Here is something an insurance company does not like. An insurance company cannot escape liability by showing that it did not authorize the specific wrongful act of an agent. This was the decision in the 1994, Texas Supreme Court opinion styled, Celtic Life Ins. Co. v. Coats. Something similar is seen in the 1979, Texas Supreme Court opinion styled, Royal Globe Ins. Co. v. Bar Consultants, Inc. As the Celtic court said:
In determining a principal’s vicarious liability, the proper question is not whether the principal authorized the specific wrongful act; if that were the case, principals would seldom be liable for their agents’ misconduct. Rather, the proper inquiry is whether the agent was acting within the scope of the agency relationship at the time of the act … The misrepresentation in the present case was made in the course of explaining the terms of the policy – a task the jury specifically found to be within the scope of the agent’s authority. Thus, Celtic cannot escape liability on the basis that it did not authorize particular representations concerning the policy.
What if an agent changes insurance contract terms? Is the insurance company liable?
Pursuant to Texas Insurance Code, Section 4001.051(c), and 4001.053, an agent is not authorized to alter or waive a term or condition of an insurance policy or an application for an insurance policy. Nevertheless, an insurance company will be liable “for purposes of the liabilities, duties, and penalties provided by” certain statutes according to Section 4001.051(b). The referenced statutes include the prohibitions formerly found in Chapter 21 and now found in the new codification. The Supreme Court explained the interaction between these provisions under the statute in the Royal Globe case as follows:
We are not to be understood as holding that the statutory authority granted an agent under Article 21.02 authorizes that agent to misrepresent policy coverage and bind the company to terms contrary to those of the written policy; that question was decided by us International Sec. Life Ins. Co. v. Finck in 1973. However, an insurance company that authorizes an agent to sell its policies may not escape liability for the misrepresentations made by that agent which violate article 21.21 or section 17.46 merely by establishing that the agent had no actual authority to make such misrepresentation.
The result is that even if the agent cannot change the policy, the insurance company may still be responsible for what the agent represented.