Often an insured goes to his insurance broker or agent hoping to find the same coverage at a better rate, but often does not find out that the same coverage was not procured until after there has been a loss or claim. Whether such a request will support a cause of action is a determination that is specific to each state, as is the question of when the statute of limitations on such a cause of action begins. The latter issue was recently addressed by the Illinois Court of Appeals in American Family Mutual Insurance Company v. Krop.1
In Krop, the insureds met with an American Family sales agent regarding their homeowners insurance. The Krops advised their agent they wanted an insurance policy with equivalent coverage to what they had which included coverage for certain intentional acts and personal injury. Their prior policy included coverage for libel, slander, defamation of character and invasion of privacy. American Family issued and delivered its policy to the insureds. The policy, however, did not provide coverage for personal injury resulting from intentional acts, or abuse. Ultimately, the Krops’ son was sued for damages for defamation and other acts as a result of alleged bullying and harassment. The Krops made a claim for coverage under the American Family policy, which was denied.
Thereafter, American Family filed suit seeking a declaration that the allegations did not fall within the policy’s coverage. The Krops filed a third-party complaint against American Family and against their agent asserting he negligently failed to procure the level of insurance coverage requested. Both American Family and its agent moved to dismiss the claims, arguing the claims were untimely as the limitations period began to run once the Krops received their insurance policy. The trial court agreed and granted both motions.
On appeal, the Krops argued that their counterclaim and third-party complaint were timely because the discovery rule tolled the statute of limitation. They argued that the statute of limitations did not start to run until they were denied coverage. Recognizing that an insurance agent owes a fiduciary duty to an insured, the appellate court agreed with the insured and held that the statute of limitations was subject to tolling by application of the discovery rule, that is, when the insured knew or reasonably should have known of the injury. The court recognized that with regard to an insureds’ claim against their agent, the insureds knew or reasonably should have known of the injury at the moment when coverage is denied. Accordingly, because the insured brought their action within two years of the denial of the claim, their action was timely.