An insurance agent in Weatherford, Mineral Wells, Aledo, Hudson Oaks, Willow Park, Pool, Millsap, Brock, Azle, Peaster, and other places Parker County and Texas can be liable for failing to provide you with the insurance you have requested, plus the insurance company can be liable for the agent.
The Texas Supreme Court issued an opinion in 1994, in the case, Celtic Life Insurance Company v. John D. Coats. This case serves as an example how an insurance company can be found liable for the actions of the agent when the agent commits something wrong in selling an insurance policy. Here is some legal and factual background.
The case presented two relevant issues relating to an insurance company’s liability for its agent’s representations. First, whether the company’s liability depends on its authorization of misrepresentations; second, whether reliance on the representations is an element of recovery.
Kenneth Harrell, a duly-appointed agent for Celtic Life Insurance Company, visited Aloha Pools in September 1984 and met with its owner, John Coats, to discuss health insurance for Aloha’s employees and their families. Coats stated that he wanted a policy providing benefits for psychiatric care that would be equal to or better than the $20,000 coverage provided by his current policy. Coats explained that he needed such coverage because his oldest son had previously required psychiatric care, and he was concerned that his younger son might require similar care. Harrell responded that he understood Coats’ needs fully, having experienced similar financial difficulties in providing psychiatric care for his own son.
Harrell subsequently proposed that Coats purchase a specific policy written by Celtic — a policy that provided a maximum lifetime hospitalization benefit of $1 million. Harrell did not point out that psychiatric benefits under the policy were limited to $10,000.
Harrell later assured a business manager for Coats, that the $10,000 limit applied only to out-patient psychiatric care. Based on these representations, the policy was purchased.
During the following August, Coats’ son was admitted to Shoal Creek Hospital for psychiatric care. Coats filed a claim for his son’s treatment; despite Harrell’s continued assurances that the in-hospital psychiatric treatment was covered by the $1 million hospitalization limit, Celtic paid only $10,000 of the $27,000 in medical expenses.
The jury found in favor of Coats for $17,000.
On appeal, Celtic argues that it should not be responsible for Harrell’s representations for two reasons: first, Harrell was a mere soliciting agent, and as such lacked authority to bind Celtic; and second, the jury’s answer to the third jury question established that Harrell was acting outside his authority as Celtic’s agent.
In the contexts of life, health, and accident insurance, the Texas Insurance Code makes no distinction between recording agents and soliciting agents. Rather, agents are defined generally and the code states that any person who performs these acts “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 liabilities, duties, requirements and penalties of the code.
The court pointed out that there was no dispute that Harrell performed, on Celtic’s behalf, at least some of the acts listed in the Insurance Code.
Texas law says that 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.”
Going further, the court said, “In determining a principle’s vicarious liability, the proper question is not whether the principle 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 committing the act.” The misrepresentation in this 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 Harrell’s authority. Thus, Celtic cannot escape liability on the basis that it did not authorize particular representations concerning the policy.
Disputes about what the agent told his customer and what the customer requested from the agent are common. When a dispute arises, it is important to consult with an experienced Insurance Law Attorney.
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