The Illinois Supreme Court has agreed with an insurance agent’s argument that under state law insureds have two years from the date an insurance policy is issued to file suit against an insurance producer alleging that the policy sold to them is deficient.
The high court’s ruling came in a case in which it overturned the finding of a state appellate court that favored a plaintiff’s argument that cause of action in an insurance policy does not accrue until the insurer refuses coverage under the policy.
The appellate court’s decision had reversed a district court’s ruling in American Family Mutual Insurance Company v. Walter Krop et al., Appellees (Andy Varga, Appellant)that dismissed the claim by Walter and Lisa Krop that their American Family policy sold to them by agent Andrew Varga was deficient as it did not cover a tort action pending against their son. In its finding, the circuit court agreed with Varga’s argument “that the cause of action for negligently selling a deficient policy accrues as soon as customers purchase their policy,” the high court explained in its written opinion. The circuit court found that the two-year period in which to file a complaint had passed by the time the Krops took action against American Family and Varga.
The Krops in early 2012 had asked Varga to provide a new policy with American Family that would provide coverage equal to that found in the policy they held from Travelers Insurance Co. The Krops maintained they gave a copy of their old policy to Varga and that he “promised to provide them with an American Family policy that was equal to or better than the Travelers policy for a similar price. American Family and the Krops agreed to a policy, which American Family issued on March 21, 2012. The Krops renewed this policy each of the next three years,” according to the court’s opinion.
The Krops were sued in mid-2014 for “defamation, invasion of privacy, and intentional infliction of emotional distress” in an action that the high court said was not relevant to the decision in the Krop’s case against American Family and Varga, except for the fact that American Family in August 2014 denied coverage for the lawsuit against the Krops.
American Family sought declaratory judgement in circuit court to justify its denial of coverage. The insurer sought a finding that portions of the Krops’ American Family policy excluded from coverage the reason for the action against the Krops.
The Krops’ counterclaim against American Family and third-party complaint against Varga, filed on Sept. 3, 2015, alleged that Varga was negligent in failing “to provide them with an insurance policy equal to their Travelers policy, as they had requested.” The Krops also alleged “that American Family was vicariously liable for its agent’s negligence.”
American Family maintained its policy covered bodily or property damage resulting from an occurrence, or accident. According to the insurer, however, the policy’s definition of “occurrence” did not include “offenses causing personal injury,” the court’s opinion states.
The Krops maintained that unlike the American Family policy, the Travelers policy provided liability coverage for bodily and property injuries as well as “personal injury.”
Varga and American Family argued that the Krops brought their suit too late, citing that portion of the insurance code that “creates a two-year statute of limitations for claims against insurance producers.”
The circuit court agreed that the two-year limitation begins at the time that the insured receives the policy, but the appeals court found otherwise.
The “appellate court found that insurance agents owe their customers a fiduciary duty and that this duty is more significant than the customers’ obligation to read their policy,” according to the Supreme Court’s opinion. Therefore, the appellate court determined that the onset of the limitations period began when “the Krops knew or should have known of the injury,” that is, when they were denied coverage by American Family.
A Supreme Court majority disagreed, stating that the Krops were obligated to read and understand the terms of their policy when they received it. Therefore, the high court said, the Krops’ “cause of action against Varga for negligent failure to procure insurance accrued on March 21, 2012, and the two-year limitations period ended on March 21, 2014. Because the Krops brought their claim on September 3, 2015, that claim was untimely,” the opinion states.
Justices Theis and Kilbride dissented, stating that they agreed with the appellate court’s finding that the limitation period for the cause of action against the agent began when the insurer denied the Krops’ claim.
This article was first published by Insurance Journal.