What if a life insurance agent does something he is not supposed to do when he sells a life insurance policy? What if the insurance company ratifies what the agent did?
An insurance company may be liable for unauthorized conduct of an agent or other person, if the insurance company ratifies the conduct. Ratification may occur when the insurance company, though having no knowledge of the unauthorized act, retains the benefits of the transaction after acquiring full knowledge of it. The critical factor is the insurance company’s knowledge of the transaction and it actions in light of that knowledge. Ratification extends to the entire transaction. This is discussed in the 1980, Texas Supreme Court opinion styled, Land Title Co. of Dallas, Inc. v. F. M. Stigler, Inc.
Here is an example. In the 1989, Fourteenth District Court of Appeals opinion styled, Paramount National Life Insurance Co. v. Williams, the insurance company issued a hospitalization policy, without further investigation, despite having an application indicating the insured’s advanced age and poor health, and despite having knowledge of the agent’s inexperience. By nevertheless accepting premiums, the insurance company ratified the agent’s misrepresentations made in the sale of the policy.
Here is another example. In the 1938, Beaumont Court of Appeals opinion styled, Love v. Aetna Casualty & Surety Co., the insurance company that accepted, paid for, and relied on an autopsy report ratified the adjuster’s misconduct in obtaining the autopsy performed without the insured’s family’s consent.
Here is a situation where the insurance company does not have liability. This is from a 1998, Texas Supreme Court opinion styled, State Farm Mutual Automobile Insurance Co. v. Traver. The Texas Supreme Court held that a liability insurance company cannot be vicariously liable for the negligence of an attorney hired by the insurance company to defend its insured. The court reasoned that the lawyer is not the agent of the insurance company. The lawyer owes his or her unqualified loyalty to the insured and is not subject to the insurance company control. Of course, either the layer or the insurance company may be liable directly for their own misconduct.