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Some Ways An Insurance Company Can Be Liable For An Insurance Agent’s Conduct

Insurance lawyers need to know ways to hold an insurance company liable for the conduct of one of it’s agents.  Here is why.  Sometimes an insurance agent does not have assets or insurance coverage to pay for his mistakes.  If the insured customer cannot be made whole by pursuing the agent then he needs to have recourse against the company the agent was selling policies for.

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 knowledge of the transaction and its actions in light of that knowledge.  As discussed in the 1980, Texas Supreme Court opinion, Land Title Co. of Dallas, Inc. v. F. M. Stigler, Inc., Ratification extends to the entire transaction.

As an example, in the 1989, 14th Court of Appeals opinion, Paramount Natl Life Ins. Co. v. Williams, an 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.

In another case, a 1938, opinion from the Beaumont Court of Appeals styled, Love v. Aetna Cas. & Sur. Co., an insurance company that accepted, paid for, and relied on an autopsy report ratified the adjuster’s misconduct in obtaining the autopsy without the insured’s family consent.

Here’s a tact that will not work.  This is from the 1998, Texas Supreme Court opinion styled, State Farm Mut. Auto, Ins. Co. v. Traver.  The 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 the insured customer.  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 lawyer or the insurance company may be liable for their own misconduct.

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