September 9, 2015 by Alan Prochoroff
The Michigan Court of Appeals has ruled that an insurance agent’s actions can be negligent, but they don’t reach the level of malpractice. The case centered around a workers’ compensation claim in which Jack Fritz, the owner of a construction company, had asked Worden Insurance to obtain workers’ compensation and general liability coverage. Since his company operated in several states, he specified that he’d need corresponding coverage. Worden, however, only got coverage for Michigan, where the construction company was headquartered.
Fritz operated for more than a decade without a claim outside Michigan, oblivious to his coverage gap. He didn’t learn he wasn’t covered until 2008 when one of his workers was killed on a Florida job site.
According to the trial record, the worker’s estate suggested that certificates of insurance from the insurer, Hastings Mutual, didn’t indicate Florida coverage was in place when those certificates arrived at the Worden agency—and that
Worden or its representatives “Xeroxed and whited out” the documents to make it appear coverage was available. Worden’s agent allegedly sent copies of Fritz’s certificate of issuance to many job sites in other states, including Florida, despite the fact that coverage didn’t actually exist in those states. Moreover, the agent allegedly directed other employees to issue certificates of insurance for work elsewhere when no such coverage existed.
The worker’s estate filed a lawsuit for negligence, but Worden and Hastings said in their defense that the claims were for malpractice, not simple negligence. And malpractice, they noted, has a two-year statute of limitations.
The trial court agreed, and dismissed the lawsuit.
That got reversed by the Court of Appeals, which said that malpractice applied only to professionals. Insurance agents, it reasoned, lacked the education to be included in the ranks of doctors, lawyers and similar professions. There is, it added, no precedent to hold insurance agents or agencies liable under a malpractice theory.
“Cases in which an insurance agent failed to procure the type or level of insurance sought by the client, or provided negligent advice” are ordinary negligence, the court ruled. “To hold otherwise would create malpractice actions against such unintended fields as cosmetology and realty.”
As the court saw things, a person needs a high school diploma, has to complete about 40 hours of instruction and pass a licensing exam to become an insurance agent. It’s a low bar with “limited educational and licensing requirements.”
On the other hand, “a vocation is considered a profession subject to professional malpractice if a higher level of education, such as a graduate degree, is required before a license may be granted.”
Similarly, the opinion pointed to the Kentucky Court of Appeals, which held that insurance agents “who need have no more education than a high school diploma to qualify for a license” could not be held to a professional standard of care. The court cited similar court decisions in Alaska, California, Colorado, Delaware, Florida, Georgia, Indiana, Minnesota, Missouri and New York.
The Court of Appeals also noted that malpractice didn’t apply to professions with more stringent education requirements for a license, such as morticians.
The claim has been remanded back to the trial court for further proceedings
Alan Prochoroff is the Editor of Insurance Compliance Insight, where these articles first appeared.
Copyright 2015 Rogers Publishing Ltd. This article first appeared in the August 2015 edition of Canadian Insurance Top Broker magazine
This story was originally published by Canadian Insurance Top Broker.