Articles Posted in Insurance Agents

The answer to the titled question will vary according to the exact situation being reviewed.  According to the 1994, Texas Supreme Court opinion, Celtic Life Ins. Co. v. Coats, an insurance company cannot escape liability by showing that it did not authorize the specific wrongful act.  The Supreme Court in the Celtic case said that 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 Celtic case was made in the course of explaining the terms of the policy.  This explaining of the policy was the task the jury specifically found to be within the scope of the agent’s authority.  As a result, Celtic cannot escape liability on the basis that it did not authorize particular representations concerning the policy.

After reading the preceding paragraph, try to square that paragraph with Texas Insurance Code, Sections 4001.051(c) and 4001.053 that say an agent is not authorized to altar or waive a term or condition of an insurance policy or an application for an insurance policy.  According to Section 4001.051(b) an insurer will be liable “for purposes of the liabilities, duties, and penalties provided by “certain statutes.  The referenced statutes include the prohibitions found in Sections 4001.051 and 4001.009.  The result of is that even if the agent cannot change the policy, the insurance company may still be responsible for what the agent represented.

Insurance lawyers need to know ways to hold an insurance company liable for the conduct of one of it’s agents.  Here is why.  Sometimes an insurance agent does not have assets or insurance coverage to pay for his mistakes.  If the insured customer cannot be made whole by pursuing the agent then he needs to have recourse against the company the agent was selling policies for.

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 insurance company knowledge of the transaction and its actions in light of that knowledge.  As discussed in the 1980, Texas Supreme Court opinion, Land Title Co. of Dallas, Inc. v. F. M. Stigler, Inc., Ratification extends to the entire transaction.

As an example, in the 1989, 14th Court of Appeals opinion, Paramount Natl Life Ins. Co. v. Williams, 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.

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?

There are various acts or in-actions that an insurance agent can take that will hold not only the agent responsible but also the insurance carrier.

An insurance company may 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 insurance company 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.  This was made clear in the 1979, Texas Supreme Court opinion styled, Royal Globe Ins. Co. v. Bar Consultants, Inc.

Apparent authority is an estoppel theory that holds the insurer liable because the insurer 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 according to the Royal Globe opinion.  Evidence of apparent authority may include:

Lawyers handling insurance disputes know that often times the wrongs committed in an insurance dispute are committed by the agent who sold the policy.

When it comes to the conduct of insurance agents and their relationship with the insurance company, there are two kinds of authority.  There is “actual authority” and “apparent authority.”

Our Courts have described actual authority this way:

Here is some information about ways of holding an insurance agent responsible for his actions or in-actions.

Does an agent have a duty to explain policy terms and coverages to customers?  Does an agent have a duty to offer higher limits or additional coverages?  Generally, the courts have said the answer to these questions is “NO.”  As is the case with most E&O loss exposures, however, an agent can get sued for failing to explain or offer coverages, even if there is no legal duty to do so based on previous court decisions.  That’s why loss prevention measures are so important.  An important think to realize here is that each case must be looked at for it’s individual set of facts.  When a agent is specifically asked a question about coverage, the agent has the responsibility of answering properly.

Client relationships can affect the success or failure of a client’s claim against the agency.  An established “special relationship” with an insured can affect the degree of the agent’s legal responsibility to the insured.  This has to do with “past dealings” with the customer.  In other words, what has the agent done for the customer in the past.

Insurance agent mistakes can be a big cause of litigation.

Everyone makes mistakes, and insurance agents are not immune. The very complexity of the insurance business creates numerous opportunities for errors and omissions to creep into an agency’s operation.

An insurance agent has / serves two masters – the insured, his customer and the insurance company.

Insurance agents who do not sell the insurance policy that was requested by their customer can be held liable for selling the wrong policy or misrepresenting the policy.  This is illustrated in the Northern District of Texas, Dallas Division, opinion styled, Steve and Ellen Malone v. Blue Cross and Blue Shield of Texas and Garrison & Associates.

Negligent procurement of an insurance policy is recognized as a legally cognizable claim against an insurance agent.  The Texas Supreme Court held that an insurance agent “owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so.”  In this case the Malones allege they informed the Agent of Steve Malone’s specific cancer diagnosis and his ongoing care and treatment.  More explicitly, the Malones allege they made known to that their health insurance policy under Humana, which was being discontinued covered Steve Malone’s ongoing cancer treatments and they “specifically requested” the insurance Agent furnish them with a health insurance policy that would “provide the same or better coverage as Humana, especially as it relates to Steve Malone’s cancer treatments.”  The insurance Agent allegedly agreed to procure the specific coverage requested and, thereafter, provided the Blue Cross Blue Shield (BCBS) Policy.  The Agent allegedly told Malones the BCBS Policy would provide the requested insurance coverage, specifically including Steve Malone’s ongoing cancer treatments and the Rituxan therapy.  The Agent also allegedly represented to Malones that “the BCBS Policy was as good as or better than the Humana plan, and would provide the same or better coverage.”  The Malones then enrolled in the BCBS Policy. However, shortly thereafter, the Malones’ claim submitted for Steve Malone’s ongoing Rituxan therapy “was denied on the basis that the BCBS Policy does not provide coverage for the needed medical care.”  The repeated denial of coverage for this cancer treatment claim spanned six months.  The Malones allege they were irreparably harmed because Steve Malone was taken out of the Rituxan therapy during this time period and prevented from re-entering, and any benefits he had received from it were nullified.

The Court stated this pleading is consistent with causes of action related to the Texas Insurance Code, Section 541.051 and the Texas Deceptive Trade Practices Act.

Here is a case where the insured’s are claiming the agent misrepresented a policy.  The style of the case is Frederic Muratore and Lillian Muratore v. Texas Farmers Insurance Company, and McKenzie Shoaf.  The case is from the Southern District of Texas, Houston Division.

The Muratore had purchased flood insurance from Farmers as was required by their mortgage lender.  When the mortgage was paid off they asked their agent, Shoaf, to get them a less expensive flood insurance policy and coverage with at least $265,000.  The agent represented he did as requested.

The Muratore’s home was damaged in Hurricane Harvey and a claim was made to Farmers.  At this time, the Muratore’s learned the flood policy they got from Shoaf only provided up to $400 of coverage.

As most insurance law attorneys can tell a prospective client: An insurance agent does not have a responsibility to explain the terms of the policy.

As in most laws, there are exceptions based on the facts of each given situation.  The Western District of Texas, Austin Division, issued an opinion in 2019 worth reading.  It is styled, Riojas v. Nationwide General Insurance Company, et al.

While in the process of selling the Riojases a home loan in 2015, DHI, through its employee Brittany Present, allegedly told the Riojases that DHI would secure homeowners’ insurance for their home.  Brittany asked Lezam to obtain a policy, which he did through Nationwide.  All of the defendants in this case, allegedly told the Riojases that the policy provided full coverage for their home including water damage.

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