Washington’s State Supreme Court has affirmed that insurers are liable for illegal actions committed by their agents, a decision that will enable the state’s insurance commissioner to continue to go after bad actors and insurance companies they represent among any industry lines, according to his office’s interpretation of the ruling.
Insurance Commissioner Mike Kreidler hailed Thursday’s decision as a “win for consumers” that was delivered in a case that had challenged the commissioner’s authority in such matters.
“It reaffirms a stance that we had taken for decades, that those insurers are liable for the bad actions, the illegal actions in this case, of their appointed agents,” said Rich Roesler, a spokesman for the commissioner.
It’s not clear how this will affect property/casualty insurers and agents. The Property Casualty Insurers Association of America, and the Independent Agents & Brokers of Washington both stated they are looking into the impact of the decision. Neither group is yet offering an official comment.
The case was Chicago Title Insurance Company v. Washington State Office of the Insurance Commissioner, and it involved violations of the state’s insurance laws in 2006 and 2007 by an insurance agency appointed by Chicago Title.
The agent was Land Title Co. of Kitsap County Inc., which was accused of offering inducements to get business, including plying real estate agents, builders and mortgage lenders with free meals, donations for a golf tournament, monthly advertising and Seattle Seahawks playoff game tickets, according to the charges.
Chicago Title argued that it was not responsible for its agent’s actions, and in a consent order signed in 2009, the company agreed to pay a $48,334 fine if it did not prevail in court.
While the ruling addressed title insurance, the commissioner’s office interprets it as an affirmation of their stance in regulating and ferreting out bad actors in all lines of insurance Roesler said.
“The ruling itself is broadly written and from our reading doesn’t appear to be just limited to title insurance,” he said. “We feel that the ruling is broadly enough written that it applies to all insurance.”
Roesler said the commissioner has taken similar actions against life insurers, but he couldn’t offer an example of such an occurrence in dealing with a property/casualty insurer. He acknowledged it was conceivable such actions against a P/C insurer could be taken.
The long running case began after the office of the commissioner began an investigation into Land Title’s practices. Shortly after the investigation was launched Chicago Title stipulated that its agent had violated anti-inducement statues, according to court records. Then the office of the commissioner went to Chicago Title with a consent order requiring Chicago Title to also agree to a fine of $114,500 and to enter into a compliance plan that required semi-annual audits and other corrective actions.
A series of hearings followed:
- An administrative law judge granted a summary judgment for Chicago Title holding that the agreement between Chicago Title and Land Title constituted a traditional agency relationship that specifically limited the control by the principal to those items specifically set out in the contract;
- a review judge with the office of the commissioner reversed that decision, noting that Land Title was performing within its statutory authority as an agent;
- the superior court affirmed the review judge’s order, a decision that Chicago Title took to Division Two of the Court of Appeals.
That appeals court reversed the superior court, finding the Chicago title was not vicariously liable for Land Title’s actions, “either through statute or through the common law.” It found that the state’s insurance code created the agency relationship without defining what acts were within the scope of an agency’s authority, and that Chicago Title bore no vicarious liability because it had no oversight of Land Title’s marketing practices.
An appeal by the office of the commissioner led to the supreme court showdown. The supreme court explained it reversal of a court of appeals:
“Chicago Title Insurance Company (CTIC) appointed Land Title Insurance Company as its agent for the purpose of soliciting and effectuating CTIC’s insurance policies. Land Title violated the anti-inducement laws. We hold that CTIC is responsible for Land Title’s regulatory violations, pursuant to statutory and common-law theories of agency. When the statute forbids the insurer or its agent from certain conduct, it means that the insurer may not do indirectly-through its agent-what it may not do directly. We reverse the Court of Appeals.”
In its analyses the court explained that Land Title’s unlawful inducements constituted solicitation, for which Chicago Title was responsible as Land Title’s principal.
“Whatever CTIC and Land Title believed about their agency relationship, the statute makes the authority to solicit an inherent part of Land Title’s agency,” the court’s ruling states. “But even without the statute, CTIC would be vicariously liable at common law.”
The court maintains that when Chicago Title gave Land Title authority to sell its insurance, the insurer also gave the agent “implied authority to perform other acts necessary to the sale of insurance and to act in accordance with industry norms.”
“Solicitation was necessary to effectuate Land Title’s authority to sell CTIC insurance under the Agreement, and violating the anti-inducement provisions was customary in the title insurance industry,” the ruling states. “Having found statutory and implied authority, we need not reach the alternative test of whether CTIC had the right to control Land Title’s marketing practices.”
Roesler said it’s the position of the commissioner’s office that the decision was the logical one for the court to make.
“We think it just stands to reason that if the agent’s doing business in the insurers’ name then they’re responsible for the agent’s actions,” he said.