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

¶ 40 The Krops' claim was barred by the limitations period for claims against insurance producers in section 13-214.4 of the Code. We reverse the appellate court's decision and affirm the circuit court's order granting Varga's motion to dismiss under section 2-619 of the Code. ¶ 41 Appellate court judgment reversed. ¶ 42 Circuit court judgment affirmed. ¶ 43 JUSTICE THEIS, dissenting: ¶ 44 The threshold question in this case is the proper characterization of the third-party action filed by the Krops against Andrew Varga, an American Family agent, under section 2-2201 of the Code (735 ILCS 5/2-2201 (West 2014)). When this action is properly characterized as a negligence action, it is evident that the cause of action accrued upon American Family's denial of the Krops' claim for coverage. Thus, when the Krops filed their third-party complaint for negligent procurement, the two-year limitations period had not run. Accordingly, I would affirm the appellate court's judgment that reversed the trial court's dismissal of the Krops' cause of action as untimely. ¶ 45 The two-year statute of limitations in section 13-214.4 of the Code encompasses claims by an insured against an insurance producer, including Varga. That section provides that "[a]ll causes of action brought by any person or entity under any statute or any legal or equitable theory against an insurance producer *** concerning the *** procurement *** of, or failure to procure any policy of 15 insurance shall be brought within 2 years of the date the cause of action accrues." 735 ILCS 5/13-214.4 (West 2014). ¶ 46 The accrual date depends upon how the cause of action is characterized. Historically, liability for the failure to procure insurance arose under various theories of tort and contract, and it often depended on the distinctions between insurance brokers and captive insurance agents. In these cases, depending upon the relationship, liability was said to be based on the agreement between the prospective insured and the insurance broker to procure a certain policy, based on a fiduciary relationship with its principal, or based on other negligence principles. See, e.g., Scarsdale Villas Associates, Ltd. v. Korman Associates Insurance Agency, Inc., 178 Ill. App. 3d 261, 264 (1988) (action for breach of a contract to procure insurance and negligent misrepresentation); Gothberg v. Nemerovski, 58 Ill. App. 2d 372 (1965) (action for breach of a contract to procure); Black v. Illinois Fair Plan Ass'n, 87 Ill. App. 3d 1106, 1110 (1980) (action for negligent procurement arising from a breach of fiduciary duties); Talbot v. Country Life Insurance Co., 8 Ill. App. 3d 1062, 1065 (1973) (action for negligent procurement based on an affirmative undertaking to perform a service to another to either provide the desired coverage or notify the applicant of the rejection of the risk "so that he may not be lulled into a feeling of security or put to prejudicial delay in seeking protection elsewhere"). ¶ 47 In 1996, the General Assembly enacted section 2-2201 of the Code, which addressed the liability of insurance producers in relation to the procurement of insurance. See Pub. Act 89-638, § 5 (eff. Jan. 1, 1997) (adding 735 ILCS 5/2-2201). Section 2-2201(a) imposes negligence liability on an insurance producer, including both brokers and captive agents, by imposing a duty to "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); Skaperdas v. Country Casualty Insurance Co., 2015 IL 117021, ¶ 25. Although the statute removed the common-law basis for distinguishing between insurance brokers and insurance agents, and limited the scope of breach of fiduciary duty claims, the statute does not release an insurance producer from liability for negligence (735 ILCS 5/2-2201(d) (West 2014)), and subsection (a) specifically provides for a cause of action in negligence (id. § 2-2201(a)); Skaperdas, 2015 IL 117021, ¶ 24. 16 ¶ 48 Here, the Krops alleged that Varga was negligent in failing to procure the insurance coverage that they requested pursuant to section 2-2201 of the Code. As we explained in Skaperdas, the statutory duty of ordinary care arising from subsection (a) arises once coverage is " 'requested by the insured or proposed insured.' " Skaperdas, 2015 IL 117021, ¶¶ 37, 42 (quoting 735 ILCS 5/2-2201(a) (West 2010)). Once such coverage is requested, insurance producers "exercise ordinary care and skill in responding to the request, 'either by providing the desirable coverage or by notifying the applicant of the rejection of the risk.' " Id. ¶ 37 (quoting Talbot, 8 Ill. App. 3d at 1065). If an insurance producer cannot offer the coverage requested, it may satisfy the statutory duty by notifying the customer to look elsewhere for the requested coverage. Id. ¶ 39. We further explained in Skaperdas that the duty does not depend upon either a contractual relationship or a fiduciary one. Id. ¶¶ 25-26. ¶ 49 As a result, where the statute specifically provides for a negligence action, the duty as defined in section 2-2201(a) does not depend upon any contractual relationship, and the Krops do not seek recovery for mere negligent performance of a contractual duty, the proper characterization of their claim is an ordinary negligence action, which is a tort-based claim. See, e.g., Melrose Park Sundries, Inc. v. Carlini, 399 Ill. App. 3d 915, 919 (2010) (characterizing and analyzing the claim against an insurance producer under section 2-2201 as a negligence action); Mercola v. Abdou, 223 F. Supp. 3d 720, 728-29 (N.D. Ill. 2016) (finding that the provisions of section 2-2201 sound in the language of tort). ¶ 50 Next, we must consider when a cause of action accrues for a negligence claim. Generally, we have recognized that tort actions have been treated differently than contract actions. Hermitage Corp. v. Contractors Adjustment Co., 166 Ill. 2d 72, 77 (1995). Tort actions generally accrue at the time of injury. Id. (citing West American Insurance Co. v. Sal E. Lobianco & Son Co., 69 Ill. 2d 126, 132 (1977)). In Khan v. Deutsche Bank AG, 2012 IL 112219, ¶ 20, this court explained that a cause of action "accrues" when "facts exist that authorize the bringing of a cause of action. "Thus, a tort cause of action accrues when all of its elements are present, i.e., duty, breach, and resulting injury or damage." Id. (citing Brucker v. Mercola, 227 Ill. 2d 502, 542 (2007)); see also Sundance Homes, Inc. v. County of Du Page, 195 Ill. 2d 257, 266 (2001) (statute of limitations begins to run when the plaintiff "has the right to invoke the aid of the court to enforce his remedy"); Lobianco, 69 17 Ill. 2d at 129-30 (cause of action based on tort accrues only when all the elements are present: duty, breach, and resulting injury or damage.) ¶ 51 Pursuant to our discovery rule, the limitations period is tolled and begins to commence when the plaintiff knew, or reasonably should have known, that the injury occurred and that it was wrongfully caused. Knox College v. Celotex Corp., 88 Ill. 2d 407, 414 (1981). At that point, the injured person possesses sufficient information concerning his injury and its cause to put a reasonable person on notice to make additional inquiries. Id. at 415. Neither party disputes the applicability of the discovery rule to this cause of action. ¶ 52 Thus, as applied in this context, before the tort could become actionable and before the limitations period could begin to run, there must be an injury to the plaintiff as a consequence of the insurance producer's alleged negligence that could serve as a basis for the recovery of damages. The alleged injury arises when the plaintiff sustains a loss for which an insurance claim is not covered but would have been covered if the requested insurance had been properly procured or if the plaintiff had been timely notified of the rejection of the risk. Under the discovery rule, in this case, at the time the Krops received the denial of coverage letter from American Family in August 2014, they knew or should have known of their injury and that Varga might have been negligent. ¶ 53 Although the Krops were not required to know the "full extent" of the injury before the statute of limitations was triggered (Golla v. General Motors Corp., 167 Ill. 2d 353, 364 (1995)), prior to the denial of coverage, any injury was purely contingent and speculative. See, e.g., Stephens v. Worden Insurance Agency, LLC, 859 N.W.2d 723, 733-34 (Mich. Ct. App. 2014) (negligent procurement claim accrues when the insurer denies the insured's claim because "on that date any speculative injury becomes certain, and the elements of the negligence action are complete"); International Mobiles Corp. v. Corroon & Black/Fairfield & Ellis, Inc., 560 N.E.2d 122, 124 (Mass. App. Ct. 1990) ("[i]f no accident produces a claim, the failure will have been negligence in the abstract"); see also Austin v. Fulton Insurance Co., 444 P.2d 536, 539 (Ala. 1968) (until there was a loss for which the plaintiff was not protected, no legally protected interest had been invaded). 18 ¶ 54 Accordingly, taking the allegations of the complaint in the light most favorable to the Krops, as required under section 2-619 of the Code (Porter v. Decatur Memorial Hospital, 227 Ill. 2d 343, 352 (2008)), their cause of action accrued in August 2014, when their claim for coverage under their homeowner's insurance policy was denied. When they filed their third-party complaint in September 2015, the two-year limitations period had not yet run. ¶ 55 Instead of applying these well-settled accrual principles in negligence actions, the majority applies accrual theories relating to contracts and "torts arising out of contractual relationships" to conclude that the Krops' cause of action accrued at the time of the breach. Supra ¶¶ 17-18, 35. To support this theory, the majority relies primarily on a series of cases involving causes of action against insurance producers, including Hoover v. Country Mutual Insurance Co., 2012 IL App (1st) 110939, ¶ 52; State Farm Fire & Casualty Co. v. John J. Rickhoff Sheet Metal Co., 394 Ill. App. 3d 548, 565 (2009); and Indiana Insurance Co. v. Machon & Machon, Inc., 324 Ill. App. 3d 300, 303-04 (2001). ¶ 56 Although those cases indeed use this hybrid term of a "tort arising out of a contractual relationship," like the majority, none of these cases explain the doctrinal underpinnings of such a cause of action or explain the contours of these types of hybrid claims in the context of section 2-2201. The Hoover and State Farm cases rely on the Machon case. Machon involved a contractual relationship between an insurer and its agent. Machon, in turn, relies primarily on Lobianco, 69 Ill. 2d 126. Lobianco was not a case involving insurance producers or the negligent procurement of insurance. Lobianco relies, in turn, on the nineteenth-century case of Pennsylvania Co. v. Chicago, Milwaukee & St. Paul Ry. Co., 144 Ill. 197 (1893), involving common carriers for hire and their negligent conduct in transporting certain goods. Additionally, the majority relies on Hermitage Corp., 166 Ill. 2d at 77, where this court relied on Lobianco, in a case where the parties agreed that a negligence claim arose out of a breach of an oral contract, in considering the five-year statute of limitations on unwritten contracts. The majority fails to recognize that none of these cases inform our analysis here. ¶ 57 Significantly, the majority never identifies a contract from which this negligence action arises. The majority does not suggest that the contract at issue is 19 the insurance policy itself. Nor has it identified any conduct that would constitute a contract. ¶ 58 Furthermore, neither the majority opinion nor the cases it relies upon explain how applying this hybrid cause of action and contract accrual principles would survive the economic loss doctrine in this context. In Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 86 (1982), this court held that generally a plaintiff cannot recover in tort for solely economic losses, limiting recovery to contract damages. This doctrine has been applied to liability premised on the mere negligent performance of a contractual obligation where the duty is defined by the contract executed with the client. See 2314 Lincoln Park West Condominium Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 136 Ill. 2d 302, 317 (1990). However, we have explained that, where the duties owed arise outside of the contract, the plaintiff may seek recovery in tort for breach of those independent duties. Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 159 Ill. 2d 137, 162 (1994). The majority has made no effort to fit this hybrid cause of action and its application of contract accrual principles into any exception to the economic loss doctrine. ¶ 59 With no attempt by the case law to explain why contract accrual principles apply to a negligent procurement claim under section 2-2201, it appears that prior cases chose this analytical framework on purely public policy grounds. Hermitage, for example, expressed the "concern that plaintiffs will delay bringing suit after a contract is breached in order to increase damages." Hermitage, 166 Ill. 2d at 77. However, in adopting section 2-2201(a), the legislature has expressed the public policy of this state to be that insurance producers, whether brokers or captive agents, have a duty of ordinary care and that liability rests in negligence principles, allowing recovery in tort. 735 ILCS 5/2-2201(d) (West 2014) ("the provisions of this [s]ection do not limit or release an insurance producer *** from liability for negligence concerning the *** procurement *** or failure to procure any policy of insurance"). ¶ 60 As a matter of statutory interpretation, we must construe the language as written without reading into it exceptions, limitations, or conditions the legislature did not express. Moon v. Rhode, 2016 IL 119572, ¶ 22. Nothing in the language of section 2-2201 suggests that the cause of action is a "tort arising out of a contractual relationship" or implicates contract theories. We cannot read these contract ideas 20 into the plain language of the statute. Indeed, we explained in Skaperdas that the duties owed under section 2-2201 do not depend upon any contract. Skaperdas, 2015 IL 117021, ¶ 25. Nor can we add language to the statute of limitations as provided in section 13-214.4. Nothing in the language of that section suggests that the legislature meant to incorporate contract accrual principles. 735 ILCS 5/13-214.4 (West 2014). ¶ 61 The suspect logic in the majority's opinion is laid bare by its reliance on Hermitage. Recognizing that the statute of limitations does not define what constitutes accrual, the majority relies on Hermitage as authority to "fill this gap" in the statute. Supra ¶ 17. The language quoted from Hermitage is accurate but ignores the context. ¶ 62 The Hermitage case involved a claim by a mechanic's lienholder who sued the preparer of the lien for negligence, negligent and unauthorized practice of law, consumer fraud, and breach of warranty. Hermitage, 166 Ill. 2d at 75-76. The parties agreed that these common-law theories, other than fraud, arose from an oral contract for services to which a five year statute of limitations applied. Id. at 76. The causes of action were not based on any statute. ¶ 63 Unlike Hermitage, in this case, there is no gap to be filled. Section 2-2201 simply articulates a cause of action for negligence. Under the statute, the Krops presented a cause of action for negligence, and the statute of limitations for that claim was triggered by normal negligence accrual principles. ¶ 64 Furthermore, the majority concludes that the discovery rule will typically not delay the accrual period because an insurance customer's duty to read the policy generally acts to put the customer on notice of the injury. This conclusion is premised on the erroneous notion that the injury accrues when the plaintiff is issued a policy that does not cover all of the possible contingent future liability that would have been covered under the requested policy. As explained, the breach itself is not actionable. No negligent procurement action could arise until there was a loss for which an insurance claim was made and denied because, until that moment, there could be no actual damages. ¶ 65 Although the accrual issue has received diverse treatment in other jurisdictions, to hold that the date the injury accrues is the date of the negligent act allows the 21 cause of action to be barred before any actionable injury resulted. If plaintiffs had brought suit in 2012 when they received the allegedly defective policy, their complaint would not have survived a section 2-615 motion to dismiss because no actual damages had yet occurred. Under the majority's view, the cause of action for negligent procurement by an insurance producer under section 2-2201 is essentially a dead letter if the underlying liability claim is not brought within two years from the date the policy was issued. ¶ 66 Under these circumstances, the statute of limitations essentially becomes a statute of repose, contrary to the legislative intent of section 13-214.4. 735 ILCS 5/13-214.4 (West 2014). Had the legislature sought this outcome, it could have drafted the statute of limitations to expressly state that a cause of action concerning an insurance producer's procurement of insurance shall be brought within two years of the date the policy of insurance was issued. It did not do so. ¶ 67 Whether a corresponding duty to read the policy may be alleged as an affirmative defense to a claim for negligent procurement is a separate question, involving the merits of plaintiffs' cause of action. However, the majority's conclusion eviscerates the duty of the insurance producer to notify a prospective insured of the rejection of the risk. Skaperdas, 2015 IL 117021, ¶ 37. Moreover, whether the deficiencies in a policy are readily apparent from reading it may involve questions for the trier of fact, including the sophistication of the insured and the complexity of the policy. These questions, however, are not at issue here on a motion to dismiss. ¶ 68 In sum, this is a tort action and should be analyzed under the proper tort framework. Interpreting the cause of action in this manner effectuates the statute's legislative intent to impose this legal duty as a matter of policy. To construe the cause of action as a tort arising out of a contractual relationship defeats the purpose of section 2-2201 by rendering negligence actions against insurance producers for failure to procure requested insurance an illusory form of recovery for resulting damage that ensues. Accordingly, I respectfully dissent. ¶ 69 JUSTICE KILBRIDE joins in this dissent.