Dallas Fort Worth Insurance Lawyer Blog

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.

Here is something an insurance company does not like.  An insurance company cannot escape liability by showing that it did not authorize the specific wrongful act of an agent.  This was the decision in the 1994, Texas Supreme Court opinion styled, Celtic Life Ins. Co. v. Coats.  Something similar is seen in the 1979, Texas Supreme Court opinion styled, Royal Globe Ins. Co. v. Bar Consultants, Inc.  As the Celtic court said:

In determining a principal’s vicarious liability, the proper question is not whether the principal authorized the specific wrongful act; if that were the case, principals would seldom be liable for their agents’ misconduct.  Rather, the proper inquiry is whether the agent was acting within the scope of the agency relationship at the time of the act … The misrepresentation in the present case was made in the course of explaining the terms of the policy – a task the jury specifically found to be within the scope of the agent’s authority.  Thus, Celtic cannot escape liability on the basis that it did not authorize particular representations concerning the policy.

What if an agent changes insurance contract terms?  Is the insurance company liable?

There are various acts or in-actions that an insurance agent can take that will hold not only the agent responsible but also the insurance carrier.

An insurance company may be liable for unauthorized acts by an agent, if the agent is acting within the scope of his “apparent authority.”  Actual authority is not required.  The insurance company will be liable when by its conduct it has given the agent the appearance of having authority, so that a reasonable person would suppose the agent had authority.  This was made clear in the 1979, Texas Supreme Court opinion styled, Royal Globe Ins. Co. v. Bar Consultants, Inc.

Apparent authority is an estoppel theory that holds the insurer liable because the insurer clothed the agent with indicia of authority that would lead a reasonable person to believe the agent had authority.  If the agent is acting within the scope of his apparent authority, not even instructions not to mislead, nor diligence in preventing misrepresentations, will shield the insurer from liability according to the Royal Globe opinion.  Evidence of apparent authority may include:

Lawyers handling insurance disputes know that often times the wrongs committed in an insurance dispute are committed by the agent who sold the policy.

When it comes to the conduct of insurance agents and their relationship with the insurance company, there are two kinds of authority.  There is “actual authority” and “apparent authority.”

Our Courts have described actual authority this way:

Here is some information about ways of holding an insurance agent responsible for his actions or in-actions.

Does an agent have a duty to explain policy terms and coverages to customers?  Does an agent have a duty to offer higher limits or additional coverages?  Generally, the courts have said the answer to these questions is “NO.”  As is the case with most E&O loss exposures, however, an agent can get sued for failing to explain or offer coverages, even if there is no legal duty to do so based on previous court decisions.  That’s why loss prevention measures are so important.  An important think to realize here is that each case must be looked at for it’s individual set of facts.  When a agent is specifically asked a question about coverage, the agent has the responsibility of answering properly.

Client relationships can affect the success or failure of a client’s claim against the agency.  An established “special relationship” with an insured can affect the degree of the agent’s legal responsibility to the insured.  This has to do with “past dealings” with the customer.  In other words, what has the agent done for the customer in the past.

Insurance agent mistakes can be a big cause of litigation.

Everyone makes mistakes, and insurance agents are not immune. The very complexity of the insurance business creates numerous opportunities for errors and omissions to creep into an agency’s operation.

An insurance agent has / serves two masters – the insured, his customer and the insurance company.