Authority Of Insurance Agent For Insurance Company

Residents in Weatherford, Mineral Wells, Millsap, Hudson Oaks, Aledo, Willow Park, Brock, Cool, Springtown, and other places in Parker County might wonder if what their insurance agent tells them is true. Or, if what the agent says is not true?
Most insurance agents are honest. However, there are a few that are not completely honest because they want to sell you a policy in order to make their commission on the sell. Others are confused or do not completely understand the insurance product they are selling. The question becomes; what can be done when the agent makes a mistake in what he tells someone when he sells the policy?
The answer often times depends on the authority of the agent.
There are two types of authority — actual and apparent. In turn, actual authority can be expressed or implied. An Agent’s authority can be actual authority expressly conferred by the insurance company, or it can be actual authority implicit in the agent’s duties. The authority also can be apparent authority arising from acts by the insurer that give the agent the appearance of having authority.
In Texas, courts have described actual authority this way:
“Actual” authority, which includes both express and implied authority, usually denotes that authority a principle: (1) intentionally confers upon an agent; (2) intentionally allows the agent to believe that he possesses; or (3) allows the agent to believe that he possesses by want of due care … “Implied” actual authority exists only as an adjunct to express actual authority … because implied authority is that which is proper, usual, and necessary to the exercise of the authority that the principle expressly delegates …. This was stated in 1994, by the Houston [1st Dist.] Court of Appeals in the case, Spring Garden 79U, Inc. v. Stewart Title Co.
An example of the above is found in the 1979, Texas Supreme Court case, Royal Globe Insurance Company v. Bar Consultants, Inc., wherein they said, an agent may be given express authority to sell policies. That express grant of authority would carry with it implied authority to explain the policy benefits. A misrepresentation about the policy would be within the scope of the agent’s actual authority.
Also, the Texas Supreme Court in 1994, in the case, Celtic Life Insurance Company v. Coats, said that where an insurer authorized the agent to explain its policy, the insurer was liable for the agent’s misrepresentation that the policy provided a greater amount of mental health benefits than it actually did.
As for “apparent authority” an insurance company may also be liable for unauthorized acts by an agent, if the agent is acting within the scope of his “apparent authority.” Actual authority is not required. The insurer will be liable when by its conduct it has given the agent the appearance of having authority, so that a reasonable person would suppose the agent had authority.
Apparent authority is an estoppel theory that holds the insurer liable because the insurer has clothed the agent with indicia of authority that would lead a reasonable person to believe the agent had authority. If the agent is acting within the scope of his apparent authority, not even instructions not to mislead, nor diligence in preventing misrepresentations, will shield the insurer from liability.
So what are examples of apparent authority?
Evidence of apparent authority may include:
1) application forms referring to the individual as the company’s agent.
2) forms signed by the agent as “authorized representative,”
3) corroborating statements by the agent.
The three examples above were cases where this evidence allowed the court to find apparent authority.
An example where is was not found is in the 5th Circuit, Federal Court case, TIG Insurance Co. v. Sedgwick James. In this 2002 case, the court said that the only indicia of the agent’s authority was a certificate of insurance provided by the insurer. The certificate disclaimed that the agent had the power to name additional insureds. The agent did not have apparent authority to modify the policy.
There are many cases where it is beneficial to make the agent and the company, both, part of the lawsuit. An experienced Insurance Law Attorney can explain these strategy considerations when an agent misrepresents a policy that ends up causing harm to one of his customers.