Background
Robert D. Ferguson, Kansa International Corporation, Ltd., Bankruptcy Estate, and Imipolex LLC were former shareholders of the parent company of Clarendon America Insurance Company and Clarendon National Insurance Company. After Clarendon suffered substantial losses from a reinsurance program recommended by Raydon Underwriting Management Company, Ltd., the plaintiffs acquired Clarendon’s claims against third parties responsible for those losses.
Raydon’s parent, Stirling Cooke Brown Holdings, Ltd., had obtained a professional-liability insurance program through Aon Risk Services Companies, Inc. and related Aon entities. Although Aon forwarded two of Clarendon’s claims to the primary insurer, it did not forward them to the excess insurers. After obtaining an uncollectible default judgment against Raydon and settling with two insurers for less than the policy limit, the plaintiffs sued Aon for breach of purported 1996 and 1999 agreements and professional negligence. The district court dismissed the negligence claim under Rule 12(b)(6) and later granted Aon summary judgment on the contract claim.
The Court’s Holding
The Seventh Circuit affirmed summary judgment on the breach-of-contract claim. Assuming without deciding that the purported agreements were valid and enforceable, the court held that Clarendon was not an intended third-party beneficiary. The documents did not expressly, or with an implication equivalent to an express declaration, show that Aon and Stirling Cooke intended to confer a direct benefit on Clarendon. Any benefit Clarendon might have received from notice to the insurers was merely incidental.
The court also affirmed dismissal of the professional-negligence claim. Under Illinois law, Aon’s insurance-broker duties ran to its insured client, Stirling Cooke, rather than to Clarendon, a non-insured third party. The plaintiffs identified no duty requiring Aon to notify Stirling Cooke’s insurers of claims asserted by Clarendon against Raydon.
As an independent ground for affirmance, the court held that both claims were untimely under Illinois’s two-year limitations period for actions against insurance producers concerning the placement or procurement of insurance. Aon’s alleged failure occurred in 1999, and the plaintiffs were at least on inquiry notice by 2012, when Ferguson asked Aon whether it had notified the insurers. The suit, first filed in 2019, therefore came too late.
Key Takeaways
- A nonparty may enforce an Illinois contract only when the agreement shows a clear intent to provide that party a direct, rather than incidental, benefit.
- An insurance broker’s duties ordinarily run to the insured, not to a non-insured third party asserting a claim against the insured.
- The Seventh Circuit affirmed two distinct dispositions: summary judgment on the contract claim and Rule 12(b)(6) dismissal of the professional-negligence claim.
- The claims were independently barred because the plaintiffs waited more than two years after they were on inquiry notice of Aon’s alleged failure.
Why It Matters
The decision underscores the difficulty that third-party claimants face when attempting to recover from an insured’s broker. Knowledge that a third party could benefit from an agreement is insufficient; Illinois law requires contractual language demonstrating an intent to benefit that party directly.
The opinion also shows that delayed discovery may not preserve insurance-broker claims once the claimant has facts sufficient to prompt further inquiry. Parties suspecting defective notice to insurers should investigate and act promptly.