Austin Highlands Dev. Co. v. Midwest Ins. Agency, Inc.

• Decision Date: 30 January 2020
• Docket Number: No. 1-19-1125,1-19-1125
• Citation: 2020 IL App (1st) 191125,440 Ill.Dec. 473,153 N.E.3d 1049
• Parties: AUSTIN HIGHLANDS DEVELOPMENT COMPANY, an Illinois Corporation, Plaintiff-Appellant, v. MIDWEST INSURANCE AGENCY, INC., an Illinois Corporation, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

2020 IL App (1st) 191125

153 N.E.3d 1049

440 Ill.Dec. 473

AUSTIN HIGHLANDS DEVELOPMENT COMPANY, an Illinois Corporation, Plaintiff-Appellant,

v.MIDWEST INSURANCE AGENCY, INC., an Illinois Corporation, Defendant-Appellee.

No. 1-19-1125

Appellate Court of Illinois, First District, Fourth Division.

Filed January 30, 2020

Richard C. Jones Jr. and Carolyn D. Strahammer, of Richard Jones & Associates, Ltd., of Mt. Prospect, for appellant.

Jessica K. Burtnett and Jessica N. Kull, of Traub Lieberman Straus & Shrewsberry, of Chicago, for appellee.

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

¶ 1 Plaintiff Austin Highlands Development Company (Austin) sued defendant Midwest Insurance Agency, Inc. (Midwest), for failing to procure an insurance policy that protected Austin against claims that were later raised in a federal class action lawsuit against the company. On Midwest's motion to dismiss, the circuit court found that Austin failed to file its lawsuit against Midwest within the time period mandated by law and accordingly dismissed Austin's complaint with prejudice. On appeal, Austin contends that the court erroneously dismissed its complaint as untimely and the law providing for the statute of limitations is unconstitutional. For the reasons that follow, we affirm.

¶ 2 I. BACKGROUND

¶ 3 Austin acts as the agent for entities that own various apartment complexes in the Chicagoland area, and Midwest procures insurance for various companies. In November 2015, Midwest acted as the exclusive agent for Austin for the purposes of procuring insurance for the apartment complexes and for the business conducted by Austin and its related entities. To this end, Midwest procured an insurance policy for Austin for a one-year period, beginning on November 25, 2015, issued by Commerce and Industry Insurance Company, a company affiliated with American International Group, Inc. (AIG). The policy was a "Prime Express Commercial Excess Liability Policy with Crisis Response" and issued on November 16, 2015. The policy document stated that the "producer" was RT Specialty, LLC.

¶ 4 In March 2016, Austin was sued in a federal class action lawsuit for allegedly violating Illinois statutes related to tenant security deposits. The lawsuit was later certified as a class action. Upon receiving notice of the lawsuit, Austin delivered the complaint to Midwest to forward to AIG. On or around August 25, 2016, Midwest informed Austin that its insurance policy did not provide coverage for the causes of action alleged in the federal lawsuit. According to Austin, because of the lack of coverage, it had to expend over $300,000 to settle the lawsuit.

¶ 5 On October 4, 2018, Austin sued Midwest, alleging that Midwest was "an insurance producer" under section 2-2201 of the Code of Civil Procedure (Code) ( 735 ILCS 5/2-2201 (West 2018) ) and, therefore, was required to exercise ordinary care and skill in procuring, binding, renewing, or placing insurance coverage as requested by Austin. According to Austin, Midwest allegedly breached that duty when it failed to procure an insurance policy that provided protection for claims like those brought in the federal lawsuit against the company.

¶ 6 Midwest responded by filing a combined motion to dismiss under section 2-619.1 of the Code (id. § 2-619.1), highlighting that a cause of action against an insurance producer, such as itself, must be filed within two years of when the cause of action accrues and positing that a cause of action accrues against an insurance producer when the insured received the insurance policy at issue. Midwest argued that, because Austin sued Midwest more than two years after Austin received the policy at issue, the statute of limitations had already elapsed. Austin responded that, because Midwest was its agent, Midwest was not an insurance producer under the law and its cause of action against Midwest did not accrue when it received the policy. According to Austin, it therefore timely filed its lawsuit against Midwest. Austin also argued that section 13-214.4 of the Code (id. § 13-214.4), which provides for the statute of limitations against insurance producers, was unconstitutional special legislation.

¶ 7 On May 21, 2019, the circuit court entered a written order on Midwest's motion to dismiss. Initially, the court determined that Midwest was an " ‘[insurance] producer’ " under the law and the statute of limitations to file a cause of action against an insurance producer was two years from the date the cause of action accrues. The court asserted that, under American Family Mutual Insurance Co. v. Krop , 2018 IL 122556, 427 Ill.Dec. 915, 120 N.E.3d 982, a cause of action against an insurance producer accrues when the insured receives the policy at issue. The court next found that Austin received the policy in November 2015 and did not file its lawsuit until October 2018. As a result, the court concluded that the statute of limitations had elapsed before Austin filed its lawsuit, and it accordingly dismissed Austin's complaint with prejudice. The court did not address Austin's challenge to the constitutionality of the statute of limitations. Austin timely appealed.

¶ 8 II. ANALYSIS

¶ 9 On appeal, Austin contends that, because Midwest acted as its broker and worked for it, Midwest was not an insurance producer under the law and its cause of action against Midwest did not accrue when it received the policy at issue. Austin therefore argues that its lawsuit against Midwest was not untimely.

¶ 10 Midwest filed a combined motion to dismiss pursuant to section 2-619.1 of the Code ( 735 ILCS 5/2-619.1 (West 2018) ), citing both sections 2-615 and 2-619(a)(5) of the Code (id. §§ 2-615, 2-619(a)(5)). Relevant here is only the portion of that motion based on section 2-619(a)(5). A motion to dismiss under section 2-619 admits the legal sufficiency of the complaint but asserts that certain defects, defenses, or other affirmative matters that appear outside the pleadings act to defeat the claims. Sandholm v. Kuecker , 2012 IL 111443, ¶ 55, 356 Ill.Dec. 733, 962 N.E.2d 418. Specifically, under subsection (a)(5), dismissal is proper when "the action was not commenced within the time limited by law." 735 ILCS 5/2-619(a)(5) (West 2018). In analyzing such a motion, the circuit court is required to accept all well-pled facts in the complaint as true, as well as any reasonable inferences from those facts. Sandholm , 2012 IL 111443, ¶ 55, 356 Ill.Dec. 733, 962 N.E.2d 418. All pleadings and supporting documents must be construed in the light most favorable to the nonmoving party. Id. The critical inquiry on appeal is "whether the existence of a genuine issue of material fact should have precluded the dismissal or, absent such an issue of fact, whether dismissal is proper 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). We review the circuit court's dismissal de novo . Sandholm , 2012 IL 111443, ¶ 55, 356 Ill.Dec. 733, 962 N.E.2d 418.

¶ 11 A. Insurance Producers and Statute of Limitations

¶ 12 Under Illinois insurance law, there are two general types of individuals who act as the conduits between the insured and the insurer: insurance brokers and insurance agents. Skaperdas v. Country Casualty Insurance Co. , 2015 IL 117021, ¶ 19, 390 Ill.Dec. 94, 28 N.E.3d 747. An insurance broker is an individual or business entity

"who procures insurance and acts as a middleman between the insured and the insurer, who solicits insurance business from the public under no employment from any special company and who, having secured an order, places the insurance with the company selected by the insured, or in the absence of any selection by the insured, with a company he selects himself." (Internal quotation marks omitted.) Id.

In other words, an insurance broker provides insurance policies for their customers from multiple companies. Krop , 2018 IL 122556, ¶ 23, 427 Ill.Dec. 915, 120 N.E.3d 982. On the other hand, an insurance agent is an individual or business entity "who has a fixed and permanent relation to the companies he represents and who has certain duties and allegiances to such companies." (Internal quotation marks omitted.) Skaperdas , 2015 IL 117021, ¶ 19, 390 Ill.Dec. 94, 28 N.E.3d 747. Within the category of insurance agents, there are also captive agents, who "work for one insurance company exclusively." Krop , 2018 IL 122556, ¶ 23, 427 Ill.Dec. 915, 120 N.E.3d 982 ; see also Skaperdas , 2015 IL 117021, ¶ 38, 390 Ill.Dec. 94, 28 N.E.3d 747 ("Captive agents are contractually bound to sell only their own company's insurance.").

¶ 13 Historically, insurance brokers owed a fiduciary duty to the insured, while insurance agents owed a fiduciary duty to the insurer.

Skaperdas v. Country Casualty Insurance Co. , 2013 IL App (4th) 120986, ¶ 21, 374 Ill.Dec. 1071, 996 N.E.2d 766, aff'd , 2015 IL 117021, 390 Ill.Dec. 94, 28 N.E.3d 747. However, in 1997, the Illinois legislature enacted Public Act 89-638 (codified under the heading "Insurance Placement Liability"), which added section 2-2201 to the Code. See Pub. Act 89-638, § 5 (eff. Jan. 1, 1997) (adding 735 ILCS 5/2-2201 ). Section 2-2201 provides that an "insurance producer * * * 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 2018). "This statute prevents any insurance producer from being held to the fiduciary standard, except in a narrow set of circumstances" ( Krop , 2018 IL 122556, ¶ 28, 427 Ill.Dec. 915, 120 N.E.3d 982 ), i.e. , those involving the appropriation of money. See 735 ILCS 5/2-2201(b) (West 2018). That is to say that section 2-2201 of the Code has removed the common law fiduciary duty standard applicable to an "insurance producer" and required an "insurance producer" to exercise only ordinary care.

¶ 14 Though section 2-2201 uses the term ...