Insurer Responsibilities

Insurance Companies Should Be Responsible For The Misconduct Of Their Agents

While it may seem obvious that an insurance company would be legally responsible for the misconduct of its agent, the law in some states is not so clear.  Fortunately for California consumers, on March 4, 2022, the California Court of Appeal issued a published opinion making clear that insurers are responsible for the misconduct of their agents even if the agent is an “independent” agent who is free to place business with other insurers and even if the agent violates state law, the contract between the agent and the insurer, and the insurer’s rules and procedures.  Williams v. National Western Life 3.4.22  While the Williams case may go up to the California Supreme Court, it seems unlikely that the Supreme Court would reverse given that the Court of Appeal originally ruled for the insurer but the order was vacated by the Supreme Court, which transferred the case back to the Court of Appeal with instructions to reconsider its order after considering certain authorities, including Insurance Code Section 1704.5, that had been supplied in an amicus letter submitted by LICAC.

The Court of Appeal’s March 4, 2022, opinion relied on Section 1704.5 to impose responsibility on the insurer and seems to have faithfully carried out the Supreme Court’s order transfer order (although the Court of Appeal opinion contains a dubious suggestion that the result might have been different if the insured had known that the agent had violated the insurer’s rules and procedures).  More detail about the Williams case can be found in the posts dated July 28, 2021, October 7, 2021, and March 7, 2022 on the blog page of this site, as LICAC participated in and chronicled the appellate proceedings.

The importance of the Williams decision for California consumers is that it makes clear that insurers have a duty of care to supervise their agents, including independent agents who may place business with the insurer infrequently.  Insurers can be found negligent for failing to adequately supervise their agents, which gives insurers strong incentives to adopt policies designed to reward ethical behavior by their agents and to prevent unethical, unfair, or misleading sales practices by agents.  Such policies ought to include ceasing to do business with who have a record of customer complaints.