Insurance Company Responsibility For Agent Conduct

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:

“Actual” authority, which includes both express and implied authority, usually denotes that authority a principal – (1) intentionally confers upon an agent; (2) intentionally allows the agent to believe that he possesses; or (3) allows the agent to believe that he possesses by want of due care.  “Implied” authority exists only as an adjunct to express actual authority because implied authority is that which is proper, usual, and necessary to the exercise of the authority that the principal expressly delegates.

As an example, in the 1979, Texas Supreme Court opinion, Royal Globe Ins. Co. v. Bar Consultant’s, Inc., the Court said that an agent may be given express authority to sell policies.  That express grant of authority would carry with it implied authority to explain policy benefits.  A misrepresentation about the policy would be within the scope of the agent’s actual authority.

As another example, in the 1994, Texas Supreme Court opinion, Celtic Life Ins. Co. v. Coats, the court said that where the insurance company authorized the agent to explain its policy, the insurance company was liable for the agent’s misrepresentation that the policy provided a greater amount of mental health benefits than it actually did.

When a person believes that he has certain coverage in his policy and then later a claim is denied based on the insurance company stating there is no such coverage in the policy, then a person needs to think about what the agent who sold the policy said at the time of the sale.  A caveat here is that what an agent says at the time of the sale of the policy, has a limitations period that starts either when the policy was sold or when the insured received a copy of the policy.