Saying customers have an obligation to read and understand the terms of their insurance policies, the Illinois state Supreme Court has rejected the try by a couple to make their American Family Insurance agent pay for providing them with a policy that didn’t protect them against a defamation lawsuit, even though they had specifically asked the agent to obtain that coverage for them.
On Oct. 18, the state high court ruled 5-2 in favor of American Family Mutual Insurance agent Andrew Varga in the litigation brought by plaintiffs Walter and Lisa Krop, finding the Krops waited too long to raise objections to their coverage under their policy, outside of the two years provided under Illinois law.
The Krops had attempted to argue the two-year limit should have begun when they were denied coverage, not from the date they obtained the policy.
The state Supreme Court, however, said, barring a few exceptions, the duty should fall on the customers to read and understand their coverage and limits at the time the policy is purchased, not years down the road when a dispute over coverage arises.
Justice Rita B. Garman authored the majority opinion, with Chief Justice Lloyd A. Karmeier and justices Robert R. Thomas, Anne M. Burke and P. Scott Neville concurring.
Justice Mary Jane Theis wrote a dissent to the decision, with Justice Thomas L. Kilbride joining.
“Customers generally know their own goals better than their insurance agent does, but determining if a policy achieves those goals will be difficult when customers do not read the policy,” Garman wrote in the majority opinion. “Expecting customers to read their policies and understand the terms incentivizes them to act in good faith to purchase the policy they actually want, rather than to delay raising an issue until after the insurer has already denied coverage.”
The legal dispute dates back to 2014, when the Krops filed a claim with American Family to cover them when they were sued by a woman, identified as Mary Andreolas, who claimed the Krops’ son had defamed and invaded the privacy of her child.
American Family declined them claim, asserting their homeowners’ insurance policy didn’t include that coverage, as the policy applied only to “bodily harm,” which did not include “emotional or mental distress, mental anguish, mental injury or any similar injury unless it arises out of actual bodily harm.” The insurer also asserted the policy didn’t include any coverage against claims based on intentional infliction of harm.
The Krops asserted the denial of their claim caught them at unawares, as they believed their policy included such coverage. They claimed, when they purchased the new policy in 2012 from American Family, they had instructed their agent, Varga, to obtain for them the same level of coverage they had under their previous homeowners’ policy through rival insurer Travelers. That policy had included coverage that would have protected them against the lawsuit faced by their son.
The Krops then sued, asserting Varga had been negligent and breached his duty to them in not arranging for them to purchase such coverage.
Cook County Circuit Judge Neil Cohen disagreed, dismissing their case, and siding with American Family, which asserted the law gave the Krops only two years from the effective date of their policy to bring their lawsuit.
The Krops appealed, arguing the two-year statutory clock did not start ticking until they became aware of Varga’s alleged failure to follow their instructions.
A panel of the Illinois First District Appellate Court then overturned the Cook County court ruling, agreeing with the Krops on the question, and teeing up the issue for the Illinois Supreme Court.
However, the five-justice majority came down on the side of the insurer, saying they believe Illinois law placed the burden on the policyholder to read and understand the policy they are purchasing, rather than on the insurance agent to ensure the customers’ wishes are fully realized.
In short, the majority asserted, the Krops should have realized before 2014 that they had been shortchanged in coverage.
“The Krops’ alleged injuries included not only their uninsured liability in Andreolas’ lawsuit but also their lack of coverage between the purchase of the policy in 2012 and the lawsuit in 2014,” Garman wrote. “The damages may have increased when Andreolas sued, but the alleged injury began when American Family and Varga provided the Krops with an insurance policy that did not conform to their request.
“… The Krops have not pleaded facts showing that they could not have read their American Family policy and understood its terms, so the cause of action accrued when they first purchased their policy,” Garman continued.
In her dissent, Theis found fault with the majority’s reasoning, noting she believed legal precedent holds exactly opposite the majority’s decision.
She further noted, even if the Krops had discovered their lack of coverage before 2014, they would not have been allowed to sue until they actually suffered an injury, such as a denial of coverage.
“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,” Theis wrote. “However, the majority’s conclusion eviscerates the duty of the insurance producer to notify a prospective insured of the rejection of the risk.
The majority’s decision, she said, would essentially turn any attempt to sue insurers over a denial of coverage “illusory.”
According to Illinois court records, the Krops were represented on appeal by attorney Kristin L. Matej, of Taylor Miller LLC, of Chicago.
Varga was represented by attorneys Stephen R. Swofford and Kent J. Cummings, of Hinshaw & Culbertson LLP, of Chicago.
And American Family was represented by attorney Patti M. Deuel, of Leahy, Eisenberg & Fraenkel Ltd., of Chicago.