Dallas Fort Worth Insurance Lawyer Blog

Another one of those questions that Insurance Law Attorneys ask themselves on many of the cases they see.

Pursuant to Texas Insurance Code, Sections 4001.051(c) and 4001.053, an agent is not authorized by statutes to alter or waive a term or condition of an insurance policy or an application for an insurance policy.  Nevertheless, as can be seen in section 4001.051(b), an insurer will be liable “for purposes of the liabilities, duties, and penalties provided by” certain statutes.  The referenced statutes include the prohibitions found in Chapter 21 and now found in the new codification at Sections 4001.051 and 4001.009.  The Texas Supreme Court explained the interaction between these provisions under the older statutes as follows quoting from Royal Globe Insurance Co. v. Bar Consultants, Inc.:

We are not to be understood as holding that the statutory authority granted an agent under Article 21.02 authorizes that agent to misrepresent policy coverage and bind the company to terms contrary to those of the written policy; that question was decided by us in International Sec. Life Ins. Co. v. Finck, 496 S.W.2d 544 (Tex. 1973).  However, an insurance company that authorizes an agent to sell its policies may not escape liability for the misrepresentations made by that agent which violate article 21.21 or section 17.46 merely by establishing that the agent had no actual authority to make such misrepresentation.

The above is a question most insurance lawyers will ask themselves when investigating a case.

An insurance company cannot escape liability by showing that it did not authorize the specific wrongful act.  This is made clear in two Texas Supreme Court opinions.  One is styled, Celtic Life Insurance Co. v. Coats, and it was issued in 1994.  The other is styled, Royal Globe Insurance Co. v. Bar Consultants, Inc., issued in 1979.

As the Celtic court stated:

An insurer also 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 insurer 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 the ruling in the 1979, Texas Supreme Court case, Royal Globe Insurance Co. v. Bar Consultants, Inc.

Apparent authority is an estoppel theory that holds the insurer liable because the insurer has 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.  Evidence of apparent authority may include:

1.  application forms referring to the individual as the company’s agent, (see Paramount National Life Insurance Co. v. Williams and Tidelands Life Insurance Co. v. Franco)

Lawyers in general and insurance lawyers specifically know there are two types of authority — actual and apparent.  In turn, actual authority can be expressed or implied.  An agent’s authority can be actual authority expressly conferred by the insurer, or it can be actual authority implicit in the agent’s duties.  The authority also can be apparent authority arising from acts by the insurer that give the agent the appearance of having authority.

Unfortunately, courts are not always precise in labeling the types of authority.  Confusion creeps in when courts mistakenly call implied is not actual authority, or when they speak of implied authority as a form of apparent authority.

Courts have described actual authority this way:

Most Weatherford lawyers will tell you that it may be obvious that a person was the insurer’s agent and was acting as a agent — e.g., a person licensed to sell the company’s policy was engaged in selling the policy.  In addition, the statutes make clear that anyone engaging in the listed activities on behalf of an insurer will be treated as agent for that insurer.

As the Texas Supreme Court said in the 1994 opinion, Celtic Life Insurance Co. v. Coats, under the predecessor statute agents are defined generally, and the statute lists various acts performed in the ordinary course of providing insurance — such as soliciting insurance; transmitting an application; receiving, collecting or transmitting a premium; and adjusting a loss.  Anyone 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 relates to all liabilities, duties, requirements, and penalties set forth in the statute.

In Celtic Life where the person performed on behalf of the insurer at least some of the listed acts – such as soliciting the policy – he was clearly the insurer’s agent.  The insurer was liable for the agent’s misrepresentation in explaining the mental health benefits under the policy.

Weatherford insurance attorneys need to read and know Texas Insurance Code, section 4001.051.  This section provides an expansive list of conduct that constitutes “acting as an agent” for an insurance company, as follows:

a) This section applies regardless of whether an insurer is incorporated under the laws of this state or another state or a foreign government.

(b) Regardless of whether the act is done at the request of or by the employment of an insurer, broker, or other person, a person is the agent of the insurer for which the act is done or risk is taken for purposes of the liabilities, duties, requirements, and penalties provided by this title, Chapter 21, or a provision listed in Section 4001.009 if the person:

Graford Texas insurance lawyers learn real fast how to determine whether someone is an agent of an insurance company, or not.

The first step to determine whether an insurer is vicariously liable is to determine whether the person who engaged in the conduct was acting as the insurer’s agent.

The question — “Who are agents?” was answered, until recently, by one statute.  Formerly, article 21.02 broadly defined “agents” to include any person who performed certain actions on behalf of an insurance company.  As part of the ongoing codification of Texas statutes, the old article 21.02 is now found in Texas Insurance Code sections 4001.003 and 4001.051.

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.