American Family Mutual Insurance Co. v. Krop
120 N.E.3d 982
Ill.2019Background
- Walter and Lisa Krop requested an American Family homeowner’s policy in early 2012 through agent Andrew Varga, asking coverage equivalent to their prior Travelers policy.
- American Family issued the policy on March 21, 2012; the Travelers policy expressly covered “personal injury” (e.g., libel/slander) while the American Family policy covered only bodily injury or property damage.
- In August 2014 American Family denied coverage for a third‑party suit alleging defamation, invasion of privacy, and intentional infliction of emotional distress.
- The Krops filed a counterclaim and third‑party complaint (Sept. 2015) alleging Varga negligently failed to procure requested coverage; defendants moved to dismiss as barred by the two‑year statute of limitations for claims against insurance producers (735 ILCS 5/13‑214.4).
- The circuit court dismissed, holding accrual occurred when the policy was issued (March 21, 2012); the appellate court reversed applying the discovery rule and accrual at denial of coverage (Aug. 2014). The Illinois Supreme Court granted review.
- The Supreme Court held the cause of action for negligent failure to procure accrues when the insured receives a policy they could reasonably read and understand, barring the Krops’ claim as untimely.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When does a negligent‑procurement claim against an insurance producer accrue under 735 ILCS 5/13‑214.4? | Krops: accrual is delayed by the discovery rule until insurer denies coverage (Aug. 2014). | Varga/American Family: accrual occurs when insured receives the policy (Mar. 21, 2012). | Accrues when insured receives a policy they can reasonably read and understand; Krops’ suit (Sept. 2015) was time‑barred. |
| Does an insurance producer owe a fiduciary duty (affecting accrual)? | Krops/appellate court: broker‑style fiduciary duty can delay accrual; agent’s representations may override duty to read. | Defendants: Insurance Placement Liability Act limits fiduciary standards; producers owe ordinary care only. | No fiduciary duty applies here; 735 ILCS 5/2‑2201 precludes treating producers as fiduciaries except in narrow situations. |
| Is the discovery rule ordinarily applicable to negligent‑procurement claims? | Krops: discovery rule should apply because injury (uninsured liability) is speculative until a claim is denied. | Defendants: discovery rule typically does not delay accrual because insureds can discover defects by reading the policy. | Discovery rule is narrow; typically it will not delay accrual where policy terms are plain and the insured could discover the defect upon receipt. |
| Are there exceptions when accrual should wait until denial of coverage? | Krops: unusual or ambiguous policies or unforeseen circumstances justify delayed accrual. | Defendants: exceptions are narrow; only where insureds reasonably could not detect defects from the policy. | Yes — narrow exceptions (e.g., contradictory provisions, undefined key terms, highly unusual risks) exist, but not present here. |
Key Cases Cited
- Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72 (Ill. 1995) (distinguishing accrual rules for torts vs. contract‑based torts; accrual at breach for contract‑derived torts)
- Knox College v. Celotex Corp., 88 Ill.2d 407 (Ill. 1981) (articulating the discovery rule: limitations tolled until plaintiff knows or should know of injury and wrongful cause)
- Golla v. General Motors Corp., 167 Ill.2d 353 (Ill. 1995) (plaintiff need not know full extent of injury before accrual under discovery rule)
- Skaperdas v. Country Casualty Insurance Co., 2015 IL 117021 (Ill. 2015) (statutory duty under 735 ILCS 5/2‑2201 applies to captive agents and brokers; producers owe ordinary care)