Dallas Fort Worth Insurance Lawyer Blog

How does a person in Grand Prairie, Arlington, Mansfield, Aledo, Burleson, Bedford, Euless, Lancaster, Hurst, Fort Worth, or any other city in Texas know when their insurance company or agent is committing fraud? The problem with fraud is that a person usually does not know when it happens.
USLegal defines fraud as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.
The Texas Supreme Court, in 1977, defined fraud in the case, Stone v. Lawyers Title Insurance Corp., saying:
A fraud cause of action requires proof of the following elements:
(1) a material representation was made;
(2) the representation was false;
(3) the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion;
(4) the speaker made it with the intention that it should be acted on by the party;
(5) the party acts in reliance upon it; and
(6) the party suffered injury.
In Stone, the purchaser of a tract of land sued Lawyers Title Insurance Corp. on an owner's policy covering the tract for damages sustained due to the failure of the policy to show pipeline easements as exceptions. The Court held the title-agency president's statement that "everything was squared away" constituted some evidence that he represented that there were no easements on the property. As a result, the Court found evidence of actionable fraud against the title agency and its president.
Another example of fraud is found in, Pankow v. Colonial Life Insurance Co. of Texas. This is a 1996, Amarillo Court of Appeals case.
In Pankow, Pankow sued Colonial Life Insurance Co. of Texas, a credit life insurer, after it failed to pay policy proceeds on grounds that the policy had not been reinstated before the insured's husband died. Pankow alleged that employees of Colonial misrepresented that the policy would be reinstated and that they would secure the transfer of monies from an escrow account to pay outstanding premiums. These were actionable representations, as they involved misrepresentations of a future act which could be performed in compliance with policy terms.
Celestino v. Mid-American Indemnity Co., is an example of a case where the court said there was not any fraud. This is a 1994, Corpus Christi Court of Appeals case.
In Celestino, an employer's excess policy contained an exclusion for punitive damages. The declaration page, which specified that the umbrella policy conferred one million dollars in excess employer's liabiity coverage, did not amount to a fraudulent misrepresentation merely because the Mid-American Indemnity Co. policy contained the punitive damages exclusion. Celestino alleged that, by virtue of the exclusion, the policy in essence provided no employer's liability coverage at all. But the court stated that it could not isolate a general provision within a contract and label it a misrepresentation merely because subsequent exceptions preclude the effect of that provision. Furthermore, the language of the exclusion was plain, and its placement was prominent.
With the examples given above, it can be seen that each case is fact specific and has to be looked at closely to see if the allegation of fraud applies.

How does a person in Grand Prairie, Arlington, Mansfield, Hurst, Euless, Bedford, Fort Worth, Burleson, or anywhere else in Texas know when their insurance agent or insurance company has committed an act of negligence? This is a fair question and maybe this article will give you something to think about.
Insurance companies and insurance agents do not have a general duty to obtain coverage or to make sure the coverge they get for you is adequate. On the other hand though, courts have found insurance companies and insurance agents liable for affirmative misrepresentations, and the courts have stated that an insurance agent who undertakes to procure insurance for someone owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so. This was discussed in the Texas Supreme Court case, May v. United Services Association of America, in 1992. Also, this issue was discussed by the Court of Appeals in Houston, in the 1999 case, Frazer v. Texas Farm Bureau Mutual Insurance Company. In Frazier the court allowed Frazier to go forward with his claim against Texas Farm Bureau Insurance Company and his agent where it is alleged he asked his agent to raise his coverage limits and the agent failed to do so.
The Texas Supreme Court in the case, Kitching v. Zamora, in 1985, stated an agent has a duty to keep the customer informed about the insurance policy's expiration date when the agent receives information pertaining to the expiration date that is intended for the customer. This was restated by the Texas Court of Appeals of Amarillo, in 1992, in the case Horn v. Hedgecoke Insurance Agency.
The courts in Texas have suggested an insurance agent could be found negligent if an explicit agreement or course of conduct showed the agent undertook to determine the customer's insurance needs and counseled the customer as to how they could be met and then failed in this understanding.
Even a seven year relationship between a customer and an insurance agent was not enough to create such a special relationship where, even though the customer sought advice on the types of coverage available, the customer alone decided the total dollar amounts of insurance he wanted. This was the ruling in McCall v. Marshall, decided by the Supreme Court in 1965. Likewise, in Pickens v. Texas Farm Bureau Ins Co., the court stated the insurance agent for Texas Farm Bureau was not liable for failing to sugggest higher liability limits. The court stated there was no course of dealing and no history of taking care of the customer's needs. There, the customer purchased insurance over the phone from the secretary in the office, did not seek advice from the agent on how much coverage they should get, the customer did not question the amount of coverge and did not inquire about the possible coverage available, and the customer had previously called and raised another type of coverage.
In the May case above, the court suggested that an agent may be held liable for his negligence in obtaining an adequate policy where the adequacy of the policy can be "assessed by some objective measure." For this proposition the May court cited, McAlvain v. General Insurance Co. of America, a 1976, Idaho case. There, the agent for McAlvain, was held liable after McAlvain requested sufficient insurance to cover his business, including inventory, fully, and furnished to the agent for General Insurance Co. of America, an appraisal showing that the inventory was worth $45,000, and the agent procured a policy with only a $30,000 limit.
Most these cases, where there is a possible claim of negligence against an insurance agent or an insurance company need to be reviewed by an experience Insurance Law Attorney. Each of these situations need to be looked at on a case by case basis.
In the Kitching case cited above, the court upheld the jury's finding that the agent negligently failed to notify the insureds about information he had received pertaining to the expiration date of their flood insurance. The agent had received copies of two policy renewal forms before the policy expired and did not notify the insureds about his having received such information. In addition, he received a "speed letter" from the insureds' mortgage company requesting the agent to look into the insureds' lack of payment of the renewal premium, but he disregarded the instructions. Thus, the insureds did not pay their premium and their policy expired.

Whether your agent is in Grand Prairie, Arlington, Mansfield, Richardson, Plano, Fort Worth, or anywhere else in Texas, he has duties he owes to his insurance clients. So, what are an agents duties?
For starters, insurance agents do not have a general duty to obtain coverage nor to make sure any coverage you get is adequate. On the other hand, courts have found insurers liable for affirmative misrepresentations, and an insurance agent who undertakes to procure insurance for another owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so. This is discussed in the 1992, Texas Supreme Court case, May v. United Services Association of America.
What if the notice of expiration on an insurance policy is sent to the agent rather than to the policy holder it was intended for? Then the agent is responsible for forwarding that information. This was the issue in Kitching v. Zamora and Horn v. Hedgecoke Insurance Agency.
In the May case above, the court suggested an agent could be found negligent if an explicit agreement or course of conduct showed the agent undertook to determine the customer's insurance needs and counseled the customer as to how they could be met.
Contrast May with McCall v. Marshall, a Supreme Court case that said, even a seven year relationship was not enough to create such a special relationship where, even though the insured sought advice on the types of coverage available, the insured alone decided the total dollar amounts of insurance he wanted. Likewise, in Pickens v. Texas Farm Bureau Insurance Company, the Amarillo Court of Appeals, said in 1992, the agent was not liable for failing to suggest higher liability limits. The facts in the Pickens case definitly favored the insurance agent.
In addition to the case of special relationships, the May case also suggests that an agent may be held liable for his negligence in obtaining an adequate policy where the adequacy of the policy can be "assessed by some objective measure." For this proposition, the May court cited McAlvain v. General Insurance Co. of America. In McAlvain, an agent was held liable after the customer requested sufficient insurance to cover his business, including inventory, fully, and furnished to the agent an appraisal showing that the inventory was worth $45,000, and the agent procured a policy with a $30,000 limit.
The May court also suggests that an agent may be held liable to the extent that the customer puts him on notice of reliance on his expertise to compare and contrast various policies. Exactly what precise information is necessary to put the agent on notice, however, remains unclear.
In 1977, the Beaumont Court of Appeals, recognized a duty by the agent to keep the insured informed, when the court stated:
A local agent ... owes his clients the greatest possible duty. He is the one the insured looks to and relies upon. Most people do not know what company they are insured with. The insured looks to the agent he deals with to get the coverage he seeks, with a sound company who can and will properly and promptly pay claims when they are due. It is his duty to keep his clients fully informed so that they can remain safely insured at all time.
Certainly, when a person is dealing with an independent agent who writes insurance for any number of companies, this ruling would be important to note. However, maybe it is less relevant when the agent only represents one company, such as a State Farm agent, or a Farmers agent.

Let's say your insurance agent is in Aledo, Arlington, Azle, Grand Prairie, Fort Worth, Mansfield, Weatherford, or anywhere else in Texas. Now, let's say he does something wrong in the way he handles your insurance needs. Can he be held liable for what he does or fails to do for you?
The answer is yes. An agent can be held accountable on a number of different theories of law related to insurance. He can also be held accountable under the most fundamental of legal theorys, that being "negligence."
The Lectric Law Library defines negligence as, "The failure to use reasonable care. The doing of something which a reasonably prudent person would not do, or the failure to do something which a reasonably prudent person would do under like circumstances. A departure from what an ordinary reasonable person would do in the same community."
In Texas case law, negligence, in the insurance context as in others, consists of three elements:
1) a legal duty owed by one person to another;
2) a breach of that duty; and
3) damages proximately resulting from the breach.
These three elements are cited often in Texas case law. One of these cases is a 1990, Texas Supreme Court case, Greater Texas Transportation Company v. Phillips.
In the context of insurance agents, one of the more major problems that arise is an agent misrepresenting what an insurance policy covers. In this context, courts have adopted the tort of "negligent misrepresentation" as described by the Restatement of Torts, Section 552. This is approved by the courts in the Texas Supreme Court case, Chicago Title Insurance Company v. McDaniel, decided in 1994.
Section 552(1) provides:
One who, in the course of his business, profession or employment, or in any transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
One example of the above is found in the 2002 case, Nast v. State Farm Fire & Casualty Company. In this case, Nast stated a negligence claim against their State Farm Fire & Casualty Company agent for affirmative misrepresentations about coverage, saying they were not eligible for flood insurance and that neighbors who had flood insurance had purchase "fake" insurance from a "shyster."
An experienced Insurance Law Attorney can be very helpful in discussing potential claims against insurance agents. Usually, the biggest problem with these claims against agents for their misrepresentations, is proving the misrepresentation. These matters are usually swearing matches between the agent and the insured. This is where an attorney can use his experience to find ways to prove it is the agent who is on the wrong end of the swearing match.

Regardless of what kind of insurance you have purchased or where in Texas the purchase occurred, the same law applies. So residents of Grand Prairie, Arlington, Mansfield, Dallas, Fort Worth, or Weatherford, all get treated the same.
This will be the first part of a several part writing on "unfair insurance practices".
Chapter 541 if the Texas Insurance Code, is where the definition and prohibition for unfair and deceptive insurance practices is found. These sections of the Insurance Code are Sections 541.001 thru 541.061, Section 541.151 thru 541.162, and 541.453.
Unfair insurance practices violations are also a violation of the Texas Deceptice Trade Practices Act (DTPA). DTPA violations are found in the Texas Business & Commerce Code, Section 17.46. This list is long and is also known as the "laundry list" of violations subject to civil prosecution.
The Insurance Code statutes listed above allow a private cause of action by a wronged person who has sustained actual damages caused by another's engaging in any act or practice that is defined as an unfair method of competition or unfair or deceptive act or practice in the business of insurance, or defined as an unlawful deceptive trade practice. This is set out in statute in Section 541.151. The usual violators or this section would be insurance agents and insurance adjusters.
The definitions of unfair and deceptive practices are found in two places: (1) Texas Insurance Code, Sections 541.051 to 541.061; and (2) Business & Commerce Code, Section 17.46(b), also known as the DTPA.
The Insurance Code sections prohibit the following:
1) misrepresentations and false advertising of policy contracts;
2) false information and advertising generally;
3) defamation of insurers or persons engaged in the business of insurance;
4) boycott, coercion, and intimidation in the business of insurance;
5) false financial statements;
6) stock operations and advisory board contracts;
7) unfair discrimination;
8) rebates;
9) deceptive names, words, symbols, devises, and slogans;
10) unfair settlement practices; and
11) misrepresentation of insurance policies.
Of these listed prohibitions, the most commonly used by experienced Insurance Law Attorneys are those related to unfair settlement practices and misrepresentations of insurance policies. Certainly the others apply in some situations and each case has to be looked at closely.

The rules regulating and governing inusrance agents in the State of Texas are found in the Texas Insurance Code. A source for information on a particular agent is the Texas Department of Insurance.

What exactly is an agent? An "agent" is defined in Section 4001.003 of the Texas Insurance Code, in part, as a person who is an authorized agent of an insurance company and any other person who performs the acts of an agent, whether through an oral, written, electronic, or other form of communication, by soliciting, negotiating, procuring, or collecting a premium on an insurance contract. This would include the people you are dealing with on the internet or through the mail when trying to buy insurance.

To become an insurance agent in Texas, a person must be licensed by the State. In order to be licensed by the State of Texas, a person must submit a completed application to the State with fingerprints. They must also take and pass a test showing their knowledge of the basic principles of insurance contracts, the basic laws of Texas regulating the business of insurance, and the ethical obligations and duties of an agent. Further, there are continueing education requirements.

In order to sell insurance for a company a person must receive an appointment from an insurer or insurance company. To do this a fee is paid to the Texas Department of Insurance. At this point a person has for the most part, met their requirments to sell insurance in the State of Texas.

Section 4001.051 of the Texas Insurance Code describes "Acts Constituting Acting as Agent". Basically a person acts as an agent of an insurance company if the person, (1) solicits insurance on behalf of a company, (2) receives or transmits an application for insurance or an insurance policy to or from the company, (3) receives or transmits an insurance policy of a company, (4) examines or inspects a risk, (5) receives, collects, or transmits an insurance premium, (5) takes any action in the making or consummation of an insurance contract for or with the company.

Too often, people who work in offices of insurance agents, are not themselves licensed insurance agents, even though they are doing some of the above described actions. Not only do these people make mistakes but the agents themselves make mistakes. No one is perfect, but if their mistakes cost you, the consumer, it is important to know what the laws are regulating these people in order for you, the insurance customer, to get justice.

The reason for this writing is let the consumer know that sometimes the insurance company itself did not commit a wrong in their way of dealing with the consumer. In other words, it is the action of the agent and or their employees which was wrong. If this is the case the consumer still has recourse and needs to seek the advice of an experienced Insurance Law Attorney for further advice and assistance.