Opinion ID: 852499
Heading Depth: 2
Heading Rank: 2

Heading: Accrual Date for a Negligence Action Against an Insurance Agent

Text: The Filips and defendants agree that under Indiana Code section 34-11-2-4 (2004), the statute of limitations is two years from the date the cause of action accrues. In general, the cause of action of a tort claim accrues and the statute of limitations begins to run when the plaintiff knew or, in the exercise of ordinary diligence, could have discovered that an injury had been sustained as a result of the tortious act of another. Wehling v. Citizens Nat'l Bank, 586 N.E.2d 840, 843 (Ind. 1992). This rule also applies in the insurance context. Foster v. Auto-Owners Ins., Co., 703 N.E.2d 657, 659-60 (Ind.1998) (holding that insurance applicants are not relieved from the duty of exercising the same ordinary care and prudence that is required in every other business transaction. It is the duty of every man to read what he signs. (quoting Metro. Life Ins. Co. v. Alterovitz, 214 Ind. 186, 196, 14 N.E.2d 570, 574 (1938))).
The candidates for dates starting the limitations period are the date of coverage, the date of the loss, the date of denial of the claim, and the date the insured learns or should in the exercise of reasonable care have learned of coverage problems. Other jurisdictions have split on the start of the statute of limitations for negligence claims against an insurance agent. See, e.g., Commonwealth Ins. Co. v. Stone Container Corp., 323 F.3d 507, 511 (7th Cir.2003) (collecting cases); Broadnax v. Morrow, 326 Ill.App.3d 1074, 261 Ill.Dec. 225, 762 N.E.2d 1152, 1157 (2002) (holding that the statute of limitations against agent began to run at time of insurance denial because injury discoverable); Cunningham v. Ins. Co. of N. Am., 2006 WL 2568464, at  (N.Y.App.Div. 2006) (holding that the statute of limitations against agent begins at time of injury); Toy v. Metro. Life Ins. Co., 863 A.2d 1, 7-9 (Pa.Super.Ct.2004) (holding that the statute of limitations against agent started when insured received insurance policy because injury discoverable). The alleged negligence here was in failing to advise the Filips of the availability of some types of insurance, and in failing to secure adequate limits. We agree with the trial court that a claim against an agent for negligent procurement of the wrong coverage begins at the start of coverage if the breach was discoverable at that time through ordinary diligence. The Court of Appeals held that under Butler v. Williams, 527 N.E.2d 231, 234 (Ind.Ct.App.1988), and its progeny, the Filips' claim was not foreclosed by the statute of limitations because they filed within two years of the fire, which was necessarily earlier than the date of denial of the claim, which is not in the record. Filip v. Block, 858 N.E.2d 143, 152 (Ind.Ct.App. 2006). We do not find Butler to be on point. In that case, the Williamses were injured by a drunk driver and sued the owners of the tavern that served the driver. 527 N.E.2d at 232-33. The tavern's insurer denied coverage based on an exclusion for liability resulting from serving alcoholic beverages. Id. The tavern assigned to the Williamses any claims against their insurer for failing to recommend dram shop coverage. Id. at 233. Five years after the accident, and three years after coverage was denied, the Williamses sued the tavern's insurer and insurance agent. Id. The Court of Appeals noted that the statute of limitations began to run against the Williamses at the same time it ran against the tavern. Id. at 234. The Court of Appeals stated the latest date on which the [tavern's] cause of action against their insurer and insurance company could have accrued was the date when the tavern was told that it had no coverage. Id. Butler held only that all critical dates had passed, not that the critical date was denial of coverage. The Court of Appeals adopted the same language in Strauser v. Westfield Ins. Co., 827 N.E.2d 1181, 1185 (Ind.Ct.App.2005). In Strauser, horses on Yoder's land broke loose and injured Strauser on September 18, 1991. Id. at 1182. Strauser sued Yoder on August 6, 1992. Id. Yoder's insurer denied coverage and in 1995 Yoder assigned any claim he might have against his insurance agent to Strauser. Id. Strauser sued the agent in 2002. Id. The court cited Butler and found the claim barred by the two-year limitation because Strauser's cause of action accrued on June 4, 1992, when Westfield denied Yoder's claim. Id. at 1185. As in Butler, the claim was barred whether the date of coverage or the date of the loss triggered the limitation period, so this too was no holding on the point in issue here. The trial court relied on Page v. Hines, 594 N.E.2d 485 (Ind.Ct.App.1992), in determining that in this case the statute of limitations began to run at the time of coverage. The Pages asked Hines, their insurance agent, to procure a three-year policy for them with the same coverage as their last policy. Id. at 486. Although their prior policy contained employer liability coverage, their new policy did not. Id. The Pages sued Hines for negligent procurement of insurance. Id. The court explained, [t]he question to be resolved is when the Pages discovered, or reasonably should have discovered, Hines's negligent failure to procure the insurance coverage they desired from the start of coverage. Id. at 487. We agree that this is the correct inquiry to resolve the limitations period for a claim of negligent failure to procure the proper coverage. The Filips argue that their negligence claim accrued when the fire occurred. The Filips claim that [i]t is strange logic to believe that the Filips could have filed a lawsuit against Block in the year 2000 or 2001. . . . Clearly, a cause of action filed prior to a loss is not ripe. But insurance is about the shifting of risk. The Filips bore the risk of loss from the date the policy was issued, so their injury from the alleged negligence occurred at this point. Although the extent of damages was unknown within the statute of limitations, the full extent of damages need not be known to give rise to a cause of action. See Shideler v. Dwyer, 275 Ind. 270, 282, 417 N.E.2d 281, 289 (1981) (For a wrongful act to give rise to a cause of action and thus to commence the running of the statute of limitations, it is not necessary that the extent of the damage be known or ascertainable but only that damage has occurred.). Presumably, no litigation would have been necessary to correct their policy and pay the adjusted premium for the desired coverage before the fire, but if for any reason the coverage was no longer available the Filips could have asserted their negligence claim if they felt that necessary. Further, if we accept the Filips' argument, then insureds become free riders, paying lower premiums, perhaps for many years, and then retaining the ability to claim the benefit of higher coverage if a loss is incurred. We do not hold, however, that the date of coverage is necessarily controlling in every case. The question in this case is at what point the Filips, in the exercise of ordinary diligence, could have discovered that they were underinsured. The Filips claim that their policy lacked coverage of nonbusiness personal property and business interruption, and that the building and business personal property coverage had inadequate limits. All of these alleged problems were ascertainable simply by reading the policy. [2] As a result, the limitations period in this case began to run on or shortly after the activation of the policy with the exception discussed below for nonbusiness personal property.
The Filips contend that they relied on Block's representations regarding the adequacy of the policy's coverage. The Filips are correct that reasonable reliance upon an agent's representations can override an insured's duty to read the policy. Vill. Furniture, Inc. v. Assoc. Ins. Managers, Inc., 541 N.E.2d 306, 308 (Ind.Ct.App.1989). In general, this exception negates an insured's duty to read part of the policy if an agent insists that a particular hazard will be covered. Id. (If the agent insists to the prospective purchaser that the policy will insure against a hazard . . . that the prospect is particularly concerned about, and the hazard materializes, the company may be estopped to plead the terms of the policy because the strength of the agent's oral assurances lulled the prospect into not reading, or reading inattentively, dense and rebarbative policy language. (quoting Burns v. Rockford Life Ins. Co., 740 F.2d 542, 544 (7th Cir.1984))). The question, then, is whether there is any evidence that Block made representations to the Filips, which, if true, would have covered their loss and also tolled the running of the limitations period. The designated evidence reveals that the Filips told Block they wanted the same insurance as Bailey, the former owner of the property, and they received a substantially similar policy. The designated evidence also reveals that the Filips called Block several times between 1999 and 2003 to make changes in the coverage. These changes included increasing the coverage on the building from $250,000 to $350,000, adding Bailey as an additional insured, and changing the spelling of the Filips' names on the policy. The Filips, then, knew the policy well enough to make changes, but claim not to understand the commercial nature of the policy, the type of value coverage included, or the lack of business interruption coverage. Nothing in the designated evidence raises an issue of material fact, however, as to whether Block made representations regarding the inadequacy of the amount of business personal property coverage, whether the building coverage was replacement value or material value, or the lack of business interruption coverage. These shortcomings in their policy, which the Filips seek to attribute to Block's negligence, were readily ascertainable from the policy itself. Accordingly, as to these three alleged omissions, the statute of limitations began to run two years after the start of coverage, in 1999, and bars those three parts of the Filips' complaint, which was filed in 2003. The claim for lack of coverage of nonbusiness personal property is somewhat different. The designated evidence indicates that both the Filips and Block erroneously believed that the policy covered the Filips' nonbusiness personal property. Specifically, Valaria testified that Block told her that the Filips' property in the building would be covered. The Filips claim to have relied on Block's assertions regarding this coverage. Because we take the evidence most favorable to the Filips in opposing summary judgment, it was error to base summary judgment on the statute of limitations for the claim for lack of nonbusiness personal property coverage. If the trier of fact accepts the Filips' version, the statute may have first begun to run when the claim was denied. In sum, for the purposes of summary judgment, there is evidence that Block breached the duty of care because she incorrectly believed nonbusiness personal property was covered. There are no damages from this breach, however. Even if the Filips relied on Block's assurances that their nonbusiness personal property was covered, based on the information the Filips had, the only possible coverage was under the business personalty. The losses of business personal property exceeded the personal property policy limits by $17,000. If nonbusiness property had been covered, these limits, which were known to the Filips, would have prevented any recovery for its loss.
Insurance agents potentially have both a general duty of care and a duty to advise their clients. Which duty governs in a particular case is a matter of law. Am. Family Mut. Ins. Co. v. Dye, 634 N.E.2d 844, 848 (Ind.Ct.App.1994), trans. denied. [T]he law in Indiana is settled: an insured must demonstrate some type of special relationship for a duty to advise to exist. Craven v. State Farm Mut. Auto. Ins. Co., 588 N.E.2d 1294, 1297 n. 5 (Ind.Ct.App.1992). As to the appropriate coverage, the Filips do not argue that they are entitled to a determination of a special relationship, but seek to describe the duty of care broadly to include the obligation to identify the insured's desires with regard to insurance and explain to the insureds various coverages available to meet those desires. The Filips are essentially arguing the duty to advise under the guise of the general duty of care. The facts of this case do indicate, however, that Block may have assumed a duty to advise with regard to the nonbusiness personal property coverage. The undisputed evidence is that the Filips requested the same coverage as their predecessor. In the absence of a special duty, [a]n insurance agent who undertakes to procure insurance for another is an agent of the insured and owes the insured a general duty to exercise reasonable care, skill, and good faith diligence in obtaining insurance. Am. Family Mut. Ins. Co., 634 N.E.2d at 847; see generally 16 Indiana Law Encyclopedia, Insurance §§ 51-52, at 204 (West 1999) (An insurance agent owes his or her clients a duty to exercise reasonable care in servicing their insurance needs.). Included in this general duty is a duty of care to procure the insurance asked for by the potential insured. See generally 43 Am.Jur.2d Insurance §§ 161-163, at 202 (2003) (A broker or agent who accepts an order to insure must follow the customer's instructions.). The agent does not have a duty, however, to tell the potential insured about the adequacy of the coverage or any alternative coverage that is available. See generally Lee R. Russ, 4 Couch on Insurance § 55:5, at 55-10, -12 (3d ed. 1995) (The general duty of the insurer's agent to the insured is to refrain from affirmative fraud, not to watch out for all rights of the insured and inform the latter of them. . . . [I]nsurer's agents are not required under a general duty of care to advise the insured regarding the sufficiency of coverage limits or replacement value of insured's home.). Similarly, the Court of Appeals has held that in the absence of a special relationship an agent has no duty to advise of the availability of a particular form of coverage. [3] We agree there is no such expansive duty if, as here, the insured identifies the desired coverage. The Filips argue that Block had a duty to inform them of the availability of separate coverage for their nonbusiness personal property, and point to their testimony that Block promised to visit Sundown. A visit would presumably have indicated lack of coverage of the nonbusiness personal property, and perhaps triggered some discussion of the adequacy of their limits or other coverages. Although in general an agent does not have a responsibility to tell any potential insureds about the availability of different coverage options or to visit the premises, the Filips assert that they relied on Block's assertion regarding the coverage of their personal property, and her promise to visit the premises. Accordingly, there is a material question of fact as to whether Block assumed a special relationship, obligating her to advise the Filips at least as to inadequate coverage of the nonbusiness personal property. If there was a breach, however, it occurred in 1999, and there is no evidence that Block undertook an ongoing review of the Filips' insurance needs. The Filips requested changes in limits in subsequent years, but did not change their personal property coverage. There is thus no evidence of a special relationship imposing a duty on Block to review and advise as to adequacy of coverage within the statute of limitations.