It is not unfair to say that an insurance company is going to be liable for the acts of its agents 95% of the time.
Insurance companies, like other entities, can act only through agents. Insurance companies rely on agents to sell their policies, to underwrite potential insureds, and to investigate and adjust claims. Insurance companies may be vicariously liable for another’s misconduct if that other person is the insurer’s agent and it that agent acted within the scope of his or her authority. This is made clear in the 1994 opinion from the Texas Supreme Court styled, Celtic Life Insurance Company v. Coats. It was stated earlier in the Supreme Court from 1979 styled, Royal Globe Insurance Company v. Bar Consultants, Inc. Another case mentioned often is the 1989 opinion from the Houston 14th District styled, Paramount National Life Insurance Co. v. Williams.
As explained by the Texas Supreme Court in the Celtic Life case:
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 principal has selected the agent to act in a venture in which the principal has selected the agent 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.”
The analysis for deciding if an insurer is vicariously liable for the conduct of another has two steps:
- Was the person acting as the insurer’s agent?
- Did the misconduct occur within the actual or apparent scope of the agent’s authority?
When both elements exist, the insurer will be liable for the agent’s conduct. Otherwise, the insurer’s liability must be based on some other theory — e.g., the insurer is directly liable, or the insurer ratified the misconduct.