A split Illinois Supreme Court recently held that the two-year statute of limitations for negligence claims against insurance agents generally begins to run on the date a policy is issued, a decision that sharply limits policyholders’ ability to sue over agents’ alleged failure to secure requested coverage.

In the Oct. 18 opinion, the Illinois justices reinstated a trial court’s decision dismissing Walter and Lisa Krop’s complaint against American Family Mutual Insurance Co. agent Andrew Varga. The Krops alleged that Varga didn’t heed their request to include coverage for certain intentional acts in their homeowners policy, which later resulted in American Family denying coverage for a cyberbullying lawsuit against the couple’s son.

The five-judge majority found that the applicable two-year limitations period began to run on the date the Krops received their policy from American Family, rejecting the Krops’ call to apply the so-called discovery rule and hold that the limitations period didn’t commence until the insurer denied coverage for the underlying bullying litigation.

Lawyers who represent policyholders told Law360 that running the two-year limitations period from the policy’s inception date makes no sense in practice, because a policyholder won’t suffer any actual damages from an agent’s failure to procure adequate insurance until the insurer denies coverage.

“The only way to have a successful claim in this scenario — where there are a number of renewals of the defective policy before a claim arises — is to get a tolling agreement with the broker or agent in the event a claim arises,” said Pillsbury Insurance Recovery & Advisory senior counsel Joan Cotkin. “The chances of a policyholder requesting such an agreement, and the agent consenting to it, are close to nil.”

Cotkin tells Law360 the dissent in the case raised some compelling points.

“This decision does create quite the dilemma and is based on a number of incorrect assumptions,” Cotkin said. “For one, the majority is assuming that the insured will read past the declarations page [of the policy]. The other faulty assumption is that this is some sort of hybrid breach of contract claim. To the contrary, I think this is a professional negligence claim, and most courts would treat it as such.”

Critically, a negligence claim cannot rest on a “purely contingent and speculative” injury, which is all the Krops faced when they received the American Family policy, Cotkin added.

“As the dissent notes, a loss in the abstract doesn’t work in the context of a negligence cause of action,” she said.

Following the decision, Illinois courts are likely to grapple with the question of what circumstances will trigger the exception to the general rule set forth by the majority, attorneys say.

“For instance, if an agent or broker made a long list of promises, and an unsophisticated insured relied solely on the agent or broker’s expertise, those facts may support a different result than the one reached here,” Cotkin said.