Opinion
NOT TO BE PUBLISHED
Appeal from orders of the Superior Court of Orange County, Super. Ct. No. 04CC08964, Steven L. Perk, Judge.
Prenovost, Normandin, Bergh & Dawe, Michael G. Dawe and Paula M. Harrelson for Plaintiffs and Appellants.
Murchison & Cumming, Jean M. Lawler and Bryan M. Weiss for Defendants and Respondents.
OPINION
Aronson, J.
This case illustrates a classic “Catch-22.” The excess insurer refused to pay the claim because the primary insurer had not paid its share. The primary insurer refused to pay its share because the insured had not settled with the claimant. The insured could not settle with the claimant because the excess insurer threatened to deny coverage for the claim if the insured did so.
Plaintiffs Scholle Corporation and Scholle Industries PTY, Ltd. (collectively Scholle) appeal a judgment the trial court entered after sustaining demurrers of defendants Agricultural Insurance Company and Great American Assurance Company (collectively AIC) to Scholle’s third amended complaint without leave to amend. Scholle contends the trial court erred because it determined that AIC, as excess insurer, had no duty to investigate, defend, or indemnify Scholle until after the primary insurer had exhausted its policy limits through payment.
We conclude the complaint states a cause of action for breach of contract because it alleges AIC unreasonably refused to consent to a settlement of a claim made by one of Scholle’s customers, despite an independent adjuster having determined Scholle’s liability, and AIC having no basis on which to object. We agree with the trial court, however, that Scholle may not bring causes of action for tortious breach of contract or breach of fiduciary duty. Finally, we conclude that the complaint adequately alleges a cause of action under Illinois Insurance Code, 215 ILCS 5/155. Accordingly, we reverse the judgment.
I
Factual and Procedural Background
A. The BRL Claim
Scholle is the producer of a “bag-in-a-box” product used by an Australian winemaker BRL Hardy (BRL), one of Scholle’s best clients, to export wine to Europe for retail sale. The plastic taps on the bags–– provided by a third-party supplier –– leaked, forcing BRL to issue a recall throughout Europe. In January 2002, BRL made a claim against Scholle for approximately AU $10 million, or roughly US $6 million. Scholle, in turn, tendered the claim to Royal Indemnity Company, successor in interest to Royal Insurance Company of America (Royal), its primary liability insurer, and AIC, its umbrella liability insurer.
Royal is the predecessor in interest to Royal Indemnity Company, which filed an amicus curiae brief in this appeal.
The Royal insurance policy had limits of $900,000 per occurrence, with a self-insured retention of $100,000 per occurrence, and $500,000 aggregate. The AIC policy provided primary coverage for claims covered under it, but not covered under the Royal policy. For claims covered under the Royal policy, the AIC policy provided only excess coverage. The limits of the AIC policy, whether primary or excess, were $50,000,000.
Because neither insurer investigated the BRL claim, Scholle hired an independent adjuster, who issued a report in November 2002 concluding Scholle was liable for the amount claimed. Scholle repeatedly advised both insurers liability to BRL was a “substantial certainty,” and any failure to promptly compensate BRL would irreparably harm and potentially jeopardize Scholle’s lucrative business relationship with BRL.
In January 2003, Royal conceded that Scholle was liable to BRL and acknowledged its obligation to pay its single “occurrence” policy limit of $900,000 based on the findings of the adjustor’s report. Nonetheless, Royal refused to provide any funds, arguing that Scholle must settle the entire BRL claim to trigger coverage under its policy.
When Scholle attempted to settle the BRL claim, however, AIC refused to consent to the settlement, arguing that Scholle was not liable to BRL. AIC warned Scholle it would deem any settlement payment voluntary and deny coverage under the AIC policy if Scholle settled without AIC’s consent.
In November 2003, Royal paid the $900,000 single occurrence limit, but refused to indemnify Scholle for the investigation costs it had incurred. In March 2004, Scholle sued the tap manufacturers in Australia, and funded the litigation until AIC agreed to do so in December 2004.
Scholle sued Royal and AIC for indemnification of the BRL claim, consequential damages due to the insurers’ delay, and unreimbursed expenses for, among other things, the independent adjustor. Scholle alleged it could have reached a reasonable settlement with BRL had AIC not repeatedly threatened to withhold coverage if Scholle settled without its consent.
Despite AIC’s threats, Scholle settled with BRL in October 2004. Scholle agreed to pay BRL AU $9.17 million over a six-year period, with interest to be determined later. Using borrowed funds, Scholle made a down payment of AU $4.5 million, and agreed to pay the balance in five equal annual installments.
In February 2005, after meeting with Scholle representatives, AIC withdrew its contention that Scholle’s settlement with BRL constituted an uncovered voluntary payment, and authorized Scholle to settle BRL’s claim for interest on the settlement amount. About a week later, AIC offered to partially indemnify Scholle and encouraged Scholle to release its claims against AIC. AIC explained its failure to tender full indemnification as a desire to keep some of Scholle’s “skin in the game.” When Scholle rejected AIC’s partial indemnification offer, AIC finally agreed to pay the full amount of the BRL claim. AIC paid Scholle US $2,185,000 in June 2005, and directly paid BRL US $4,809,577 in December 2005.
B. The Occurrence Dispute
After Royal agreed to cover the BRL claim, the parties could not agree whether the claim was a single occurrence under the Royal policy, or constituted multiple occurrences. AIC argued the claim arose from multiple occurrences, and Royal’s liability should have been either the aggregate limits of a single policy, $1.5 million, or the aggregate limits of policies covering two years, totaling $3 million. Although Scholle shared AIC’s views, it was uncertain and included alternative allegations in its complaint against Royal and AIC.
The three parties settled this dispute in January 2006. Under the Limited Settlement and Release Agreement (Limited Settlement), Royal paid an additional $425,000 in January 2006. Although the parties agreed that Royal’s payment would finally satisfy its indemnification obligation to Scholle, the Limited Settlement provided that the parties did not agree whether there was more than one occurrence under the Royal policy, deferring the unresolved issue for the present lawsuit.
C. The Trial Court Sustains Demurrers to the Third Amended Complaint
Scholle’s third amended complaint alleged causes of action against AIC for declaratory relief, breach of contract, tortious breach of contract, and breach of fiduciary duty. Scholle sought damages that included injury to reputation, loss of business opportunity, litigation fees and costs, and loss of productivity. In particular, Scholle contended that its inability to timely settle the BRL claim caused it to lose an opportunity to supply more wine bags to BRL’s successor, which had sent out a request for proposal in September 2003.
The trial court sustained AIC’s demurrer to each of Scholle’s claims without leave to amend. In connection with a motion for reconsideration, Scholle submitted a proposed fourth amended complaint, which contained amendments to certain allegations, and added causes of action for fraud and violations of Illinois’ Consumer Fraud and Deceptive Business Practices Act. The trial court denied the reconsideration motion and entered judgment in AIC’s favor.
II
Discussion
A. The Complaint Adequately Alleges a Cause of Action for Breach of Contract
1. AIC’s Duty to Investigate Arose When Royal Paid Its Single Claim Limit
In its breach of contract claim, Scholle alleges AIC breached its insurance contract by failing to timely investigate, defend, and indemnify. In considering this claim, we analyze AIC’s duty to investigate and defend separately from its duty to indemnify.
Because we apply Illinois law, we begin our review of the policy by noting the Illinois Supreme Court’s discussion on the interpretation of insurance contracts under Illinois law: “When construing the language of an insurance policy, a court’s primary objective is to ascertain and give effect to the intentions of the parties as expressed by the words of the policy. [Citation.] An insurance policy, like any contract, is to be construed as a whole, giving effect to every provision, if possible, because it must be assumed that every provision was intended to serve a purpose. [Citation.] If the words used in the policy are clear and unambiguous, they must be given their plain, ordinary, and popular meaning. [Citation.] However, if the words used in the policy are reasonably susceptible to more than one meaning, they are ambiguous and will be strictly construed against the drafter. [Citation.] Further, as the appellate court has so often stated, an ambiguity will be found if the language of the contract is ‘obscure in meaning through indefiniteness of expression.’ [Citations.] A contract is not rendered ambiguous merely because the parties disagree on its meaning. [Citation.] On the other hand, a contract is not necessarily unambiguous when . . . each party insists that the language unambiguously supports its position. Rather, whether a contract is ambiguous is a question of law.” (Central Illinois Light Co. v. Home Ins. Co. (2004) 213 Ill.2d 141, 153-154 (Central Illinois).)
The trial court granted AIC’s choice of law motion seeking application of Illinois law.
AIC’s duties of investigation and indemnification are spelled out in the policy as follows: “III. DEFENSE [¶] A. We will have the right and duty to investigate any ‘claim’ and defend any ‘suit seeking damages covered by the terms and conditions of this policy when: [¶] 1. the applicable Limits of Insurance of the underlying policies listed in the Schedule of Underlying Insurance and the Limits of Insurance of any other insurance providing coverage to the “Insured” have been exhausted by actual payment of “claims” for any “occurrence” to which this policy applies; or: [¶] 2. damages are sought for any ‘occurrence’ which is covered by this policy but not covered by any underlying policies listed in the Schedule of Underlying Insurance or any other insurance providing coverage to the ‘insured.’” [¶] . . . [¶] D. In all other instances except Subsection A in Section III. DEFENSE, we will not be obligated to assume charge of the investigation, settlement or defense of any ‘claim’ or ‘suit’ against the ‘Insured.’ We will, however, have the right and will be given the opportunity to participate in the settlement, defense and trial of any ‘claim’ or ‘suit’ relative to any ‘occurrence’ which, in our opinion, may create liability on or part under the terms of this policy. If we exercise such right, we will do so at our own expense.”
Thus, under the policy, AIC acts as a typical excess insurer with no duties to investigate or defend unless the primary insurer has exhausted its policy limits through actual payment, or the occurrence is not covered under the primary insurance. If either of these contingencies is met, AIC acts more like a primary insurer. Here, there is no dispute the Royal policy covered the BRL claim, so the second clause in section III.A does not apply. Moreover, the policy essentially defines “suit” as a civil proceeding, arbitration proceeding, or alternative dispute resolution proceeding in which damages are sought. Because no such proceeding was filed against Scholle in the present case, AIC’s duty to defend under the first clause of section III.A never arose.
Thus, we are left with AIC’s duty to investigate BRL’s claim per section III.A.1. There is no dispute that Royal at some point exhausted its policy limits. The question, however, is when this occurred. AIC contends Royal did not fully exhaust its policy limits until it paid the additional $425,000 in January 2006, after AIC fully indemnified Scholle. Disagreeing, Scholle notes the issue of whether BRL’s claim constituted a single or multiple occurrence under the Royal policy has not been decided. Thus, the court may yet determine Royal exhausted its policy limits when it paid $900,000 in January 2004, in which case AIC would have breached its duty to investigate BRL’s claim after that date.
AIC asserts we must treat as a judicial admission Scholle’s allegation in his complaint that “[n]either AIC nor Scholle agreed with Royal that its payment of $900,000 had actually exhausted Royal’s policy limits.” True, as AIC points out, a fact admitted in a complaint is a conclusive judicial admission binding on the pleader. (See Castillo v. Barrera (2007) 146 Cal.App.4th 1317, 1324.) But “[o]n the other hand, a mere conclusion, or a ‘mixed factual-legal conclusion’ in a complaint, is not considered a binding judicial admission.” (Ibid.)The question whether the BRL claim constituted a single or multiple occurrence under the Royal policy is a legal issue or, at best, a mixed factual-legal issue. Accordingly, any statement in Scholle’s complaint suggesting that Royal did not exhaust its policy limits through its payment of $900,000 is not binding on Scholle and does not preclude the later admission of evidence to the contrary. Moreover, although Royal paid $425,000 to settle the occurrence dispute with Scholle, the Limited Settlement expressly provides: “There has been no determination as to the number of “occurrences” presented by the Underlying Claims . . . .”
Given the apparent uncertainty regarding whether the BRL claim presented a single or multiple occurrence, the question is whether AIC could simply wait until the occurrence dispute was finally resolved before undertaking its duty to investigate. We conclude the answer is no.
In Cranford Ins. Co., Inc. v. Allwest Ins. Co. (D.Cal. 1986) 645 F.Supp. 1440, an excess insurer had agreed to act as a primary insurer in “‘some unusual claim situations which are not covered by [the] basic policies.’” (Id. at p. 1446.) The court held that the excess insurer’s duty to defend was triggered upon receiving “notice of facts indicating the possibility that [the basic] policy might not apply.” (Ibid., italics added.) As in Crawford, AIC received notice that Royal considered its policy limits exhausted by its $900,000 payment. Royal’s position is not patently meritless; indeed, AIC does not even attempt in its briefs to show that BRL’s claim did not constitute a single occurrence under the Royal policy. Because Royal’s payment raised the possibility it might have exhausted the Royal policy limits, AIC was required to either perform its duty to investigate and attempt to resolve the claim, or go to court and obtain a declaration that it was not required to do so.
Accordingly, we conclude Scholle properly pleaded a breach of contract claim based on AIC’s failure to investigate the BRL claim after Royal made the $900,000 payment in January 2004.
2. AIC’s Duty to Indemnify Was Not Contingent on the Exhaustion of Royal Policy Limits
Throughout its briefs, AIC lumps its duty to indemnify together with its duties to investigate and defend. Although in primary liability policies these duties are closely related, they may constitute separate and independent duties in other policies. (See Sokol and Co. v. Atlantic Mut. Ins. Co.(7th Cir. 2005) 430 F.3d 417, 421 [“[W]hile the duty to indemnify may sometimes nest inside the duty to defend, that will not always be the case”].) As the Seventh Circuit observed in the context of Illinois insurance law: “An insurer’s most fundamental duty under its insurance contracts is its duty to indemnify –– that is, its duty either to reimburse the insured for losses it incurs directly or to pay sums that the insured becomes legally obligated to pay to others. [Citation.] An insurer’s duty to indemnify often involves its duty to defend the insured in the event of a lawsuit or its functional equivalent. [Citations.] But although the duties to defend and to indemnify may be related, they are not necessarily mutually dependent or coextensive. [Citation.] . . . [¶] Moreover, the fact that the duty to defend is generally broader than the duty to indemnify does not mean . . . that where there is no duty to defend there can be no duty to indemnify. The duty to defend is generally broader because it arises in cases of arguable or potential coverage. That is, an insured need only put the insurer on notice of the claim in order to trigger the insurer’s duty to defend. [Citation.] The duty to indemnify, however, arises only in circumstances of actual coverage; if the insurance policy does not cover what is alleged in the claim, the insurer will not have a duty to indemnify based on that claim. [Citations.] [¶] But these characteristics do not lead to the conclusion that the factors required to trigger the generally broader duty to defend are always required to trigger the duty to indemnify.” (Keystone Consol. Industries, Inc. v. Employers Ins. Co. (7th Cir. 2006) 456 F.3d 758, 762, first & last italics added, second & third italics in original.)
Here, the duty to investigate and defend are the only duties owed by AIC that are contingent upon exhaustion by payment of the underlying policy limits. As set forth below, the duty to indemnify is triggered separately and independently.
The general indemnification provision in the AIC policy provided: “I. COVERAGE [¶] We will pay on behalf of the ‘Insured’ those sums in excess of the ‘Retained Limit’ that the ‘Insured’ becomes legally obligated to pay by reason of liability imposed by law or assumed by the ‘Insured’ under an ‘insured contract’ because of ‘bodily injury,’ ‘property damage,’ ‘personal injury,’ or ‘advertising injury’ that takes place during the Policy Period and is caused by an ‘occurrence’ happening anywhere. The amount we will pay for damages is limited as described below in the Insuring Agreement Section II. LIMITS OF INSURANCE.”
The policy defines “Retained Limit” as follows: “We will be liable only for that portion of damages, subject to the Each Occurrence Limit stated in the Declarations, in excess of the ‘retained limit,’ which is the greater of: [¶] 1. the total amounts stated as the applicable limits of the underlying policies listed in the Schedule of Underlying Insurance and the applicable limits of any insurance providing coverage to the ‘Insured’ during the Policy Period; or [¶] . . . and then up to an amount not exceeding the Each Occurrence Limit as stated in the Declarations.”
Finally, the policy provides the following indemnification trigger: “P. When Loss Is Payable [¶] Coverage under this policy will not apply unless and until any ‘Insured’ or an ‘Insured’s’ underlying insurer is obligated to pay the ‘retained limit.’ [¶] When the amount of loss has finally been determined, we will promptly pay on behalf of the ‘Insured’ the amount of loss falling within the terms of this policy. [¶] You will promptly reimburse us for any amount within the Self-Insured Retention advanced by us at our discretion on behalf of any ‘Insured.’” (Italics added.)
Thus, AIC was contractually obligated to “promptly” indemnify Scholle as soon as Royal was obligated to pay its policy limits and the amount of the loss was finally determined. We note that nothing in this clause, or in any other provision of the policy, authorizes AIC to withhold payment until after Royal has actually paid its policy limits. Indeed, the policy provides that even if the primary insurance policy were cancelled due to the insured’s nonpayment of premium, AIC’s indemnity obligations as excess insurer remain unchanged. Accordingly, we must determine at what point Royal became “obligated to pay” its policy limits, and when the amount of loss was finally determined.
Section I. of the policy, entitled “Maintenance of Underlying Insurance,” set forth the insured’s responsibility for maintaining the underlying insurance, and concludes: “If you fail to comply with these requirements, we will only be liable to the same extent that we would have been had you fully complied with these requirements.”
3. AIC’s Duty to Indemnify Scholle Was Triggered No Later Than When Scholle Entered into the Settlement with BRL
The indemnity provision of the Royal policy provides in relevant part: “We will pay on behalf of the insured those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Where a lawsuit has been filed against the insured, an insurer’s legal obligation to pay arises if an actual judgment has been rendered, or if a settlement has been reached between the parties. (Guillen v. Potomac Ins. Co. of Illinois (2001) 323 Ill.App.3d 121, 135.) Here, BRL did not file a lawsuit against Scholle. Thus, we must determine whether an insured is “legally obligated to pay as damages” a claim amount which is not sought in a lawsuit.
The Illinois Supreme Court in Central Illinois answered this question in the affirmative. There, a utility sued its excess liability insurers for indemnification of funds it had expended to investigate and remediate environmental contamination at several manufactured gas plants. The utility had never been subject to a lawsuit or administrative proceeding relating to the contamination. Rather, the Illinois Environmental Protection Agency (IEPA) informed representatives of various utilities, including the insured, they were strictly liable under state and federal law for contamination at their sites. After informing the utilities the IEPA could sue them to force compliance, the agency suggested they instead act voluntarily under its supervision, and warned them they could deal with the problem “‘the easy way or the hard way.’” (Central Illinois, supra, 213 Ill.2d at p. 147.) The utility subsequently reached a voluntary agreement with IEPA to investigate and remediate contamination on various sites.
The insurers denied the utility’s request for indemnification of the costs of investigation and remediation. The policies promised indemnification for all sums the insured “‘shall by law become liable to pay . . . as damages . . . .’” (Central Illinois, supra, 213 Ill.2d at p. 148.) Because no lawsuit or administrative action was ever filed against the utility, the insurers argued the utility never became legally obligated to pay anything, and any sums expended voluntarily did not constitute damages.
The Illinois Supreme Court rejected the insurer’s position. The court explained that a purely unilateral effort by an insured to remediate its property might fulfill a legal obligation, but held that to constitute damages, the insured must act in response to a potential plaintiff. (Central Illinois, supra, 213 Ill.2d at p. 172.) The court further recognized that to constitute “damages,” the sums expended must serve a remedial purpose, observing: “One may be legally obligated to pay taxes, to pay fines or penalties, or to pay debts. Damages are distinguished from other sorts of payments by their remedial purpose.” (Id. at p. 175.)
Here, Scholle’s legal obligation to BRL did not arise from a strict liability statute as in Central Illinois. But Scholle’s independent adjustor fully investigated BRL’s claim and presumably considered whether Scholle had any viable defenses to liability. In the absence of any contrary finding by Royal’s own investigators or adjustors, Royal had a “legal obligation to pay . . . as damages” the BRL claim upon Scholle’s settlement with BRL, despite no lawsuit having been filed.
The remaining question is when the amount Scholle owed BRL became “finally determined.” The AIC policy does not define the term “finally determined.” We note, however, that other insurance policies have express definitions of the term, which variously provide that a final determination of a claim amount may occur by judgment, an appraisal award, an agreement between the insurer and insured, or a settlement between the insured and claimant with the insurer’s consent. (See, e.g., Abercrombie v. Allstate Ins. Co. (Mo.Ct.App. 1994) 891 S.W.2d 838; Dome Petroleum, Ltd. v. Employers Mut. Liability Ins. Co. (D.N.J. 1991) 776 F.Supp. 970.) Because the term is susceptible to these varying meanings, and no express definition is provided in the policy, we construe it in favor of the insured and conclude that the settlement between Scholle and BRL “finally determined” the amount of the damages and triggered AIC’s duty to indemnify Scholle. (See Government Employees Ins. Co. v. Kinyon (1981) 119 Cal.App.3d 213, 222.) This settlement occurred in January 2004, and AIC did not pay anything on the claim until June 2005, a year and a half later. Because the complaint does not reveal any valid excuse for AIC’s delay in indemnifying Scholle, we conclude Scholle adequately alleged AIC breached its duty to “promptly pay” Scholle’s claim.
4. AIC Breached the Policy by Withholding Consent to Scholle’s Settlement With BRL Without Any Reasonable Basis
The complaint reveals yet another basis to support Scholle’s claim AIC breached its insurance contract. The complaint alleges Scholle would have settled with BRL by approximately January 2003, but hesitated because AIC threatened to deny coverage if Scholle settled without its consent. The complaint further alleges AIC denied consent without any reasonable basis for doing so.
Section F.4 of the AIC policy provides: “The ‘Insureds’ will not, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense other than for first aid, without our consent.” Section H provides, in relevant part: “There will be no right of action against us under this insurance unless: [¶] . . . [¶] 2. the amount you owe has been determined by settlement with our consent or by actual trial and final judgment.” Thus, the contract provided Scholle could not sue AIC without first reaching a settlement with BRL. Could AIC insulate itself from liability under the policy and any legal proceedings by Scholle simply by arbitrarily refusing to consent to Scholle’s settlement with BRL? The answer is clearly no.
The implied covenant of good faith and fair dealing under Illinois law “ensures that parties do not try to take advantage of each other in a way that could not have been contemplated at the time the contract was drafted or to do anything that will destroy the other party’s right to receive the benefit of the contract.” (Cramer v. Insurance Exchange Agency (1996) 174 Ill.2d 513, 525 (Cramer).) Certainly exercising in an arbitrary and capricious manner its right to consent to a settlement and thereby deny Scholle all rights under the AIC contract would breach the implied covenant and form a further basis for breach of contract. True, AIC had no immediate duty to investigate the BRL claim or take the lead in pursuing settlement. But it cannot simply ignore the conclusions of Scholle’s underwriters and, without performing any inquiry or investigation of its own, simply reject Scholle’s attempt to reach a reasonable resolution of the BRL claim. Accordingly, the complaint’s allegations that AIC unreasonably withheld its consent to Scholle’s attempted settlement of the BRL claim also support a breach of contract cause of action.
5. Illinois Law Does Not Bar Recovery of Consequential Damages for Breach of an Insurance Contract
AIC contends Scholle cannot sue for breach of contract because the complaint concedes AIC fully indemnified Scholle, and therefore Scholle cannot prove damages. But the complaint does not seek indemnification; instead, it seeks consequential damages arising from the alleged breach of contract, including, but not limited to, interest charges incurred in borrowing the $4.5 million down payment on Scholle’s settlement with BRL and the loss of future contracts from BRL’s successor.
AIC counters that such consequential damages are not recoverable under Illinois law because an insured is limited only to the contractual amount. We reject this overbroad assertion. “Where an insured alleges that the insurer has refused to comply with the provisions of an insurance policy, the measure of damages is usually limited to the contractual amount. Consequential damages, however, may be recovered where they were reasonably foreseeable, were within the contemplation of the parties at the time the contract was entered, or arose out of special circumstances known to the parties.” (Mohr v. Dix Mut. County Fire Ins. Co. (1986) 143 Ill.App.3d 989, 996 (Mohr).)
AIC further argues that Scholle’s breach of contract allegations are inadequate because the complaint does not specifically allege the damages it suffered were reasonably foreseeable, were within the contemplation of the parties, or arose out of special circumstances. We reject this argument for two reasons. First, AIC never demurred on this ground. Second, this issue is not one ordinarily amenable to resolution on demurrer. (Weaver v. Bank of America (1963) 59 Cal.2d 428, 434 [the question whether a particular kind of damages is within the reasonable contemplation of the parties is not one which ordinarily can be resolved on demurrer]; Thomas v. Olin Mathieson Chemical Corp. (1967) 255 Cal.App.2d 806, 811; see also Mohr, supra, 143 Ill.App.3d at p. 997 [whether possibility of lost profits was within the parties’ contemplation at the time the policy issued presented issue of fact].)
B. The Trial Court Properly Determined Scholle Cannot State a Cause of Action for Tortious Breach of Contract or Breach of Fiduciary Duty
Although AIC may have violated the covenant of good faith and fair dealing implied in the terms of its insurance policy, it does not follow that AIC incurs tort liability. Under Illinois law, conduct which violates an insurance contract may also constitute a separate tort. The tort alleged, however, must ordinarily state a cause of action under a common law tort, such as fraud. Mere allegations of bad faith or unreasonable and vexatious conduct, without more, do not constitute a tort. (Cramer, supra,174 Ill.2d at p. 528.) Similarly, in most instances, an insurer does not stand in a fiduciary relationship to the insured. (See e.g., Brase by Brase v. Loempker (1994) 267 Ill.App.3d 415; Nielsen v. United Services Auto. Ass’n. (1993) 244 Ill.App.3d 658; Overbey v. Illinois Farmers Insurance Co. (1988) 170 Ill.App.3d 594.)
The only exception to the foregoing recognized under Illinois law is when an insurer breaches its fiduciary duty and engages in bad faith by wrongfully refusing to settle within policy limits. For example, in O’Neill v. Gallant Ins. Co. (2002) 329 Ill.App.3d 1166, the insurer refused a third-party’s offer to settle for policy limits of $20,000, despite the uniformly held belief of the insurer’s adjusters, claims manager, director, and lawyer that liability was clear, and that damages would far exceed the insurance limits. After a jury returned a $731,063 verdict against the insured, she subsequently prevailed in a bad faith action against the insurer. Upholding the judgment, the appellate court determined that “when a liability insurance company employs policy terms that obtain the irrevocable power to determine whether an offer to compromise a personal-injury claim will be accepted or rejected, it creates a fiduciary relationship between it and the insured with resulting duties that grow out of that relationship.” (Id. at 1177.) In determining the insurer’s liability for breach of fiduciary duty and bad faith, the court relied on the following: (1) the advice of the insurance company’s own adjusters; (2) the company’s refusal to negotiate; (3) the advice of defense counsel; (4) communicating to the insured offers to settle within policy limits; (5) the adequacy of the insurer’s investigation and defense; (6) the prospects of an adverse verdict; and (7) the potential for damages to exceed the policy limits. (Id. at pp. 1172-1175.)
Here, some of the factors considered in O’Neill simply do not apply. Most importantly, because no lawsuit had been filed, AIC did not have to decide whether to settle or proceed to trial. Equally important, the amount of BRL’s claim, approximately $6 million, fell far below the AIC policy’s $50 million limit. Accordingly, even if the case had gone to trial, AIC would not have faced a choice to reject a settlement based on its own interests and potentially expose its insured to financial ruin. Thus, the trial court properly concluded Scholle could not allege causes of action for tortious breach of contract or breach of fiduciary duty.
C. The Complaint Adequately Stated a Cause of Action Under Illinois Insurance Code, 215 ILCS 5/155
In reviewing a judgment of dismissal after a demurrer is sustained without leave to amend, “we must examine the complaint’s factual allegations to determine whether they state a cause of action on any available legal theory,” regardless of the label attached to a particular cause of action. (Perez v. Roe 1 (2006) 146 Cal.App.4th 171, 176.)
Illinois Insurance Code, 215 ILCS 5/155 contains a statutory right of recovery against an insurer alleged to have acted unreasonably: “(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) 60% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs; [¶] (b) $ 60,000; [¶] (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.” Unquestionably, the facts alleged in the complaint’s fifth cause of action, despite being labeled “Tortious Breach of Insurance Contract,” state a cause of action under section 155, even without specifically identifying the statute.
Finally, we note the trial court sustained demurrers to Scholle’s declaratory relief cause of action without leave to amend because it was based on the other causes of action the trial court had rejected. Because we reverse the trial court’s ruling on the demurrers in part, we also reverse the trial court’s ruling on this cause of action.
III
Disposition
The judgment is reversed. Scholle is entitled to the costs of this appeal.
WE CONCUR: RYLAARSDAM, ACTING P. J., IKOLA, J.