When Is An Agent Liable?

An insurance lawyer wants to be able to know when an agent can be held liable for his actions in selling an insurance policy.  A Houston Court of Appeals [1st Dist.] looked at this issue in 2003.  The style of the case is, Vecellio Insurance Agency v. Underwriters Insurance Company.

A man and woman were kidnapped, taken to a vacant house where the woman was raped and the man was murdered.  The property owner was sued and the insurer initially denied coverage because the agent failed to add the property to the homeowner’s policy as purportedly requested by the insured.  The insurer subsequently provided a defense under a reservation of rights and ultimately settled the lawsuit.  The insurer then brought a common law indemnification claim against the agent for the money spent defending and settling the underlying lawsuit.  The jury found in favor of the insurer, awarding almost $560,000.  The agent appealed asserting that the trial court erred by failing to require the jury to first find that the agent committed a tort for which the insurer could be liable for addressing the indemnification issue.

In a case of first impression for Texas jurisprudence, the Houston First Court of Appeals reversed the trial court’s ruling and remanded, agreeing with the agent that the insurer must first have the jury establish that the agent committed a tort for which the insurer could be held vicariously liable.  The court noted that the availability of causes of action based on common law indemnity were very limited in Texas and “there is no right of indemnity against a defendant who is not liable to the plaintiff.”  The jury charge submitted over the agent’s objection sought to have the jury determine whether the insurer had a duty to defend due to the “misconduct” of the agent, without defining what it meant by misconduct, or without first having the jury determine that the agent herself was liable to the insured, before addressing the insurer’s vicariously liability for the agent’s actions.

It is interesting to point out that many times when an insured is suing the insurance company for the alleged wrongs committed by the agent that the insurance company will either ask the insured to bring the agent into the lawsuit or the company will bring the agent into the lawsuit.  It is less often that the company will bring the agent into the lawsuit because by doing this, the company is essentially admitting that a wrong was committed.