Life Insurance Consumer Advocacy Center

On March 4, 2022, the California Court of Appeal issued a published opinion ruling that an insurance company was liable for the misconduct of its agent even though the agent was an independent agent who violated his contract with the insurer as well as many of the insurer’s rules and procedures.  LICAC has covered the case – Williams v. National Western Life Insurance Company – in prior blog posts.  Our July 28, 2021, post explained that Court of Appeal had erred in ruling that the agent was the agent for the insured and that the insurer was not liable for the agent’s misconduct.  Our October 7, 2021, post reported that the California Supreme Court had vacated the Court of Appeal decision and transferred the case back to the Court of Appeal with instructions to consider certain authorities, including Insurance Code Section 1704.5, that were supplied to the Court by LICAC in its Amicus Letter of August 9, 2021.  LICAC Amicus Letter 8.9.21

On remand to the Court of Appeal, the insurer argued that the Supreme Court’s decision required only modest tinkering with the original Court of Appeal opinion and that the insurer should still prevail.  LICAC submitted an amicus brief urging the Court to issue a published decision holding that Insurance Code Section 1704.5 made the insurer liable for the misconduct of the agent as a matter of law.  LICACAmicusBrief155-1  On March 4, 2022, the court did precisely that.  Williams v. National Western Life 3.4.22

In the published portion of the court’s opinion, the court ruled, “Under Section 1704.5, by operation of law, an agent submitting an application for a life insurance policy or an annuity policy, which is then issued by the insurer, is the insurer’s authorized agent and the insurer is responsible for the agent’s actions.”  Although the insurer submitted evidence that the agent had committed many violations of California law, the agent’s contract with the insurer, and the insurer’s compliance bulletins, the agent’s acts were “within the ordinary scope and limits of the insurance business entrusted to the agent, even if they are in violation of private instructions and restrictions on the agent’s authority.”

While the insurer could petition the California Supreme Court to review and reverse the Court of Appeal decision, that seems unlikely.  Assuming it stands, the decision in Williams is a big win for consumers because it makes clear to insurers that they need to more closely supervise their agents to prevent agent misconduct, or else they will be held responsible.

 

The LICAC Team