Insurance Agent Misrepresentations

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.

The trial court found that under Texas Insurance Code, Section 4001.003(1) and under the facts and circumstances of this case Tully Embrey was “at all times an agent” for Royal Globe; that Embrey, as Royal Globe’s agent, represented to Bar Consultants that the policy covered all damages caused by vandalism, including the damage in question; and that the policy did not cover the damage in question.

The Court looked at the definitions of deceptive trade practices or acts.  The relevant sections read:

Section 541.061 – Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Defined.The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance: “(1) Misrepresentations and False Advertising of Policy Contracts. Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby ….”

The second reference to a deceptive trade practice or act made by Section 16 is “in rules or regulations lawfully adopted by the [State] Board [of Insurance] under this Article….” Pursuant to Section 13 of Article 21.21 the Board in 1971 adopted rules and regulations prohibiting “any trade practice that is a misrepresentation of an insurance policy,” including both material misrepresentations of fact and of law, whether done “directly or indirectly,” and irrespective of “capacity or connection with such insurer.”

The third definition of a deceptive trade practice or act incorporated into Article 21.21, Section 16, is found in Section 17.46 of the DTPA. Subsection (a) of Section 17.46 declares unlawful “[f]alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce.”  Subsection (b) lists specific acts or practices which are included in the definition of “false, misleading, or deceptive acts or practices.” Subsection (b)(12) prohibits:
“… representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve ….”

It is clear from the record before us that Tully Embrey was the local recording agent of Royal Globe as that term is defined in the Texas Insurance Code, Section 4001.003.

“… a person or firm engaged in soliciting and writing insurance, being authorized by an insurance company .. to solicit business and write, sign, execute and deliver policies of insurance, and to bind companies on insurance risks …”

Embrey issued the policy in question from the “Tully Embrey Insurance Agency”; he signed the policy for Royal Globe as its agent and Royal Globe has not denied his authority to do so.

The trial court found that Embrey was Royal Globe’s agent under the provisions of Article 21.02, which says:

“Any person who solicits insurance on behalf of any insurance company, whether incorporated under the laws of this or any other state or foreign government, or who takes or transmits other than for himself any application for insurance or any policy of insurance to or from such company, or who advertises or otherwise gives notice that he will receive or transmit the same, or who shall receive or deliver a policy of insurance of any such company, or who shall examine or inspect any risk, or receive, or collect, or transmit any premium of insurance, or make or forward any diagram of any building or buildings, or do or perform any other act or thing in the making or consummating of any contract of insurance for or with any such insurance company other than for himself, or who shall examine into, or adjust, or aid in adjusting, any loss for or on behalf of any such insurance company, whether any of such acts shall be done at the instance or request, or by the employment of such insurance company, or of, or by, any broker or other person, shall be held to be the agent of the company for which the act is done, or the risk is taken, as far as relates to all the liabilities, duties, requirements and penalties set forth in this chapter. …” (Emphasis supplied.)

This Court found Embrey to be an agent of Royal Globe and that Royal Glove was responsible for the acts of Embrey.

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