The Washington State Supreme Court has reaffirmed that insurance companies are totally responsible for the acts of their agents.
The case, which has been closely watched by the insurance industry, dealt with probes by Washington and other states in 2005 into alleged illegal kickbacks related to a super-heated housing market. While the specific case dealt with title insurance, it is being interpreted as broad enough to apply to property casualty, life and health insurance as well.
“The ruling is a big win for consumers,” said Insurance Commissioner Mike Kreidler. “If you allow someone to do business on your behalf, it only stands to reason that you can be held responsible for what they do.”
That decision held that, “an insurance company is bound by all acts, contracts, or representations of its agent, whether general or special, which are within the scope of his real or apparent authority, notwithstanding they are in violation of private instructions or limitations upon his authority, of which the person dealing with him, acting in good faith, has neither actual nor constructive knowledge.”
Since the case dealt with alleged illegal inducements to get business by a title insurance agent, the decision also stated that, “Similarly, OIC enjoys broad authority to define unfair or deceptive trade practices.”
The case, Chicago Title Insurance Company v. Washington State Office of the Insurance Commissioner, dealt with a title insurance agent who was found to have given real estate agents, builders and mortgage lenders free meals, donations for a golf tournament, monthly advertising and Seattle Seahawks playoff game tickets, according to the charges.
It identified a number of potential violators and honed in on Chicago Title and its agent, Land Title Insurance Company, for alleged violations of the state’s insurance laws in 2006 and 2007. Shortly after the investigation was launched, Chicago Title agreed that its agent had violated anti-inducement statues.
Kreidler’s office then went to Chicago Title with a consent order requiring Chicago Title to agree to a fine of $114,500 and to enter into a compliance plan that required semi-annual audits and other corrective actions.
Various legal actions ensued in which Chicago Title argued that it was not responsible for its agent’s actions.
However, Kreidler said that, “Chicago Title’s arguments were contrary to a century of insurance law.”
“In order to effectively regulate insurers and protect consumers, it’s important to hold insurers responsible for the actions of their agents,” he said.
Rich Roesler, a spokesman for Kreidler, said that the commissioner’s office is still examining the potential impact of the decision, but it appears to be “broadly written” and apply to all types of insurance products.
“For most insurers, this is how they do business,” said Roesler. “It is unusual for a company not to accept responsibility. We have been regulating for a century. In terms of conventional insurance, this is how most insurers act. They stand behind by the actions of their agent. But in the case of Chicago title, they decided, and it is their right, that they wanted to litigate the issue.”
The argument, he noted, was not about the underlying violations, but who was responsible.
Judge James M. Johnson wrote in a dissent that Chicago Title and Land Title Insurance entered into a contract that limited the agency relationship and “allocated the risk of regulatory noncompliance solely to Land Title.
“Business relationships such as the one at issue here thrive on the freedom of contract and often result in lowered costs and increased services for our state’s citizens.”
Johnson explained that, “As long as the business relationship properly limits the scope of agency and leaves open avenues for punishing noncompliance, the ore should be forced to directly pursue the entity violating the anti-inducement laws.”