                                       2017 IL App (1st) 161071
                                             No. 1-16-1071
                                                                                      Third Division
                                                                                       May 10, 2017

     ______________________________________________________________________________

                                                IN THE
                                 APPELLATE COURT OF ILLINOIS
                                           FIRST DISTRICT
     ______________________________________________________________________________

     AMERICAN FAMILY MUTUAL                      )      Appeal from the

     INSURANCE COMPANY,                          )      Circuit Court of

                                                 )      Cook County.
      Plaintiff-Counterdefendant-Appellee,
                                                 )
     v. 
                                        )      No. 14 CH 17305
                                                 )

     WALTER KROP, individually and as father     )      Honorable

     and next friend of T.K., a minor; LISA KROP )      Neil Cohen, 

     and MARY ANDRELOAS, as next best            )      Judge Presiding.

     friend of A.A., a minor;
                   )
                                                 )
      Defendants-Counterplaintiffs­
      Third-Party Defendants-Appellants, 
       )
                                                 )

                                                 )

     (Andy Vargas, Third-Party Defendant-        )

     Appellee).                                  )

                                                 )

     ______________________________________________________________________________

                  JUSTICE COBBS delivered the judgment of the court, with opinion.
                  Presiding Justice Fitzgerald Smith and Justice Lavin concurred in the judgment
               and opinion.
                                               OPINION


¶1         Plaintiff American Family Mutual Insurance Company (American Family) brought a

        complaint for declaratory judgment against Walter Krop and Lisa Krop (collectively, the

        Krops) seeking a declaration that the Krops were not entitled to coverage or protection under
     No. 1-16-1071


        its home insurance policy procured in 2012. In response, the Krops brought a counterclaim

        against American Family and a third-party complaint against American Family agent Andy

        Vargas. Both American Family and Vargas moved to dismiss the counterclaim and third-

        party complaint pursuant to sections 2-615 and 2-619 of the Illinois Code of Civil Procedure

        (the Code). 735 ILCS 5/2-615, 2-619 (West 2014). The trial court granted their motions

        pursuant to section 2-619 and made no ruling as to section 2-615. For the reasons that follow,

        we reverse and remand.

¶2                                          I. BACKGROUND

¶3         This appeal arises from the dismissal of defendants’ counterclaim and third-party

        complaint. Before considering the issues raised on appeal, we first set out the relevant facts

        as alleged in the counterclaim and third-party complaint.

¶4         In March 2012, Walter and Lisa Krop met with Vargas, an American Family sales agent,

        regarding their homeowner’s insurance. At that time, the Krops were insured through

        Travelers Insurance Company. The Travelers policy provided coverage for certain intentional

        acts, bodily injury, property damage, and personal injury. Under the Travelers policy,

        personal injury included libel, slander, defamation of character, and invasion of privacy. The

        Krops expressed to Vargas that they wanted an insurance policy with equivalent coverage to

        the Travelers policy. The Krops alleged Vargas stated that American Family could provide

        equivalent coverage at a lower or comparable rate.

¶5         American Family issued its homeowner’s policy to the Krops on March 21, 2012. The

        American Family policy includes coverage for bodily injury and property damage. The

        policy does not provide coverage for personal injury, injury resulting from intentional acts, or




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        abuse. After receiving the policy in 2012, the Krops did not complain about the limits of

        coverage and subsequently renewed the policy in 2013, 2014, and again in 2015.

¶6          On May 14, 2014, the Krops’ son, T.K., was sued by Mary Andreloas, as next best friend

        of A.A., a minor, in the circuit court of Cook County. The Andreloas complaint sought

        damages for defamation, invasion of privacy, and intentional infliction of emotional distress

        as the result of alleged harassment and bullying by minor defendants including T.K. The

        Krops made a claim for coverage under the American Family policy. Their request was

        denied on August 20, 2014.

¶7          In the six-page denial letter sent to the Krops, American Family restated the limitations of

        the Krops’ policy, specifically, citing the policy’s definition of “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 to the person” and the exclusion of coverage for

        damages or injury resulting from abuse or intentional conduct. American Family also stated

        that the facts that gave rise to the complaint occurred in 2011, thus predating the Krops’

        policy. 1

¶8          On October 30, 2014, American Family filed a complaint seeking a declaratory judgment

        regarding coverage for the Krops under the homeowner’s insurance policy. Specifically,

        American Family sought a declaration that the allegations in the Andreloas complaint fell

        within the exclusions of the Krops’ insurance policy, thus requiring no coverage or

        protection.

¶9          The Krops filed a counterclaim against American Family and a third-party complaint

        against Vargas on September 22, 2015. The Krops alleged that Vargas, as an agent of
            1
              On appeal, American Family makes no argument regarding the underlying complaint which gave rise to
        the insurance claim. Thus, we do not address it.

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          American Family, negligently failed to procure the level of insurance coverage they

          requested. Subsequently, both American Family and Vargas filed motions to dismiss alleging

          that the Krops’ claims were filed after the two-year statute of limitations for actions against

          insurers and thus barred. On February 4, 2016, the trial court granted American Family’s and

          Vargas’s motions, finding that the Krops’ counterclaim and third-party complaint were filed

          outside of the two-year statute of limitations.

¶ 10                                             II. ANALYSIS

¶ 11         On appeal, the Krops argue that both their counterclaim and third-party complaint are

          timely because the discovery rule tolled the statute of limitations. Specifically, the Krops

          argue the statute of limitations did not start to run until they were denied coverage in August

          2014. In its response, American Family asserts that the Krops’ claims were untimely because

          the statute of limitations began to run once the Krops received the policy in 2012. American

          Family further argues that the discovery rule is inapplicable to the Krops’ claims because

          they had a duty to read their policy. Vargas filed a separate response making similar

          arguments. He also argues that the discovery rule does not apply to cases where the alleged

          deficiency of the policy plainly appeared on the face of the policy.

¶ 12         American Family and Vargas brought their motions to dismiss defendant’s counterclaim

          and third-party complaint pursuant to sections 2-615 and 2-619(a)(9) of the Code. A motion

          to dismiss under section 2-619 admits the legal sufficiency of the complaint but asserts

          affirmative matters outside of the complaint barring the claim. DeLuna v. Burciaga, 223 Ill.

          2d 49, 59 (2006). A section 2-619 motion admits as true all well-pleaded facts, along with

          reasonable inferences that can be gleaned from those facts. Piser v. State Farm Mutual

          Automobile Insurance Co., 405 Ill. App. 3d 341, 344 (2010). The purpose of a section 2-619


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          motion to dismiss is to dispose of issues of law and easily proved issues of fact at the outset

          of litigation. Thurman v. Champaign Park District, 2011 IL App (4th) 101024, ¶ 18.

          Specifically, subsection 2-619(a)(9) of the Code permits a court to dismiss a complaint if it

          was not commenced within the time limited by law. The court should grant a section 2-619

          motion if, after construing the documents in the light most favorable to the nonmoving party,

          there are no disputed issues of material fact. See Perelman v. Fisher, 298 Ill. App. 3d 1007,

          1013 (1998). We review the dismissal of a cause of action pursuant to section 2-619 de novo.

          Id.

¶ 13            In their counterclaim and third-party complaint, the Krops allege that Vargas failed to

          procure the level of insurance they requested in violation of section 2-2201(d) of the Code.

          735 ILCS 5/2-2201(d) (West 2014). 2 Defendants respond that any claims for a violation of

          the Code are time barred for having not been brought within the applicable two-year

          limitations period. 3

¶ 14            Here, the parties do not dispute that claims against an insurance producer must be

          brought within two years of the date the cause of action accrues. Neither do they dispute that

          the discovery rule may extend the limitations period based upon when an insured knew or

          reasonably should have known of his injury. The parties differ, however, on when, in this
                2
                 Section 5/2-2201(d) provides : “While limiting the scope of liability of an insurance producer, registered
          firm, or limited insurance representative under standards governing the conduct of a fiduciary or a fiduciary
          relationship, the provisions of this Section do not limit or release an insurance producer, registered firm, or
          limited insurance representative from liability for negligence concerning the sale, placement, procurement,
          renewal, binding, cancellation of, or failure to procure any policy of insurance.” 735 ILCS 5/2-2201(d) (West
          2014).
               3
                 Section 13-214.4 of the Code provides that “[a]ll causes of action brought by any person or entity under
          any statute or any legal or equitable theory against an 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 2 years of the date the cause of action accrues.” 735 ILCS 5/13­
          214.4 (West 2014).




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           case, the insureds knew or reasonably should have known of their injury so as to trigger the

           running of the statute of limitations.

¶ 15          Our supreme court has distinguished when a cause of action accrues for tort and contract

           actions. See West American Insurance Co. v. Sal E. Lobianco & Son Co., 69 Ill. 2d 126

           (1977). When the cause of action alleges tortious conduct, the cause of action generally

           accrues when the plaintiff suffers injury. Id. at 129-30. In breach of contract actions and torts

           arising out of contractual relationships, the cause of action accrues at the time of the breach,

           not when the party sustains damages. Id. at 132. Such was the case in Indiana Insurance Co.

           v. Machon & Machon, Inc., 324 Ill. App. 3d 300, 303 (2001), in which an insurer sued its

           agent.

¶ 16          Historically, Illinois has recognized that the relationship between an insured and his

           broker, acting as the insured’s agent, is a fiduciary one. See Garrick v. Mesirow Financial

           Holdings, Inc., 2013 Il App (1st) 122228, ¶ 31; DOD Technologies v. Mesirow Insurance

           Services, Inc., 381 Ill. App. 3d 1042, 1046 (2008); AYH Holdings, Inc. v. Avreco, Inc., 357

           Ill. App. 3d 17, 32 (2005); Perelman, 298 Ill. App. 3d at 1011. Thus, for cases in which an

           insured alleges tortious conduct by its agent, although the cause of action accrues at the time

           of the breach, the statute of limitations is subject to tolling by application of the discovery

           rule. Broadnax v. Morrow, 326 Ill. App. 3d 1074, 1079 (2002). Accordingly, commencement

           of the statute of limitations is delayed until the plaintiff knows or reasonably should know of

           his injury and that it was wrongfully caused. Id.; see also Knox College v. Celotex Corp., 88

           Ill. 2d 407, 415 (1981).

¶ 17	         Defendants assert that this court’s decision in Hoover v. Country Mutual Insurance Co.,

           2012 IL App (1st) 110939, a case involving claims brought by an insured against its agent, is

           dispositive. In Hoover, the plaintiffs contacted an agent from Country Mutual Insurance for
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          the purpose of obtaining additional homeowner’s insurance coverage sufficient to cover the

          replacement costs of their home and its contents in the event of a loss. Id. ¶ 20. In May 2007,

          Country Mutual delivered a new policy to the plaintiffs. Id. ¶ 4. In January 2008, the home

          was destroyed by an explosion, which prompted the Hoovers’ claim for coverage. Id. ¶ 13.

          After making several payments on the claim, the agent for Country Mutual informed the

          Hoovers that no further payments would be forthcoming as, under the terms of the policy,

          they were not entitled to full replacement cost coverage. Id. ¶¶ 16-17.

¶ 18          In March 2010, the Hoovers sued both the agent and Country Mutual, alleging breach of

          contract, bad faith, and negligence. Id. ¶ 18. Both Country Mutual and the agent separately

          moved to dismiss the complaint, asserting, inter alia, that the action was time barred. Id.

          ¶¶ 23-24. In response, the Hoovers argued that the statute of limitations was tolled until they

          actually learned of their injury, which, they maintained, was not until Country Mutual denied

          additional payment on their claim. Id. ¶ 26. The trial court dismissed all claims as time

          barred. Id. ¶ 27.

¶ 19          A division of this court, sitting in the First District, affirmed the trial court’s dismissal. Id.

          ¶ 56. In so doing, the court held that when Country Mutual provided the plaintiff with a copy

          of the policy, they “knew or should have known” of the policies’ deficiencies. Rejecting the

          Hoovers’ argument that the discovery rule tolled the statute of limitations, the court found

          that because the plaintiffs received the policy more than two years before they filed their

          complaint, the statute of limitations precluded their claims. Id. ¶ 61.

¶ 20          Illinois cases decided prior to Hoover have applied the discovery rule to toll the statute of

          limitations in cases like the one now before us. See, e.g. Broadnax, 326 Ill. App. 3d 1074

          (2002); General Casualty Co. of Illinois v. Carroll Tiling Service, Inc., 342 Ill. App. 3d 883


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          (2003). In Broadnax, the case upon which the Krops rely, the plaintiff insured alleged that

          the defendant insurer was negligent in failing to procure an insurance policy that met his

          coverage needs with respect to a parcel of property the plaintiff intended to renovate.

          Broadnax, 326 Ill. App. 3d at 1076. When a fire destroyed the property prior to its

          renovation, the plaintiff brought a declaratory judgment action against the insurance

          company regarding coverage. The trial court granted summary judgment in favor of the

          defendant insurer, citing the plaintiff’s failure to comply with the relevant provisions of the

          policy, which was affirmed on appeal. Id.

¶ 21         The plaintiff subsequently filed a separate negligence action against the insurance agent.

          Id. at 1077. The defendants moved to dismiss, asserting the two-year statute of limitations

          bar. The trial court granted the motion to dismiss, and on appeal to this court, sitting in the

          Fourth District, we affirmed.

¶ 22         In its analysis, the court distinguished Indiana Insurance, the case upon which the

          insurance agents relied. The court noted that in Indiana Insurance, the claims were brought

          by the insurer against its own agent and, therefore, the cause of action as well as the

          relationship between the parties differed from those in Broadnax. Id. at 1079. Although the

          plaintiff in Broadnax did not ultimately prevail, the court noted that the defendant’s

          relationship to the plaintiff, as insurance broker and agent, was that of a fiduciary. Id. The

          court likened the case to legal malpractice cases in which the discovery rule applies to delay

          commencement of the statute of limitations. Accordingly, the court held that the plaintiff

          insured’s claim against the insurance agent accrued at the time of the denial of coverage as

          opposed to after damages were sustained as a result of the denial of coverage. Id. at 1081.




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¶ 23         With the exception of Hoover, Broadnax has been followed in several cases to hold that a

          cause of action brought by an insured against an insurance agent accrues when coverage is

          denied. See, e.g., State Farm Fire & Casualty Co. v. John J. Rickhoff Sheet Metal Co., 394

          Ill. App. 3d 548 (2009); General Casualty, 342 Ill. App. 3d at 899-900; see also

          Commonwealth Insurance Co. v. Stone Container Corp., 323 F.3d 507, 510-11 (7th Cir.

          2003) (comparing Broadnax and Indiana Insurance to the law in other jurisdictions and

          finding nothing “outside the norm”); but see Wallace Auto Parts & Service, Inc. v. Charles L.

          Crane Agency Co., No. 14-1377-SMY-DGW, 2015 WL 8606429 (S.D. Ill. Dec. 14, 2015)

          (expressly rejecting Broadnax and following the reasoning in this court’s decision in

          Hoover).

¶ 24         In this case, the trial court rejected the Fourth District’s decision in Broadnax, 326 Ill.

          App. 3d 1074, as well as State Farm Fire & Casualty, 394 Ill. App. 3d 548, as factually

          inapposite and found the First District’s decision in Hoover, this court’s “most recent

          pronouncement,” to be on point.

¶ 25         More recently, in Scottsdale Insurance Co. v. Lakeside Community Committee, 2016 IL

          App (1st) 141845, a different division of this court, sitting in the First District, found reason

          not to follow Hoover. In so doing, the court reaffirmed that long line of Illinois cases which

          hold that the cause of action in these types of cases accrues when the insured learns that its

          insurer is denying coverage, not when the policy was procured.

¶ 26         In Scottsdale, the Cook County public guardian sued the Lakeside community committee

          for the wrongful death of young Angel Hill, a ward of the court. Lakeside agreed to a consent

          judgment and assigned its claims against its insurer, Scottsdale Insurance Company, and its

          insurance broker, W.A. George Insurance Agency, to the public guardian. Scottsdale denied


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          coverage and filed a declaratory judgment action. The public guardian then filed a third-party

          complaint against W.A. George, alleging fraud, negligence, breach of contract, and breach of

          fiduciary duty in procuring the insurance policy. Id. ¶ 2. The trial court, finding that Lakeside

          knew or should have known that W.A. George obtained the wrong type of insurance policy

          when the policy was procured more than two years before the third-party complaint was

          filed, dismissed the complaint as time barred. Id. Lakeside appealed.

¶ 27         On appeal, Lakeside, relying on the discovery rule, contended that the statute of

          limitations did not begin to run until such time as Scottsdale denied coverage. Id. ¶ 21.

          Contrarily, W.A. George contended that, as in Hoover, the discovery rule should not be

          applied to toll the statute of limitations because Lakeside was put on notice that the policy

          was inadequate on the date it was first issued. Id. In its analysis, the court found Hoover

          distinguishable, noting first that the circumstances in which Lakeside acquired its policy

          differed from the circumstances in Hoover. Id. ¶ 36. In Hoover, the plaintiffs “already had a

          homeowners’ policy and were negotiating directly with a Country Mutual agent to amend

          just one portion.” Id. Further, although “the specific type of loss that could occur *** was

          unknown, the plaintiffs in Hoover were seeking a specific provision.” Id.

¶ 28         Conversely, Lakeside hired W.A. George to procure a policy that would cover multiple

          types of claims. Id. ¶ 37. Even had Lakeside representatives read the policy in advance, they

          would not know in advance that a claim involving the murder of a child in Department of

          Children and Family Services custody was not covered until the claim was denied. Id.

          Relying on that line of cases which hold that the discovery rule applies to toll the running of

          the statute until the insured has knowledge that coverage has been denied, the court reversed




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          the trial court’s dismissal of Lakeside’s third-party complaint against W.A. George and

          remanded for further proceedings. Id. ¶ 38.

¶ 29         Like Scottsdale, we also decline to follow Hoover but for a different reason. The weight

          of authority in Illinois remains that the cause of action for claims of negligence between an

          insured and the insured’s agent accrues at the time coverage is denied. A review of the

          analysis in Perelman, 298 Ill. App. 3d 1007, also a First District case, is instructive.

¶ 30         In Perelman, the plaintiff retained an insurance broker for the purpose of procuring a

          disability insurance policy that would contain a provision that would increase the amount of

          disability payments in order to meet increases in inflation. Perelman, 298 Ill. App. 3d at

          1008. The broker offered, and the plaintiff accepted, a policy with a monthly disability

          benefit of $4000. Upon issuance of the policy, an accompanying transmittal letter requested

          that the plaintiff review the policy and contact the broker if the plaintiff had any questions

          regarding his coverage. Id.

¶ 31         The policy as issued did not contain a provision that would keep pace with inflation. In a

          sworn statement, the agent averred that he explained to plaintiff prior to issuance of the

          policy that it did not contain a cost of living adjustment. However, plaintiff averred that

          during negotiation of the policy, the agent told plaintiff that he was purchasing a

          “ ‘premier’ ” policy, which was the “ ‘best’ ” policy available at the time. The plaintiff

          alleged that when he received the policy, he “ ‘skimmed’ ” through it to confirm the monthly

          disability benefit was for the amount requested. Id. at 1008-09.

¶ 32         Sometime later, the plaintiff suffered a disability and sought coverage, which was

          provided but without any future increases for inflation. Id. at 1009. When the policy benefits

          did not increase with inflation, the plaintiff filed claims against the broker for breach of


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          contract and negligent misrepresentation. Id. Defendant filed a motion to dismiss under

          section 2-619 of the Code. In support, the defendants argued that when the plaintiff received

          the policy he reasonably knew or should have known, for the purpose of commencing the

          limitation period under the discovery rule, that the policy did not contain a provision for an

          annual increase of benefits to meet the inflation rate. Id. at 1009-10.

¶ 33         The policy, having been issued more than two years prior to the filing of the complaint,

          was dismissed on the agent’s motion as time barred. Id. at 1010. This court reversed. Citing

          our earlier decision in Foster v. Crum & Forster Insurance Cos., 36 Ill. App. 3d 595, 598

          (1976), we first reaffirmed that in an action where the insured sues his insurer “after failing

          to note a discrepancy between the policy issued and received versus the policy requested or

          expected, the insured will be bound by the contract terms because he or she is under a duty to

          read the policy and inform the insurer of any discrepancy so that a prompt correction may be

          made without prejudicing the rights of either party.” In such cases, plaintiffs are not excused

          from their burden of knowing the contents of the policy when there are no allegations that the

          language of the policy was ambiguous. Perelman, 298 Ill. App. 3d at 1011.

¶ 34         That said, the court then noted the distinction between an action brought by an insured

          against the insurer, who issues the policy, and one brought by an insured against the agent,

          who procures the policy. In the latter, the relationship between the parties is one of fiduciary.

          Id. at 1011. Relying on the reasoning and the holdings in Black v. Illinois Fair Plan Ass’n, 87

          Ill. App. 3d 1106 (1980), and Economy Fire & Casualty Co. v. Bassett, 170 Ill. App. 3d 765

          (1988), the court held that the trial court erred in dismissing the plaintiff’s case because a

          genuine issue of material fact existed as to when the plaintiff knew or should have known

          that the policy was defective. Perelman, 298 Ill. App. 3d at 1013. Significantly, in Perelman,


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          the court noted that the insured’s failure to read and understand the terms of a policy

          procured by his broker was not an absolute bar to the insured’s right to recover against his

          broker for breach of the broker’s fiduciary duty. Id.

¶ 35         As Perelman makes clear and Broadnax affirms, it is the relationship between the parties

          that defines their respective duties and, thus, also defines the point in time when the cause of

          action accrues. Put another way, when an insurance agent owes a fiduciary duty to an

          insured, a cause of action for breach of that duty accrues at the time of the breach, but the

          statute of limitations is subject to tolling by application of the discovery rule. General

          Casualty, 342 Ill. App. 3d at 900. The discovery rule inquires of the plaintiff when he or she

          knew or reasonably should have known of their injury. Hermitage Corp. v. Contractors

          Adjustment Co., 166 Ill. 2d 72, 77 (1995). This court has consistently held that in the case of

          an insured’s claim against its agent, the plaintiff knows or reasonably should know of the

          injury at the moment when coverage is denied. State Farm Fire & Casualty, 394 Ill. App. 3d

          at 566; Broadnax, 326 Ill. App. 3d at 1081; Indiana Insurance, 324 Ill. App. 3d at 304.

¶ 36         In this case, the Krops, as insureds, filed a claim under the insurance policy procured for

          them by their agent. On August 20, 2014, coverage was denied. Accordingly, consistent with

          Perelman and its progeny, the Krops knew or reasonably should have known of their injury

          on August 20, 2014. The Krops filed their third-party complaint against the agent, Vargas,

          and American Family on September 22, 2015. Thus, their claims are not time barred.

¶ 37                                            CONCLUSION

¶ 38         For the foregoing reasons, we find that defendants’ counterclaim and third-party

          complaint were not time barred, as the cause of action accrued upon denial of coverage.

          Accordingly, we reverse the decision of the circuit court of Cook County granting plaintiff’s


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          motion to dismiss and remand for further proceedings. Because the trial court did not rule on

          plaintiff’s section 2-615 motion to dismiss, we do not address it here.

¶ 39         Reversed and remanded.




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