insurance agent fraudOften times, consumers will buy life insurance products from insurance agents. Generally speaking, insurance agents will represent a particular insurance company, or group of insurance companies, in the sale of the carriers’ insurance products. While most insurance agents are ethical, you could run into a “bad apple” agent who sells you a life insurance product under false pretenses.

If you buy a life insurance product from an agent who misleads you about the product that you’re buying the costs to you could end up being enormous. The typical situation is where the agent might mislead the consumer concerning, for example, the amount of premium or the timetable under which premium payments are required to be paid by the consumer to the carrier. Alternatively, the agent might represent to the consumer (falsely) that the insurance product contains a term or feature which it does not, in fact, have, thus inducing the consumer to purchase a product which he or she would not have purchased had all of the pertinent information been accurately disclosed.

Ultimately, it could take a few months or even a few years before the consumer has discovered the fraud that was perpetrated on him or her. By that time, the transaction has been consummated, the insurance agent has received his or her commission, and the consumer is already under contract with the carrier.

This basic fact pattern raises two (2) important legal questions:

The first question is whether the consumer has legal recourse against the insurance agent for the alleged fraud in the sale of the insurance product.

The second question is whether the consumer has legal recourse against the insurance company for the alleged fraud in the sale of the insurance product.

Insurance Agent Liability

First, we’ll address whether the consumer has legal recourse against the agent. The answer to that question, in very simple terms, is yes. Under Florida law, a consumer may have an actionable tort claim against an insurance agent who makes a material misrepresentation in the sale of a life insurance product at the point of sale. However, while legal recourse may be available, the consumer should be aware of the legal parameters within which a viable legal claim can be made against the agent.

At the outset, the consumer will be required to assert and prove a viable cause of action against the agent. The causes of action that may be hurled at the tortious agent are typically fraud or negligence. To prove a claim in fraud the following elements must be established under Florida law: (1) a false statement concerning a material fact; (2) the maker’s knowledge that the representation is false; (3) an intention that the representation induces another’s reliance; and (4) consequent injury by the other party acting in reliance on the representation. Ward v. Atlantic Sec. Bank, 777 So.2d 1144, 1146 (Fla. 3d DCA 2001). A claim based upon negligent misrepresentation has very similar elements to fraud except that, in a negligence misrepresentation claim, it is not required that the agent intend that his or her statement be falsely made, rather, it must be shown that the agent should have known that the statement was false under the circumstances in which the statement was made. Wallerstein v. Hospital Corp. of America, 573 So.2d 9 (Fla. 4 th DCA 1990).

Ultimately, the key issue in a fraud action against the agent will invariably be whether the agent made a false statement of material fact to the consumer. Of course, it is rare that the insurance agent will admit his or her misconduct. The agent will probably claim that he or she said nothing wrong and/or that the consumer must have misunderstood what was said. Accordingly, to make your case, it is helpful to be precise about what the agent allegedly told you. Statements in writing will always be helpful, such as email correspondence, but, as is often the case, any potentially false statements made by the agent will have never been formalized in writing.

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Insurance Carrier Liability

The issue of the insurance carrier’s liability for the agent’s misconduct is a little more complicated. Usually, it is not the insurance carrier who has actively committed the fraud; rather, it is the agent who sold the policy. Therefore, it is usually not possible to hold the carrier directly liable for the misconduct alleged. Legally, therefore, the avenue you will need to pursue in order to hold the carrier liable for the agent’s misconduct is through some theory of “vicarious” liability.

In general terms, an insurance carrier will be held vicariously liable for the actions of its agent if the agent in turn had the requisite authority to act for and on behalf of the carrier. If the requisite authority is absent, however, the carrier cannot then be held liable vicariously. In short, the carrier’s liability for the agent’s conduct turns on the critical issue of “agent authority”.

To our knowledge, under Florida law there are three (3) potential ways in which an insurance company can be held vicariously liable for the agent’s fraud. Vicarious liability of the insurance company can be established if there is: (1) an actual agency relationship, (2) an apparent agency relationship, or (3) a statutory agency.

An actual agency relationship exists between the carrier and the agent under circumstances where the carrier formally gives authority to the agent to act on the carrier’s behalf. Legally, the elements necessary to establish “actual agency” are: (a) acknowledgment by the principal that the agent will act for him; (b) acceptance by the agent of the undertaking; and (c) control by the principal over the agent’s actions. Amstar Insurance Co. v. Cadet, 862 So.2d 736 (Fla. 5 th DCA 2003). Evidence of an actual agency relationship between the carrier and the agent can be established, for instance, through an appointment or agency agreement between the carrier and the agent. Nonetheless, if the carrier has imposed any specific limitations on the agent’s authority to act for or on behalf of the carrier, those limitations could be invoked by the carrier in defense against liability.

If there is no actual agency relationship between the carrier and agent, an apparent agency could be proved to establish vicarious liability. An apparent agency exists where: (a) there is a representation by the principal, i.e., the insurance carrier; (b) the injured party, i.e., the consumer, relied on that representation; and (c) the injured party changed position in reliance on that representation and suffered detriment. Almerico v. RLI Ins. Co., 716 So.2d 774 (Fla. 1998). In essence, to establish apparent agency, the consumer would have to prove that the insurance company had made a representation, either directly or indirectly, to the consumer that the agent had authority to act for the carrier. This often can be a difficult road to take and may have to involve the use of circumstantial evidence.

Lastly, there could be a statutory agency relationship between the agent and the carrier. Under Florida Statute and case law, a statutory agency relationship can arise which could subject the insurer to liability for an agent’s misconduct even if the agent does not have “actual authority”. Pursuant to 626.342(2), Florida Statutes, if the insurance company furnishes to the un-appointed broker/agent company materials, such as blank forms, applications, stationery, or other supplies used in soliciting or negotiating insurance contracts, and the insurer accepts or writes business from that agent/broker, the insurance company can be civil liability to the same extent as if the agent/broker had been an appointed agent.

Accordingly, the acts of the agent could then make the insurance company civilly liable to the insured. However, Florida case law indicates that liability can potentially be avoided by the insurer where the insured knew or was put on notice of inquiry as to limitations on the agent’s actual authority. Almerico, 716 So.2d 774. In the end, cases involving the issue of an agent’s authority to act on behalf of the insurance company will come down to rather detailed, factual questions.

We hope that you found this article helpful and informative. If you believe that you have been defrauded by an insurance agent in the purchase of a life insurance policy, feel free to contact our office for a consultation.

Filed under: Florida Business

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