E&O Policy Claim Dismissed: Statute of Limitations

The Ohio Supreme Court recently issued a decision clarifying when the statute of limitations starts to run for claims against insurance companies regarding professional liability insurance policies. The case stems from a real estate company’s lawsuit against their insurance agent for negligence in failing to procure an appropriate E&O policy for the brokerage and negligently misrepresenting the coverage provided by the E&O policy. The Court found that the four-year statute of limitations for negligence claims started to run when the policy was issued, not when the brokerage incurred damages. As a result, the brokerage’s claim against the insurance agent was dismissed because it was filed outside the four-year statute of limitations.

The facts of the case provide insight to the Court’s decision. Frank and London Insurance Agency (“F&L”) procured a professional liability policy for LGR Realty, Inc. (LGR) from Continental Casualty Insurance Company. The policy went in to effect on May 12, 2010. LGR alleged that at the time F&L represented that the policy would provide coverage for claims against the brokerage. However, allegedly unbeknownst to LGR, the policy contained an exclusion of any claims against LGR by Plaza Properties. During the term of the policy, LGR filed a claim for the defense of a lawsuit involving Plaza Properties. On April 26, 2011, Continental Casualty denied the claim citing the exclusion of Plaza Properties from the E&O policy.

LGR sued F&L on April 17, 2015, which F&L moved to dismiss as time-barred by the four-year statute of limitations. LGR argued the suit was not time-barred because it did not learn about its “damages” until April 26, 2011 (when Continental Casualty denied its claim). The Supreme Court was tasked with determining whether the delayed-damage rule applied in this case, thereby tolling LGR’s claim until it suffered an injury.

Generally, a statute of limitations commences as soon as the injurious act complained of is perpetrated. There are however two exceptions:

• The Discovery Rule: when an injury is not immediately known, the cause of action arises when the plaintiff knows or should have known of the injurious conduct.
• The Delayed Damage Rule: where the wrongful act isn’t harmful until some future point in time.

The Supreme Court held that LGR’s injury occurred when the professional liability policy, containing the Plaza Properties exclusion, was issued. Thus, the four-year time frame in which LGR could sue F&L started the day the policy went into effect or May 12, 2010. Therefore, when LGR sued F&L in April of 2015, it was too late as the four-year statute of limitations had already run.

Many brokerages have E&O policies to protect them from claims of negligence, fraud and other professional misconduct. It is critical that brokerages know and understand the specific provisions of their policies. Here, because LGR didn’t learn of the limitations in its policy until later, it was precluded from bringing a negligence claim against its insurance agent. Any exclusions and limitations in your professional negligence policies should be scrutinized and understood, so you do not find yourself both without coverage and without any remedy against your insurance agent. The entire case can be viewed at LGR Realty, Inc. v. Frank & London Ins. Agency, 2018-Ohio-334.

Here’s another instance of agents dealing with a statute of limitations.