date: 27 July 1990
• Docket Number: Nos. 1-89-0893,1-89-1116,s. 1-89-0893
• Citation: 558 N.E.2d 1312,201 Ill.App.3d 733
• Parties: , 146 Ill.Dec. 978, 59 USLW 2136 Kerry ELDER, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. CORONET INSURANCE CO. and Elston Claim Service, Inc., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 1312

558 N.E.2d 1312

201 Ill.App.3d 733, 146 Ill.Dec. 978,

59 USLW 2136

Kerry ELDER, on behalf of himself and all others similarly

situated, Plaintiff-Appellant, v. CORONET INSURANCE CO. and Elston Claim Service, Inc.,

Defendants-Appellees.

Nos. 1-89-0893, 1-89-1116.

Appellate Court of Illinois,

First District, Sixth Division.

July 27, 1990.

Daniel A. Edelman, Chicago, for plaintiff-appellant.

Beerman, Swerdlove, Woloshin & Barezky, Chicago (Alvin R. Becker and Timothy M. Kelly, of counsel), for defendants-appellees.

Justice EGAN delivered the opinion of the court:

This case involves the propriety of an insurance company denying the claim of its insured based on the result of a polygraph examination. The plaintiff, Kerry Elder, filed a three-count complaint on behalf of himself and all others similarly situated against the defendants, Coronet Insurance Company (Coronet) and Elston Claim Service, Inc. (Elston). The first count alleged unfair practices in violation of the Consumer Fraud and Deceptive Business Practices Act (Ill.Rev.Stat.1987, ch. 121 1/2, pars. 261 to 272) (Act or Consumer Fraud Act). The second count alleged that Coronet also committed a deceptive practice in violation of the Act. The third count alleged that Coronet breached its contract with the plaintiff. All three counts included substantially similar sections entitled "Class Action Allegations."

The judge dismissed count I on the ground that it did not allege an unfair practice under the Act; he dismissed count II on the ground that it did not allege a deceptive practice under the Act; he struck part of count III on the ground that it did not allege a basis for class action. He certified the following question as to count III under Supreme Court Rule 308 (107 Ill.2d R. 308): "Whether count III, judged in light of the standards of a § 2-615 motion to dismiss sufficiently alleges the prerequisites needed to maintain a class action under § 2-801 of the Illinois Code of Civil Procedure?" We granted leave to appeal the Rule 308 order and consolidated that appeal with the Rule 304(a) appeal of the dismissal of counts I and II.

Because this appeal presents a question as to the sufficiency of the complaint, a review of the allegations of the complaint is appropriate. The factual allegations must be taken as true.

Effective July 9, 1987, Coronet issued an automobile insurance policy to the plaintiff, which covered, among other things, loss from theft. Coronet did not inform the plaintiff when he purchased the insurance of any policy or practice employed by Coronet regarding polygraph tests. On June 11, 1988, the plaintiff's car was stolen from a parking lot in Chicago, Illinois. The plaintiff had paid the premiums on the automobile insurance policy and had otherwise complied with the conditions of the policy, and, thus, the insurance policy was in full force and effect. The plaintiff promptly reported the theft to the police and to Coronet and filed a claim for a theft loss with Coronet.

Elston, acting on Coronet's behalf, sent the plaintiff a letter asking him to take a polygraph test. The body of the letter stated in full as follows:

"In order to speed up investigation and settlement of your claim, we request that you submit to a polygraph test.

If you do not submit to a polygraph test, you will be required to appear and give a statement under oath, in the presence of a court reporter.

Your cooperation is required under the terms of your policy.

Please contact this office to set up an appointment as soon as possible.

Your cooperation in this matter would be most appreciated and certainly helpful."

The defendants have a policy and practice of requesting insureds to submit to polygraph tests and denying claims based on the results of such tests, without significant other investigation. Polygraph tests, however, are not reliable.

Elston, on Coronet's behalf, denied the plaintiff's claim on the alleged basis of the results of the polygraph examination. The letter informing the plaintiff of this denial stated, in part, "We have tried to evaluate fairly and properly all the information and reports available to us about this accident. The results of our investigation indicate that the loss did not occur as you reported. We therefore regret that we will be unable to pay your claim." The defendants did not provide the plaintiff with any further information as to why the claim was denied. Despite the letter's indication to the contrary, the plaintiff alleged that "Elston and Coronet made no other significant effort besides the polygraph examination to determine what had happened to Elder's [automobile]." The defendants showed no interest in interviewing a witness, whom the plaintiff had produced, and who had contacted Elston. The authorities recovered the plaintiff's car in a stripped and seriously damaged condition, but Coronet continued to refuse to pay the plaintiff's claim.

In count I of the complaint, the plaintiff incorporated the above allegations and alleged that both Coronet and Elston engaged in unfair practices in violation of section 2 of the Consumer Fraud Act (Ill.Rev.Stat.1987, ch. 121 1/2, par. 262). Section 2 states that

"unfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact, * * * in the conduct of any trade or commerce are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby."

The plaintiff alleged that each defendant committed an unfair practice that was contrary to public policy in denying insurance claims on the basis of polygraph test results. Moreover, the plaintiff alleged that denial of "a claim which is properly payable on its face [without] reliable, competent evidence that the claim is materially false or improper * * * is unreasonable and vexatious * * * * [and forces] the insured to resort to the courts to collect his or her claim." Finally, the plaintiff asserted that the defendants engaged in this unfair practice in connection with the conduct of trade and commerce, thereby damaging the plaintiff.

The plaintiff sought to bring this unfair practice claim on behalf of the class of persons (1) who were insured by Coronet, (2) who made a claim on their policy, (3) who were requested to take a polygraph test, and (4) who were denied recovery on the basis of the polygraph test results. The plaintiff alleged that the class satisfied the numerosity requirement based on the defendants' use of form letters in processing the plaintiff's claim. The complaint alleged that common questions of law or fact predominated over individual questions; the principal issue being whether reliance on polygraph tests to deny insurance claims constitutes an unfair trade practice.

Based on the allegations in count I, the plaintiff requested the court to enter judgment in favor of the plaintiff and the class, as follows: declare the denial of insurance claims on the basis of polygraph tests to be an unfair trade practice; award compensatory and punitive damages, attorney fees, expenses and costs; and order such other and further relief as the court deemed appropriate.

In count II of the complaint, the plaintiff further alleged that Coronet also engaged in deceptive practices in violation of section 2 of the Consumer Fraud Act, the same section upon which count I is based. (Ill.Rev.Stat.1987, ch. 121 1/2, par. 262.) The plaintiff asserted that Coronet committed a deceptive practice by selling the plaintiff an insurance policy without disclosing that the insurer has a policy and practice of denying claims on the basis of unreliable polygraph examinations.

The plaintiff also included in count II allegations to support a class action that were substantially similar to those in count I, except that the principal issue underlying count II's class-action allegations was whether Coronet's failure to disclose its practice of denying claims on the basis of polygraph examinations constituted a deceptive trade practice. Count II also included a request for damages and other relief similar to those requested in count I.

Count III set forth a breach of contract claim alleging that Coronet breached its contract with the plaintiff in denying his claim and that Coronet acted unreasonably and vexatiously in relying on a polygraph test to deny his claim. Count III also included class allegations substantially similar to those in counts I and II. The complaint alleged that common questions of law and fact predominated under count III giving rise to the following principal issues: (1) whether the denial of an insurance claim solely on the basis of a polygraph test is a breach of the insurance policy; and (2) whether the denial of an insurance claim solely on the basis of a polygraph test is vexatious and unreasonable in violation of the Insurance Code (Ill.Rev.Stat.1987, ch. 73, par. 767). Except for the omission of a request for punitive damages, count III prayed for relief similar to that requested in counts I and II.

I.

The plaintiff contends that the trial judge erroneously dismissed count I of the complaint against Coronet because Coronet's primary reliance on a polygraph test, an inherently unreliable test, constitutes an unfair practice under the Act.

Whether sole reliance on polygraph tests in denying insurance claims constitutes an unfair trade practice is a question of first impression in Illinois. In any event, Illinois courts have stated that the determination of whether a certain practice is "unfair" under the Act requires a case-by-case determination. Scott v. Association for Childbirth at Home, International (1981), 88 Ill.2d 279, 290, 58 Ill.Dec. 761, 767, 430 N.E.2d 1012, 1018.

Section 2 of the Act (...