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Whose Agent? Check the Statute

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Whose Agent? Check the Statute

We buy insurance so that we are covered when we need it. When you have faithfully paid your insurance premiums, the last thing you want to hear after a loss is that this particular claim is not covered by insurance, so you're out of luck.

When this happens, is there anything that can be done? If it is clear that you got the coverage you paid for, and you weren't promised anything else, then the answer is no. However, if the insurance agent made misrepresentations about what would be covered under the insurance policy, Texas law makes the agent liable for the loss.

What about the insurance company – is it also liable for the agent's misrepresentations? Yes, but only if the agent was acting as the agent of the insurance company. Of course, in today's insurance world, many insurance companies structure their affairs so that the agents are "independent" -- that is, they do not work directly for the insurance company, but sell the policies of many different companies. Faced with a claim of misrepresentation based on the actions of an "independent" insurance agent, the insurance company will often claim the insurance agent was not authorized to make representations that could bind the company, even though the agent was selling the company's policies.

Historically, whether an insurance agent's actions can bind a company has been decided according to fact-intensive legal tests of whether the company conferred "actual authority" or "apparent authority" on the agent, and perhaps I will discuss these traditional ways of showing agency in a subsequent blog post.

However, there is now a simpler way -- because a little-known insurance statute makes it easy to determine whether a person is acting as the agent of an insurer. Specifically, Texas Insurance Code § 4001.051(b) provides that "a person is the agent of the insurer" under many of Texas' insurance laws if the person does any of the following acts:

(1) solicits insurance on behalf of the insurer;

(2) receives or transmits other than on the person's own behalf an application for insurance or an insurance policy to or from the insurer;

(3) advertises or otherwise gives notice that the person will receive or transmit an application for insurance or an insurance policy;

(4) receives or transmits an insurance policy of the insurer;

(5) examines or inspects a risk;

(6) receives, collects, or transmits an insurance premium;

(7) makes or forwards a diagram of a building;

(8) takes any other action in the making or consummation of an insurance contract for or with the insurer other than on the person's own behalf; or

(9) examines into, adjusts, or aids in adjusting a loss for or on behalf of the insurer.

This statute does not necessarily make an "independent" agent into the agent of the insurance company for all purposes, but it does so for purposes of a claim under the misrepresentation and deceptive practices provisions (Chapter 541) of the Texas Insurance Code. So, if the agent caused harm by making misrepresentations regarding the policy, and he performed one or more of the acts on the above list, the insurance company may be liable along with the agent.

This statute has only been around in its present form for a few years, so the courts have not many opportunities to apply it yet, making it one of the better-kept secrets in the Texas Insurance Code. However, look for the statute to grow in importance in the years to come. For example, Murr Yanochik, PLLC recently obtained a court ruling (partial summary judgment) applying Section 4001.051 in a commercial insurance case in Harris County District Court, although that case is still ongoing.

The attorneys at Murr Yanochik, P.L.L.C. have successfully represented clients in all aspects of insurance claims and insurance coverage. When the insurance company fails to pay on a proper claim – or worse, engages in deceptive and unfair acts and practices – it is important to have a good lawyer on your side. If you have a business or commercial insurance claim, give us a call.

Michael J. Yanochik
Murr Yanochik, P.L.L.C.
708 Main Street, Suite 700
Houston, Texas 77002

Office Direct: 713-966-6142
Mobile: 281-507-6972
Office Fax: 713-588-2412
Toll Free: 1-877-665-1520