A recent Washington state Supreme Court ruling holding insurers broadly accountable for the actions of their agents is just another way insurers can find themselves in hot water in the state, an attorney says.
"It is not a stretch to say this case will apply to all acts undertaken by an agent on behalf of an insurer as long as there is a reasonable belief that their acts or omissions lie within the scope of the authority they receive from the insurer," says David P. Rossmiller, a lawyer with Dunn Carney Allen Higgins & Tongue LLP, Portland, Ore.
The case in question is, Chicago Title Insurance Company v. Washington State Office of the Insurance Commissioner.
It 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.
The 7-2 decision Aug. 1 by the Washington state Supreme Court is important not so much because it changes the law but because it gives existing agency law the "broadest possible interpretation it could have," Rossmiller says.
And while it only applied to the actions of a title insurer, "it is definitely going to be applied to be more broadly than just that," Rossmiller contends. It will be applied to property, to casualty, to life, and even to health insurance, he says.
This expansion of policyholder remedies is consistent with other actions involving insurer liability in Washington state in recent years, he notes.
The most important example is the area of insurer bad-faith. In a decision a couple of years ago, the court held that if an insurer incorrectly denies the duty to defend, even if the insurer had a good argument for doing so, this constitutes bad faith and the insurer is barred from asserting defenses to indemnity, Rossmiller says.
He also notes that the state legislature has enacted several statutory bad-faith laws over the last six years, and the state Supreme Court "generally has given these a broad reading."
Until this case, the issue of how much liability an insurer has for the acts of an agent was "left on the backburner," he states.
"This case "creates new ways for insurers to get into trouble in Washington, and there are already a lot of ways to get into trouble," Rossmiller says.
In this case, the court says that any act within the implied scope of agency is also the responsibility of the insurer, Rossmiller explains.
"As long as the person dealing with the agent has reason to believe that an action is authorized, then the insurance company is responsible," Rossmiller says.
He adds that the action doesn't have to be actually authorized by contract between the agent and the insurer.
"As long as it appears to a customer or third party to be within the reasonable scope of their authorization, whatever the agent has done to the third party, the insurer is responsible, the court said," Rossmiller says.
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