Sorting out the Confusion in Cramer

There seems to be a great deal of misunderstanding about the Illinois Supreme Court's recent decision in Cramer v. Insurance Exchange Agency (Docket No. 79943, decided Oct. 24, 1996).

My first knowledge of the case came from a telephone call from a friend who told me that the court had just acted to preclude tort claims against insurance companies in a decision in which the plaintiff hadn't even been represented or filed a brief. I was incredulous and subsequently found that only the latter half of the report was correct.

But since that time, I have heard similar statements from all different kinds of people, causing me to conclude that Cramer is one of those cases that everyone seems to know about without knowing what it actually means.

The decision is long and not published as of mid-December. Certainly, anyone interested in a Cramer-type question would appreciate a short and concise sketch of what the case actually holds.

The easiest way to understand Cramer is to approach it from the Appellate Court decision, which was neither long nor complicated (Cramer v. Insurance Exchange Agency, 275 Ill.App.3d 68, 655 N.E.2d 465 (3d Dist. 1995)), and which was reversed. The case was before that court on a certificate arising from the denial of a motion for summary judgment brought by the insurer, Economy Fire & Casualty.

The Appellate Court reported the following significant facts: The plaintiff, who was acting pro se had purchased a policy of insurance from Economy in October 1991. On January 9, 1992, he was burglarized, suffering a loss of some $6,000. When he went to make his claim, he was informed that his policy had been cancelled three days earlier because he had failed to provide the company with certain required information. His premium, though, was not returned until June.

Ultimately, Cramer filed a pro se complaint that - and this will prove of the greatest importance-the Appellate and Supreme courts agreed was inartfully drawn. Economy moved for summary judgment, claiming that the action was barred both by the policy's standard one-year limitation clause and also by Sect. 155 of the Insurance Code, which more than a half century ago created a remedy of attorneys' fees and a limited right to damages where an insurer's failure to pay was unreasonable or vexatious.

The trial court denied the motion for summary judgment, but in doing so it certified to the Third District the following questions: [1] whether Sect. 155 of the Code pre-empts a common law fraud cause of action against an insurance company for its allegedly unreasonable conduct in denying an insurance claim, and [2] whether a limitation provision applies to a common law fraud cause of action against the insurance company for its allegedly unreasonable conduct in denying a claim.

The Appellate Court answered both those questions in the negative.

Now comes the source of confusion: Insofar as the Supreme Court reversed the Appellate Court, it is to be supposed that it answered those questions in the affirmative. But, in reality, nothing of the sort happened in Cramer.

On the contrary, the Court specifically held that where there is an actual, recognized tort committed by the insurance company, an action for that tort, such as fraud, may be brought and is not pre-empted by Sect. 155 of the Insurance Code. The Court clearly states: "In cases where a plaintiff actually alleges and proves the elements of a separate tort, a plaintiff may bring an independent tort action, such as common law fraud, for insurer misconduct."

By that language, the Court implicitly overruled the 1983 decision in Kinney v. St. Paul Mercury Ins. Co., 120 Ill.App.3d 294, 458 N.E.2d 79 (1st Dist. 1983). What Cramer really stands for, then, is that Sect. 155, contrary to prior appellate authority - and even some federal decisions - does not pre-empt actions in tort.

What's more, the Court also took the opportunity to reaffirm the existence of a cause of action for failure to act in good faith with respect to settlement.

This is the point where everybody jumps up and starts asking, assuming the foregoing, how could the Appellate Court be reversed? Well, it all goes back to the inartful drafting of the pro se plaintiff.

Although the certified question had spoken in terms of fraud, an examination of the pleadings, the Supreme Court said, did not constitute allegations of fraud or anything approximating it.

In fact, all that Cramer had alleged is that his claim had been wrongfully and vexatiously denied; and that claim, the Court pointed out, was exactly the circumstances for which the legislature had wished to provide a remedy when it enacted Sect. 155. Accordingly, with respect to claims that amounted to nothing more than a vexatious refusal to pay, Sect. 155 provided the exclusive remedy.

Respecting the time limitations, the Court explained that limitations period set out in the contract is statutorily tolled by the number of days between the date that the proof of loss is submitted and the date when the claim is denied. 215 ILCS 5/143.1 (1996). Cramer, who had not plead an action in tort but only for the statutory remedy, had failed to file within that time calculation.

"The fatal flaw in plaintiff's action," the Court wrote, "is simply that he waited too long to file it."

And that is why the Appellate Court's decision, which had effectively affirmed the denial of the summary judgment, had to be reversed: The plaintiff's case was time barred and he had failed to allege a tort that would have taken it outside of the policy time constraints.

That is the meaning of the Cramer decision in a nutshell. It is true that there is a good deal of space given to the "tort" of bad faith, noteworthy since the Supreme Court itself had never acknowledged such a tort (which is not to say that it would not do so in a proper case).

But what the Cramer court did state, and stated clearly, is that it recognized tort claims against insurance companies but required that plaintiffs do more than merely allege the vexatious or generally sharp practices that the legislature already remedialized in Sect. 155 more than 50 years ago.

After analyzing the case, I called my friend back to tell him that Cramer, therefore, must be read not as a limitation of the right of action in tort, which is now for the first time clearly established by the overruling of the Kinney decision, but as a call to adequate pleadings to demonstrate that right.