An Illinois federal court on Monday threw out a benefits administration company's counterclaim for attorney fees under a state statute relating to "vexatious and unreasonable" conduct by insurers, finding that the company failed to support its claims that an insurer engaged in such conduct with sufficient facts.

Dismissing Benefit Administrative Systems LLC's counterclaim against Landmark American Insurance Co. under Section 155 of the Illinois Insurance Code, U.S. District Judge Edmond Chang said that based on the alleged facts before the court, it could not "reasonably infer Landmark acted with the required intent" to act vexatiously and unreasonably.

"On the face of the complaint, it is equally plausible that Landmark's conduct was unreasonable, and that Landmark made a mistake," he said, tossing the claim without prejudice.

According to court filings, the coverage litigation stems from two lawsuits filed by Enloe Medical Center against BAS, one of which was filed in February 2022 and the other in January 2024. The lawsuits generally accused BAS of underpaying Enloe for its medical services to health insurance enrollees under plans BAS administered.

Though Enloe dismissed BAS from the first lawsuit a few months after filing, an underlying defendant health plan lodged a cross-complaint against BAS alleging that any payment failures were because of BAS' own acts and omissions. That health plan filed a similar cross-complaint in Enloe's second January 2024 lawsuit against BAS.

Landmark kicked off the present coverage litigation in May 2024, arguing it owed no coverage for the lawsuits under professional liability policies it issued to BAS spanning from October 2022 to October 2023 and from October 2023 to October 2024. Landmark also issued a prior policy to BAS running from October 2021 to October 2022.

To that end, Landmark pointed to language in the policies stating that claims arising out of related acts or omissions would be deemed a single claim, and that claims would further be deemed first made at the earliest of such claims, regardless of whether such a claim precedes the applicable policy period.

Arguing the 2022 and 2024 underlying lawsuits were related, Landmark maintained that for coverage to apply, BAS had to file a claim under the 2021-2022 policy within 60 days of that policy's expiration. As part of its December response and counterclaims to Landmark's action, BAS said the insurer violated Section 155 by failing to cover Enloe's 2024 lawsuit and the 2024 cross-complaint.

Though BAS repeatedly argued in its counterclaim and other filings that the court could infer vexatious and unreasonable conduct by Landmark from the pleadings, Judge Chang said he disagreed Monday.

"Indeed, Benefit could have alleged with sufficient detail (and the court might have inferred) that the 2022 lawsuit and the [2024] lawsuit are so plainly different that denying coverage in the [2024] lawsuit could have only been done in bad faith," Judge Chang said. "But without more specific allegations on why or how Landmark denied Benefit coverage, the court cannot reasonably infer Landmark acted with the required intent."

Though Landmark also argued it could not be held liable under Section 155 because there was a "bona fide" dispute between the parties, Judge Chang said he didn't yet need to "div[e] into the primary-merits question."

Representatives of the parties did not immediately respond to a request for comment.

Landmark American Insurance Co. is represented by Brian C. Bassett and Danielle K. Kegley of Traub Lieberman Straus & Shrewsberry LLP.

Benefit Administrative Systems LLC is represented by Paul L. Langer and John A. Aramanda of Quarles & Brady LLP.

Enloe Medical Center is represented by Robert H. Muriel and John W. Zenker of Williams Bax & Saltzman PC.

The case is Landmark American Insurance Co. v. Benefit Administrative Systems LLC et al., case number 1:24-CV-03729, in the U.S. District Court for the Northern District of Illinois.