The Issuance-Accrual Rule: Claim Accrual upon Issuance of Policy

Under Ohio, Indiana, and Delaware law, courts have held that the statute of limitations for insurance broker negligence cases begins to run when the subject policy is issued. These jurisdictions generally do not recognize any exceptions.

For example, the Ohio Supreme Court held that a plaintiff’s cause of action for negligence against its insurance agency accrued when the insurance policy was issued, because this is when the alleged wrongful act was committed. LGR Realty v. Frank & London Insurance Agency, 98 N.E.3d 241, 247–48 (Ohio 2018). The court recognized that “[i]t is only in the narrow circumstances in which application of the general rule would lead to the unconscionable result that the injured party’s right to recovery can be barred by the statute of limitations before he is even aware of its existence that we have judicially created or recognized an exception.” Id. at 247 (citations omitted). Because the plaintiff could have become aware of its right to recovery at the time the policy was issued, there was no basis for an exception to the rule.

Illustrating the distinctions and nuance that these issues can raise, the court further held that its prior decision in Kunz v. Buckeye Union Insurance Co., 437 N.E.2d 1194 (Ohio 1982), did not warrant a different outcome. The Kunz court had recognized the delayed-damages rule under similar facts (i.e., contrary to its holding in LGR Realty) and concluded that the applicable statute of limitations did not begin to run until the date of the loss because it was at that point that the plaintiff did not have the protection he thought he had purchased. Id. at 1196 (the plaintiff bought insurance on a hydro-crane, which was later involved in a job site accident, but after the accident, the plaintiff learned that the loss was not covered). However, in LGR Realty, the court concluded that Kunz was not a precedent-setting decision and therefore was not controlling on the issue. LGR Realty, 98 N.E.3d at 247. (LGR Realty held that Kunz was not precedential because it was a per curiam decision, and at the time Kunz was decided, per curiam decisions only carried precedential weight in factually similar cases. LGR Realty, 98 N.E.3d at 247. LGR Realty concluded that when read in light of the facts, Kunz was not controlling.)

Similarly, the Indiana Supreme Court held that a cause of action accrues at the time of delivery of the policy, emphasizing the date of the negligent act. In Filip v. Block, 879 N.E.2d 1076 (Ind. 2008), the insured asserted a negligence claim against its insurance broker for failing to advise of the availability of some types of coverage and failing to secure adequate limits. The insured had purchased a multiple-unit apartment building in which they lived, and sought insurance coverage for the building. Although the broker was aware that the insureds lived in the building, the policy did not cover nonbusiness personal property, and there was no separate tenant’s policy. When a fire damaged the entire apartment building, a substantial part of the loss was uninsured. The court affirmed the trial court’s grant of summary judgment in favor of the broker and held that the negligence claim accrued “at the start of coverage if the breach [of the broker’s duty] was discoverable at that time through ordinary diligence.” Id. at 1082 (holding that the negligence claim against the broker for failing to procure adequate coverage was barred where limits could have been ascertained by reading the policy). Other courts agree. See, e.g., Kaufman v. C.L. McCabe & Sons, Inc., 603 A.2d 831, 834 (Del. 1992) (holding that the insureds’ cause of action for negligent procurement of insurance coverage accrued for limitations purposes when the policy, which did not satisfy the insureds’ stated requests, was issued, not when the insureds suffered the non-covered loss).

The Loss-Accrual Rule: Claim Accrual upon Loss

Courts in other states, such as Alaska, Texas, and Florida, apply the delayed-damages or loss- accrual rule. In these states, the statute of limitations does not begin to run until the insured suffers a loss. What constitutes loss and when it is suffered varies by jurisdiction.

For example, the Alaska Supreme Court held that Alaska law follows the loss-accrual rule for determining the limitations period in broker negligence cases. Austin v. Fulton Insurance Co., 444 P.2d 536, 539 (Alaska 1968). In Austin, the insured asserted a negligence claim against its broker based on the broker having incorrectly represented that the policy in question provided coverage for earthquake losses. The court held that the statute of limitations for this claim did not begin to run until the insured suffered specific damages from an earthquake, because the insured could not prevail on a negligence claim against the broker until that time.

In Johnson & Higgins of Texas, Inc. v. Kenneco Energy, the Texas Supreme Court concluded that under the loss-accrual rule, the statute of limitations for an insured’s negligence claim against its agent began to run “when coverage was denied” because at that point in time, “all facts required for a cause of action existed[.]” 962 S.W.2d 507, 514 (Tex. 1998). This is consistent with the default rule for the accrual of causes of action: “[a] cause of action generally accrues, and the statute of limitations begins to run, when facts come into existence that authorize a claimant to seek a judicial remedy.” Id. There, the insurance agent allegedly failed to procure the insurance coverage that the insured specifically requested, leaving the insured without coverage for a particular claim that would have been covered under the insurance sought by the insured but not procured by the agent. Id. at 512 (holding that the insured’s negligence claim was barred under the statute of limitations).

The Florida Supreme Court has taken the loss-accrual rule one step further. It held that professional negligence claims against insurance brokers accrue “when the client incurs damages at the conclusion of the related or underlying judicial proceedings or, if there are no related or underlying judicial proceedings, when the client’s right to sue in the related or underlying proceeding expires.” Blumberg v. USAA Casualty Insurance Co., 790 So.2d 1061, 1065 (Fla. 2001). There, the insurer denied coverage for losses of sports cards valued over $100,000.00. The policyholder filed a breach-of-contract suit, claiming that the policy covered the sports cards. The insurer prevailed in that suit. The insured then brought a separate action against its insurance broker, who had previously confirmed that the sports cards were covered under the policy. The insured alleged that the broker negligently failed to procure coverage for the sports cards despite the insured’s request, and the broker responded that the statute of limitations barred the insured’s negligence action. The court disagreed, reasoning that the insured’s damages could not be determined until the conclusion of the preceding breach-of-contract action. The insurer’s denial of coverage “merely represented the insurer’s position on the matter and did not resolve whether damages were incurred either for the benefit or detriment of the insurer, the insured or the agent.” Id. (holding that the insured’s negligence claim against the insurance broker was not barred by the statute of limitations).

The Discovery Rule: Claim Accrual upon Discovery of Injury

Under the discovery rule, the statute of limitations does not begin to run until the insured knows or reasonably should have known that it was injured by an agent’s conduct. This is the rule, for example, in Maryland and Illinois.

In American Home Assurance Co. v. Osbourn, Maryland’s Court of Special Appeals held that the insured’s negligence claim against its broker for failing to procure complete insurance accrued the day the insurer denied coverage. 422 A.2d 8, 15–16 (Md. Ct. Spec. App. 1980) (holding that the insured’s negligence claim, brought more than three years after the insurer denied coverage, was barred by Maryland’s three-year default statute of limitations). The insured initially filed an action seeking a declaratory judgment that the insurer was obligated to defend it against a lawsuit alleging trespass to chattels and conversion. The insured later brought a separate suit against the broker for negligently failing to procure complete insurance coverage that would have required the insurer to provide a defense against those claims. The two actions were consolidated and the trial court granted judgment in favor of the broker. On appeal, the appellate court affirmed the ruling. It found that, at the time the insurer denied coverage, the insured was aware it would need to defend itself against the trespass and conversion claims. Therefore, the insured could have brought a claim against its broker, even if the full extent of its damages had not yet been determined.

In RVP, LLC v. Advantage Insurance Services, an Illinois appellate court applied the discovery rule and held that an insured’s negligence claim against its broker for failing to procure sufficient coverage accrued upon receipt of the policy and subsequent renewals of the policy. 82 N.E.3d 619, 624 (Ill. App. Ct. 2017). There, the insured alleged that it received less coverage than it needed following a fire at its property because its insurance broker and agent failed to obtain enough coverage. The broker had previously procured coverage for two commercial buildings under a blanket replacement cost policy. After that policy was cancelled, the insured asked the broker to find the same or similar coverage as to what was cancelled. The broker procured a policy that provided coverage for the buildings, but that did not provide the same blanket coverage and instead contained limits for each property. In considering the broker’s statute-of-limitations defense, the court held that because the policy stated its limits on the declarations page, the insured should have known that the broker and agent did not procure sufficient limits when the policy was delivered. As a result, the insured’s action was barred by the applicable two-year statute of limitations.

Practical Implications

Determining when a negligence claim against an insurance broker or agent accrues varies by jurisdiction. Cases in jurisdictions where seemingly different rules govern, may have similar results. For example, in LGR Realty and RVP, the courts of Ohio and Illinois applied the issuance-accrual rule and the discovery rule, respectively, but both held that the statute of limitations begins to run upon issuance or delivery of the policy at issue. On the other hand, jurisdictions that apply the same rule may come to vastly different conclusions. See, e.g., Austin, 444 P.2d at 539 (applying loss-accrual rule and holding that the statute of limitations began to run when the subject loss event occurred); Blumberg, 790 So.2d at 1065 (applying the loss-accrual rule and holding that the statute of limitations began to run when the underlying or related proceedings to determine damages concluded). Accordingly, practitioners should extensively study the law of each jurisdiction and the facts of their case to determine when the clock starts ticking on the statute of limitations for broker negligence cases.

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