Insurance agents are licensed professionals. They have to complete accredited coursework and pass a licensing examination. But the Michigan Court of Appeals recently decided that that isn’t enough to give them the protections of the shorter limitation period for malpractice claims (2 years). Instead, in Stephens v Worden Insurance Agency, LLC, the Court held that, when a plaintiff claims an insurance agent didn’t get the coverage he requested, the plaintiff has three years from the day his claim is denied to sue his agent for negligent procurement.
Jack Fritz asked David Shamaly, an agent at the Worden Insurance Agency, to get workers’ compensation and general liability insurance policies for his construction company. Fritz’s company performed jobs outside of Michigan, so he told Shamaly that he needed multistate coverage. Shamaly obtained coverage for Fritz’s company through Hastings Mutual. But Hasting’s workers’ compensation coverage didn’t apply to out-of-state injuries.
Fritz discovered the coverage gap when one of his employees was killed on a job site in Florida and his insurance claim was denied. Fritz settled with the employee’s spouse, Jennifer Stephens, and assigned his claims against Shamaly and Worden to her. But when Stephens filed her complaint, Shamaly and Worden moved to dismiss it as untimely under the 2-year statute of limitation for malpractice claims. The trial court agreed that Stephen’s claims were barred by the statute of limitations. But the Court of Appeals disagreed and reversed.
The Court of Appeals started by rejecting Stephens’s argument that her claims were for breach of contract or fraud. The Court previously “characterized an insurance agent’s failure to procure requested insurance as a tort,” and it stuck with that position. Stephens also hadn’t pleaded the facts necessary for a fraud claim. So the Court was left to determine whether Stephens’s claims sounded in ordinary negligence (which has a three-year period of limitation) or malpractice (which has a two-year period).
The Court, citing Supreme Court precedent, rejected Shamlay and Worden’s argument that the malpractice limitation period applies to any licensed profession. Instead, the Court focused on whether an insurance agent is a professional who was historically subject to malpractice liability. It answered that question, “no.” And though insurance agents must complete coursework and pass an exam, the Court found that “[s]uch limited educational and licensing requirements are not commensurate with the ‘professions’ generally deemed subject to professional negligence liability, i.e., malpractice.” Accordingly, the Court concluded that the plaintiff’s claim was for ordinary negligence and the three-year period of limitation applied to it.
The Court’s next task was to determine when that three-year clock started ticking. There were four options: (1) when the agent procured the deficient coverage, (2) when the event that the insurance was meant to cover happens, (3) when the insurance claim is denied, or (4) when the coverage dispute is resolved through litigation. The Court chose the third option. The first two options, the Court reasoned, were too early. There was “no actual damage” before the claim is made. And the last option was too late. The injury occurs when the claim is denied. So the third option was just right, which meant that Stephen’s claim was timely.
Shamaly and Worden may still ask the Michigan Supreme Court to review the Court of Appeals decision. The Supreme Court may agree or disagree with one, both, or none of the Court of Appeals’ conclusions. Or it might decline to take the case at all and leave the Court of Appeals’ opinion in place.
But the Court of Appeals opinion is published. So, unless and until the Supreme Court intervenes, negligent procurement claims against insurance agents in Michigan will be subject to a three-year period of limitation that begins when an insurance claim is denied.