Ratification Of Insurance Agent’s Conduct

Grand Prairie insurance lawyers need to be able to evaluate an insurance agent’s conduct to determine if the insurance company is liable for the agent’s conduct.

An insurance company may be liable for unauthorized conduct of an agent or other person, if the insurance company ratifies the conduct.  Ratification may occur when the insurance company, though having no knowledge of the unauthorized act, retains the benefits of the transaction after acquiring full knowledge of it.  The critical factor is the insurer’s knowledge of the transaction and its actions in light of that knowledge.  Ratification extends to the entire transaction according to the 1980, Texas Supreme Court opinion, Land Title Co. of Dallas, Inc. v. F.M. Stigler, Inc.

One example of ratification is found in the 1989, Houston Court of Appeals [14th Dist.] opinion, Paramount National Life Insurance Co. v. Williams.  Here, an insurance company issued a hospitalization policy, without further investigation, despite having an application indicating the insured’s advanced age and poor health, and despite having knowledge of the agent’s inexperience.  By nevertheless accepting premiums, the insurance company ratified the agent’s misrepresentations made in the sale of the policy.

Another example of ratification is found in the 1936, Beaumont Court of Appeals opinion, Love v. Aetna Casualty & Surety Company.  In the case, the insurance company that accepted, paid for, and relied on an autopsy report ratified the adjuster’s misconduct in obtaining the autopsy performed without the insured’s family’s consent.

These cases are fact specific and have to be examined closely.

On a varying topic, the Texas Supreme Court, in a 1998 opinion styled, State Farm Mutual Automobile Insurance Co. v. Traver, held that a liability insurer cannot be vicariously liable for the negligence of an attorney hired by the insurer to defend its insured.  The court reasoned that the lawyer is not the agent of the insurer.  The lawyer owes his or her unqualified loyalty to the insured and is not subject to the insurers control.  Of course, either the lawyer or the insurer may be liable for their own misconduct.