The order denied "the oral motion of Plaintiff for leave to file a Third Amended Complaint," and entered a judgment in bar of action. Plaintiff argues that the amended complaint states a cause of action within the principles stated in Ledingham v. Blue Cross Plan for Hospital Care (1975), 29 Ill. App.3d 339, 330 N.E.2d 540. The supreme court ( 64 Ill.2d 338, 356 N.E.2d 75) had occasion to review only an issue of the taxing of costs. In Ledingham, the insured sued to recover payments for medical and hospital expenses alleged to be payable under a policy of health insurance.

Prior to 1975, Illinois did not recognize a cause of action for punitive damages arising out of a breach of contract. (See Wallace v. Prudential Insurance Co. of America (1973), 12 Ill. App.3d 623, 629, 299 N.E.2d 344.) Nevertheless, in Ledingham v. Blue Cross Plan (1975), 29 Ill. App.3d 339, 330 N.E.2d 540, rev'd on other grounds (1976), 64 Ill.2d 338, 356 N.E.2d 75, the Fifth District Appellate Court, while reversing the award of punitive damages in that particular case, noted that in a proper case such damages could stand. The court reasoned, based upon a California decision, Fletcher v. Western National Life Insurance Co. (1970), 10 Cal.App.3d 376, 89 Cal.Rptr. 78, that where the conduct of the insurer was outrageous enough, punitive damages were appropriate. The Ledingham court cited Fletcher as illustrative of a pattern of conduct in which breach of contract could give rise to a cause of action in tort:

The legislature has steadily amended the statute to allow an increasingly greater recovery for unreasonable and vexatious insurer misconduct. Application of the statute was relatively straightforward until Ledingham v. Blue Cross Plan for Hospital Care of Hospital Service Corp., 29 Ill. App.3d 339 (1975), rev'd on other grounds, 64 Ill.2d 338 (1976). In Ledingham, the appellate court recognized a tort action for bad faith and unfair dealing in connection with the denial of a claim by an insurer.

In the case before us, plaintiffs cannot "reasonably contend" that Allstate "knew that severe emotional distress was `certain or substantially certain' to result from" Allstate's acts. Plaintiffs rely on Ledingham v. Blue Cross Plan (1975), 29 Ill. App.3d 339, 330 N.E.2d 540, reversed on question of costs (1976), 64 Ill.2d 338, 356 N.E.2d 75. There, defendants refused payment of medical and hospital bills on the ground that the condition from which plaintiff suffered came within an exclusion for pre-existing illnesses. Plaintiff sued for wilful and wanton conduct, asking actual and punitive damages, and for breach of contract, asking compensatory damages.

An Illinois court in 1975 first recognized such an independent cause of action in tort based on an insurer's breach of the duty of good faith and fair dealing toward its insured. Ledingham v. Blue Cross Plan for Hospital Care of Hospital Service Corp., 29 Ill. App.3d 339, 350, 330 N.E.2d 540 (5th Dist. 1975), rev'd on other grounds, 64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75 (1976). Basing its opinion chiefly on a line of California cases, the Ledingham court stated that in unusual cases breach of contract can constitute an independent willful tort, and held that one such case involves breach of the duty implied by law for each party to an insurance contract to act in good faith and to deal fairly with the other.

I. DUTY OF GOOD FAITH AND FAIR DEALING In Ledingham v. Blue Cross Plan for Hospital Care, 29 Ill. App.3d 339, 330 N.E.2d 540 (5th Dist. 1975), an Illinois court held for the first time that the relationship between a health insurance insurer and a policyholder gives rise to an implied duty of good faith and fair dealing, the breach of which creates both contract and tort liability. Thus, the court noted that although punitive damages generally may not be awarded in an action for breach of contract, Hayes v. Moynihan, 52 Ill. 423, 425, 426 (1869); Ash v. Barrett, 1 Ill.App.3d 414, 274 N.E.2d 149, 152 (1st Dist. 1971), such damages may be awarded where the breach of this implied duty constitutes tortious interference with a protected property interest of the insured.

The supreme court has never spoken on this issue and the various districts of the appellate court are not in agreement. The Illinois genesis for the existence of such a tort was Ledingham v. Blue Cross Plan (1975), 29 Ill. App.3d 339, 330 N.E.2d 540, rev'd on other grounds (1976), 64 Ill.2d 338, 356 N.E.2d 75. There, a husband and wife sued her medical and hospital insurance carriers for their failure to honor claims for such expenses incurred by the wife. After a jury trial, a single $9200 verdict was rendered on count I, charging the defendants with wilful and wanton conduct and requesting actual and punitive damages and count III brought on the contract for the amount of medical and hospital expenses claimed under the policy.

In addition, the Plaintiff contends that the Seventh Circuit failed to consider the legislative history of § 155 as well as the Lynch, Kelly, and Roberts decisions. Lastly, the Plaintiff contends that Illinois state courts have recognized the cause of action for the tort of bad faith before the amendment of the Insurance Code in 1977. Ledingham v. Blue Cross Plan for Hospital Care, 29 Ill. App.Ad 339, 330 N.E.2d 540 (5th Dist. 1975); and Lynch v. Mid-America Fire Marine Insurance Co., 94 Ill. App.3d 21, 49 Ill. Dec. 567, 418 N.E.2d 421 (4th Dist. 1981). The Defendant first notes that the Fifth District Court of Appeals for Illinois has abandoned its earlier position in Ledingham, 29 Ill. App.3d 339, 330 N.E.2d 540, finding preemption at least as to punitive damages.

See Hamilton v. Safeway Insurance Co., 104 Ill. App.3d 353, 60 Ill.Dec. 97, 432 N.E.2d 996 (1st Dist. 1982); Tobolt v. Allstate Insurance Co., 75 Ill. App.3d 57, 30 Ill.Dec. 824, 393 N.E.2d 1171 (1st Dist. 1979). These cases rejected Ledingham v. Blue Cross Plan, 29 Ill. App. 339, 330 N.E.2d 540 (5th Dist. 1975), rev'd as to costs, 64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75 (1976), which held that an independent cause of action existed. Another court, in Hoffman v. Allstate Insurance Co., 85 Ill. App.3d 631, 40 Ill.Dec. 925, 407 N.E.2d 156 (2d Dist. 1980), while holding that § 767 barred a common law punitive damages claim against an insurer, held that the statute did not limit recovery of common law compensatory damages.

The decisions of the various districts of the Illinois Appellate Court are in conflict. Ledingham v. Blue Cross Plan, 29 Ill. App.3d 339, 330 N.E.2d 540 (5th Dist. 1975), rev'd as to costs, 64 Ill.2d 338, 1 Ill.Dec. 75, 356 N.E.2d 75 (1976), holds that a cause of action exists for an insurer's bad faith refusal to make payments under a policy. In Ledingham, the court examined whether the relationship of insurer and policyholder gives rise to implied duties the breach of which would be tortious.