Am. Family Mut. Ins. Co. v. Krop

• Decision Date: 18 October 2018
• Docket Number: Docket No. 122556
• Citation: 2018 IL 122556,120 N.E.3d 982,427 Ill.Dec. 915
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY v. Walter KROP et al., Appellees (Andy Varga, Appellant).
• Court: Illinois Supreme Court

2018 IL 122556

120 N.E.3d 982

427 Ill.Dec. 915

AMERICAN FAMILY MUTUAL INSURANCE COMPANY

v.Walter KROP et al., Appellees (Andy Varga, Appellant).

Docket No. 122556

Supreme Court of Illinois.

Opinion filed October 18, 2018

Rehearing denied November 26, 2018

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

¶ 1 When customers allege that their insurance company negligently sold them a deficient insurance policy, section 13-214.4 of the Code of Civil Procedure (Code) gives those customers a two-year deadline to file any lawsuits. 735 ILCS 5/13-214.4 (West 2014). In this case we are asked to determine when the cause of action accrues in such cases. American Family Mutual Insurance Company (American Family) filed a declaratory judgment action against Walter and Lisa Krop, contending their homeowner's insurance policy did not cover a tort action pending against their son. The Krops filed a counterclaim against American Family and a third-party claim against Andrew Varga, an insurance agent for American Family. Varga argued at the circuit court that the cause of action for negligently selling a deficient policy accrues as soon as customers purchase their policy. The Krops claimed that the cause of action does not accrue until the insurer refuses to provide coverage. Agreeing with Varga, the circuit court dismissed the Krops' claims against Varga and American Family as untimely. The appellate court reversed. 2017 IL App (1st) 161071, 415 Ill.Dec. 329, 82 N.E.3d 533. Varga petitioned for leave to appeal, and we allowed the petition. Ill. S. Ct. R. 315(a) (eff. Mar. 15, 2016).

¶ 2 We hold that when customers have the opportunity to read their insurance policy and can reasonably be expected to understand its terms, the cause of action for negligent failure to procure insurance accrues as soon as the customers receive the policy. Here the Krops filed their complaint over two years after they received their American Family policy, and they did not plead facts that would support any recognized exception to the expectation that customers will read the policy and understand its terms, so their claim was untimely. We reverse the appellate court's decision.

¶ 3 BACKGROUND

¶ 4 In early 2012 Walter and Lisa Krop asked Andrew Varga to provide them with a new homeowner's insurance policy from American Family. Although the details of their interactions with Varga are contested, the Krops claim that they gave him a copy of their old policy with Travelers insurance company and requested a new policy that was "equal to the coverages provided by Travelers." They further allege that Varga promised to provide them with an American Family policy that was equal to or better than the Travelers policy for a similar price. American Family and the Krops agreed to a policy, which American Family issued on March 21, 2012. The Krops renewed this policy each of the next three years.

¶ 5 In mid-2014, Mary Andreolas sued the Krops, seeking damages for defamation, invasion of privacy, and intentional infliction of emotional distress. The specifics of the lawsuit are not relevant to this decision, except that on August 20, 2014, American Family denied the Krops coverage for Andreolas's suit.

¶ 6 Soon thereafter American Family filed a declaratory judgment action in the circuit court of Cook County to justify its denial of coverage. The complaint cited portions of the Krops' policy that American Family argued excluded the alleged torts from coverage. In a section of the policy titled "LIABILITY COVERAGES—SECTION II," American Family had promised:

"We will pay, up to our limit, compensatory damages for which any insured is legally liable because of bodily injury or property damage caused by an occurrence covered by this policy."

The policy's definition of "bodily injury" excluded "emotional or mental distress, mental anguish, mental injury, or any similar injury unless it arises out of actual bodily harm to the person." Finally, the policy defined "occurrence" as "an accident, including exposure to conditions, which results during the policy period in: a. bodily injury; or b. property damage."

¶ 7 American Family claimed that this policy did not cover liability for the alleged defamation, invasion of privacy, or intentional infliction of emotional distress because Andreolas did not seek damages for any bodily injury. Additionally, American Family argued that, because the policy only covered "damage caused by an occurrence" and an "occurrence" requires an "accident," the policy did not cover the Krops' liability for the intentional conduct that Andreolas alleged.

¶ 8 On September 3, 2015, the Krops responded with a counterclaim against American Family and a third-party complaint against Varga. They alleged that Varga negligently failed to provide them with an insurance policy equal to their Travelers policy, as they had requested, and that American Family was vicariously liable for its agent's negligence. The Travelers policy had covered liability for "personal injury" as well as bodily and property injuries. Although both policies extended coverage to injuries caused by "occurrences," the Travelers policy defined "occurrence" to include an "offense * * * that results in ‘personal injury.’ " The American Family policy did not include offenses causing personal injury in its definition of "occurrence." According to the Krops, Varga failed to exercise ordinary care, and this failure caused the Krops to lack coverage for personal liability in Andreolas's lawsuit.

¶ 9 Varga and American Family both moved to dismiss the Krops' claims under sections 2-615 and 2-619 of the Code. 735 ILCS 5/2-615, 2-619 (West 2014). Section 13-214.4 of the Code creates a two-year statute of limitations for claims against insurance producers. Id. § 13-214.4. Varga and American Family argued that this two-year period began when the Krops first received their policy in March 2012, so their claims were untimely after March 2014.

¶ 10 The circuit court dismissed the Krops' counterclaims under section 2-619 of the Code. Relying on Hoover v. Country Mutual Insurance Co. , 2012 IL App (1st) 110939, 363 Ill.Dec. 612, 975 N.E.2d 638, the court found that the two-year limitations period for claims against insurance producers begins as soon as the insurer issues the policy. It rejected the Krops' argument that they could not have known about the defect in their policy, reasoning instead that insurance customers have an obligation to read their policies and understand the terms. Because American Family issued the Krops' policy on March 21, 2012, the court concluded that all claims after March 21, 2014, were untimely. The Krops filed their counterclaims and third-party complaint on September 22, 2015, so the circuit court granted Varga's and American Family's motions to dismiss.

¶ 11 The appellate court reversed the dismissal. 2017 IL App (1st) 161071, 415 Ill.Dec. 329, 82 N.E.3d 533. It stated that other Illinois cases have distinguished between lawsuits alleging negligence by an insurer, like American Family, and those alleging negligence by an agent, like Varga. Id. ¶ 34 (citing Perelman v. Fisher , 298 Ill.App.3d 1007, 233 Ill.Dec. 88, 700 N.E.2d 189 (1998) ). Based on those decisions, the appellate court found that insurance agents owe their customers a fiduciary duty and that this duty is more significant than the customers' obligation to read their policy. The court concluded that the limitations period did not begin to run when the policy was issued in March 2012. Instead, the "discovery rule" delayed the start of the limitations period until the Krops knew or should have known of the injury. Finally, the court found that the Krops reasonably should have known of the injury only when American Family denied them coverage in August 2014 and that the Krops' claims in September 2015 were timely. Id. ¶ 36. Varga petitioned this court for leave to appeal.¹ We allowed Varga's petition. Ill. S. Ct. R. 315(a) (eff. Mar. 15, 2016).

¶ 12 ANALYSIS

¶ 13 The circuit court granted Varga's section 2-619 motion, and we review a dismissal under section 2-619 de novo . Kean v. Wal-Mart Stores, Inc. , 235 Ill.2d 351, 361, 336 Ill.Dec. 1, 919 N.E.2d 926 (2009). A section 2-619 motion admits the legal sufficiency of the complaint but asserts another affirmative matter that defeats the claim. King v. First Capital Financial Services Corp. , 215 Ill.2d 1, 12, 293 Ill.Dec. 657, 828 N.E.2d 1155 (2005). Section 2-619(a)(5) authorizes a court to dismiss a complaint that was filed outside of the relevant limitations period. 735 ILCS 5/2-619(a)(5) (West 2014). When reviewing a dismissal under section 2-619, this court will affirm only if there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Kedzie & 103rd Currency Exchange, Inc. v. Hodge , 156 Ill.2d 112, 116-17, 189 Ill.Dec. 31, 619 N.E.2d 732 (1993). It also admits as true all well-pleaded facts and all reasonable inferences that can be drawn from them. Porter v. Decatur Memorial Hospital , 227 Ill.2d 343, 352, 317 Ill.Dec. 703, 882 N.E.2d 583 (2008). We construe those facts in the light most favorable to the nonmoving party. Id.

¶ 14 A. Earliest Accrual Date for Negligent Failure to Procure Insurance

¶ 15 The Krops' suit is premised on Varga's alleged failure to satisfy his statutory obligation in procuring an American Family insurance contract for the Krops. Section 2-2201(a) of the Code states that "[a]n insurance producer, registered firm, and limited insurance representative shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured." 735 ILCS 5/2-2201(a) (West 2014). The section does not define "insurance producer," but we have held that this term includes "captive agents" like Varga, who represent a particular insurance company and sell that company's policies to customers. Skaperdas v. Country Casualty Insurance Co. , 2015 IL...