Why Illinois Treats Good Faith as Part of the Contract
Key Takeaways: In most cases, you cannot sue for breach of good faith on its own in Illinois. Courts treat the implied covenant of good faith and fair dealing as a way to read a contract, not as a separate claim. A good-faith claim usually has to be brought as part of a breach of contract claim and tied to a contract term that gives one party discretion. The covenant generally cannot override express contract terms or add duties the parties never agreed to. There are exceptions. The legislature has created express good-faith duties and remedies in some fields, such as beer distribution. Insurer bad faith is addressed primarily under 215 ILCS 5/155, which may allow fees and penalties for vexatious and unreasonable claim handling. Filing deadlines vary with the legal basis of the claim, so careful pleading and early record keeping are often essential.
In most cases, Illinois does not let you sue for breach of good faith as a separate claim. Illinois courts generally treat the implied covenant of good faith and fair dealing as a tool for reading a contract, not as a separate cause of action. So a claim for breach of the implied covenant of good faith and fair dealing usually has to be brought inside a breach of contract claim and tied to specific contract terms. There are exceptions. The legislature has created express good-faith duties in certain industries, and insurers may face statutory liability for bad-faith claim handling. Knowing which group your dispute falls into can shape your whole strategy.
If the other side used its contract discretion against you, or you have been accused of doing so, King & Jones can help you assess your position with a litigation-first approach. Call 312-372-4142 or contact us now to discuss your dispute.
How the Breach of Implied Covenant of Good Faith and Fair Dealing Works in Illinois
Illinois generally reads a covenant of good faith and fair dealing into every contract, but the covenant generally does not create duties of its own. (See, Voyles v. Sandia Mortg. Corp., 196 Ill. 2d 288 (Ill. 2001)). It guides how a contract is read and performed, and matters most when a contract gives one party discretion, such as the power to approve a transfer, set a price, accept deliverables, or decide whether a condition has been met. Courts may ask whether the party used its discretion reasonably, or instead acted arbitrarily, capriciously, or against the parties’ reasonable expectations.
The covenant generally cannot override what the contract expressly says. If an agreement clearly gives a party an unconditional right, Illinois courts are generally unwilling to use the implied covenant to rewrite that term or add duties the parties never agreed to. This is the main reason a standalone “bad faith” count often fails. The claim generally has to rest on a contract term the defendant allegedly performed in bad faith.
The Statutory Definition of “Good Faith”
Illinois statutes offer a useful working definition of good faith. The Beer Industry Fair Dealing Act, 815 ILCS 720/1.1(10), defines “good faith” as honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade, as defined in Section 2-103 of the Uniform Commercial Code. That definition applies only under that statute, but it shows the two things courts often look at: honesty and commercial reasonableness.
What This Means in Practice
For plaintiffs, a good-faith theory usually needs a contract hook. A separate count for breach of good faith that is not linked to a discretionary contract term may invite a motion to dismiss. For defendants, the same rule can be a strong defense when a plaintiff tries to use the covenant to enlarge the deal. To see how good-faith theories fit within the broader elements, review what counts as a breach of contract under Illinois law.
💡 Pro Tip: When you draft or review a contract, look for words like “sole discretion,” “reasonable discretion,” or “approval not to be unreasonably withheld.” These phrases often decide whether a good-faith argument is available later.
When the Legislature Creates Good-Faith Duties Directly
Illinois statutes sometimes write a good-faith duty directly into the law for certain businesses. These express duties differ from the implied covenant because they come from the statute, not the contract. Whether you can bring a separate claim depends on how each statute is enforced.
Industry-Specific Examples
Several Illinois laws show how express statutory good-faith duties work:
-
Debt settlement: Under 225 ILCS 429/140, a debt settlement provider must act in good faith in all matters under the Act. Under 225 ILCS 429/155(b), a consumer who suffers a loss because of a violation of Section 140 may bring a civil action under the Consumer Fraud and Deceptive Business Practices Act.
-
Beer distribution: Under 815 ILCS 720/4, a brewer or wholesaler cannot cancel, fail to renew, or otherwise end an agreement without good cause and good faith efforts to resolve disagreements. Where Section 3 of the Act requires prior notice, the party must also give that notice and allow 90 days for the other side to cure. Under 815 ILCS 720/9(1), once a wholesaler makes a prima facie showing that good cause does not exist, the brewer must prove that it does.
-
Public-sector bargaining: The Illinois Public Labor Relations Act, 5 ILCS 315/7, requires good-faith bargaining, but it does not force either side to agree to a proposal or make a concession.
Statutory Remedies Are Not Universal
Some statutes provide remedies that ordinary contract claims do not. Under the Beer Industry Fair Dealing Act, 815 ILCS 720/9(1), an affected brewer or wholesaler may sue in an Illinois state or federal court if the claim directly relates to or stems from the parties’ relationship under their agreement. Under 815 ILCS 720/9(5), the prevailing party is entitled to actual damages and court or arbitration costs, and the court may award attorneys’ fees. Under 815 ILCS 720/9(7), if a court or arbitrator finds that a party did not act in good faith, it must assess an appropriate penalty, and that party must pay the other side’s costs and reasonable legal fees. These remedies are specific to this Act and are generally not available in a typical contract claim.
| Source of Duty | Example | Separate Lawsuit Available? |
|---|---|---|
| Implied contract covenant | Discretionary terms in commercial contracts | Generally no; brought as part of a contract claim |
| Statute creating a claim | 815 ILCS 720/9 | Potentially, within the statute’s limits |
| Statute denying a claim | 815 ILCS 180/50 | No private damages claim |
Insurance Bad Faith: A Statutory Exception
Illinois handles insurer bad faith mainly through statute, not a general common-law tort. Section 155 of the Illinois Insurance Code, 215 ILCS 5/155, allows a court to award attorney’s fees and a capped penalty when an insurer’s refusal or delay in paying a claim is “vexatious and unreasonable.” Illinois courts have held that Section 155 generally preempts common-law bad-faith tort claims based on mere delay or denial. See Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (1996). Separate torts, such as fraud, may still be available when independent facts support them.
The Section 155 standard is hard to meet. A policyholder generally must show the insurer’s conduct was vexatious and unreasonable, not merely wrong. An insurer with a genuine coverage dispute may avoid liability even if it loses on coverage. Illinois courts have also recognized a separate common-law duty in third-party liability cases, such as an insurer’s handling of settlement offers within policy limits, which can expose the insurer to liability beyond those limits.
Building or Defending a Good-Faith Argument
A good-faith theory often succeeds or fails on evidence. The core elements of a contract claim generally still apply: a valid and enforceable contract, the plaintiff’s performance, the defendant’s breach, and resulting damages. Courts may consider internal emails, approval records, past dealings, and industry standards to decide whether a party used its discretion honestly and reasonably.
Common mistakes include pleading the claim too broadly and failing to identify the discretionary term at issue. Plaintiffs sometimes rely on general unfairness instead of specific conduct. Defendants sometimes overlook that even broad discretion may be limited by the parties’ reasonable expectations, unless the contract expressly grants an unconditional right.
💡 Pro Tip: Save communications about discretionary decisions as soon as a dispute looks likely. Bad-faith arguments often depend on what decision-makers knew and said at the time.
Filing Deadlines Can Affect Your Claim
Deadlines vary depending on the claim’s legal basis. Actions on written contracts generally have a 10-year deadline under 735 ILCS 5/13-206. Oral contracts and most other civil actions have a 5-year deadline under 735 ILCS 5/13-205. Contracts for the sale of goods generally have a 4-year deadline under the UCC, 810 ILCS 5/2-725. Claims under specific statutes may have different limits. Discovery rules and tolling arguments may apply only in limited cases, and courts generally read them narrowly.
Frequently Asked Questions
1. Is breach of good faith an independent cause of action in Illinois?
Generally, no. Illinois courts usually treat the covenant as a tool for reading the contract within a contract claim. Exceptions arise mainly where a statute creates a separate remedy.
2. Can the covenant override an express contract term?
In most cases, no. Courts are generally unwilling to use the implied covenant to contradict clear contract language.
3. Can I recover penalties for bad faith in an ordinary contract dispute?
Typically not. Penalty and fee provisions like those in 815 ILCS 720/9(7) or 215 ILCS 5/155 apply only under their own statutes. Illinois generally follows the American rule that each side pays its own fees unless a statute or contract says otherwise.
4. What evidence helps prove bad faith?
Courts may consider communications, decision records, past dealings, and industry standards that show whether a party used its discretion honestly and reasonably.
5. Does the covenant help defendants too?
It can. Because the covenant generally cannot create new duties, defendants can often use it to resist attempts to expand a contract beyond its terms.
Protecting Your Position in a Good-Faith Dispute
Illinois generally does not allow a freestanding claim for breach of good faith. Instead, a breach of implied covenant of good faith and fair dealing theory usually works within a contract claim, mainly where one party holds discretion. Statutes in fields such as beer distribution, debt settlement, and insurance impose their own duties, while other statutes expressly deny a private claim. An experienced breach of implied covenant of good faith and fair dealing lawyer can help you frame or rebut these arguments based on the evidence.
When a contract dispute involves claims of bad faith, King & Jones prepares every case for trial from day one. Call 312-372-4142 or schedule your consultation today to talk through your options.
Disclaimer: This content is for informational purposes only and is not legal advice. Every case is unique, and results may vary. Consult an attorney about your specific circumstances.
