`Insurance malpractice' is not a valid cause of action, rules Now York high court.

In a ruling at odds with decisions of at least two other state high courts, the New York Court of Appeals has held that insurance agents and brokers are not "professionals" and cannot be sued for malpractice. (Chase Scientific Research, Inc. v. NIA Group Inc., No. 24; Gugliotta v. Apollo Roland Brokerage, Inc., No. 25, 2001 WL 279180 (N.Y. Mar. 22, 2001).)

The court noted that while agents and brokers are "held to high standards of education and qualification," these criteria are "simply not as rigorous as those embraced by what we conclude are the professionals" under the New York law that sets forth the three-year statute of limitations for non-medical professional malpractice. The court held that lawsuits alleging negligence by insurance brokers and agents are governed by the state's six-year limitations period applicable to general negligence and breach-of-contract claims.

This is a favorable decision for plaintiffs, said Steven Beldock of New City, New York, cocounsel for Chase Scientific Research, Inc., which brought one of the suits.

Chief Judge Judith Kaye wrote for the unanimous seven-judge panel that "while agents and brokers must be licensed, they are not required to engage in extensive specialized education and training; rather a person who has been regularly employed by an insurance company, agent, or broker for at least a year during the three years preceding the date of license application may qualify to be a broker.

"True, lawyers, engineers, architects, and accountants also can circumvent the formal education criteria of their respective fields, but they must surmount far higher hurdles. Aspiring attorneys must complete at least one academic year as a matriculated student at an approved law school as well as an aggregate of four years in the supervised study of law in a ... law office, with credit for law school attendance; engineers, architects, and accountants also face extensive work experience requirements," she wrote.

The court also noted that insurance agents and brokers are not bound by a standard of conduct under which discipline might be imposed.

Other states are split on the issue. Arkansas and Rhode Island have held that insurance agents and brokers are professionals for malpractice purposes. (Flemens v. Harris, 915 S.W.2d 685 (Ark. 1996); Burns v. Connecticut Mutual Life Insurance Co., 743 A.2d 566 (R.I. 2000).) Florida and Kentucky have held that they are not. (Pierce v. AALL Insurance, Inc., 531 So. 2d 84 (Fla. 1988); Plaza Bottle Shop, Inc. v. Al Torstrick Insurance Agency, Inc., 712 S.W.2d 349 (Ky. 1986).)

The question arose from two cases that claimed negligence and breach of contract for an insurance broker's and an insurance agent's failure to procure adequate insurance coverage. In both cases, the defendants moved to dismiss the actions as time-barred under the three-year limitations statute for professional negligence. The state supreme court dismissed both complaints, and the appellate division affirmed.

The high court reversed one decision, reinstating both causes of action, and modified the other, reinstating the breach-of-contract claim. It concluded that the actions against the defendant broker and agent are governed by the six-year limitations period.

"When the legislature amended [the professional negligence limitations statute in 1996] to apply a three-year limitations period to all nonmedical malpractice actions, whether based on tort or contract, it ended one quandary but exposed another: Who are the `professionals' whose misfeasance toward clients is subject to the shortened limitations period?" Kaye wrote.

The court held that "professional" is a term in wide usage that has several meanings, including a measure of quality, a distinction from trade or business people, and a lifework as opposed to a pastime.

Those qualities are shared by learned professions--exemplified by law, medicine, and accounting--and "guide us in defining the term `professional.' In particular, those qualities include extensive formal learning and training, licensure and regulation indicating a qualification to practice, a code of conduct imposing standards beyond those accepted in the marketplace, and a system of discipline for violating those standards," Kaye wrote.