Construction One-Minute Read: What If Your Insurance Carrier Negligently Provides Insufficient Coverage?
On October 18, 2018, the Illinois Supreme Court clarified when the statute of limitations begins to run on a claim for negligent procurement of insurance by an insurance agent or broker. In American Family Mutual Insurance Company v. Krop, 2018 IL 122556, the Illinois Supreme Court held that the two-year statute-of-limitations period on the customers’ cause of action against their insurer and the insurer’s captive agent for negligent failure to provide insurance began at the time the customers received the policy from the insurer/agent. The customers changed insurance companies and wanted from their new carrier coverage equivalent to that provided by their prior carrier; however, the new coverage was narrower, resulting in an unexpected denial of the customers’ claim, and the new carrier sued the customers for a declaration that coverage did not exist.
The Illinois Supreme Court’s rationale hinged on the fact that the customers obtained the policy through a captive agent of the carrier (as opposed to a broker). The customers argued successfully to the appellate court that the statute of limitations should have begun to run at the time they discovered their injury—in other words, the time at which the carrier denied coverage for the customers’ claim. The Illinois Supreme Court, overturning the appellate court’s decision, held that insurance agents, unlike brokers, do not owe their customers a fiduciary duty. (The cases relied upon by the appellate court involved lawsuits against brokers who owed fiduciary duties.) Rather, they owe only a duty of ordinary care.
The Krop case reminds purchasers of insurance policies obtained directly from insurers (or through insurance agents) to read and understand the contents of their policies at the time they receive them, because the time within which to sue on a claim for the negligent provision of insurance begins to run at the moment a customer receives a policy. While a customer may be able to rely more heavily on its insurance broker due to the broker’s fiduciary obligations, it would be prudent to analyze the contents of all insurance policies, however obtained, at the time they are received to better avoid gaps in coverage, a subsequent denial of coverage, or a lawsuit between the customer and its insurer.