Every state provides a statutory period for a policyholder to file a lawsuit against his or her carrier for breaching the insurance contract. Some states provide that insurance companies are prohibited from contractually limiting the period delineated by statute. Other states permit insurance companies to contractually shorten the statute of limitations period within the insurance policy itself. Illinois falls into the later category of states and it is important for Illinois policyholders and their public adjusters to be aware of this fact.

Under Illinois law, a ten year statute of limitations exists for a breach of contract action.

735 Ill. Comp. Stat. Ann. 5/13-206 provides:

Ten year limitation. Except as provided in Section 2-725 of the “Uniform Commercial Code”, actions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidences of indebtedness in writing and actions brought under the Illinois Wage Payment and Collection Act shall be commenced within 10 years next after the cause of action accrued.

Illinois law recognizes limitation periods as valid contractual provisions in an insurance contract.1 Subject to statutory regulations, insurance companies are permitted to contract when a legal action on the insurance contract may be instituted and, on so contracting, the terms of the policy ordinarily control in the absence of waiver or estoppel.2

This information is imperative for policyholders and their representatives. Missing the contractual suit limitations period is costly. In fact, a lawsuit filed after the lapse of the applicable statute of limitations period is an affirmative defense to an otherwise valid claim and may bar legitimate coverage.

Next week, I will discuss how Illinois law has developed to protect the policyholder when an insurance company’s own actions lead to the lapse of the contractual limitation period to file suit.

1 American Access Cas. Co. v. Tutson, 409 Ill. App. 3d 233, 350 Ill. Dec. 240, 948 N.E.2d 309 (1st Dist. 2011).
2 O’Brien v. Country Mut. Ins. Co., 105 Ill. App. 2d 21, 23, 245 N.E.2d 30, 31 (Ill. App. Ct. 1969).