Articles Posted in Insurance Agents

Life Insurance lawyers who read this Blog, or for that matter, anybody who reads this Blog eventually learns that there are many wrongs an insurance agent will commit to get a sale.  Most of their income from an insurance company is based on getting a percentage of the premiums.  In other words, most agents work on a commission basis.

The Texas Department of Insurance regulates life insurance agents and the Texas Insurance Code also regulates insurance agents.

Today’s short focus is on a different form of fraud which is sometimes committed by an agent when selling life insurance.

Insurance agents can be responsible for their own actions under the Texas Insurance Code.

Just as an insurance company is liable for its own misconduct, so too agents may be personally liable for their misdeeds, even when acting on behalf of an insurance company.  In general, an agent is individually liable for his or her own tort or statutory violation.  This is discussed in the 1985, Texas Supreme Court opinion, Weitzel v. Barnes, and in the 1983, Texas Supreme Court opinion, Light v. Wilson, and the 1991, Austin Court of Appeals opinion, State Farm Fire & Casualty v. Gros.

It is not normal for the agent to be liable for breach of contract based on the insurance policy, because the contract of insurance is not between the insured and the agent.

Insurance agent misrepresentations are not always held against the insurance company, but most the time the agents misrepresentations are held against the insurance company.  A 1979 opinion from the Texas Supreme Court is a good illustration of the company being liable for the misrepresentations of the agent.  The opinion is styled, Royal Globe Ins. Co. v. Bar Consultants, Inc.

Bar Consultants operated a bar near the University of Texas known as “The Bucket.”  The president of Bar Consultants, John Barber, testified that he purchased a policy of insurance from Tully Embrey, an agent of Royal Globe.  The policy contained a vandalism and malicious mischief endorsement.  Barber testified that he had a lengthy discussion with Embrey about the problem of vandalism at which time Embrey assured him that he was “totally covered” from losses caused by vandalism.  This testimony was uncontradicted.

After extensive damage to an area of the bar, a claim was filed and Royal Globe eventually denied the claim.  A lawsuit was filed and a trial found in favor of Bar Consultants.

Insurance agent liability is an issue for Insurance Law Attorneys to be know about when investigating a case.  A 2004, opinion from the United States 5th Circuit provides some input on how to look at cases that might involve wrongs by the insurance agent.  The opinion is styled, Hornbuckle v. State Farm Lloyds.

This is a claim on a homeowners policy wherein a claim was made for benefits and the adjuster assigned to the claim, Kirkpatrick, along with State Farm was sued for mishandling the claim.  The case was filed in State Court and removed to Federal Court by State Farm, after which Hornbuckle filed a Motion to Remand.  State Farm claimed Kirkpatrick was sued for the sole purpose of defeating diversity jurisdiction and asserted that no independent causes of action were viable against Kirkpatrick.  The facts are worth reading, however the focus here is how the Court viewed the case.

In the opinion the Court states that Hornbuckle fails to bring forward any substantial evidence to support a claim against Kirkpatrick.  Contrastingly, with their notice of removal and in their response to the motion to remand, the Hornbuckle’s attach, among other things, the entire Hornbuckle deposition and other summary judgment type evidence, and assert that removal was proper because Kirkpatrick was fraudulently joined in that there was no arguably reasonable basis for predicting Hornbuckle could recover against him, and that in any event, removal was objectively reasonable.

Insurance agents misrepresenting the terms and conditions of an insurance policy is a common complaint.  Here is a 1994, Texas Supreme Court opinion styled, Celtic Life Insurance Company v. John D. Coats, Jr.

This case presents three issues relating to an insurance company’s liability for its agent’s representations: first, whether the company’s liability depends on its authorization of misrepresentations; second, whether reliance on the representations is an element of recovery; and third, whether the insured’s damages should be trebled when the misrepresentations were not committed “knowingly.”

This blog will focus on the first issue regarding the agents misrepresentations and the liability of insurance company.

Insurance lawyers often see situations where the agent selling the insurance policy made false representations regarding the policy at issue.  Here is how the Courts look at these situations.

According to the 1990, Texas Supreme Court opinion styled, DeSantis v. Wackenhut Corp., a false representation must involve an existing or past material fact, rather than a statement of opinion, judgment, probability, or expectation in order to constitute actionable fraud.  Statements concerning future contingent events, sales talk, “puffing,” and other similar statements are not considered actionable misrepresentations.  This was stated in a 1978, Tyler Court of Appeals opinion styled, Hicks v. Wright and other cases.  And according to a 1976, Dallas Court of Appeals opinion styled, Stone v. Enstam, representations concerning future events are not actionable unless at the time the statement or promise was made, the person making it did not intend to perform.

As to suing the insurance agent, a 1960, Fort Worth Court of Appeals stated in a case styled R. O. McDonnell Dev. Co. v. Schlueter, that all persons who commit fraud are liable for the consequences of such fraud.  All parties to a fraudulent transaction are responsible for the acts or representations of the other participants undertaken based upon a mutual understanding or in furtherance of common plan, design or scheme.

The vast majority of insurance policies are sold by insurance agents.  So, are the insurance companies responsible for the acts of these agents?

The first step to determine whether an insurance company is vicariously liable is to determine whether the agent who engaged in the conduct was acting as the insurance company agent.

The question — “Who are agents?” was answered, until recent years, by one statute.  Formerly, article 21.02 broadly defined “agents” to include any person who performed certain actions on behalf of an insurance company.  As part of the ongoing codification of Texas statutes, the old article 21.02 is now found in Texas Insurance Code, Sections 4001.003 and 4001.051.

Insurance lawyers learn quickly that when suing an insurance agent who sold a policy that the allegations against the agent must be specific.  Being too general with allegations can result in a battle being fought in Federal Court when usually the lawyer would want the fight to be in State Court.  This is illustrated ina 2020, opinion from the Eastern District of Texas, Sherman Division.  The opinion is styled, Oscar Bermudez and SA Polo, Inc. v. Indemnity Insurance Company of North America and Tin Top Insurance Agency, LLC.

Plaintiffs, Bermudez and SA Polo are residents of Texas.  Plaintiffs engaged Tin Top, a Texas citizen, to help them get insurance to cover property owned by Plaintiffs.  Indemnity, a resident of Indiana, issued and sold a policy to Plaintiffs.  After a storm that caused damage to their property, Plaintiffs submitted a claim to Indemnity.  The claim was denied.

A lawsuit was filed in State Court and Indemnity removed the case to Federal Court, citing lack of diversity in that the agent, Tin Top, was not properly joined.  In so doing, Indemnity filed a Rule 12(b)(6) motion to dismiss Tin Top.  Plaintiffs filed a Motion to Remand.

Properly notifying an insurance company about a claim is not always as simple as it might seem.  This is illustrated in a 2020, opinion from the Northern District of Texas, Dallas Division.  The opinion is styled, Vela Wood PC, et al v. Associated Industries Insurance Company, Inc.

This case is before the Court on competing motions for summary judgment.  Because the Plaintiff’s notice of this claim was ruled to be untimely, the Court founds against Plaintiffs and in favor of Associated.

The pertinent part of the two policies at issue, a 2017 and 2018 policy, in this case states that as “a condition to coverage, the Insured shall provide the company written notice of any Claim made against any Insured as soon as practicable, but in no event later than: (i) the expiration date of this Policy; (ii) the expiration of the Automatic Extended Reporting Period; or (iii) the expiration of the Optional Extended Reporting Period, if purchased.  Under the terms of the policies, a “Claim” is defined as “a written demand received by the Insured for monetary Damages which alleges a Wrongful Act,” including “the service of suit or any civil proceeding in a court of law or equity, including any appeal therefrom, which is commenced by the filing of a complaint, motion for judgment, or similar proceeding.”

Contact Information