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Washington Supreme Court Decision Puts Insurers at Risk of Liability for All Acts of Agents

August 2, 2013

From Brian Kreger, Kreger Beeghly, PLLC:


All insurance companies doing business in the State of Washington are at risk of being held accountable and liable for all acts of their appointed agents, irrespective of any limitations placed on their authority, under a Washington State Supreme decision just published and filed on August 1, 2013.

Chicago Title Insurance Company v. Washington State Office of the Insurance Commissioner, Case No. 87215-5, Filed Aug. 01, 2013, while purportedly focusing on illegal inducements in the context of title insurance transactions, appears to be an extraordinarily broad and inclusive statement on the liability that may affix to any insurance company for virtually any and all acts done by the insurer’s agents (“producers”), whether or not those acts are legal or illegal and whether or not the agency agreement between insurance company and producer specifically limits the authority of the agent or producer to engage in certain acts on behalf of the insurer.

Based on a statute (RCW 48.17.010) that defines both a “title insurance agent” and an “insurance producer” as a person or entity with the authority “to, sell, solicit, or negotiate insurance” on behalf of the insurer, the Washington Supreme Court determined that the insurer (here, Chicago Title Insurance Company) was liable for the agent’s (here, Land Title Company) violations of the illegal inducements laws and regulations by providing goods, prizes, or merchandise to others in excess of the $25 limit, because, the Court observed, such activity is a common practice in the solicitation of insurance.  Therefore, the Court held, since the statute gives agents/producers the authority to “solicit” insurance, any activities that constitute the solicitation of insurance are, ultimately, the responsibility of the insurer, notwithstanding that those activities were illegal, intentional, and beyond the scope of authority specifically stated in the agency agreement between Chicago Title and Land Title (that agency agreement permitted Land Title to sign, countersign and issue Chicago Title’s policies on forms supplied by Chicago, but specifically noted that Land Title was not authorized to do “any other act for principal not expressly authorized herein.”)

The Supreme Court’s decision went far beyond just the “agent – solicitation” statute in finding the insurer liable for the agents illegal acts.  The Court said that “even without the statute,” the insurer “would be vicariously liable at common law.”  The Court stated: “That is to say, where an agent acts within its authority, the principal cannot excuse itself from vicarious liability through an undisclosed private arrangement that purports to restrict that authority. Here, the statute provides that authority and the Agreement [the insurer-agency agreement] was an undisclosed private contract” between Chicago Title and Land Title.  Regrettably, the Majority apparently disregarded as irrelevant the phrase “within its authority” when it ascribed ultimate liability to Chicago Title for Land Title’s illegal acts.

A vigorous dissent noted that, “In Washington State, the freedom of contract is one of our most highly prized liberties.  . . .  The actions of the Office of the Insurance Commissioner (OIC) and today’s majority opinion undermine this bedrock principle.”  The dissent noted that Chicago Title did not retain any control over Land Title’s marketing activities and specifically limited the scope of its authority in the agency agreement, and then stated: “The right to control principle is critical to the freedom of contract.  Business liability is not “one size fits all,” governed exclusively by statute and subject to second guessing by courts.”

We continue to study this opinion in an ongoing effort to determine how broadly the Court’s decision may affect insurers and their agency relationships in the State of Washington, and we will provide additional analysis as we dig into this case.  And, please note that, lest there be any doubt about how the Washington Office of the Insurance Commissioner views the breadth of this case, we quote from Commissioner Kreidler’s press release issued shortly after the Supreme Court decision was published: “The ruling is a big win for consumers,” said Insurance Commissioner Mike Kreidler, whose decision the case was challenging. “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.  In order to effectively regulate insurers and protect consumers, it’s important to hold insurers responsible for the actions of their agents.”

From a regulatory and OIC enforcement perspective, this case is likely to impact virtually every insurance company and every insurance producer in the State, and the OIC is likely to be even more aggressive in scrutinizing agent and producer “solicitation and marketing” activities, seeking to impose blame and ascribe liability on insurers for alleged illegal acts of insurance producers and agents.

The Supreme Court’s decision in Chicago Title Insurance Company v. Office of the Insurance Commissioner is found at:

We encourage you to review this case and advise your client companies doing business in the State of Washington through general or independent agents.  It goes well beyond the title insurance industry and will affect all insurance business in Washington.  We are ready to provide guidance and assistance to help our clients manage this very important ruling and the regulatory scrutiny that is sure to follow.

Brian F. Kreger


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