Articles Posted in Insurance Agents

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.

Here is a list of responsibilities that insurance agents can be held responsible for failing to perform or performing incorrectly.

A.  From a 1948, El Paso Court of Appeals opinion styled, Burroughs v. Bunch, an insurance agent has a duty to procure the coverage entrusted to his care, or failing to do so, to immediately notify the insured of this fact.  A more recent opinion from the Tyler Court of Appeals, Critchfield v. Smith, which was issued in 2004, says this duty to procure is two distinct duties: (1) the duty to use reasonable diligence in attempting to place the requested insurance, and (2) the duty to inform the client promptly if unable to do so.

B.  From the 1992, Texas Supreme Court opinion styled, May v. United Services Association of American, requires that agents keep their insureds fully informed about the current status of a policy’s in force status.

In order to hold a person liable for his/her acts or omissions, the thing complained of must violate a duty which the law recognizes.  This is easily understandable in the case of a collision resulting from running a stop sign.  The law imposes a duty of drivers to stop at stop signs.  So, when a driver violates that duty by running a stop sign, he or she is liable for the damages caused.  So, too, with insurance agents.

Nationally there is a concept known as the “professional judgment rule” which holds that an agent in the business of selling insurance must act in a manner befitting a reasonable and prudent agent.  Accordingly, agents who do not utilize their skills in this way are subject to claims for damages.  Unfortunately, our Texas Supreme Court has rejected the “professional judgment rule” for use Texas.  Instead, in Texas, agents have a general duty to use reasonable care, skill and diligence in procuring insurance.  It even includes the duty of an agent to “keep his clients fully informed so that they can remain safely insured.”  This is according to the 1977, Beaumont Court of Appeals opinion, Trinity Universal Ins. Co. V. Burnette.  In the Burnette case the court upheld a jury finding that an insurance agent was negligent in failing to “thoroughly acquaint himself” with his client’s needs and in failing to produce the coverage for risks or perils the client faced.

On 1992, the Texas Supreme Court was faced with deciding if an insurance agent was negligent for failing to explore other health insurance coverage options beyond one with a tricky termination and deferral clause.  This was the opinion styled, May v. United Services Association of America.  In this case, the May wound up without coverage after buying the policy that the agent recommended.  The lawsuit claimed that the agent failed to investigate alternative policies which were easily obtainable.  This was factually true – the agent did not investigate any of the several other possible policies and instead settled on the first one he found.  Nevertheless, the Texas Supreme Court found that the agent did not “mislead” the May about the limits of the policy selected.  The May case dramatically changed the fact of insurance law in Texas.  In essence, it appears the the Court now requires there to be an actual misrepresentation in order for the Plaintiff to succeed.  However, the court did leave open the possibility that the Mays might have succeeded if they had an explicit agreement with the agent regarding what terms they required in the policy that the agent obtained.  Had the agent violated such an agreement, he might have been found liable.