This writing gives some insight into how an attorney knows whether not an insurance company can be held responsible for the acts of it’s agents.
Insurance companies, like other entities that exist, can only act through agents. Insurance companies rely on agents to sell their policies, to underwrite potential insureds, and to investigate and adjust claims. The agents will not only sell the policy, but also explain the policy and hopefully, give the customer what they are looking for in a policy.
Insurance companies may be vicariously liable for another’s misconduct if that other person is the insurance company’s agent and if that agent acted within the scope of his or her authority. This has been stated repeatedly in case law by the Texas Supreme Court as well as the Houston Court of Appeals and other Courts throughout the state of Texas.
The Texas Supreme Court has explained it well by saying:
An insurance company is generally liable for any misconduct by an agent that is within the actual or apparent scope of the agent’s authority. This rule is based on notions of fairness: “since the principle has selected the agent to act in a venture in which the principle is interested, it is fair, as between him and a third person, to impose upon him the risk that the agent may exceed his instructions.”
Here are a couple of things to look for in deciding whether or not an insurance company is exposed to liability for the conduct of another. It is two steps:
1) Regarding agency, ask whether or not the person was acting as the insurance company agent?
2) Regarding authority of the agent, did the misconduct occur within the actual or apparent scope of the agent’s authority.
Both of the above are sometimes easy to answer. Other times, not so easy. That is why an experienced Insurance Law Attorney needs to be consulted. He will know how the Courts look at the facts in various cases and interpret the law.
When both the elements exist, the insurance company will be liable for the agent’s conduct. Otherwise, the insurance company liability must be based on some other theory — such as the the insurance company is directly liable under contract law, or the various potential violations found in the Texas Insurance Code or the Texas Deceptive Trade Practices Act. One other way that the insurance company could be directly liable is based on the company ratifying the conduct.
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