Time Period Began to Run Upon Claim Denial and Not 2 Years Earlier When Broker Allegedly Provided Negligent Advice to Family About Scope of Policy.

An Illinois appellate court, applying Illinois law, reversed the trial court and held that the discovery rule applies to toll the statute of limitations when an insurance agent owes a fiduciary duty to an insured.  In the case of 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 March 2012, the Krops met with American Family Mutual Insurance Company (“American Family”) agent Andy Vargas regarding its homeowner’s insurance.  At the time, the Krops were insured by Travelers Insurance Company (“Travelers”).   The Travelers policy provided coverage for certain intentional acts, bodily injury, property damage, and personal injury.  According to the Krops, Vargas informed them that American Family could provide equivalent coverage at a lower or comparable price.   American Family then issued a homeowner policy to the Krops on March 12, 2012.  However, the American Family policy did not provide equivalent coverage, but the Krops did not complain and subsequently renewed the policy in 2013, 2014, and again in 2015.

In May 2014, the Krops’ minor son was sued for damages for defamation, invasion of privacy, and intentional infliction of emotional distress as the result of alleged harassment and bullying.  The Krops made a claim for coverage under the American Family Policy.  American Family denied coverage on August 20, 2014.  The denial letter stated that American Family’s policy does not cover emotional or mental distress, mental anguish, mental injury, or any similar injury unless it arises out of actual bodily harm to the person and that coverage is excluded for abuse or intentional conduct.

In October 2014, American Family sought a declaration that the Krops were not entitled to coverage under the home insurance policy.  In September 2015, the Krops brought a counterclaim against American Family and a third-party complaint against Vargas.  American Family and Vargas filed motions to dismiss alleging that the Krops’ claims were filed after the two-year statute of limitations of actions against insurers and, thus, barred.  The trial court granted the motions, finding that the Krops’ counterclaim and third-party complaint were filed outside of the two-year statute of limitations which began running in 2012 when the policy was issued.

The issue before the appellate court was at what point did the insureds know or reasonably should have known of their injury so as to trigger the running of the statute of limitations for their claims.  American Family and Vargas urged the appellate court to follow Hoover v. Country Mutual Insurance Co., 2012 IL App (1st) 110939.  In Hoover, a different division of the First District held that when the insured was provided a copy of the policy they “knew or should have known” of the policy’s deficiencies and, therefore, the statute of limitations began running then.  Here, the appellate court declined to follow Hoover: “The weight of authority in Illinois remains that the cause of action for claims of negligence between an insured and insured’s agent accrues at the time coverage is denied.”  The appellate court held that, under Illinois law, 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, i.e., until the plaintiff knows or reasonably should have known of his injury and that it was wrongfully caused.   The appellate court found that in the case of an insured’s claim against its agent, the plaintiff knows or reasonably should know of the injury at the moment when coverage is denied.  Thus, the Krops knew or reasonable should have known of their injury on August 20, 2014 when American Family denied their claim.  Therefore, the Krops claims against American Family and Vargas were not time barred because they were filed within two years of the discovery date. American Family Mutual Insurance Company v. Walter Krop, 2017 IL App (1st) 161071 (May 10, 2017).