Wolf v. Riverport: No Implied Good Faith Duty to Investigate and Settle Underinsured Motorist Claims

Introduction

Suzanne Wolf sustained severe pelvic fractures in a collision with an underinsured motorist. After recovering $100,000 from the tortfeasor and $150,000 from her personal carrier, she pressed a claim under her employer’s million‐dollar underinsured motorist policy issued by Riverport Insurance Company. Four years of negotiations culminated in arbitration, which awarded Wolf $905,000 plus prior payouts. Thereafter, Wolf sued Riverport under Section 155 of the Illinois Insurance Code, claiming the insurer unreasonably delayed investigating and settling her claim in bad faith. The district court granted Riverport’s Rule 12(c) motion and denied discovery; Wolf appealed both rulings to the Seventh Circuit.

Summary of the Judgment

The Seventh Circuit affirmed. It held that Wolf’s Section 155 claim depends on an underlying breach of contract or tort duty; an unreasonable‐delay remedy alone is insufficient. Here, Riverport had honored the policy by paying the arbitration award and lacked any express contractual obligation to investigate or settle first‐party underinsured claims. The appellate court found no textual basis in the policy to invoke Illinois’s implied covenant of good faith and fair dealing; that covenant may only be implied where the contract vests one party with significant discretion. Because Wolf had no viable legal theory of breach, her suit failed as a matter of law. Likewise, she could not show prejudice from the denial of additional discovery once her claim was doomed under Rule 12(c).

Analysis

Precedents Cited

Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal – Adopted the “plausibility” pleading standard under Rule 12(b)(6) and by extension Rule 12(c), displacing Conley’s “no set of facts” test.
Hennessy Industries v. National Union Fire – Clarified that Section 155 is a supplemental remedy, not an independent cause of action.
Cramer v. Insurance Exchange Agency and Voyles v. Sandia Mortgage – Limited tort‐based duties to settle to third‐party contexts and confirmed Section 155’s role in contract actions.
Illinois implied‐covenant cases (Beraha v. Baxter, Dayan v. McDonald’s, Diamond v. UFCW Local 881) – Implied a duty of good faith only when a contract vests a party with broad discretionary authority.

Legal Reasoning

1. Pleading Standard under Rule 12(c). The court reiterated that Rule 12(c) “motions for judgment on the pleadings” are evaluated under the same plausibility standard as Rule 12(b)(6). A plaintiff must plead facts that “raise a right to relief above the speculative level.”

2. Section 155’s Supplemental Role. Section 155 provides supplemental damages, fees, and costs for an insurer’s “vexatious and unreasonable” delay, but it presupposes an underlying breach of contract or tort duty. Without a colorable breach theory, there is no predicate for Section 155 relief.

3. Contractual Duties in the Policy. Wolf’s policy entitled Riverport to “pay all sums … for underinsured motorist damages” and to defend insureds against third‐party suits. The defense clause granted Riverport the right to investigate and settle—but only in the context of defending third‐party liability claims. By its plain terms, it did not apply to first‐party claims made by Wolf against Riverport.

4. No Discretion to Imply. Illinois law implies a covenant of good faith only when the contract explicitly confers broad discretion or makes performance contingent on one party’s action. Here, the policy had no express grant of discretion over first‐party settlements; Riverport’s only obligation was to pay covered losses. Wolf was not deprived of any contractual remedy—she could have sued to recover policy proceeds prior to arbitration.

5. Discovery and Prejudice. Even if Wolf had obtained the documents she sought, she could not salvage a breach‐of‐contract theory. Denial of discovery does not require reversal unless it causes “actual and substantial prejudice,” which was absent here.

Impact

This decision narrows the scope of first‐party insurance indemnity suits under Illinois law. Insureds may no longer rely on an implied duty of good faith to force investigation or settlement unless the policy text plainly confers discretionary authority. Section 155 plaintiffs must identify an independent contract or tort breach before seeking supplemental damages for delay. Insurers gain greater predictability: absent express policy language, they face no extra‐contractual bad‐faith litigation over settlement negotiations with their own insureds.

Complex Concepts Simplified

Rule 12(c) versus Rule 12(b)(6): Both allow early dismissal of legally insufficient claims. Under current Supreme Court precedent, the plaintiff must plead plausible facts.
Section 155 of the Illinois Insurance Code: A statutory remedy for an insurer’s unreasonable delay or vexatious conduct, but only in conjunction with a valid underlying breach claim.
Implied Covenant of Good Faith: A judicially implied rule of contract construction, not a free‐standing cause of action. It applies only when one party is given broad, undefined discretion.
Underinsured Motorist Coverage: First‐party coverage that compensates an insured for damages exceeding a tortfeasor’s liability limits.

Conclusion

Wolf v. Riverport clarifies that, under Illinois law, an insurer’s duty to investigate or settle its own insured’s underinsured motorist claim must arise from explicit policy text or a discretely conferred contractual discretion. Absent that, no implied covenant gives rise to a Section 155 claim. By affirming the Rule 12(c) dismissal and rejecting the discovery challenge, the Seventh Circuit has underscored the centrality of contract language in delineating insurers’ obligations and has curtailed attempts to expand bad‐faith remedies in first‐party insurance disputes.