It used to be in Illinois that an insurance broker could be sued for breach of fiduciary duty for just about any policy-related misdeed. See, e.g., Faulkner v. Gilmore, 251 Ill.App.3d 34 (3d Dist. 1993) (alleging breach of fiduciary duty for a broker’s failure to advise insureds to terminate their master surety agreement.) The fiduciary-duty claim did not need to involve the actual handling of client monies; the counts were essentially repackaged negligence or breach of contract allegations, labelled with a seemingly-heightened sense of breached duty.
But in 1997 the Illinois Insurance Placement Liability Act went into effect, imposing on insurance producers (more on that label in a minute) an ordinary care standard for “renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.” 735 ILCS 5/2-2201(a). And then in subparagraph (b), the Act on its face narrows an insurance producer’s (there’s that generic category again!) liability for breach of a fiduciary duty to “when the conduct upon which the cause of action is based involves the wrongful retention or misappropriation by the insurance producer, registered firm, or limited insurance representative of any money that was received as premiums, as a premium deposit, or as payment of a claim.”
That sure reads as though breach of fiduciary duty allegations can only be sustained when the misconduct involves client monies. A few Illinois cases have even so held. Garrick v. Mesirow Fin. Holdings, Inc., 2013 IL App (1st) 122228; M.G. Skinner and Assoc. Ins. Agency, Inc. v. Norman-Spencer Agency, Inc., 845 F.3d 313 (7th Cir. 2017). But citations to aged common law can be a tricky thing, and old habits sometimes die hard. So the fiduciary duty’s impact lingers, occasionally popping up to create confusion in case resolution even though under the 1997 Act it shouldn’t be of concern.
Some of this stems from the longstanding, pre-Act differentiation between an independent insurance broker and a captive agent, based largely on who hired the insurance professional to place the requested coverage. Indeed, as recently as 2015, the Illinois Supreme Court confirmed that “only insurance brokers owe the insured a fiduciary duty.” Skaperdas v. Country Casualty Ins. Co., 2015 IL 117021, ¶22. The oddity of Skaperdas, though, is that the opinion’s primary holding is that both independent brokers and captive agents are “insurance producers” for the ordinary-care duty purposes of paragraph (a) in the Act, imposing the same legal duty on all producers.
This holding is seemingly at odds with the opinion’s concurrent statement continuing the common-law imposition of a fiduciary duty on independent insurance brokers. Perhaps Skaperdas could have read that “only insurance brokers have a fiduciary relationship with the insured,” but even that would not comport with paragraphs (a) and (b) – the latter of which bars a cause of action “under standards governing the conduct of a fiduciary or a fiduciary relationship.” If Skaperdas’ correctly reads the Act to require all insurance producers to act with ordinary care, then the existence of even a lingering fiduciary relationship is contrary to the Act’s terms, at least when a paragraph (b) misappropriation isn’t involved.
But a case pending in the Illinois Supreme Court presents a chance for the Court to clear the confusion, under a fact pattern that displays the tension between the aged fiduciary-duty common law and the Act’s narrowing of fiduciary duty allegations.
In American Family Mut. Ins. Co. v. Krop, the Court will review a case ostensibly centered on the statute of limitations, but implicating the enduring effect of the fiduciary-duty common law. The facts there are fairly simple, in that the Krop family retained an American Family captive agent, Andy Vargas, and requested him to place their homeowner’s coverage “with equivalent coverage” as an expiring Travelers policy. Vargas told them he could, at a lower or comparable rate. He secured for them a policy, and several renewals. Of course the in-force American Family policy lacked personal injury coverage, leaving the Krops without coverage for a subsequent defamation suit brought on after a bullying incident by one of their children.
The Krops brought a negligence action against Vargas – not a breach of fiduciary duty cause of action, likely because he wasn’t accused of absconding with their money. The circuit court dismissed the Krop’s action, finding it had been filed beyond the two-year limitations period. The appellate court reversed that order. 2017 ILApp (1st) 161071.
One presumes that the Supreme Court granted Vargas’ petition for further review because the appellate opinion, which specifically acknowledges Vargas as a captive agent of American Family, needlessly delves into all sorts of fiduciary duty cases – even though Illinois common law has never imposed that general fiduciary duty on a captive agent. The opinion nevertheless cites a series of cases to decide that, “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.” ¶35.
The appellate court, citing cases that either themselves pre-date the Act or rely on such authorities, thus resolved a non-fiduciary duty case under rules imposing a fiduciary duty. Vargas is obligated only to exercise ordinary care, but the appellate court is nevertheless subjecting him, as an insurance producer, to civil liability under standards governing the conduct of a fiduciary or fiduciary relationship. Such a decision is in direct contravention of the plain language of paragraph (b).
The Supreme Court thus has been given the opportunity to affirm Skaperdas’ ordinary-care holding, and align an insurance producer’s duties and liabilities with all paragraphs in the Act. The Court should disavow the common law’s statutorily-infirm fiduciary relationship, and impose only the duties stated in the Act.