On October 18, 2018, the Illinois State Supreme Court in the case of Am. Family Mut. Ins. Co. v. Krop, 2018 IL 122556, ruled that a two year statute of limitations for negligence claims begins to run on the date the policy is received by the insured, not when there is a loss and coverage issues arise.
In this case the Krops allege that they instructed their American Family insurance agent to give them the same or better coverage they had in place with a previous insurer. As it turns out the American Family policy sold to the Krops was not as robust as the Krops’ prior policy. The Krops were subsequently sued for defamation, invasion of privacy, and intentional infliction of emotional distress, and requested coverage and defense of the suit from American Family. American Family denied coverage for the suit because the American Family policy did not cover claims for defamation, invasion of privacy, and intentional infliction of emotional distress, claims that would arguably be covered by the Krops’ prior policy.
The Krops in turn sued their American Family agent for failing to sell them the same or better coverage they had in place with their previous insurer. However, since the American Family policy was issued and received by the Krops in March of 2012 and the Krops didn’t file their lawsuit against their agent until September 2015, the court ruled the action was barred by the two year statute of limitations and was untimely.
The decision focused on the principle that policyholders have a duty to read their insurance policies. The court stated:
We hold that when customers have the opportunity to read their insurance policy and can reasonably be expected to understand its terms, the cause of action for negligent failure to procure insurance accrues as soon as the customers receive the policy. Here the Krops filed their complaint over two years after they received their American Family policy, and they did not plead facts that would support any recognized exception to the expectation that customers will read the policy and understand its terms, so their claim was untimely.
Am. Family Mut. Ins. Co. v. Krop, 2018 IL 122556, ¶ 2
This decision creates a potential to discover or modified occurrence rule for triggering the start of the time period for the statute of limitations. This decision will significantly limit the ability of insurance customers to bring suit against insurance agents in Illinois because typically the alleged negligent procurement of coverage is not realized or actually discovered until there is a loss and coverage issues arise, which is often years later.
This decision may be somewhat of an outlier as most jurisdictions have moved away from the strict occurrence rule for triggering the statute of limitations. See Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 22.10, at 303 (2006) and Antone v. Mirviss, 720 N.W.2d 331, 335 (Minn. 2006). This decision will likely not have any effect on insurance agent cases in Minnesota, Wisconsin, and North Dakota, as all of these states have adopted either the discovery rule or the existence of damage rule for triggering the start of the time period for the statute of limitations.
In Minnesota, Wisconsin, and North Dakota, insurance agent suits are typically based on negligence and breach of contract. In Minnesota and Wisconsin under most circumstances the statute of limitations for negligence and breach of contract is 6 years. In North Dakota under most circumstances the statute of limitations for professional malpractice is 2 years and the statute of limitations for breach of contract is 6 years.
The decision can be found here: http://www.illinoiscourts.gov/Opinions/SupremeCourt/2018/122556.pdf
A significant portion of Mr. Simon’s law practice involves the representation of insurance agents and other professionals in Minnesota, Wisconsin, and North Dakota. If you have questions about this decision or any other professional liability law issue please feel free to contact Mr. Simon.