Articles Posted in Insurance Agents

The Western District, San Antonio Division issued an opinion in a case that helps an insurance company keep his client’s case out of Federal Court by suing the insurance agent.  The opinion is styled, The New World Baptist Church, LLC v. Nationwide Property and Casualty Insurance Company, Kevin P. McLoughlin, and Michael Robert Stull.

Plaintiff owns a church under a policy issued by Nationwide and sold by McLoughlin, an insurance agent.  With respect to the sale of the policy, Plaintiff alleges that “Nationwide or its agent, McLoughlin, sold the policy, to Plaintiff.  Nationwide and / or McLoughlin represented to Plaintiff that the policy included wind and hailstorm coverage for damage to Plaintiff’s business ….  When Plaintiff negotiated the premium amount, McLoughlin represented that the policy Plaintiff purchased provided coverage for hail and wind losses.  Unfortunately, Nationwide later represented that the policy sold by McLoughlin did not afford full coverage.  Specifically, the policy sold by McLoughlin was not a full coverage policy, but rather, one with specific exclusions, ….  McLoughlin’s violations of the Texas DTPA include causing confusion as to policy benefits, and representing that the policy had benefits or characteristics that it did not possess.  … McLoughlin is liable to Plaintiff for common law fraud. … Specifically, McLoughlin represented to Plaintiff during the sale of the policy that the policy had benefits or characteristics it did not possess.”

Plaintiff suffered hail damage and made a claim for benefits and eventually a lawsuit was filed on the claim in State District Court and the was removed to Federal Court by the Defendants claiming that McLoughlin was improperly joined in order to defeat diversity jurisdiction.

The above questions get some attention in a 1994, Texas Supreme Court opinion styled, Celtic Life Insurance Co. v. Coats.

The insured’s owner met with a soliciting agent of Celtic to discuss buying insurance.  The owner advised the agent that he wanted a policy providing benefits for psychiatric care equal to or better than the $20,000 coverage provided by the company’s then existing policy.  The owner explained to the agent that the coverage was needed because his oldest son had previously required psychiatric care, and he was concerned that his younger son might well require similar care.  The agent said he understood.  The agent then proposed the purchase of a specific policy written by Celtic with a maximum lifetime hospital benefit of $1,000,000.  However, the agent did not point out that the psychiatric benefits under the policy were limited to $10,000.  The insured’s business manager noticed the $10,000 limit and questioned the agent about its meaning.  The agent assured the business manager that the $10,000 limit applied only to the out-patient psychiatric care.  The policy was purchased.

Subsequently, the owner’s son was admitted to the hospital for psychiatric care.  The insured filed a claim and was assured by the agent that the in-house hospital treatment was covered.  Celtic, however, paid only $10,000 of the $27,000 in medical expenses.

The above question comes up more often than it should.  The short answer is no.  A 2000, San Antonio Court of Appeals case styled, Nwaigwe v. Prudential Property & Casualty Insurance Company, discusses the agent’s responsibility.

Moses Nwaigwe sued Prudentail and its agent, William Eckert for failing to disclose a policy exclusion that the company used to deny a claim.  Prudential’s argument is that Eckert did not misrepresent the terms of the policy and that it had no duty to tell Moses about the exclusionary clause.  The court granted summary judgment in favor of Prudential and Eckert.

Moses purchased a fire insurance policy from Prudential to insure an occupied rental property.  The policy was renewed two times, but Moses never received a copy of the policy.

Read The Policy!  This is what all insurance agents tell their clients.  The insurance company agent is not responsible for telling you what is in the policy.  This is illustrated in a 1983, Texas Supreme Court opinion styled, Parkins v. Texas Farmers Insurance Company.

As a prerequisite to obtaining financing for a real estate purchase in 1976, Parkins, a licensed real estate broker, had to secure insurance for the building. Parkins testified that he contacted Dick Upham, Farmers’ authorized agent, and asked him for “the cheapest insurance I can get.”  Following this conversation, Parkins received a payment plan agreement. In a column headed “Farmers Insurance Group Company” was the notation “Tex. Farmers Fire.”  He soon thereafter received a Memorandum of Policy which referred to the policy as a standard “Homeowners Form B” and contained the following language as part of the printed form:

The above premises of the described dwelling are the only premises where the named insured or spouse maintains a residence, other than business property or farms.

Mason County insurance lawyers learn pretty quick that an insurance agent does not have to tell a customer everything about the insurance policy they purchase.  This is illustrated in a 2000 San Antonio Court of Appeals opinion styled, Nwaigwe v. Prudential Property & Casualty Insurance Company.

Moses Nwaigwe sued Prudential and its agent, William Eckert (collectively “Prudential”), for failing to disclose a policy exclusion that the company used to deny a claim.  In response, Prudential moved for summary judgment on the grounds that it did not misrepresent the terms of the policy and that it had no duty to tell Nwaigwe about the vacancy clause.  The trial court granted the motion.  On appeal, Nwaigwe argues the summary judgment was improper because the motion failed to address his failure to disclose allegation.

In 1993, Nwaigwe purchased a fire insurance policy from Prudential to insure an occupied rental property.  The policy was issued and renewed twice, but Nwaigwe says he never received a copy of the policy.

Many people get their insurance through a broker.  Can a broker be liable the same as an agent.  The short answer is “yes.”  A 1995, Houston Court of Appeals [1st Dist.] discusses an issue with a broker.  The opinion is styled, Seneca Resources Corp. v. Marsh & McLennan, Inc.

Marsh & McLennan (M&M) brokered insurance for Seneca, an oil and gas company.  As part of its services, M&M provided summaries of insurance policies.  Seneca suffered a loss when a hurricane toppled a submersible drilling rig in the Gulf of Mexico.

The insurance summaries provided by M&M to Seneca indicated that Seneca had purchased “operator’s extra expense” named peril coverage which would have covered the cost of re-drilling the well.  However, the applicable policy did not, in fact, include named peril re-drill coverage as indicated by the summaries.

For most lawyers practicing insurance law, the above question may be obvious.  But there are situations where it is not so obvious and even though one may assert the act of agency, it is not.  A Houston Court of Appeals [14th Dist.] opinion illustrates a situation where the alleged agent was held by the court, to not be an agent.  The case is styled, Harrison V. Wells Fargo Bank Texas, N.A.

Harrison was the beneficiary of a Section 142 trust established after she sustained a brain injury in a car accident.  Later, Harrison was the driver of the car in another accident in which her passenger was severely injured.  The passenger settled his claims against Harrison for her $100,000 auto liability policy, which had been obtained by the bank, plus $300,000 from Harrison’s trust.  Harrison sued the bank for Insurance Code violations, breach of fiduciary duty, negligence, and DTPA violations for alleged failure to obtain adequate limits of liability insurance for her.  The bank was granted a summary judgment on the Insurance Code violations.  The remaining claims were tried and the bank was found not liable.  Harrison appealed the findings.

This Houston Court of Appeals affirmed the findings of the trial court.  The evidence showed that after Harrison acquired automobile insurance, her mother sent the bill for the premium to the bank and the bank then forwarded the payment to the insurance company.  Insurance Code Section 4001.051 lists various acts performed in the ordinary course of providing insurance and states that any person who performs these acts shall be the agent of the company for which the act is done.  “Performing an act described in Section 4001.051, such as transmitting an insurance premium, subjects a party to liability as an agent there under only if the act is performed (a) in the course of providing insurance and (b) on an insurance company’s behalf.”  The evidence established that the bank was not engaged in the business of providing insurance and that its payment of premium was made solely pursuant to its role as a Trustee of the Section 142 trust.  The payment was not transmitted in the course of providing insurance or on any insurance company’s behalf.  Therefore, the payment did not render the bank an agent of the insurance company under Section 4001.051.

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.

Insurance law attorneys can tell war stories about situations where an insurance agent has been caught stealing from customers.  This was recently highlighted in an August 29, 2016, article published by the Insurance Journal.  The article is titled “California Insurance Agent Nabbed For Fraud Scheme Involving 100-Plus Policies.”

Vicki Lee McGinley, 58, a licensed insurance agent in California, was arrested by the Kern County Sheriff’s department on seven counts of identity theft and seven counts of insurance fraud after allegedly misrepresenting policy and premium information to clients resulting in losses to her employers and increased premiums for her clients.

The California Department of Insurance Investigation Division began an investigation after receiving a complaint from McGinley’s previous employer.

The answer to the question can be found by Arlington insurance lawyers in the 1994, Texas Supreme Court opinion styled, Celtic Life Insurance Company v. Coats.

The insured’s owner met with a soliciting agent of Celtic to discuss the potential purchase of insurance. The owner advised the agent he wanted a policy providing benefits for psychiatric care equal to or better than the $20,000 coverage provided under the company’s existing policy. The owner explained to the agent that the coverage was needed because his oldest son had previously required psychiatric care, and he was concerned that his youngest son might require similar care. The agent advised the owner that he understood his needs. The agent then proposed the purchase of a specific policy written with Celtic with a maximum lifetime hospital benefit of $1,000,000. However, the agent did not point out the the psychiatric benefits under the policy were limited to $10,000. The policy was purchased by the insured.

The policy issued and premiums were paid. Later, the owner’s son was admitted to the hospital for psychiatric care. The owner filed a claim and assured by the agent the care would be covered. Celtic, however, paid only $10,000 of the $27,000 in medical expenses.