The Illinois Appellate Court for the First District, in Austin
Highlands Development Company v. Midwest Insurance Agency, Inc.
, 2020 Ill. App. (1st) 191125,
decided two issues important to insurance producers in Illinois.

  • The two-year statute of limitations applies to
    both agents and brokers.
  • The two-year statute of limitations begins to accrue
    on the date the insurance policy is delivered to the policyholder.

Midwest Insurance Agency (“Midwest”) was the exclusive agent to procure insurance policies for Austin Highlands Development Company (“Austin”), who acted as agent for various entities that owned apartment complexes in the Chicagoland area. In that role, Midwest procured a one-year policy on November 16, 2015, with an inception date of November 25, 2015. Although the record in the case did not reveal an exact date when the policy was received it was assumed that it occurred sometime between these two dates. The policy form identified the “producer” as RT Specialty LLC.

Austin was sued in March 2016 in a federal class-action suit alleging violation of Illinois statutes governing tenant deposits. Notice of the lawsuit was given to Midwest, and around August 25, 2016, Midwest informed Austin that its policy did not provide coverage. Austin claimed that it paid over $300,000 to settle the lawsuit.

On October 4, 2018, Austin sued Midwest under the Illinois
statute, 735 ILCS 5/2-2201. Austin alleged that Midwest was an insurance
producer under the statute and was therefore required to exercise ordinary care
in procuring and placing the policy. Austin further alleged that Midwest
breached that duty when it failed to procure an insurance policy that covered
claims such as those brought in the federal lawsuit. Midwest filed a motion to
dismiss alleging that Austin’s lawsuit was filed outside the two-year statute
of limitations that is applicable to producers. In response, Austin argued that
Midwest was its agent, Midwest, did not fall within the definition of producer
under the law, and the cause of action did not accrue when it received the
policy.

In Illinois insurance law there is a distinction between an
insurance agent and an insurance broker. A broker provides policies from a
variety of insurance companies whereas an insurance agent has a fixed or
permanent relationship with insurance companies that he or she represents. The
latter category would include captive agents.

The Court’s decision in this case ultimately turned on the
definition of “insurance producer” as that term is used in the statute (where
it is undefined). Relying on Illinois Supreme Court precedent that liberally
construed the term, this Court found that an insurance producer is “anyone who
is required to be licensed to sell, solicit or negotiate insurance, including
both agents and brokers…” Austin
Highlands Dev. Co. v. Midwest Ins. Agency, Inc.
, 2020 IL App (1st) 191125,
¶ 14.

The Court’s analysis included a review of fiduciary duties
of brokers and agents, which are limited to very narrow circumstances i.e. the
misappropriation of money. The Court went on to note that insurance brokers
have a duty to exercise ordinary care for most situations, which has put the
burden on policyholders to read and understand the terms of their insurance
policies. Accordingly, the Court reasoned a cause of action against a broker
for negligent procurement accrues when the policyholder receives the
policy. 

This decision clarifies Illinois law and clearly identifies those individuals and entities that fall under the definition of “insurance producer”.  The trigger for the accrual of negligence causes of action against insurance producers is the receipt of the policy by the policyholder and the action expires two years from that date.

Article by Daniel R. Formeller and Katherine F. Letcher of Tressler LLP.

Dan and Kate practice together in Chicago and represent directors, officers and professionals in state and federal courts throughout the country. Click here to contact us.

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