Statute of Limitations Frees Broker From Faulty Insurance Claims

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

The 3rd District Appellate Court recently held that for statute of limitations purposes, an insured’s action against a broker for failure to procure proper insurance accrues at the time the insured receives a copy of the policy, at least where the alleged inadequacy goes to the coverage limits unambiguously stated in the declarations.

The plaintiffs in RVP LLC v. Advantage Insurance Services, 2017 IL App (3d) 160276 (June 14, 2017), were a property owner and its lessee. They were represented by Meltzer, Purtill & Stelle LLC. HeplerBroom LLC represented the defendant brokerage firms and the individual agent.

Property owner RVP initially had “blanket” coverage through Travelers Casualty Insurance Co. on two buildings, meaning that each building was insured but that the coverage could apply to either building. RVP’s lessee, River Valley Recycling, had coverage on its equipment through Universal Underwriters Insurance Co.

Those policies were all canceled or not renewed in 2009 and 2010. When that occurred, RVP’s chief financial officer, Mark Fill, sought new coverage through defendant Tom Roule, a broker, who worked for defendant Advantage Insurance Services Inc., and later for defendant Commercial Insurance Group Inc. Fill instructed Roule to obtain the same or similar coverage as under the earlier policies, for both RVP and River Valley.

The new coverage procured by Roule was issued by Erie Insurance Co. The Erie coverage, however, had much lower limits than the earlier coverage, and there was no sharing of coverage on the policy issued for the two buildings. The evidence reflected that Fill received copies of the policies no later than July 2010. The policies thereafter were renewed.

A fire destroyed the buildings and their contents in September 2011. The Erie policies paid off, but much of the damage was left uncovered due to the lower limits. The plaintiffs thus filed suit against the defendants in August 2013, claiming negligence and breach of contract in failing to obtain the amount of coverage Fill had requested.

The defendants moved to dismiss based on application of the two-year statute of limitations applicable to lawsuits against insurance producers under 735 ILCS 5/13-214.4. The trial court ultimately granted that motion, despite the plaintiffs’ argument that the discovery rule should apply and that they did not learn of the inadequate limits until the time of the fire.

Upon dismissal, the plaintiffs took this appeal.

Analysis

In an opinion by Justice Robert L. Carter, the 3rd District affirmed. He noted as a general proposition that a cause of action against an insurance agent accrues when coverage is denied and is extended by the discovery rule to accrue at the time the plaintiff learns of the denial of coverage if he or she was not immediately aware of it.

Here, however, Carter said that the plaintiffs should have reasonably known of the policy limits upon receiving the policies or their renewals since the policies indicated the coverage limits.

The plaintiffs nonetheless argued under Perelman v. Fisher, 298 Ill.App.3d 1007 (1998), that the trial court could not, as a matter of law, presume that they knew or should have known of the contents of the Erie policies upon their receipt.

Carter agreed that Perelman held that an insured’s failure to read and understand the terms of a policy is not an absolute bar to the insured’s right to recover against the broker.

He further observed, however, that in that case, a fact issue existed as to when the plaintiff should have known of the deficiency in the insurance policy. In the instant case, moreover, the court need not determine whether a failure to read the policy was an absolute bar to recovery, because the court was not reaching the merits.

Rather, the court was deciding only when the plaintiffs would be charged with knowledge of the deficient coverage. And based on the facts, the plaintiffs should have known of the deficient coverage limits upon receiving the policies because there was no claim of ambiguity in the policy regarding the coverage limits.

The plaintiffs further contended that a fiduciary relationship existed between them and the defendant brokers, which meant that their failure to read the policy did not prevent a claim as a matter of law.

That argument, however, said Carter, again went to the merits of the claim. For purposes of determining when the plaintiffs’ claims accrued, they accrued upon the plaintiffs’ receipt of the policies.

Because the accrual took place more than two years before the filing of suit, the court affirmed the judgment in favor of the defendants.

Key point

An insured’s claim against a broker for procuring deficient limits of coverage accrues upon the insured’s receipt of the policies, in the absence of an ambiguity in the declaration of those limits.