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American Family Mut. Ins. Co. v. Krop

2017 IL App (1st) 161071 (Ill. App., 2017)

Words & Phrases

Agent Broker: Statute Of Limitations

Trial Judge

Neil Cohen

Appellate Judge



Statute of limitations was tolled by discovery rule beginning when the insurer denied coverage.

Fact Summary

Plaintiff American Family Mutual Insurance Company (American Family) brought a complaint for declaratory judgment against Walter Krop and Lisa Krop (collectively, the Krops) seeking a declaration that the Krops were not entitled to coverage or protection under its home insurance policy procured in 2012. In response, the Krops brought a counterclaim against American Family and a third-party complaint against American Family agent Andy Vargas. Both American Family and Vargas moved to dismiss the counterclaim and third-party complaint pursuant to sections 2-615 and 2-619 of the Illinois Code of Civil Procedure (the Code). 735 ILCS 5/2-615, 2-619 (West 2014). The trial court granted their motions pursuant to section 2-619 and made no ruling as to section 2-615. For the reasons that follow, we reverse and remand.

Here, the parties do not dispute that claims against an insurance producer must be brought within two years of the date the cause of action accrues. Neither do they dispute that the discovery rule may extend the limitations period based upon when an insured knew or reasonably should have known of his injury. The parties differ, however, on when, in this case, the insureds knew or reasonably should have known of their injury so as to trigger the running of the statute of limitations.

Our supreme court has distinguished when a cause of action accrues for tort and contract actions. See West American Insurance Co. v. Sal E. Lobianco & Son Co., 69 Ill. 2d 126 (1977). When the cause of action alleges tortious conduct, the cause of action generally accrues when the plaintiff suffers injury. Id. at 129-30. In 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. Id. at 132. Such was the case in Indiana Insurance Co. v. Machon & Machon, Inc., 324 Ill. App. 3d 300, 303 (2001), in which an insurer sued its agent.

Historically, Illinois has recognized that the relationship between an insured and his broker, acting as the insured’s agent, is a fiduciary one. See Garrick v. Mesirow Financial Holdings, Inc., 2013 Il App (1st) 122228, ¶ 31; DOD Technologies v. Mesirow Insurance Services, Inc., 381 Ill. App. 3d 1042, 1046 (2008); AYH Holdings, Inc. v. Avreco, Inc., 357 Ill. App. 3d 17, 32 (2005); Perelman, 298 Ill. App. 3d at 1011. Thus, 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 statute of limitations is subject to tolling by application of the discovery rule. Broadnax v. Morrow, 326 Ill. App. 3d 1074, 1079 (2002). Accordingly, commencement of the statute of limitations is delayed until the plaintiff knows or reasonably should know of his injury and that it was wrongfully caused. Id.; see also Knox College v. Celotex Corp., 88 Ill. 2d 407, 415 (1981).

In this case, the trial court rejected the Fourth District’s decision in Broadnax, 326 Ill. App.3d 1074, as well as State Farm Fire & Casualty Co. v. John J. Rickhoff Sheet Metal Co., 394 Ill. App. 3d 548 (2009), as factually inapposite and found the First District’s decision in Hoover v. Country Mutual Insurance Co., 2012 IL App (1st) 110939, this court’s “most recent pronouncement,” to be on point. More recently, in Scottsdale Insurance Co. v. Lakeside Community Committee, 2016 IL App (1st) 141845, a different division of this court, sitting in the First District, found reason not to follow Hoover. In so doing, the court reaffirmed that long line of Illinois cases which hold that the cause of action in these types of cases accrues when the insured learns that its insurer is denying coverage, not when the policy was procured.

Like Scottsdale, we also decline to follow Hoover but for a different reason. The weight of authority in Illinois remains that the cause of action for claims of negligence between an insured and the insured’s agent accrues at the time coverage is denied.