Statute of Limitations Begins to Run When Policy Delivered
People who are insured receive from their broker or agent and insurer when a policy is issued. The insured, although dealing with an agent who has a fiduciary duty to the insured, still must read the policy and determine what coverages were provided. The insured should not be able to claim his ignorance and failure to read the policy protects him and allows him to sue his agent and insurer for not providing the insurance he wanted.
In RVP, LLC v. Advantage Insurance Services, Inc., Appellate Court of Illinois, — N.E.3d —-, 1602762017 IL App (3d) 160276 (6/14/17) the appellate court was called upon to determine whether the statute of limitations applies as of the date of delivery of the policy that advised the insured of reduced limits and reverse the finding of the trial court in favor of the agent and insurer.
Plaintiffs sued, alleging negligence and breach of contract counts against their insurance broker agencies, Advantage Insurance Services, Inc. (Advantage) and Commercial Insurance Group, Inc. (CIG), and their insurance agent, Tom Roule. Plaintiffs alleged defendants were negligent and in breach of contract for failing to procure sufficient insurance coverage, resulting in plaintiffs being unable to recover insurance proceeds for property that was destroyed in a fire.
Plaintiff, RVP, owned real property in Kankakee, Illinois. In 2007, plaintiff, River Valley Recycling, began operating a recycling facility out of a portion of RVP’s building. Mark Fill was a member of RVP and the Chief Financial Officer (CFO) of River Valley Recycling. Fill was responsible for the procurement and for the management of insurance issues for plaintiffs.
On March 1, 2008, Roule procured a policy for RVP from Travelers Casualty Insurance Company (Travelers policy) for “building[s] 1 and 2,” at the Kankakee facilty, with coverage limits of $3,000,000 and $600,000, respectively. On April 21, 2008, a “Change Endorsement” was issued, revising the limits to $1,500,000 for the one building and $1,500,000 for the other, with blanket limits so that $3,000,000 of coverage that applied to either or both of the buildings. On April 1, 2009, the policy was renewed with the limits increased to $1,545,000 for each building, with blanket coverage also provided. Travelers non-renewed.
In July of 2008, the Universal policy was renewed some time prior to July 1, 2009. On July 1, 2009, River Valley Recycling was given notice that the Universal policy was being canceled effective August 1, 2009.
Fill instructed Roule to find the same or similar coverage as plaintiffs had under the canceled Travelers policy. Roule had a copy of the Travelers policy so he knew all the information.
It was Fill’s custom to certify insurance applications without seeing all the pages. Fill relied on Roule to obtain coverage that he had requested.
Erie issued an insurance policy (Erie property policy) based on Fill’s application. The declaration page of the Erie property policy specified that the coverage limits for business personal property was $75,000. The Erie property policy was subsequently renewed on two occasions—on August 1, 2010, and August 1, 2011—with the declaration page showing that the coverage limit was $75,000.
The policy did not provide blanket coverage. The Erie buildings policy was renewed the following year on February 1, 2011.
On September 2, 2011, a fire occurred on the plaintiffs’ Kankakee properties, destroying the buildings and the contents therein. Erie only paid the coverage limit of $1,545,000 on the single building and Erie only paid the “functional replacement” cost of $437,800 on the other property. River Valley Recycling claimed that it sustained $1,028,977 in loss of business income but was only paid $40,173 for the loss of three pieces of equipment.
Plaintiffs sued alleging negligence and breach of contract counts against defendants for failing to obtain the amount of coverage Fill had requested. Plaintiffs alleged that, after the fire, they learned that their insurance coverage was not sufficient to cover the loss of the Kankakee facilities, fixtures, permanently attached machinery and equipment, other equipment, supplies, tools, and inventory and alleged that defendants had “breached their contract to procure sufficient insurance for the [p]laintiffs.”
Motion for Summary Judgment
Through discovery, it was determined that the Erie policies were delivered directly to Fill at the RVP/River Valley Recycling offices, but Fill was unsure of the exact date that he received the policies. Fill acknowledged that he received the policies more than two years before filing suit.
The trial court granted the motion for summary judgment, finding that the plaintiffs knew or should have known of the policy limits and whether those limits contained sufficient coverage when plaintiffs received the policies.
The two-year statute of limitations governs the plaintiffs’ claims regarding defendants’ negligent procurement and breach of contract in this case. The Illinois statute provides that all causes of action by an insured against his insurance producer, registered firm, or limited insurance representative concerning the sale, placement, procurement, renewal cancellation of, or failure to procure any policy of insurance shall be brought within two years of the date the cause of action accrues.
Under the discovery rule, the limitations period does not begin to run until the plaintiff knows or reasonably should have known of its injury and that it was wrongly caused. At the point the injured person knows or should have known that his or her injury was “wrongly caused,” the injured person possesses sufficient information concerning his injury and the cause of his injury to put a reasonable person on notice to make additional inquiries. A cause of action accrues at the time a party should be charged with knowledge of his or her injury and that it was wrongfully caused. Although generally a question of fact, judgment may be entered as a matter of law when the undisputed facts lead to only one conclusion.
Plaintiffs applied for and received $1,545,000 and $545,000 of coverage on the two buildings and $75,000 of coverage for business property. Plaintiffs received copies of the policies reflecting those coverage limits. Although plaintiffs argue there was no evidence of their actual knowledge of the policy limits, they should have reasonably known of the policy limits upon receiving the policies or the renewals of the policies, both of which indicated the coverage limits.
Failure to Read Policy
During discovery, it was determined that plaintiffs received the policies prior to the policies’ renewal periods, and the complaint was filed two years after that time. The evidence also showed that the policies indicated the coverage limits on the declaration pages and there was no indication or allegations that the amounts of the coverage limits were ambiguous. As such, plaintiffs should have known of the policy limits upon receiving the policies.
The court did not reach the issue of whether plaintiffs’ failure to read the policy was an absolute bar to recovery or was merely some evidence of contributory negligence because it did not reach the merits of the case.
Instead, for statute of limitations purposes, the court found it necessary to determine when the plaintiffs should be charged with knowledge of the deficient coverage limits. Based upon the facts of this case, plaintiffs should have known of the deficient coverage limits upon receiving the policies where there was no claim of an ambiguity in the declaration of the coverage limits.
Claim Barred by the Statute of Limitation
Where the plaintiffs applied for certain policy coverage limits, received a policy reflecting those coverage limits, and renewed that policy multiple times, the court held that the insured should have known of the coverage limits upon receipt of the policies, which included declaration pages that specified the coverage limits.
Plaintiffs argue that their failure to read the policies was not applicable because the defendants’ fiduciary duty trumped the plaintiffs negligence in failing to read or establish that the coverages they obtained were what they ordered. The issue of whether a party was negligent or contributory negligent go to the merits of plaintiffs’ claims.
Regardless, for the purpose of determining when the plaintiffs’ claims accrued, the court found plaintiffs knew or should have known of the coverage limits upon receiving the policies and, as a result, their claims were barred by the statute of limitations.
Ignorance, sloth, and stupidity by an insured is not enough to allow the insured to claim that its fiduciary, the agent, breached its duty to get the insurance the insured wanted even though it received the policies and should have seen the limits were not appropriate when they were delivered. The plaintiffs had no excuse for failing to protect themselves. They hurt themselves and failed to sue promptly.
This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
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