Articles Posted in Insurance Agents

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.

Suing an insurance properly is not as easy as it might first seem.  This is illustrated in a recent opinion from the Western District of Texas, San Antonio Division.  The opinion is styled, Finger Oil & Gas, Inc. v. Mid-Continent Casualty Co., Et Al.

Finger Oil sued Mid-Continent, Marsh USA, Inc., and Karen Olivia in State Court.  Mid-Continent removed the case to Federal Court alleging that the non-diverse defendant, Olivia, was improperly joined and thus her citizenship may be disregarded.  Finger Oil filed this motion to remand contending that Olivia is not improperly joined.

Finger Oil’s original petition alleges that one of its oil wells blew out and that it contacted Desiree Scrimger, the commercial lines account manager with Marsh, Finger Oil’s insurance agent.  Scrimger allegedly advised Shelli Finger and others that blowout and cratering were included within the limit of insurance of $1,000,000 and sent an email from the underwriter, Olivia, confirming the coverage.  Finger Oil alleges that, based on that representation, costs were incurred for services totaling approximately $641,000.  However, Mid-Continent later issued reservation of rights letters and denied coverage.  Finger Oil sues under Texas Insurance Code, Section 541.051 for misrepresentation of the benefits or advantages of the insurance policy in question, as well as violations of the DTPA §17.46(b) for representing that the policy coverage had characteristics it did not have, representing the policy conferred or involved rights, remedies, or obligations that it did not have, and breaching the duty of good faith and fair dealing.

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.