Am. Family Mut. Ins. Co. v. Individually

• Decision Date: 10 May 2017
• Docket Number: No. 1-16-1071.,1-16-1071.
• Citation: 2017 IL App (1st) 161071,82 N.E.3d 533
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff-Counterdefendant-Appellee, v. Walter KROP, individually and as father and next friend of T.K., a minor; Lisa Krop and Mary Andreloas, as next best friend of A.A., a minor; Defendants-Counterplaintiffs-Third-Party Defendants-Appellants, (Andy Vargas, Third-Party Defendant-Appellee).
• Court: United States Appellate Court of Illinois

2017 IL App (1st) 161071
82 N.E.3d 533

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff-Counterdefendant-Appellee,
v.
Walter KROP, individually and as father and next friend of T.K., a minor; Lisa Krop and Mary Andreloas, as next best friend of A.A., a minor; Defendants-Counterplaintiffs-Third-Party Defendants-Appellants,

(Andy Vargas, Third-Party Defendant-Appellee).

No. 1-16-1071.

Appellate Court of Illinois, First District, Third Division.

Filed May 10, 2017
Rehearing denied June 29, 2017

Kristin L. Matej, of Taylor Miller LLC, of Chicago, for appellants.

Patti M. Deuel, of Leahy, Eisenberg & Fraenkel, Ltd., of Chicago, for appellee American Family Mutual Insurance Company.

Hinshaw & Culbertson LLP, of Chicago (Stephen R. Swofford and Kent J. Cummings, of counsel), for other appellee.

OPINION

JUSTICE COBBS delivered the judgment of the court, with opinion.

¶ 1 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.

¶ 2 I. BACKGROUND

¶ 3 This appeal arises from the dismissal of defendants' counterclaim and third-party complaint. Before considering the issues raised on appeal, we first set out the relevant facts as alleged in the counterclaim and third-party complaint.

¶ 4 In March 2012, Walter and Lisa Krop met with Vargas, an American Family sales agent, regarding their homeowner's insurance. At that time, the Krops were insured through Travelers Insurance Company. The Travelers policy provided coverage for certain intentional acts, bodily injury, property damage, and personal injury. Under the Travelers policy, personal injury included libel, slander, defamation of character, and invasion of privacy. The Krops expressed to Vargas that they wanted an insurance policy with equivalent coverage to the Travelers policy. The Krops alleged Vargas stated that American Family could provide equivalent coverage at a lower or comparable rate.

¶ 5 American Family issued its homeowner's policy to the Krops on March 21, 2012. The American Family policy includes coverage for bodily injury and property damage. The policy does not provide coverage for personal injury, injury resulting from intentional acts, or abuse. After receiving

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the policy in 2012, the Krops did not complain about the limits of coverage and subsequently renewed the policy in 2013, 2014, and again in 2015.

¶ 6 On May 14, 2014, the Krops' son, T.K., was sued by Mary Andreloas, as next best friend of A.A., a minor, in the circuit court of Cook County. The Andreloas complaint sought damages for defamation, invasion of privacy, and intentional infliction of emotional distress as the result of alleged harassment and bullying by minor defendants including T.K. The Krops made a claim for coverage under the American Family policy. Their request was denied on August 20, 2014.

¶ 7 In the six-page denial letter sent to the Krops, American Family restated the limitations of the Krops' policy, specifically, citing the policy's definition of "bodily harm," which did not include "emotional or mental distress, mental anguish, mental injury, or any similar injury unless it arises out of actual bodily harm to the person" and the exclusion of coverage for damages or injury resulting from abuse or intentional conduct. American Family also stated that the facts that gave rise to the complaint occurred in 2011, thus predating the Krops' policy.¹

¶ 8 On October 30, 2014, American Family filed a complaint seeking a declaratory judgment regarding coverage for the Krops under the homeowner's insurance policy. Specifically, American Family sought a declaration that the allegations in the Andreloas complaint fell within the exclusions of the Krops' insurance policy, thus requiring no coverage or protection.

¶ 9 The Krops filed a counterclaim against American Family and a third-party complaint against Vargas on September 22, 2015. The Krops alleged that Vargas, as an agent of American Family, negligently failed to procure the level of insurance coverage they requested. Subsequently, both American Family and Vargas filed motions to dismiss alleging that the Krops' claims were filed after the two-year statute of limitations for actions against insurers and thus barred. On February 4, 2016, the trial court granted American Family's and Vargas's motions, finding that the Krops' counterclaim and third-party complaint were filed outside of the two-year statute of limitations.

¶ 10 II. ANALYSIS

¶ 11 On appeal, the Krops argue that both their counterclaim and third-party complaint are timely because the discovery rule tolled the statute of limitations. Specifically, the Krops argue the statute of limitations did not start to run until they were denied coverage in August 2014. In its response, American Family asserts that the Krops' claims were untimely because the statute of limitations began to run once the Krops received the policy in 2012. American Family further argues that the discovery rule is inapplicable to the Krops' claims because they had a duty to read their policy. Vargas filed a separate response making similar arguments. He also argues that the discovery rule does not apply to cases where the alleged deficiency of the policy plainly appeared on the face of the policy.

¶ 12 American Family and Vargas brought their motions to dismiss defendant's counterclaim and third-party complaint pursuant to sections 2-615 and 2-619(a)(9) of the Code. A motion to dismiss under section 2-619 admits the legal sufficiency of the complaint but asserts affirmative matters outside of the complaint

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barring the claim. DeLuna v. Burciaga , 223 Ill.2d 49, 59, 306 Ill.Dec. 136, 857 N.E.2d 229 (2006). A section 2-619 motion admits as true all well-pleaded facts, along with reasonable inferences that can be gleaned from those facts. Piser v. State Farm Mutual Automobile Insurance Co. , 405 Ill.App.3d 341, 344, 345 Ill.Dec. 201, 938 N.E.2d 640 (2010). The purpose of a section 2-619 motion to dismiss is to dispose of issues of law and easily proved issues of fact at the outset of litigation. Thurman v. Champaign Park District , 2011 IL App (4th) 101024, ¶ 18, 355 Ill.Dec. 575, 960 N.E.2d 18. Specifically, subsection 2-619(a)(9) of the Code permits a court to dismiss a complaint if it was not commenced within the time limited by law. The court should grant a section 2-619 motion if, after construing the documents in the light most favorable to the nonmoving party, there are no disputed issues of material fact. See Perelman v. Fisher , 298 Ill.App.3d 1007, 1013, 233 Ill.Dec. 88, 700 N.E.2d 189 (1998). We review the dismissal of a cause of action pursuant to section 2-619de novo . Id .

¶ 13 In their counterclaim and third-party complaint, the Krops allege that Vargas failed to procure the level of insurance they requested in violation of section 2-2201(d) of the Code. 735 ILCS 5/2-2201(d) (West 2014).² Defendants respond that any claims for a violation of the Code are time barred for having not been brought within the applicable two-year limitations period.³

¶ 14 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.

¶ 15 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, 12 Ill.Dec. 893, 370 N.E.2d 804 (1977). When the cause of action alleges tortious conduct, the cause of action generally accrues when the plaintiff suffers injury. Id. at 129-30, 12 Ill.Dec. 893, 370 N.E.2d 804. 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, 12 Ill.Dec. 893, 370 N.E.2d 804. Such was the case in Indiana Insurance Co. v. Machon & Machon, Inc. , 324 Ill.App.3d 300, 303, 257 Ill.Dec. 247, 753 N.E.2d 442 (2001), in which an insurer sued its agent.

82 N.E.3d 538

¶ 16 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, 374 Ill.Dec. 49, 994 N.E.2d 986 ; DOD Technologies v. Mesirow Insurance Services, Inc. , 381 Ill.App.3d 1042, 1046, 320 Ill.Dec. 221, 887 N.E.2d 1 (2008) ; AYH Holdings, Inc. v. Avreco, Inc. , 357 Ill.App.3d 17, 32, 292 Ill.Dec. 675, 826 N.E.2d 1111 (2005) ; Perelman , 298 Ill.App.3d at 1011, 233 Ill.Dec. 88, 700 N.E.2d 189. 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, 261 Ill.Dec. 225, 762 N.E.2d 1152 (2002). Accordingly, commencement of the statute of limitations...