Is The Insurance Company Responsible When An Agent Does Something He Was Not Authorized To Do?

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.

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