The answer to the question can be found by Arlington insurance lawyers in the 1994, Texas Supreme Court opinion styled, Celtic Life Insurance Company v. Coats.
The insured’s owner met with a soliciting agent of Celtic to discuss the potential purchase of insurance. The owner advised the agent he wanted a policy providing benefits for psychiatric care equal to or better than the $20,000 coverage provided under the company’s existing policy. The owner explained to the agent that the coverage was needed because his oldest son had previously required psychiatric care, and he was concerned that his youngest son might require similar care. The agent advised the owner that he understood his needs. The agent then proposed the purchase of a specific policy written with Celtic with a maximum lifetime hospital benefit of $1,000,000. However, the agent did not point out the the psychiatric benefits under the policy were limited to $10,000. The policy was purchased by the insured.
The policy issued and premiums were paid. Later, the owner’s son was admitted to the hospital for psychiatric care. The owner filed a claim and assured by the agent the care would be covered. Celtic, however, paid only $10,000 of the $27,000 in medical expenses.
The insured filed suit under the Texas Insurance Code and the DTPA. The jury found the agent had made misrepresentations under the policy and that the agent had authority to explain the policy’s benefits on behalf of Celtic. But the jury found the agent did not have authority to make representations on behalf of Celtic concerning the insurance policy’s terms, benefits, provisions, or conditions which were outside the scope of the written documents.
The Texas Supreme Court reversed the trial court and court of appeals ruling upholding the jury findings. Celtic had argued that it should not be responsible for the agent’s representations, since he was a mere soliciting agent and, therefore, lacked authority to bind Celtic and because the jury’s answer to the third question at trial established that the agent was acting outside of his authority. The Court rejected these arguments. According to the Court, “in the context of life, health and accident insurance, the Texas Insurance Code makes no distinction between recording agents and soliciting agents. The Court noted that Section 4001.051 defines agents generally by listing various actgs performed in the ordinary course of providing insurance and providing 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 it relates to all liabilities, duties, requirements and penalties set forth in this chapter.”
The Court found that the soliciting agent performed, on Celtic’s behalf, at least some of the acts listed in 4001.051 and that, therefore, the soliciting agent was Celtic’s agent. The Court also noted that an insurance company is generally liable for any misconduct by an agent that is within the actual or apparent scope of that agent’s authority.
The Court then addressed the jury’s finding that the agent had authority to explain on Celtic’s behalf the benefits of the insurance policy. Celtic did not contend that the agent’s representations were so absurd that no reasonable person could have believed the agent was not acting within the scope of his authority. Nor did Celtic assert any other challenge to the jury’s finding that the agent had authority to explain the policy. Accordingly, under common law rules of agency, the Court held that Celtic was liable for the representations made by the soliciting agent in explaining the policy.
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