Articles Posted in Insurance Agents

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:

Texas insurance law lawyers should be able to turn to the Insurance Code and know this section that relates to insurance agents.  The section is 4001.053.  It says an agent also may be personally liable for performing acts on behalf of an insurance company.  This is supported with case law from the Texas Supreme Court in the 1998 opinion styled, Liberty Mutual Insurance Company v. Garrison Contractors, Inc.

While an individual agent is subject to being sued under the statute, for the agent to be liable there must be proof that the agent himself committed a violation that caused damage to the plaintiff.  This is what was stated in the 2004, 5th Circuit opinion styled, Hornbuckle v. State Farm Lloyds.

Here is an example from the Garrison Contractors opinion.   An agent personally carried out the transaction that formed the core of the unfair insurance practices complaint.  The agent was responsible for explaining premiums and was required to have a measure of expertise.  He was a “person” engaged in the “business of insurance” and could be liable under the statute.  On the other hand, clerical employees, who have no responsibility for policy sales and servicing and no special insurance expertise, are not “engaged in the insurance business,” and thus, would not be personally liable under this rationale.  The same reasoning should apply to other statutes, like the unfair discrimination statute, that include similar definitions.

The above questions get some attention in a 1994, Texas Supreme Court opinion styled, Celtic Life Insurance Co. v. Coats.

The insured’s owner met with a soliciting agent of Celtic to discuss buying insurance.  The owner advised the agent that he wanted a policy providing benefits for psychiatric care equal to or better than the $20,000 coverage provided by the company’s then 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 younger son might well require similar care.  The agent said he understood.  The agent then proposed the purchase of a specific policy written by Celtic with a maximum lifetime hospital benefit of $1,000,000.  However, the agent did not point out that the psychiatric benefits under the policy were limited to $10,000.  The insured’s business manager noticed the $10,000 limit and questioned the agent about its meaning.  The agent assured the business manager that the $10,000 limit applied only to the out-patient psychiatric care.  The policy was purchased.

Subsequently, the owner’s son was admitted to the hospital for psychiatric care.  The insured filed a claim and was assured by the agent that the in-house hospital treatment was covered.  Celtic, however, paid only $10,000 of the $27,000 in medical expenses.

The above question comes up more often than it should.  The short answer is no.  A 2000, San Antonio Court of Appeals case styled, Nwaigwe v. Prudential Property & Casualty Insurance Company, discusses the agent’s responsibility.

Moses Nwaigwe sued Prudentail and its agent, William Eckert for failing to disclose a policy exclusion that the company used to deny a claim.  Prudential’s argument is that Eckert did not misrepresent the terms of the policy and that it had no duty to tell Moses about the exclusionary clause.  The court granted summary judgment in favor of Prudential and Eckert.

Moses purchased a fire insurance policy from Prudential to insure an occupied rental property.  The policy was renewed two times, but Moses never received a copy of the policy.

Mason County insurance lawyers learn pretty quick that an insurance agent does not have to tell a customer everything about the insurance policy they purchase.  This is illustrated in a 2000 San Antonio Court of Appeals opinion styled, Nwaigwe v. Prudential Property & Casualty Insurance Company.

Moses Nwaigwe sued Prudential and its agent, William Eckert (collectively “Prudential”), for failing to disclose a policy exclusion that the company used to deny a claim.  In response, Prudential moved for summary judgment on the grounds that it did not misrepresent the terms of the policy and that it had no duty to tell Nwaigwe about the vacancy clause.  The trial court granted the motion.  On appeal, Nwaigwe argues the summary judgment was improper because the motion failed to address his failure to disclose allegation.

In 1993, Nwaigwe purchased a fire insurance policy from Prudential to insure an occupied rental property.  The policy was issued and renewed twice, but Nwaigwe says he never received a copy of the policy.

Many people get their insurance through a broker.  Can a broker be liable the same as an agent.  The short answer is “yes.”  A 1995, Houston Court of Appeals [1st Dist.] discusses an issue with a broker.  The opinion is styled, Seneca Resources Corp. v. Marsh & McLennan, Inc.

Marsh & McLennan (M&M) brokered insurance for Seneca, an oil and gas company.  As part of its services, M&M provided summaries of insurance policies.  Seneca suffered a loss when a hurricane toppled a submersible drilling rig in the Gulf of Mexico.

The insurance summaries provided by M&M to Seneca indicated that Seneca had purchased “operator’s extra expense” named peril coverage which would have covered the cost of re-drilling the well.  However, the applicable policy did not, in fact, include named peril re-drill coverage as indicated by the summaries.

For most lawyers practicing insurance law, the above question may be obvious.  But there are situations where it is not so obvious and even though one may assert the act of agency, it is not.  A Houston Court of Appeals [14th Dist.] opinion illustrates a situation where the alleged agent was held by the court, to not be an agent.  The case is styled, Harrison V. Wells Fargo Bank Texas, N.A.

Harrison was the beneficiary of a Section 142 trust established after she sustained a brain injury in a car accident.  Later, Harrison was the driver of the car in another accident in which her passenger was severely injured.  The passenger settled his claims against Harrison for her $100,000 auto liability policy, which had been obtained by the bank, plus $300,000 from Harrison’s trust.  Harrison sued the bank for Insurance Code violations, breach of fiduciary duty, negligence, and DTPA violations for alleged failure to obtain adequate limits of liability insurance for her.  The bank was granted a summary judgment on the Insurance Code violations.  The remaining claims were tried and the bank was found not liable.  Harrison appealed the findings.

This Houston Court of Appeals affirmed the findings of the trial court.  The evidence showed that after Harrison acquired automobile insurance, her mother sent the bill for the premium to the bank and the bank then forwarded the payment to the insurance company.  Insurance Code Section 4001.051 lists various acts performed in the ordinary course of providing insurance and states that any person who performs these acts shall be the agent of the company for which the act is done.  “Performing an act described in Section 4001.051, such as transmitting an insurance premium, subjects a party to liability as an agent there under only if the act is performed (a) in the course of providing insurance and (b) on an insurance company’s behalf.”  The evidence established that the bank was not engaged in the business of providing insurance and that its payment of premium was made solely pursuant to its role as a Trustee of the Section 142 trust.  The payment was not transmitted in the course of providing insurance or on any insurance company’s behalf.  Therefore, the payment did not render the bank an agent of the insurance company under Section 4001.051.