Claim For Negligent Procurement Of Insurance Coverage Accrues When Claim Is Denied
In a case of first impression, the Michigan Court of Appeals in Stephens v Worden Insurance Agency, LLC, Docket No. 314700 (October 16, 2014), ruled that an insured’s claim for negligent procurement of an insurance policy accrues when the insurance carrier denies the claim. In Stephens, the insured approached his insurance agent to procure both workers compensation and general liability insurance. The insured specifically advised his agent that his company operated in several states, including states outside of Michigan. After the insurance was procured, a worker fell to his death from a ladder while working on a construction job in Florida. The insured settled with the estate and pursuant to the settlement agreement assigned his rights to pursue indemnity from the workers compensation carrier. The carrier denied liability because the policy covered claims related to accidents occurring only in Michigan. The personal representative, after being denied coverage by the carrier, sued the insurance agent for negligence and misrepresentation.
The insurance agent defended claiming that the suit was time barred because the suit was filed outside the 2-year statute of limitations for malpractice claims. The personal representative argued that the claim sounded in “negligence” and not malpractice and that the three-year negligence statute of limitation or six-year breach of contract statute of limitations governed. The Michigan Court of Appeals initially noted that no binding Michigan case has held that an insurance agent can be liable under a malpractice theory as insurance agents are not “professionals” because higher levels of education are not required to obtain a license in the same way that doctors, attorneys and dentists are required to attend graduate schools prior to licensing.
Once the Michigan Court of Appeals determined that insurance agents are not liable for “malpractice” and that the two-year malpractice statute of limitations does not apply, the Court of Appeals then determined for the first time in Michigan that a claim accrues and that the three-year statute of limitations commences when the carrier denies the claim and not on the date the agent negligently procured the deficient policy.
This decision creates a bright line date for the accrual of negligent procurement causes of action and extends the filing cutoff date for insureds who do not end up with the type of coverage they directed their agents to purchase.
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