Limitations Period Tolled for Procurement Action Against Agent

June 30, 2017 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin
[June 13, 2017]

The 1st District Appellate Court recently held that the two-year statute of limitations applicable to an insured’s cause of action against an insurance agent is tolled by the discovery rule until denial of coverage by the insurer.

The insurer in American Family Mutual Insurance Co. v. Krop, 2017 IL App (1st) 161071 (May 10, 2017), was represented by Leahy Eisenberg & Fraenkel Ltd. American Family’s sales agent, Andy Vargas, was represented by Hinshaw & Culbertson LLP. Taylor Miller LLC represented the insureds, Walter and Lisa Krop.

The Krops purchased American Family homeowner’s coverage through American Family’s agent, Vargas, in March 2012. According to their complaint, the Krops requested equivalent coverage to what they had under their prior insurer’s policy. The prior coverage included “personal injury” protection, encompassing such torts as defamation and invasion of privacy.

In May 2014, the Krops’ son, a minor, was sued by another minor for bullying and harassment. The complaint sought damages for defamation, invasion of privacy and other torts. The Krops tendered to American Family for defense.

American Family denied coverage on the ground that its policy provided no personal-injury protection and otherwise excluded coverage for intentional conduct. American Family then brought this declaratory action for a determination of its obligations under the policy.

In August 2014, the Krops filed a counterclaim against American Family and a third-party action against Vargas pursuant to 735 ILCS 5/2-2201(d), which articulates certain duties of insurance producers. The counterclaim alleged that Vargas, as agent of American Family, negligently failed to procure a policy comparable to their prior policy, including personal-injury protection.

American Family and Vargas moved to dismiss the counterclaim based on the two-year statute of limitations for actions against insurance producers under 735 ILCS 5/13-214.4. That motion was granted, and the Krops appealed.


In an opinion by Justice Cynthia Y. Cobbs, the 1st District reversed. She initially observed that the parties did not disagree on application of the two-year limitations, nor did they disagree on potential application of the discovery rule. What they disagreed on was when the Krops knew or should have known of their injury.

She further noted that, for most tort actions, the cause of action generally accrues when the plaintiff suffers injury. For breach-of-contract actions and torts arising out of contractual relationships, the cause of action accrues at the time of the breach, not when the party sustains damages.

In addition, Cobbs said Illinois historically has recognized that the relationship between an insured and broker, acting as the insured’s agent, is a fiduciary one. For cases in which an insured alleges tortious conduct by its agent, although the cause of action accrues at the time of the breach, the limitations period is subject to the discovery rule. Thus, the period is tolled until the plaintiff knows or should have known of its injury.

In this case, however, Cobbs recognized that the trial court relied on Hoover v. Country Mutual Insurance Co., 2012 IL App (1st) 110939. In Hoover, the 1st District held that the insured knew or should have known of the policy’s deficiencies at the time the insurer provided the plaintiff with a copy of the policy. And since the plaintiffs received the policy more than two years before they filed their complaint, the 1st District affirmed dismissal without application of the discovery rule.

Cobbs nonetheless pointed to an even more recent 1st District case, Scottsdale Insurance Co. v. Lakeside Community Committee, 2016 IL App (1st)141845. In that case, according to Cobbs, the 1st District “reaffirmed that long line of Illinois cases” holding that the insured’s cause of action against its broker for failure to procure, under the discovery rule, “accrues when the insured learns that its insurer is denying coverage, not when the policy was procured.”

Put another way, Cobbs said that when an insurance agent owes a fiduciary duty to an insured, “a cause of action for breach of that duty accrues at the time of the breach, but the statute of limitations is subject to tolling by application of the discovery rule.”

For an insured’s claim against its agent, the plaintiff knows or reasonably should know of the injury at the moment when coverage is denied.

In this case, Cobbs found that the Krops knew or reasonably should have known of their injury only when American Family denied coverage in August 2014. Since their counterclaim and third-party complaint were filed within two years of that date, their claims were timely.

The court therefore reversed in favor of the Krops.

Key point

Under the discovery rule, an insured’s claim against its agent for failure to procure requested coverage does not accrue until the insured’s request for coverage is denied.

Possible ambiguity

The opinion refers to Vargas as both the agent of American Family and the agent of the Krops. It does not, however, identify him as a dual agent or analyze his status as such. The scope of the decision therefore may be unclear.

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