Does an Illinois Insurance Producer Owe a Legal Duty to an Additional Insured on a Policy It Procured? It Certainly Shouldn’t, and Here’s Why

HeplerBroom has a long history of defending insurance producers across Illinois, with a strong appellate record on the ordinary-care duty and statute of limitations issues in particular. Western Cons. Prem. Properties, Inc., v. Norman-Spencer Agency, Inc., 845 F.3d 313 (7th Cir. 2017) (duty); RVP, LLC, v. Advantage Insurance Services, Inc., 2017 IL App (3d) 160276 (statute of limitations). We’re seeing new cases in which the producer defendant is alleged to owe a duty not only to its client to procure the policy he requests, but also to an additional insured on that policy.

The typical circumstance is when a general contractor requires its subcontractor to list the general contractor as an additional insured on the subcontractor’s CGL policy. In this manner, the general contractor may target its tender for coverage away from its own policy to that of its subcontractor.

But when the subcontractor fails to secure that coverage, who is to blame? The subcontractor has breached its contract with the general contractor, obviously; but what about when the subcontractor is insolvent and cannot indemnify the general contractor for the absence of additional-insured coverage? The general contractor might look to the subcontractor’s insurance producer, alleging the producer negligently placed the coverage, causing the absence of additional-insured coverage.

No Illinois appellate case can be found to support the general contractor’s allegation that the producer owed it a duty to procure, although no holding appears to decide the issue. However, the framework of Illinois duty law does not support it.

Section 5/2-2201 of the Illinois Code of Civil Procedure states, “an insurance producer shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.” 735 ILCS 5/2-2201(a) (emphasis added). So without a request to procure the coverage at issue, the producer’s legal duty to act with ordinary care never incepts.

Interpreting the code section, the Supreme Court in Skaperdas v. Country Casualty. Ins. Co., 2015 IL 117021, went so far as to say the statute’s “request” must be specific, not merely a generic request that the producer ensure his client is adequately covered. “Section 2–2201 does not obligate an insurance producer to procure a policy that is not specifically requested by the insured.” Id. at ¶ 40.

The Skaperdas decision thus establishes that Section 5/2-2201 “only imposes a duty of ordinary care after a specific request is made.” Id. at ¶42.

Skaperdas involved allegations that, after a request to do so, an insurance producer failed to add the insured’s fiancée as a named driver on an automobile policy. Id. at ¶¶3, 44. Subsequently, that second driver’s claim was denied due to the producer’s alleged negligence. In reviewing the allegations on a motion to dismiss, the Supreme Court recognized in the complaint the insureds alleged they had “actually requested the extension of coverage” at issue, meaning that the engaged plaintiffs had made a specific request for coverage in the case. The Court thus determined that the plaintiffs had stated a cognizable breach of duty under section 5/2-2201. Id. at ¶¶44, 45.

The Supreme Court in Skaperdas speaks in terms of duty being imposed under the statute to procure “the coverage requested by the insured” ¶39; and “to procure the insurance coverage specifically requested by plaintiffs.” ¶45. These statements indicate the Court’s interpretation of the section to require the request at issue to have come from the insured asserting the producer owed it the legal duty of ordinary care.

In most circumstances there will be no “request” by the general contractor/additional insured to trigger the subcontractor’s producer’s legal duty to the general contractor. In fact, there will likely have been absolutely no contact between the general contractor and the producer at all, at any time. Why would there be – the subcontractor is contractually obligated to procure the coverage and deals with its own producer to make sure it happens. In line with the clear state of Illinois duty law – where the duty owed is framed by the insured’s request to the producer – it is difficult to envision how such a duty could even arise.

The reasons for this are obvious: an insurance producer would be liable to a myriad of non-clients, strangers to the producer’s actual insured-client’s request for coverage. Imposing such a duty would leave the producer subject to nearly open-ended liabilities to parties with which it had no contact and received no request to act.

This conclusion is further supported by the Supreme Court’s more recent opinion in American Family Mut. Insurance Company v. Krop, 2018 IL 122556, in which the Court reaffirmed that “allegations of negligence in relation to insurance policies, such as the negligent procurement claim here, [are] torts arising out of contractual relationships.” Id., ¶18. The producer’s contract to procure is with its insured-client the subcontractor, and the producer only owes its duty to the subcontractor as framed by the specific request from the other party to that contract, its client.

Conversely, the general contractor’s right to the insurance coverage (if any) arises only from its agreement with the subcontractor. If the general contractor has been denied the benefit of that coverage, it is by virtue of the subcontractor’s breach of its contractual duty to secure it. This is the only conclusion that can be made: that an insurance producer’s duty only arises upon a specific request from the party seeking imposition of the legal duty.

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Kerri Forsythe

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