Plaintiffs Lose Coverage Case Based Upon Limitations Period In Insurance Policy

Hoover v. Country Mutual Insurance Co., Ill: Appellate Court, 1st Dist., 3rd Div. 2012 - Google Scholar:

This case has a harsh result.  Plaintiffs home burned down, together with their homeowners insurance policy. They filed a lawsuit two years after the fire.  Their case was dismissed based upon the one-year limitation period in the insurance policy.  The court reasoned as follows:

"¶ 35 The suit limitation provision in the Hoovers' insurance policy provided that all suits against Country Mutual must be brought within one year of the date of the occurrence. In Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (1996), our supreme court held that compliance with a suit limitation provision within a policy is a condition precedent to recovery under the policy. Cramer, 174 Ill. 2d at 530 (citing Schoonover v. American Family Insurance Co., 214 Ill. App. 3d 33, 44 (1991)). In Cramer, the insurance policy at issue had a one year suit limitation provision similar to the one in this case. The policy provision provided that a suit on the policy must be brought within one year of the loss. The court found that the plaintiff's suit was untimely because the plaintiff filed the complaint more than one year after the loss. Cramer, 174 Ill. 2d at 530. Here, the Hoovers' home was destroyed on January 12, 2008. The Hoovers filed their initial complaint against Country Mutual on March 3, 2010, more than two years after the explosion. Therefore, based on the one-year suit limitation provision in the policy, the Hoovers' breach of contract claim was untimely. Cramer, 174 Ill. 2d at 530."

Comment:  While this result is technically correct, this situation cries out for reform of insurance policies in Illinois.

Edward X. Clinton, Jr.

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Duty to Defend - Long Delay Before Insurer Is Notified Of Claim

Farmers Auto. Ins. Ass'n v. Burton, 967 NE 2d 329 - Ill: Appellate Court, 4th Dist. 2012 - Google Scholar:

In this case, Farmers was notified of an automobile accident two years after it occurred and only after the insured was convicted of leaving the scene of an accident. The accident (a hit and run accident allegedly) occurred on May 11, 2008. The policyholder did not notify the insurance company until July 8, 2010. That long delay was sufficient to absolve the insurance company of any duty to defend or indemnify.

The court explains:

"¶ 16 In its declaratory judgment action, Farmers alleged it had neither a duty to defend nor a duty to indemnify Burton as a result of the accident because Burton did not provide the company with prompt notice. The insurance policy in question contained a provision requiring the insured to provide prompt notice of any accident or loss. Our supreme court has stated: "A provision in an insurance liability policy requiring an insured to give the insurer notice of an accident is a reasonable policy requirement, one which affords the insurer an opportunity to make a timely and thorough investigation and to gather and preserve possible evidence." Barrington Consolidated High School v. American Insurance Co., 58 Ill.2d 278, 281, 319 N.E.2d 25, 27 (1974)."

The policyholder denied that he was involved in the accident. However, his arrest on charges (in September 2008) that he left the scene of an accident was sufficient to give him notice that he was involved in the accident. The court explains:

"While being arrested does not equate to an "accident or loss," Burton's arrest for the hit and run death of Timothy placed him on notice of both his potential criminal and civil liability for the accident which resulted in Timothy's death. Regardless of his claim he was not involved in this accident, he should have known he could be found legally responsible for Timothy's death. As a result, his insurance policy required him to provide prompt notice of the accident and loss. Burton's policy clearly stated: "We will pay damages for `bodily injury' or `property damage' for which any `insured' becomes legally responsible because of an auto accident." (Emphasis added.)"

Comment: failure to give prompt notice to an insurance company is an easy way to lose coverage. It can be a terrible mistake.

Edward X. Clinton, Jr.


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Illinois Supreme Court Rejects Account Stated Theory Where Invoices Were Disputed

PATRICK ENGINEERING, INC. v. City of Naperville, Ill: Supreme Court 2012 - Google Scholar:

An account stated can be an easy way to collect a bill.  To recover the creditor must show that the debtor and the creditor agreed that the invoices were correct.  The Illinois Supreme Court defined it in these terms:

"¶ 56 "An account stated has been defined as an agreement between parties who have had previous transactions that the account representing those transactions is true and that the balance stated is correct, together with a promise, express or implied, for the payment of such balance." W.E. Erickson Construction, Inc. v. Congress-Kenilworth Corp., 132 Ill. App. 3d 260, 267 (1985). Further, "an account stated cannot be created merely by furnishing an account unless the creditor or debtor specifically intends to establish a balance due or to agree upon a final settlement to date between the parties."Toth v. Mansell, 207 Ill. App. 3d 665, 672 (1990). That is, an account stated is "merely a final determination of the amount of an existing debt," and an action for an account stated is founded upon a promise to pay that debt, not the original promise to pay under the contract. Motive Parts Co. of America, Inc. v. Robinson, 53 Ill. App. 3d 935, 941 (1977)."

Here the plaintiff, an engineering firm, sued the City of Naperville under an account stated theory.  The Supreme Court held that the account stated count did not state a claim because the amount was disputed.  The discussion lists all of the flaws that can doom an account stated claim to failure.

"¶ 57 Because of the discrepancy between the amounts allegedly billed and the amounts actually billed, count IV does not present a true and correct statement of the account between the parties. Additionally, because the fifth and final invoice never provided to the City a final statement of account, indicating the total amount owed by the City, count IV does not, and cannot, allege that the City promised to pay that amount. Although count IV contains an allegation that the City never objected to the five invoices, and consequently the City acknowledged their correctness, count I contains allegations that the City "failed to approve the invoices" and "failed and refused to pay" for Patrick Engineering's services. The City never acquiesced to the invoices; there was simply no meeting of the minds. We affirm the trial court's decision to dismiss count IV."

Comment: an account stated is a great legal theory because the plaintiff avoids litigation about the performance of the plaintiff.  Where the account is disputed, the account stated theory will not work.  The account stated theory might have worked in this case if there was a final invoice listing the total amount and if the city did not object to the invoice.

Edward X. Clinton, Jr.

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The Account Stated - A Useful Legal Tool for Creditors

American Express Centurion Bank v. Gabay, 94 AD 3d 795 - NY: Appellate Div., 2nd Dept. 2012 - Google Scholar:


A creditor can often pursue payment on many theories. One of the most useful is the account stated. An account stated requires the creditor to show that there was a history of transactions and that the conduct of the debtor demonstrates that the debtor did not dispute the balance due. The advantage of account stated is that it avoids the defense to a breach of contract action that the goods or services were inferior. The other advantage is that a lawsuit based on an account stated can rely on the debtor's failure to challenge invoices as proof that the invoices stated the correct amounts.


This is some language from a New York case that sets out the requirements for an account stated:


"An account stated is an agreement between parties to an account based upon prior transactions between them with respect to the correctness of the account items and balance due" (Fleetwood Agency, Inc. v Verde Elec. Corp., 85 AD3d 850, 851 [2011][internal quotation marks omitted]). "An agreement may be implied where a defendant retains bills without objecting to them within a reasonable period of time, or makes partial payment on the account" (American Express Centurion Bank v Cutler, 81 AD3d 761, 762 [2011])."


Comment: if you have series of uncontested invoices and no real defense to payment the account stated is often the legal theory of choice. However, if the debtor complained promptly or contested the invoices, the account stated theory will not work. The best alternative is a breach of contract claim.
Edward X. Clinton, Jr.

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Appellate Court Upholds Personal Guarantee

YELLOW BOOK SALES AND DISTRIBUTION COMPANY, INC. v. Feldman, Ill: Appellate Court, 1st Dist., 4th Div. 2012 - Google Scholar:


This case, which is a dispute over $13,178.01, contains a lengthy discussion of the contract principles relevant to the enforcement of personal guarantees. The key question was whether the contract's terms were clear enough to the reader.


The contract is quoted by the court as follows:


"THIS IS AN ADVERTISING CONTRACT BETWEEN YELLOW BOOKS SALES AND DISTRIBUTION COMPANY, INC. OR YP TEL. AND _________________________ and Print Customer Name X______________________________ Authorized Signature individually and for the Customer. (Read Paragraph 14G on the reverse hereof).





¶ 4 Each of the four contracts contain "Glassworks, Inc." above the "Print Customer Name" line. Feldman's signature appears on the second line of each contract and his name is followed by either "Pres." or "President." Feldman's name is printed on the following line.


¶ 5 Paragraph 14G of the form contracts, referred to in the signature block and found on the back side, is written in fine print and states:


"The signer agrees that he/she has the authority and is signing this agreement (1) in his/her individual capacity, (2) as a representative of the Customer, and (3) as a representative of the entity identified in the advertisement or for whose benefit the advertisement is being purchased (if the entity identified in the advertisement is not the same as the Customer or the signer). By his/her execution of this agreement, the signer personally and individually undertakes and assumes, jointly and severally with the Customer, the full performance of this agreement, including payment of amounts due hereunder."

The trial court found this language ambiguous and ordered a trial to determine the parties' intent. After hearing evidence the court found that Feldman was sophisticated (he was a lawyer) and must have understood what he was signing. Paragraph 39.


The appellate court found that the verdict was not against the manifest weight of the evidence. It noted that Feldman had signed four similar such contracts, and must have understood what the language meant.


One issue the case does not discuss is whether the trial court was correct to deny Yellow Book's motion for summary judgment and order a trial. The language seems clear. The word "individually" is easy to understand. In sum, I believe the case can be resolved on the plain meaning of the contract. Someone who signs individually knows he is agreeing to pay the balance if the company cannot pay it. The word "individually" signals a personal guarantee to the signer.


Edward X. Clinton, Jr.


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