{"id":905713,"date":"2026-05-29T10:09:38","date_gmt":"2026-05-29T16:09:38","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=905713"},"modified":"2026-05-29T10:09:42","modified_gmt":"2026-05-29T16:09:42","slug":"bad-faith-liability-majority-of-states-enforce-threshold-requirement","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/bad-faith-liability-majority-of-states-enforce-threshold-requirement\/","title":{"rendered":"No Coverage, No Bad Faith:\u00a0Majority\u00a0of States Enforce the Threshold Requirement"},"content":{"rendered":"\n

Michael Weiss | Cozen O’Connor<\/a><\/p>\n\n\n\n

One of the most settled\u2014but frequently litigated\u2014principles in insurance law is that bad\u2011faith liability<\/a> is derivative of coverage. In general, an insurer cannot be liable for bad faith where it did not owe coverage or benefits under the policy in the first place. Two recent federal decisions, applying Illinois and California law respectively, reinforce this fundamental rule and provide useful reminders for litigants and insurers alike.<\/p>\n\n\n\n

1. Bad Faith Generally Requires an Underlying Coverage Obligation<\/strong><\/p>\n\n\n\n

Bad\u2011faith claims\u2014whether statutory or based on the implied covenant of good faith and fair dealing\u2014do not exist in a vacuum. They presuppose that the insurer wrongfully withheld benefits, delayed payment, or otherwise breached a contractual obligation owed to the insured. Generally, where coverage never attached, or where a condition precedent to coverage was not satisfied, courts consistently hold that bad\u2011faith claims fail as a matter of law.<\/p>\n\n\n\n

2. llinois Law: No Coverage Means No Vexatious Refusal<\/strong><\/p>\n\n\n\n

In a recent federal decision applying Illinois law, the court granted summary judgment in favor of the insurer after finding that the insured failed to satisfy a policy condition requiring prompt notice of loss. Because timely notice was a condition precedent to coverage, the insured was barred from recovering under the policy. See JKIS Invs. LLC v. AmGUARD Ins. Co.<\/em>, 2025 U.S. Dist. LEXIS 59941 (C.D. Ill. Mar. 31, 2025).<\/p>\n\n\n\n

That finding was dispositive of the insured\u2019s statutory bad\u2011faith claim under Section 155 of the Illinois Insurance Code. The court held that where there is \u201cno valid claim for coverage under the policy,\u201d a claim for vexatious and unreasonable refusal to settle \u201cnecessarily fails.\u201d Illinois law, the court explained, does not permit statutory bad\u2011faith remedies in the absence of benefits owed under the policy. Id. <\/em>(citing Mashallah, Inc. v. W. Bend Mt. Ins. Co.<\/em>, 20 F.4th 311, 322 (7th Cir. 2021) (\u201c[W]here no benefits are owed under the terms of an insurance policy, a claim of bad-faith denial under 215 ILCS 5\/155 necessarily fails.\u201d)). Without coverage, there is nothing for the insurer to have wrongfully withheld.<\/p>\n\n\n\n

3. California Law: No Benefits Due, No Bad Faith<\/strong><\/p>\n\n\n\n

A similar result followed in a federal decision applying California law. There, the insured asserted counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing after the insurer denied coverage under a claims\u2011made\u2011and\u2011reported policy. The court concluded that the insured failed to comply with the policy\u2019s reporting requirements\u2014a condition precedent to coverage\u2014and therefore the insurer\u2019s duty to defend was never triggered. See StarStone Specialty Ins. Co. v. Avenir Senior Living<\/em>, 2025 U.S. Dist. LEXIS 231423 (C.D. Ca. Oct. 24, 2025).<\/p>\n\n\n\n

Because the insurer owed no policy benefits, the bad\u2011faith claim could not survive. Citing long\u2011standing California authority, the court reiterated that \u201can action for bad faith may not be maintained where no policy benefits are due.\u201d Bell Gardens Bicycle Casino v. Great Am. Ins. Co.<\/em>, 124 F. App\u2019x 551, 553 (9th Cir. 2005) (citing Waller v. Truck Ins. Exch., Inc.<\/em>, 11 Cal. 4th 1, 44 (1995)). As a matter of law, an insurer cannot act in bad faith by declining to provide coverage that the policy does not afford. The court dismissed the bad\u2011faith claim without leave to amend.<\/p>\n\n\n\n

4. Practice Pointers<\/strong><\/p>\n\n\n\n

These decisions highlight several recurring themes in bad\u2011faith litigation:<\/p>\n\n\n\n