Court holds insurance agent negligence is not "malpractice," and limitations period runs when claim denied
The Worden Insurance Agency secured workers compensation insurance for Jack Fritz's company through Hastings Mutual. One problem: Fritz's company operated in several states and the Hastings Policy applied only to injuries suffered in Michigan. Thus, when Jennifer Stephens' husband died after a fall, Fritz had no insurance coverage to provide workers compensation benesfits to the widow and children.
Since Fritz had applied for coverage that operated outside the State of Michigan, and since David Shamaly, Worden's agent, had represented that Hastings' coverage would apply to injuries outside the state, Fritz and Stepehens ultimately pursued a claim against the insurance agent for negligence. The Agency argued that the shorter statute of limitations for professional malpractice should apply, rendering the claim void. It also argued that Shamaly operated outside its rules if he confirmed out-state coverage and therefore it should not be accountable for Shamaly's error.
The Court was forced to determine, for the first time, what statute of limitations should apply to insurance agents and when the cause of action actually accrued. It ruled that since an insurance agent requires very little education or qualification, by law, it was not a "profession" by Michigan's malpractice standards. Therefore, a suit against an insurance agent is in the nature of an ordinary negligence claim, not a malpractice claim.
The Court also held that the statute of limitations for insurance agent negligence begins to run when the presumed insurer denies the underlying claim. It rejected Worden's argument that the claim accrues when the policy is purchased and the negligence occurred, since at that point, in most cases, no damage has been suffered and no one is aware of the deficiency. The Court also rejected delaying accrual until coverage litigation is resolved.
With regard to Shamaly's claim that Worden cannot be responsible for an assurance of coverage because it has a policy forbidding employees to make assurances, the Court noted that Shamaly's actions--whether allowed by the employer or not--were within the scope of his employment. Therefore his employer is accountable for his negligence, if any.