Customers Should Read Insurance policies, not wait to sue til Denied Coverage, High Court Rules
Brad Smith • Oct 30, 2019
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. The couple specifically asked the agent to obtain the coverage for them however the court states that is the customers obligation to read and understand the terms of their insurance policies.
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, find 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. “Although customers should read their policy and discover any defects we recognize that there will be a narrow set of cases in which the policyholder reasonably could not be expected to learn the extent of coverage simply by reading the policy.”
Justice Rita B. Garman authored the majority opinion, with Chief Justice Lloyed A. Karmeier and justices Robert R. Thomas, Anne M. Burke and P. Scott Neville concurring.
Justice Mary Jan 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 determine 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 started back in 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 on 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 the at unawares, as they believe 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 lever 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 alleged facts of this case do not present such an exceptional circumstance where a customer reasonably should not be expected to understand the terms of the policy.”
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.
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 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 attorn 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 & Fraennkel Ltd., of Chicago.
Interested in Working With Us?
If you need help with estate planning or any other legal concerns, we are here for you. Don't hesitate to contact our firm directly for assistance. Our dedicated team is ready to provide support and guidance to you and your loved ones during important life transitions.
Whether you're ready to schedule a strategy session to discuss your specific needs or if you're interested in exploring our wide range of complimentary guides and additional resources, we encourage you to get in touch with us.
With licensed attorneys and offices located in both Illinois and Missouri, we are well-equipped to serve clients in these regions. Reach out to us today and let us leverage our expertise and care to guide you through the legal process.
Helpful Guides
Begin your journey by taking advantage of our collection of complimentary guides.
Online Documents
Simple & Convenient, Cost Effective, Attorney Reviewed Documents.
Recent Posts
As we journey through life, one inevitable truth is the process of aging. In the United States, this reality brings about a myriad of legal considerations and challenges, prompting individuals and families to seek guidance in the realm of elder law. From estate planning to long-term care, understanding the intricacies of elder law can greatly ease the burden of navigating the complexities of aging. In this blog, we explore some frequently asked questions about elder law and delve into the landscape of aging in America.
As we journey through life, one inevitable truth is the process of aging. In the United States, this reality brings about a myriad of legal considerations and challenges, prompting individuals and families to seek guidance in the realm of elder law. From estate planning to long-term care, understanding the intricacies of elder law can greatly ease the burden of navigating the complexities of aging. In this blog, we explore some frequently asked questions about elder law and delve into the landscape of aging in America.
Many people overlook the importance of ongoing estate planning, assuming a will or trust is adequate. However, this passive approach can bring costly consequences for both finances and family in the future.
Are you feeling overwhelmed by the complexities of Medicaid in Illinois and Missouri? You're not alone. Many people find themselves in a maze of regulations, paperwork, and confusing terminology when trying to access this vital healthcare program. In this blog post, we'll break down some of the key aspects of Medicaid and discuss why seeking help is essential for ensuring you get the benefits you deserve.
When it comes to estate planning, delaying action can have far-reaching consequences that extend well beyond our lifetimes.
If you don't have a plan in place for your assets, the state will step in to decide how they are distributed. While some may trust the state's judgment, it's important to recognize that it doesn't understand your individual circumstances, and the process can be both time-consuming and expensive.
Click HERE To View April Newsletter
Submit Your Confidential Request
Click the button & fill out the form so we can better understand how we can help.