Is an insurance agent a “professional” when it comes to whether or not he or she may be charged with malpractice? Not necessarily, a Michigan state appeals court has said.
The Michigan Court of Appeals made that determination in a case against a Michigan insurance agent and an insurance agency that centers on whether or not the agent procured the insurance coverage sought by an insured and the timing of a negligence complaint.
Reversing a lower court’s dismissal of the case, in court documents the appeals panel explained: “At issue in this appeal is the statute of limitations applicable to a claim that an insurance agent secured insurance coverage other than that sought by the insured, leaving the insured liable under circumstances where he expected coverage.”
Also at issue is whether the complaint was a negligence complaint, which has a three-year statute of limitations, or a malpractice claim, which has a two-year statute of limitations in Michigan.
The background for Stephens v. Worden Insurance Agency and David Shamaly begins in 1998 when construction company owner Jack Fritz requested that Shamaly, an agent at the Worden Insurance Agency, place workers’ compensation and general liability insurance for his company. In addition to his home state of Michigan, Fritz needed the insurance for other states in which he operated and informed the agent of that need.
“From 1998 through 2008, Fritz operated under workers’ compensation and general liability insurance policies issued by Hastings Mutual Insurance Company, the latest taking effect on April 21, 2008. And Fritz apparently experienced no loss outside of Michigan leading to a claim against the workers’ compensation policy,” the court stated.
In June 2008, however, employee Charles Becker fell from a ladder and was killed while working for Fritz at a jobsite in Florida. When at Shamaly’s direction Fritz contacted Hastings to file a claim, Fritz “learned that the accident would not be covered under the workers’ compensation policy because it applied only to accidents occurring in Michigan,” the court said.
Jennifer Stephens, Becker’s widow, filed suit against Fritz in Florida. The two subsequently reached a $5 million settlement, under which Stephens promised not to collect against Fritz “in exchange for assignment of Fritz’s right to pursue indemnification against Worden, Hastings, and any other appropriate entity or person liable in the coverage dispute.”
The current action against Worden Insurance Agency and Shamaly, was filed in the St. Clair Circuit Court on May 31, 2011, court documents indicate. It asserts negligence, breach of contract and fraud on behalf of the agent and agency.
The defendants argued in the circuit court that the action concerned malpractice, not negligence, and that it was not filed within the two-year statute of limitations for malpractice. Therefore, the defendants argued, the case should be dismissed.
Stephens responded “that her claims against the insurance agent were common-law negligence claims that historically did not fall within the rubric of malpractice. Therefore three- and six-year statutes of limitations applied. Her claims were timely, Stephens retorted, because they accrued either on June 7, 2008, when Becker died, or October 26, 2010, when a judgment was entered in the Florida circuit court based on the Fritz-Stephens settlement agreement,” according to the appeals court.
The lower court found, however, that Stephens’ claims “were barred by the statute of limitations” and the case was dismissed.
Malpractice v. Negligence
On appeal, the panel said the “case hinges on the proper characterization of Stephens’s claims.” The appeals court added that a court was “not bound by the label a party assigns to its claims.”
For various reasons the appeals court rejected Stephens claim of breach of contract and fraud, and turned its attention to the matter of whether the complaint concerned negligence or malpractice.
The appeals court stated that within Michigan’s Revised Judicature Act there is no statute that defines malpractice. The defendants argue “that malpractice liability adheres to licensed professionals in this state based on MCL 600.5838(1),” but the Michigan Supreme Court established that malpractice should be considered in terms of its common law meaning, that is the meaning it held when the applicable common law was established in 1925, the appeals court stated.
That law “covered at least medical, legal, and dental malpractice actions. … The Legislature’s decision to categorize a claim against a state licensed architect as ‘an action charging malpractice’ logically defeats defendants’ argument that actions against all state-licensed professionals automatically qualify as malpractice actions,” the appeals court noted.
The panel also said that the limited educational and licensing requirements for insurance agents “are not commensurate with the ‘professions’ generally deemed subject to professional negligence liability, i.e., malpractice.”
Because there is no “common-law basis for subjecting insurance agents to professional malpractice liability, the circuit court erred in applying the malpractice statute of limitations in this case. Rather, Stephens raised an ordinary negligence claim. And the statute of limitations for ordinary negligence claims is three years,” the appeals panel noted.
The case was reversed and remanded “for continued proceedings consistent with this opinion.”
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