FOURTH DIVISION

March 25, 2004

No. 1-03-0572

JUSTICE THEIS delivered the opinion of the court:

Plaintiffs Adam and Marisa Martin filed an amended class action complaint againstdefendant State Farm Mutual Automobile Insurance Company (State Farm) arising out of itsconduct in settling plaintiffs' third-party claim against its insured, Bruce Beebe.⁽¹⁾ Therein,plaintiffs pled various theories of recovery including violations of the Illinois Consumer Fraud andDeceptive Business Practices Act (815 ILCS 505/2 (West 2000)), breach of contract, breach of avoluntary undertaking, common law fraud, and breach of a fiduciary duty. Plaintiffs also sought adeclaratory judgment. Thereafter, State Farm filed a motion to dismiss the complaint pursuant tosection 2-615 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-615 (West 2000)). Thetrial court granted the motion, dismissed the complaint with prejudice, and denied plaintiffs'motion for leave to replead.

On appeal, plaintiffs raise the following contentions: (1) the trial court erred in holdingthat State Farm did not owe plaintiffs a duty to disclose a potential claim for the diminished valueof their vehicle; (2) the trial court erred in holding that plaintiffs failed to state a cause of actionfor breach of contract, common law fraud, breach of fiduciary duty, and breach of a voluntaryundertaking where State Farm agreed to settle their property damage claim and assured them thatthey did not need to hire an attorney; and (3) the trial court erred in failing to allow plaintiffs toreplead.

BACKGROUND

The following allegations form the basis of plaintiffs' amended complaint. On December10, 2000, plaintiff Marisa Martin was involved in an automobile accident with Bruce Beebe. Atthe time of the accident, State Farm insured both Martin and Beebe under separate and unrelatedautomobile policies. Plaintiffs sought the repair of their vehicle under Beebe's insurance policy. Plaintiffs alleged that State Farm agreed to settle their property damage claim and that in thecourse of settlement negotiations, State Farm represented to them that because both parties wererepresented by State Farm, it would "take care of [plaintiffs'] claim without the need of [plaintiffs]retaining an attorney."

Plaintiffs alleged that notwithstanding the repairs made to their vehicle, the value of theircar was materially diminished as a result of the accident. Plaintiffs further alleged that State Farmconcealed the full extent of coverage to which plaintiffs were entitled by failing to disclose thatthey were entitled to additional compensation for the diminished value of their vehicle. As aresult, plaintiffs alleged that they were injured.

Plaintiffs sought damages against State Farm based upon several theories of recovery,including breach of contract, violation of the Illinois Consumer Fraud and Deceptive BusinessPractices Act (815 ILCS 505/2 (West 2000)), common law fraud, breach of a voluntaryundertaking, and breach of a fiduciary duty, and also sought a declaratory judgment. The trialcourt dismissed the amended complaint with prejudice, holding that there was no set of factsunder which plaintiffs could state a cause of action. Thereafter, the trial court denied plaintiffs'motion to replead.

Plaintiffs now appeal from the dismissal of their amended complaint and the denial of theirmotion for leave to replead. They do not, however, raise any issues with regard to the denial oftheir declaratory judgment count or the consumer fraud count. Pursuant to Supreme Court Rule345 (155 Ill. 2d R. 345), we have permitted the National Association of Independent Insurers tofile a brief amicus curiae in support of State Farm.

ANALYSIS

A section 2-615 motion to dismiss challenges the legal sufficiency of the complaint. Chandler v. Illinois Central R.R. Co., 207 Ill. 2d 331, 348, 798 N.E.2d 724, 733 (2003). Inreviewing a section 2-615 dismissal, a reviewing court must decide whether the allegations,construed in the light most favorable to the plaintiff, are sufficient to establish a cause of actionupon which relief may be granted. Chandler, 207 Ill. 2d at 348, 798 N.E.2d at 733. However, aplaintiff cannot rely simply on mere conclusions of law or fact unsupported by specific factualallegations. Jackson v. South Holland Dodge, Inc., 197 Ill. 2d 39, 52, 755 N.E.2d 462, 471(2001). A cause of action will be dismissed if it is clearly apparent from the pleadings that no setof facts can be proven which will entitle the plaintiff to recovery. Chandler, 207 Ill. 2d at 349,798 N.E.2d at 733. Review of a section 2-615 dismissal is conducted de novo. Chandler, 207 Ill.2d at 349, 798 N.E.2d at 733.

Underlying all of plaintiffs' legal theories is the allegation that State Farm owed them aduty to disclose their right to compensation for the diminished value of their car under Beebe'sautomobile insurance policy. Plaintiffs contend on appeal that this duty arises out of theircontractual relationship with State Farm and from the representations State Farm made to themregarding the handling of their claim.

We begin our analysis with an examination of the relationship between the parties.According to plaintiffs' amended complaint, their relationship to State Farm is that of a third-partyclaimant to the extent that they sought payment for repair of their vehicle through State Farmpursuant to Beebe's policy of insurance. Generally, the negotiations conducted between a third-party claimant and a defending insurer are arm's length and adversary in nature. Accordingly, it issaid that the negotiations do not give rise to a duty of good faith and fair dealing. Rather, theduty in the handling of claims is owed only to the insurance company's insured. Scroggins v.Allstate Insurance Co., 74 Ill. App. 3d 1027, 1029-32, 393 N.E.2d 718, 719-21 (1979); Yelm v.Country Mutual Insurance Co., 123 Ill. App. 2d 401, 404, 259 N.E.2d 83, 84 (1970).

The duty in this context stems from a covenant implicit in the provisions of the insured'scontract that establishes the insurer as the authorized representative of the insured. To extendthat duty to third-party claimants would place the insurer in the untenable position of owing aduty of good faith to both the insured tortfeasor and his adversary. Therefore, the duty does notextend to benefit an adversary third-party claimant. See Scroggins, 74 Ill. App. 3d at 1029-32,393 N.E.2d at 719-21; 14 Couch on Insurance