Hepler Broom, LLC

What’s in a Name? The Importance of Defining Your Client’s Role in Insurance Procurement Matters

April 1, 2021

The definition of an insurance producer was part of what an Illinois appellate court analyzed in determining whether a two-year statute of limitations barred a plaintiff’s claim. Austin Highlands Dev. Co. v. Midwest Ins. Agency, Inc., 2020 IL App (1st) 191125. The Austin case provides great insight into the significance of whether a party acted as an insurance producer and any resulting protections such a designation may afford.

Trial Court

In Austin, Plaintiff, Austin Highlands Development Company (“Austin”), acted as an agent for an organization that owned multiple apartment buildings. Defendant, Midwest Insurance Agency, Inc. (“Midwest”), procured an insurance policy for Austin, and the policy listed the producer as RT Specialty LLC. Austin was later named in a federal class action lawsuit. Midwest advised Austin that the coverage in the policy it procured did not extend to the causes of action in the class action lawsuit.

Austin then filed suit against Midwest and alleged: (1) under Section 2-2201 of the Code of Civil Procedure, Midwest was an “insurance producer,” and as a result, owed Austin a duty to exercise ordinary care in procuring insurance coverage as requested by Austin; (2) Midwest breached its duty when it failed to obtain an insurance policy that provided coverage for those claims brought in the class action suit; and (3) as a result of this breach and the lack of coverage, Austin paid over $300,000 to settle the lawsuit. Midwest filed a motion to dismiss, in part based on the two-year statute of limitations for actions against an insurance producer. In response, Austin argued that Midwest was not an insurance producer, Midwest acted as its agent, and thus the two-year statute of limitations against insurance producers did not apply.

The circuit court granted Midwest’s motion to dismiss, finding that Midwest was an insurance producer under the law. The circuit court stated that under American Family Mutual Insurance Co. v. Krop, 2018 IL 122556, a cause of action against an insurance producer accrues when the insured receives the policy at issue. In the matter before it, the court noted that Austin failed to file suit until almost three years after it received the policy. Austin, at ¶ 7.

Affirmed on Appeal

Austin appealed, arguing that Midwest worked for Austin and acted as its broker. Austin further argued that Midwest was not an insurance producer. Therefore, its suit was not subject to the two-year statute of limitations. On review, the appellate court noted the difference between an insurance agent and an insurance broker: brokers procure policies from numerous companies for their clients, while agents have a fixed and permanent relation to the companies they represent and have certain duties and allegiances to such companies. Austin, at ¶ 12. The court looked to the historical treatment of the duties of an insurance broker and an insurance agent, which were a fiduciary duty to the insured and a fiduciary duty to the insurer, respectively. However, in 1997, the enactment of the Insurance Placement Liability Act—specifically Section 2-2201—provided that 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). Except for limited circumstances (for example, those involving the appropriation of money), the statute prevented producers from being held to the fiduciary standard. Instead, an insurance producer would only be held to a standard of ordinary care.

The appellate court continued its analysis and looked at the Illinois Supreme Court’s definition of insurance producer as discussed in both Krop and Skaperdas v. Country Casualty Insurance Company, 2015 IL 117021. Although not defined in Section 2-2201, the Supreme Court held that the definition of an insurance producer under the Illinois Insurance Code should apply, i.e., an insurance producer is anyone, including both agents and brokers, required to be licensed to sell, solicit, or negotiate insurance. The Austin court found that “this standard of care is important because it affects the statute of limitations for lawsuits filed against insurance producers.” Austin, at ¶ 15.

The appellate court agreed with the circuit court that Midwest was an insurance producer under the Code. Interestingly, the court looked to Austin’s complaint and noted that based on Austin’s assertion that Midwest worked for Austin to procure the proper insurance coverage for its business, Midwest was an insurance broker under the law. (Austin, of course, later repudiated its own assertion.) The court noted that regardless of how Austin characterized Midwest’s role, the Supreme Court in Skaperdas made clear that anyone required to be licensed to solicit, sell, or negotiate insurance products was an insurance producer. The court found that Midwest was an insurance producer under the Code, even though the insurance policy at issue stated that RT Specialty, LLC, was the “producer.” Austin, at ¶ 18.

Ultimately, the Austin court held that because Midwest was an insurance producer under Illinois law, the two-year statute of limitations for negligent procurement claims against an insurance producer applied. See 735 ILCS 5/13-214.4. Austin, at ¶ 18.

The Takeaway

The specific role of an insurance agent, broker, or producer has significant implications, ranging from statute of limitations to liability issues. Moreover, one party’s characterization of that role alone is insufficient to defeat a statute of limitations argument. Rather, as identified by the Austin court above, it is the definition of an insurance producer (i.e., anyone, including both agents and brokers, required to be licensed to sell, solicit, or negotiate insurance) that is the controlling factor. In determining potential liability or whether you may have a statute of limitations defense, it’s critical to look to the definition of insurance producer and whether your client falls within this classification before taking further action.

NOTE: Further perspectives on the insurance producer issue in Illinois can be found in partner Robert Elworth’s blog post on fiduciary duty (which can be read here) and his post on whether legal duty extends to additional insureds (which can be read here).

 

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