Perelman v. Fisher

THIRD DIVISION
August 26, 1998

No. 1--97--3217

JEFFREY PERELMAN, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. )
)
JACK FISHER and AMSTERDAM FINANCIAL )
GROUP, LTD., ) Honorable
) Kenneth L. Gillis,
Defendants-Appellees. ) Judge Presiding.

JUSTICE BURKE delivered the opinion of the court:

Plaintiff Jeffrey Perelman appeals from the circuit court's
order dismissing his breach of contract and negligent
misrepresentation claims against defendants Jack Fisher and
Amsterdam Financial Group, Ltd. On appeal, plaintiff contends
that: (1) "in an action by an insured against his broker/agent,
there is no presumption of knowledge of breach of contract"; (2)
the statute of limitations on his claims did not commence until
plaintiff knew or reasonably should have known he had been damaged
and that the damage was wrongfully caused; and (3) section 2--619
of the Civil Practice Act (Act) (735 ILCS 5/2--619 (West 1992))
prohibits the trial court from resolving factual questions where
the nonmovant has filed a jury demand. For the reasons set forth
below, we reverse and remand this case for further proceedings.
In September 1988, plaintiff hired defendant, Jack Fisher
(Fisher), an insurance broker who owned and operated Amsterdam
Financial Group, Ltd., for the purpose of procuring a disability
insurance policy. Fisher offered and plaintiff accepted a Paul
Revere Life Insurance Company disability insurance policy with a
monthly disability benefit of $4,000. The Paul Revere policy was
issued to plaintiff on or about January 24, 1989, accompanied by a
transmittal letter requesting that plaintiff review the policy and
contact Fisher if plaintiff had any questions regarding his
coverage.
The Paul Revere policy as issued did not contain a provision
that would increase the amount of disability payments in order to
meet increases in inflation. Fisher stated in a sworn affidavit
that he explained to plaintiff prior to the issuance of the policy
that it did not contain a cost of living adjustment. However,
plaintiff stated in a sworn affidavit that during negotiation of
the policy, Fisher told plaintiff that plaintiff was purchasing a
"premier" policy which was the "best" policy available at that
time. Plaintiff alleged that when the policy was issued to him in
January 1989, he "skimmed" through it in order to confirm that the
monthly disability benefit was for $4,000 as requested. When
plaintiff "skimmed" through the policy, he also observed references
to benefit adjustments related to the "Consumer Price Index."
At the time plaintiff purchased and was issued the Paul Revere
policy, he was also covered under a separate disability insurance
policy issued to him by Minnesota Mutual Life. The Minnesota
Mutual Life policy contained a provision entitled, "Monthly Income
Benefit Escalator Agreement," that had the effect of increasing
monthly income benefits if the insured suffered an extended period
of disability. As specifically outlined in the Minnesota Mutual
Life policy, plaintiff paid an additional annual premium for the
"Benefit Escalator Agreement."
Plaintiff paid all premiums for the Paul Revere policy from
January 1989 through March 27, 1993, when plaintiff sustained a
heart attack. In November 1993, plaintiff began receiving monthly
disability payments under the Paul Revere policy in the amount of
$4,800. Plaintiff alleges that when the monthly disability payment
he was receiving under the Paul Revere policy did not increase in
October 1994, Fisher informed plaintiff that Fisher had not
obtained a policy with a provision for an annual increase of the
monthly benefit to meet inflation rates.
On May 20, 1997, plaintiff filed an amended complaint
(complaint) in the trial court. Count I of plaintiff's complaint
for breach of contract alleged that Fisher breached his duties to
plaintiff by failing to procure and provide a disability policy
which contained a provision that would annually increase the
payable amount of monthly disability benefits to meet the rate of
inflation. Count II of plaintiff's complaint for negligent
misrepresentation alleged that, as defendants' client, plaintiff
reasonably relied to his detriment on Fisher's representation that
the Paul Revere policy would include such a provision.
Defendants filed a motion to dismiss plaintiff's complaint,
arguing that the statute of limitations barred the action because
it was filed seven years and two months after plaintiff received
the policy. Plaintiff filed a response to defendants' motion to
dismiss, arguing that the court apply the discovery rule and
determine that the applicable five-year statute of limitations had
not run as a matter of law because there was a genuine issue of
material fact as to when plaintiff knew or should have known the
terms of the policy. In its reply, defendants argued that when
plaintiff received the policy on or about January 24, 1989, he
reasonably knew or should have known, for the purpose of commencing
the limitation period under the discovery rule, that the policy did
not contain a provision for an annual increase of benefits to meet
the inflation rate. Therefore, defendants argued, the statute of
limitations barred plaintiff's cause of action which accrued on
January 24, 1989.
At the hearing on defendants' motion to dismiss, plaintiff
argued that his complaint stated a cause of action because there
were questions of fact as to whether plaintiff should have known of
the alleged defect in the policy when he "skimmed" it in January
1989. For example, plaintiff argued that a jury may determine that
when plaintiff saw a reference to the "Consumer Price Index" in the
policy, he reasonably could have interpreted that term to provide
for the monthly benefit increase he allegedly requested.
Defendants argued that there was no question that plaintiff should
have known of any alleged deficiency in the policy when he received
it because, based on Furtak v. Moffet, 284 Ill. App. 3d 255, 671 N.E.2d 827 (1996), plaintiff clearly had a duty to read and
understand the contents of the policy.
On August 8, 1997, the trial court found that because the
language in the Paul Revere policy was not defective and was
clearly set out for plaintiff, the case was "not a Discovery Rule
matter." Specifically, the court stated:
"There's nothing defective in the policy. It's
not like a fireplace that sets fire to the
house at some point later on. It's nothing
that is hidden or defective.
***
And I think that the holder of a policy,
whether he or she is suing the broker or the
insurance company, has a duty to realize what's
in the policy and what is not.
To allow the opposite rule, to allow
somebody to say, well, it's long and it's
complicated would simply do away with the
Statute of Limitations and leave brokers or
companies liable for years and years and years
until some event occurred that triggered some
financial shortfall."
Accordingly, the trial court dismissed plaintiff's complaint
pursuant to section 2--619(a)(5) of the Act based on plaintiff's
failure to file his complaint within the statute of limitations.
This appeal followed.
Plaintiff contends that "in an action by an insured against
his broker/agent, there is no presumption of knowledge of breach of
contract." Specifically, plaintiff argues that the trial court
erred in determining as a matter of law that plaintiff was presumed
to know and understand the terms of the Paul Revere policy (policy)
and that he should have known of the breach at the time he received
the policy on January 24, 1989. Plaintiff argues that there are
material questions of fact as to when he knew or should have known
of the defect in the policy and whether he was contributorily
negligent for failing to read and understand the terms of the
policy. Defendant contends that the issue here is not whether
plaintiff was contributorily negligent in failing to read and
understand the policy, but rather, whether plaintiff pleaded
sufficient facts to avoid the application of the statute of
limitations.
A trial court should not dismiss an action on the pleadings
unless it is clearly apparent that no set of facts can be proven
which will entitle the plaintiff to relief. Burdine v. Village of
Glendale Heights, 139 Ill. 2d 501, 504, 565 N.E.2d 654 (1990).
When the legal sufficiency of a complaint is challenged by a
section 2--619 motion to dismiss, all well-pleaded facts and
reasonable inferences are accepted as true (Hermitage Corp. v.
Contractors Adjustment Co., 166 Ill. 2d 72, 84-85, 651 N.E.2d 1132
(1995)), and a reviewing court must determine whether the
allegations set forth in the complaint, interpreted in a light most
favorable to the plaintiff, are sufficient to set forth a cause of
action upon which relief may be granted. Burdine, 139 Ill. 2d at
505.
Illinois courts have repeatedly held that when an insured sues
his or her insurer after failing to note a discrepancy between the
policy issued and received and the policy requested or expected,
the insured will be bound by the contract terms because he or she
is under a duty to read the policy and inform the insurer of any
discrepancy so that a prompt correction may be made without
prejudicing the rights of either party. Black v. Illinois Fair
Plan Ass'n, 87 Ill. App. 3d 1106, 1110, 409 N.E.2d 549 (1980). See
also Foster v. Crum & Forster Insurance Companies, 36 Ill. App. 3d
595, 345 N.E.2d 49 (1976); Furtak, 284 Ill. App. 3d 255. Although
this court has recognized that laymen may not read their insurance
policies as common practice, we have not excused plaintiffs from
their burden of knowing the contents of the policy when there are
no allegations that the language of the policy was ambiguous.
Foster, 36 Ill. App. 3d at 598.
On the other hand, we have also recognized that there is a
distinction between an action by the insured against his insurer,
who issues the policy, and an action by an insured against his
agent, who procures the policy. (Emphasis added.) Black, 87 Ill.
App. 3d at 1110-11. The relationship between an insured and his
broker, acting as the insured's agent, is a fiduciary one.
Illinois law places a burden on an insurance broker to exercise
competence and skill when he or she renders the service of
procuring insurance coverage. Economy Fire & Casualty Co. v.
Bassett, 170 Ill. App. 3d 765, 771-72, 525 N.E.2d 539 (1988). If
a broker does not follow instructions, or if the policy obtained is
materially defective through the agent's fault, or if the principal
suffers damage due to any mistake or act of commission or omission
of the agent which constitutes a breach of duty to the principal,
the agent is liable to the principal for any loss sustained
thereby. Black, 87 Ill. App. 3d at 1110, citing Evan L. Reed
Manufacturing Co. v. Wurts, 187 Ill. App. 378, 385-86 (1914).
In Black, the plaintiffs were issued a fire insurance policy
that was procured by their agent. In filling out the application
form, the broker mistakingly inserted an incorrect address. After
"glancing" at the contract but failing to detect the address error,
the plaintiff signed the application in blank at the broker's
direction. After a fire occurred on the premises that were
intended to be insured by the policy, the insurance company denied
liability. The plaintiffs brought an action seeking to recover
damages from the broker due to his alleged negligence in obtaining
insurance on the wrong property. The trial court held that the
plaintiffs were negligent as a matter of law because they failed to
note the address error on the face of the policy when they received
it. Black, 87 Ill. App. 3d at 1110.
On appeal, the Black court found that the broker was not
entitled to judgment as a matter of law, stating that the critical
difference between insurer-insured cases and broker-insured cases
was that in the former, the insured "is attempting to deny the
effectiveness of a part of the writing." Black, 87 Ill. App. 3d at
1112. Therefore, a duty to read the contract and report
discrepancies is imposed on the insured. However, a suit between
the insured and his broker, "does not depend upon a modification of
the terms of the written contract to the prejudice of the insurer,"
but rather involves only a matter of proof that the broker
negligently performed his duty to procure a specified insurance
policy. Black, 87 Ill. App. 3d at 1111. The Black court held
that, in the latter case, "the insured's failure to read the
contract and point out errors in its basic terms, while arguably
evidence of the insured's contributory negligence [citations
omitted], is never contributory negligence as a matter of law."
Black, 87 Ill. App. 3d at 1111. See also, Bassett, 170 Ill. App.
3d at 775 (when the insured sued his broker for negligent failure
to procure proper insurance and breach of the broker's fiduciary
duty, the court held that the insured's failure to read the policy
was not an absolute bar to his right to recover against the
broker).
In the present case, plaintiff argues, based on Black, that
his alleged failure to read and know the terms of the policy and to
bring discrepancies to the attention of defendants is, at best,
some evidence of contributory negligence, but not contributory
negligence as a matter of law. Because knowledge of the alleged
breach by the plaintiff here, as in Black, cannot be imputed or
presumed, the trial court should not have determined as a matter of
law that plaintiff knew or should reasonably have known of the Paul
Revere policy deficiency when he received the policy in January
1989. Plaintiff pled facts in his complaint which, when construed
in a light most favorable to him, created a genuine issue of
material fact as to whether defendants breached their fiduciary
duty as brokers in procuring the policy, i.e., plaintiff's
allegation that Fisher told him that the policy was a "premier"
policy which was the "best" policy available at the time. We find,
therefore, that the trial court erred in granting defendants'
section 2--619 motion to dismiss because a genuine issue of
material fact existed as to when plaintiff knew or should have
known that the policy was defective. Based upon Black and Bassett,
we find that the trial court erred in holding as a matter of law
that plaintiff had a duty to "realize what's in the policy and what
is not," regardless of "whether [plaintiff] is suing the broker or
the insurance company."
We briefly note that we find no merit in defendants' argument
that Black is "clearly distinguishable" from the case at bar
because the issue in this case was not whether plaintiff was
contributorily negligent, but rather, whether plaintiff pled facts
to avoid strict application of the statute of limitations. The
Black holding--that the trial court had not properly considered the
issue of the insureds' reliance on their broker by holding as a
matter of law that the insureds had a duty to read the policy--
applies regardless of the specific "issue" before the trial court.
In accordance with our holding that an insured's failure to
read and understand the terms of a policy procured by his broker is
not an absolute bar to the insured's right to recover against his
broker for breach of the broker's fiduciary duty, we also find that
the trial court erred in dismissing plaintiff's complaint as
untimely under the statute of limitations because the question of
when the limitations period began could not be determined until the
question of when plaintiff should have known of the alleged
deficiency in the policy was determined by the trier of fact.
Accordingly, we reverse the trial court's order dismissing
plaintiff's complaint and remand this cause for further proceedings
consistent with this order. In light of our decision, we need not
address plaintiff's remaining argument that section 2--619 of the
Act prohibits the trial court from resolving factual questions
where the nonmovant has filed a jury demand.
Reversed and remanded.
LEAVITT, P.J., and CAHILL, J., concur.