After paying a flood damage claim, an insurance company waits too long to get an assignment of the rights to sue a contractor and architect. Result: the insurance company’s lawsuit gets dismissed and the Illinois Appellate Court affirms. The decision: American Family v. Plunkett (PDF).
An owner’s property floods in the summer of 2006. The owner files an insurance claim for the damage. The insurance company denies that claim, prompting the owner to sue the insurance company (Lawsuit 1).
The owner and insurance company settle Lawsuit 1. Because conditions suggest that design and construction defects may have caused the flood, under the settlement agreement the owner promises to assign—to the insurance company—their design and construction defect claims. But that assignment isn’t part of the settlement documents and money exchanged.
Then in 2008 (and still without the owner’s assignment), the insurance company sues the architect and the contractor for defective design and construction (Lawsuit 2). (By paying the owner’s insurance claim under the Lawsuit 1 settlement, the insurance company contends that they now—by subrogation—stand in the owner’s shoes to pursue the defect claims.) The architect and contractor successfully move to dismiss Lawsuit 2. Two courts agree that the insurance company cannot subrogate to the owner’s claims against the architect and contractor—the insurance company must get the owner’s assignment of those claims.
After protracted struggle, the owner finally assigns their design and construction defect claims to the insurance company. The insurance company then files a new lawsuit against the architect and contractor, this time as assignee of—not subrogee to—the owner’s claims (Lawsuit 3).
The architect and contractor recognize that the insurance company filed Lawsuit 3 after the four year limitations period on the design and construction defect claims expired. They move to dismiss (arguing that the claims are time-barred). The trial court agrees, and grants the motion. The insurance company appeals.
Decision on Appeal: No Equitable Tolling
The insurance company argues that Lawsuit 3 isn’t late because equitable tolling applies. Under equitable tolling they argue, running of the limitations period should be suspended while they struggled to get the owner’s assignment of claims against the architect and contract.
The justices hearing the appeal disagree and affirm dismissal. While the justices recognize that equitable tolling can suspend running of a limitations period, the bar is high and the insurance company doesn’t clear it. They explain: it doesn’t happen often and the reasons must be extraordinary. The insurance company’s reason—delay getting claims assigned—just doesn’t qualify.
Looking at this case, the justices reproach the insurance company for not getting the owner’s assignment earlier, when settling Lawsuit 1, instead of merely getting the owner’s promise to assign later. The justices remark that delay in filing Lawsuit 3—imposed by the struggle for assignment—is a problem of insurance company’s own making. And problems you made yourself don’t support suspending a limitations period.
Observations, Questions & Lessons
- Often referred to as “recovery,” as part of a settlement insurance companies traditionally require their policy holders to assign policy holder claims against third-parties. (Your insurance company pays you cash on an insurance claim for flood damage. In exchange, you assign to the insurance company your claims against those allegedly responsible for causing the flood.) It’s a customary step in the choreography of insurance claim settlement. But it didn’t happen here. This raises—and leaves lingering—the question: why? What was different about this insurance claim and this settlement that garnered different—and for recovery, ultimately fatal—treatment?
- And this decision suggests: get the deliverables when paying the money. Sometimes that’s impractical, but that’s rare. An assignment today’s usually better than a promise to assign on Tuesday. And because the insurance company found out the hard way in this case, now you don’t have to.