Insurance Agent Responsibility

As any insurance lawyer working in Grand Prairie can tell you, the insurance can be held liable for improper action or inaction. This is illustrated in the 1998, Texas Supreme Court case styled, Liberty Mutual Insurance Company v. Garrison Contractors.
Garrett, an agent of Liberty Mutual whose duties included soliciting and obtaining policy sales for Liberty, as well as explaining policy provisions and premium calculations to customers, sold Garrison a three-year multi-line insurance policy from Liberty. The policy featured a retrospective premium plan. When the policy period ended, Liberty billed Garrison $159,371 in retrospective premiums. Garrison refused to pay and Liberty sued to collect premiums. Garrison asserted a counterclaim against Liberty and filed a third party claim against Garrett, individually, claiming that Liberty and Garrett misrepresented the retrospective premium terms. The trial court granted Liberty’s and Garrett’s Motion for Summary Judgment and entered judgement in favor of Liberty for the premiums sought.
The Court of Appeals affirmed in part and reversed in party. Liberty and Garrett applied to the Texas Supreme Court for writ of error.
The Texas Supreme Court affirmed the Court of Appeals. The Supreme Court’s objective in construing a statute is to determine and give effect to the Legislature’s intent. The purpose of the Texas Insurance Code is to regulate trade practices in the business of insurance. The definition of “person”, pursuant to Section 541.002(2), includes “any individual, corporation, association … engaged in the business of insurance, including agents, brokers, adjusters and life insurance counselors.
Liberty and Garrett contend that the definition of person only reaches business entities and not the entities’ employees; they contend employees do not engage in the business of insurance, but engage in their employer’s business. The legislative history of the Insurance Code, however, supports the conclusion that the term “person” is not limited to business entities. The Legislature amended this Section of the Insurance Code in 1985. This section formerly provided a cause of action for unfair and deceptive insurance practices “against the company and companies engaging in such acts or practices.” That provision was amended to provide a cause of action against “a person” or “persons” engaging in unfair or deceptive practices.
The fact that the Insurance Code provides that judgments awarded shall “be paid only from the capital or surplus of the offending insurance company” only restricts how an offending insurance company may satisfy a judgment, it does not limit the scope of “person” as defined. Not every employee of an insurance company is a “person” in the Insurance Code. To come within the statute, an employee must engage in the business of insurance. By soliciting and obtaining insurance policy sales and explaining policy terms to prospective buyers, Garrett was clearly engaged in the business of insurance. On the other hand, an employee who has no responsibility for the sale or serving of insurance policies and no special insurance expertise, such as a clerical worker, does not engage in the insurance business.